SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________
FORM 10-KSB/A-1
(Mark One)
(X) 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 Number)
Incorporation or Organization)
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 of 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 No X
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of the Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB.
State the issuer's revenues for its most recent fiscal year. $ None
The aggregate market value at December 22, 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 $397,894.
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 December 22, 1997,
there were outstanding 23,106,492 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 _____ No X
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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
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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.
Country World anticipates that it will require an additional
approximately $79,500,000 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 $79,500,000
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 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.
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.
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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.
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
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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 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
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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
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 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
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;
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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.
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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".
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.
Common Stock Warrants Preferred
Period High Low High Low High Low
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, 1997 1/4 1 3/16 1/4 1/16 3/8 3/8
Quarter Ended June 30, 1997 1/16 1/4 1/8 1/16 1/4 1/8
Quarter Ended September 30, 1997 3/16 .06 1/16 .02 3/4 1/8
On December 15, 1997, the closing price of the Common Stock, Warrants
and Preferred Stock listed in the "over the counter market" were $0.04, $0.01
and $0.08, respectively.
On December 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.
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
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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 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.
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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 Casino Research and Planning
Corp. 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 TWELVE 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.
Due to the discontinuance of Navtech, the Company had no revenue, cost of
sales or gross profit for the twelve months ended March 31, 1997 and,
retroactively, no revenue for the twelve months ended March 31, 1996.
Total costs and expenses for the twelve months ended March 31, 1997 were
$3,923,382 as compared to $3,377,865 for the comparable period ended March 31,
1996. The increase is primarily attributable to a corporate increase of legal
and other professional fees, raising of working capital, consulting, stock
expenses, as well as promotional fees.
Other income (expense) for the twelve months ended March 31, 1997
increased to $1,957,208 as compared to $331,567 during the comparable period
in 1996. This increase was due to a $1,700,000 loss incurred when an
acquisition of the Company was rescinded due to adverse financial conditions,
pursuant to the agreement.
Discontinued operations showed a loss from operations of $3,879,776 for
the twelve months ended March 31, 1997, as compared to a loss of $5,141,379
for the twelve months ended March 31, 1996. This reduction was due to the
lower cost of closing down Navtech Industries as compared to the cost of
closing HollyWood, the Company's woodworking business which ceased operations
in September 1995. The estimated loss on disposal of the woodworking
business and the electronic component manufacturing business increase to
$3,603,291 in 1997 from $2,709,280 in 1996 due to a higher debt load by
Navtech as compared to HollyWood.
-14-
<PAGE>
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.
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
-15-
<PAGE>
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 through F-19
Item #8 Changes in and disagreements with accountants on accounting and
financial disclosure. - Not applicable
PART III
Item #9 Directors, Executive Officers, Promoters and Control Persons,
Compliance with Section 16(a) of the Exchange Act
-16-
<PAGE>
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.
-17-
<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.
-18-
<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.
-19-
<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
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
-20-
<PAGE>
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.
-21-
<PAGE>
ITEM #13 - EXHIBITS
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
None
-22-
<PAGE>
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: December 22, 1997
____________________________
Larry S. Berman
Chairman of the Board,
Chief Executive Officer,
Secretary and Director
Dated: December 22, 1997
____________________________
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 Officer, December 22, 1997
Larry S. Berman Secretary and Director
/s/ William H. Patrowicz President, Chief Operating Officer, December 22, 1997
William H. Patrowicz Treasurer and Director
-23-
<PAGE>
HOLLY HOLDINGS, INC. AND SUBSIDIARIES
INDEX
UNAUDITED FINANCIAL STATEMENTS
Consolidated Balance Sheet as of March 31, 1997 (Unaudited) F-2
Consolidated Statements of Operations for the Years Ended
March 31, 1997 and 1996 (Unaudited) F-4
Consolidated Statements of Stockholders Equity for the Years
Ended March 31, 1997 and 1996 (Unaudited) F-4
Consolidated Statements of Cash Flows for the Years Ended
March 31, 1997 and 1996 (Unaudited) F-6
Notes to Consolidated Unaudited Consolidated Financial Statements F-8
F-1
<PAGE>
HOLLY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1997 [UNAUDITED]
Assets:
Current Assets:
Prepaid Expenses $ 261,096
Total Current Assets 261,096
Property and Equipment - [Net of Accumulated
Depreciation and Amortization of $45,533] 10,206,105
Deposits 440
Total Assets $ 10,467,641
See Notes to Unaudited Consolidated Financial Statements.
F-2
<PAGE>
HOLLY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1997 [UNAUDITED]
Liabilities and Stockholders' Deficit:
Current Liabilities:
Notes Payable $ 35,951
Notes Payable - Related Party 1,400,365
Notes Payable - Others 400,000
Accounts Payable and Accrued Expenses 769,513
Net Liabilities of Discontinued Operations 6,595,347
Cash Overdraft 23,196
Total Current Liabilities 9,224,372
Long-Term Liabilities
Note Payable 2,650,000
Note Payable - Related Party 2,350,000
Total Long-Term Liabilities 5,000,000
Minority Interest 1,182,122
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, 384,369
Shares Issued and Outstanding 3,846,390
Series E: Convertible $10.00 Par Value, 157,500
Shares Issued and Outstanding 1,575,000
Series Z: Convertible $0.25 Par Value, 1,018,628
Shares Issued and Outstanding 253,407
Additional Paid-in Capital [Preferred] (1,361,119)
Common Stock - No Par Value, Authorized 20,000,000
Shares, 10,350,460 Shares Issued and Outstanding 19,506,404
Additional Paid-in Capital [Common] (83,947)
Accumulated [Deficit] (28,674,988)
Total Stockholders' Deficit (4,939,853)
Total Liabilities and Stockholders' Equity $ 10,467,641
See Notes to Unaudited Consolidated Financial Statements.
F-3
<PAGE>
HOLLY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS [UNAUDITED]
Years ended
March 31,
1997 1996
Net Sales $ -- $ --
Cost of Sales -- --
Total Cost of Sales -- --
Gross Profit [Loss] -- --
Operating Expenses:
General, Selling and Administrative 3,923,382 3,377,865
Total Operating Expenses 3,923,382 3,777,865
Operating [Loss] (3,923,382) (3,377,865)
Other [Expense] Income:
Other Income 735 19,513
Interest Expense (298,397) (351,080)
Interest Income 40,454 --
Loss On Investment (1,700,000) --
Other [Expense] - Net (1,957,208) (331,567)
Minority Interest Share in Loss of Subsidiary 347,958 143,101
[Loss] Income from Continuing Operations (5,532,632) (3,566,331)
Discontinued Operations:
[Loss] from Operations of Woodworking
Business and Electronic Component
Manufacturing Business (3,879,776) (5,141,379)
Estimated [Loss] on Disposal of Woodworking
Business and Electronic Component Manufacturing
Business Including Provision of $666,224 and
$143,000 for Operating Losses During the
Phase Out Period (3,603,291) 2,709,280
Net [Loss] (13,015,699) (11,416,990)
Preferred Stock Dividends -- 439,479
Net [Loss] Available to Common
Stockholders $ (13,015,699) $ (11,856,469)
Loss Per Common Share:
[Loss] from Continuing Operations $ (.82) $ (5.29)
[Loss] from Discontinued Operations $ (.58) $ (7.63)
Estimated [Loss] on Disposals $ (.53) $ (4.02)
Net Income [Loss] Per Common Share $ (1.93) $ (16.94)
Weighted Average Number of Common Shares
Outstanding 6,739,161 2,649,874
See Notes to Unaudited Consolidated Financial Statements
F-4
<PAGE>
<TABLE>
HOLLY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY [UNAUDITED]
<CAPTION>
PREFERRED STOCK COMMON STOCK
Series D Series E Series Z
Additional Additional
Number Number Number Paid In Number Paid In
Of Shares Amount of Shares Amount of Shares Amount Capital of Shares Amount Capital
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance - March 31, 1996 389,975 $3,899,750 587,000 $5,870,000 0 $ 0 $(1,939,548)10,350,460 $10,214,387 $(83,947)
Shares Issued in Exchange -- -- -- -- 1,018,628 253,407 -- -- -- --
for Debt
Sale of Preferred Stock -- -- 375,000 3,750,000 -- -- (492,405) -- -- --
Conversion to Common Stock -- -- (794,500)(7,945,000) -- -- 1,038,581 35,719,236 6,480,228 --
Shares Issued For Litigation -- -- -- -- -- -- -- 1,300,000 487,500 --
Settlement
Shares Issued For Services -- -- -- -- -- -- -- 573,333 215,000 --
Rendered
Shares Issued For Services -- -- -- -- -- -- -- 120,000 30,000 --
Rendered
Reverse Split (10 For 1) -- -- -- -- -- -- -- (43,567,500) -- --
Shares Issued For Exercise of -- -- -- -- -- -- -- 450,000 100,000 --
Warrants
Shares Issued For Exercise of -- -- -- -- -- -- -- -- 180,750 --
Warrants
Shares Issued For Acquisitions -- -- -- -- -- -- -- 1,500,000 1,500,000 --
Conversion to Common Stock -- -- (30,000) (300,000) -- -- (30,101) 74,458 254,889 --
Conversion of Series D to (5,336) (51,360) -- -- 9,710 44,048 43,650 -- -- --
Common
Sale of Preferred Stock -- -- 20,000 200,000 -- -- (22,568) -- -- --
Net(Loss) for the Period -- -- -- -- -- -- -- -- -- --
Balance - March 31, 1997 384,639 $3,848,390 157,500 $1,575,000 1,018,628 $253,407 $(1,361,119) 6,564,035 $19,506,404 $(83,947)
</TABLE>
See Notes to Unaudited Consolidated Financial Statements.
F-5A
<PAGE>
<TABLE>
HOLLY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY [UNAUDITED]
<CAPTION>
Total
Accumulated Stockholders'
[Deficit] Equity
<S> <C> <C>
Balance - March 31, 1996 $(15,659,289) $2,301,353
Shares Issued in Exchange -- 253,407
for Debt
Sale of Preferred Stock -- 3,287,595
Conversion to Common Stock -- --
Shares Issued For Litigation -- 487,500
Settlement
Shares Issued For Services -- 215,000
Rendered
Shares Issued For Services -- 30,000
Rendered
Reverse Split (10 For 1) -- --
Shares Issued For Exercise of -- 100,000
Warrants
Shares Issued For Exercise of -- 180,750
Warrants
Shares Issued For Acquisitions -- 1,500,000
Conversion to Common Stock -- --
Conversion of Series D to -- --
Common
Sale of Preferred Stock -- 177,432
Net(Loss) for the Period (13,015,699) (13,015,699)
Balance - March 31, 1997 $(28,674,988) $(4,939,853)
</TABLE>
See Notes to Unaudited Consolidated Financial Statements.
F-5B
<PAGE>
HOLLY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS [UNAUDITED]
Years ended
March 31,
1997 1996
Operating Activities:
[Loss] From Continuing Operations $(5,532,632) $(3,566,331)
Adjustments to Reconcile Net [Loss] to Net Cash
[Used for] Operating Activities:
Depreciation and Amortization 173,739 28,523
Amortization of Deferred Financing Activities 227,199 112,500
Changes in Assets and Liabilities:
[Increase] Decrease in:
Other Current Assets -- (2,800)
Prepaid Expenses (150,884) (411,980)
Increase [Decrease] in:
Accounts Payable and Accrued Expenses (485,924) 450,472
Total Adjustments (235,870) 176,715
Net Cash - Continuing Operations - Forward (5,768,502) (3,389,616)
Discontinued Operations:
Net [Loss] From Discontinued Operations (3,879,776) (5,141,379)
Adjustments to Reconcile Net [Loss] to
Net Cash Operations:
Depreciation and Amortization 67,635 252,228
Bad Debts -- 434,496
Equity in Earnings of Unconsolidated Affiliate -- (85,355)
Changes in Net Assets, Liabilities and Losses 5,931,063 5,047,032
Estimated Loss in Disposal of Woodworking
Business and Electronic Component Manufacturing
Business (3,603,291) (2,709,280)
Net Cash - Discontinued Operations - Forward (1,484,369) (2,202,258)
Investing Activities - Discontinued Operations - Forward:
Acquisition of Assets $(392,420) $(534,396)
See Notes to Unaudited Consolidated Financial Statements.
F-6
<PAGE>
HOLLY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS [UNAUDITED]
Years ended
March 31,
1997 1996
Net Cash - Continuing Operations - Forwarded $(5,768,502) $(3,389,616)
Net Cash - Discontinued Operations - Forwarded 1,484,369 (2,202,258)
Net Investing Activities - Discontinued Operations
- Forwarded (392,420) (534,396)
Financing Activities - Continuing Operations:
Proceeds from Demand Notes Payable -- 500,000
Payment of Notes Payable - Other (1,282,619) (500,000)
Proceeds from Demand Notes Payable -
Stockholders and Related Parties 200,000 1,771,000
Proceeds of Demand Notes Payable - Stockholders
and Related Parties 184,500 (1,396,157)
Proceeds from Sale of Warrants -- 300,000
Proceeds from Exercise of Warrants 268,750 --
Proceeds from Issuance of Preferred Stock 3,467,617 6,449,599
Dividends Paid -- (137,604)
Net Cash - Financing Activities - Continuing
Operations 2,838,248 6,686,838
Financing Activities - Discontinued Operations:
Proceeds of Demand Note Payable - Banks 880,647 858,353
Payment of Demand Note Payable - Banks -- (300,000)
Payment of Demand Notes Payable -- (373,639)
Net Cash - Financing Activities - Discontinued
Operations 880,647 184,714
Net Increase (Decrease) in Cash and Cash
Equivalents (957,658) 745,282
Cash and Cash Equivalents - Beginning of Years 934,462 189,180
Cash and Cash Equivalents (Overdraft) -
End of Years $(23,196) $ 934,462
Supplemental Disclosures of Cash Flow Information:
Cash paid during the years for:
Interest $ 4,442 $ 409,483
Income Taxes $ -- $ --
Supplemental Schedule of Non-Cash Investing and Financing Activities:
See notes to unaudited consolidated financial statements for details of
certain non-cash investing and financing activities. Interest paid is net of
capitalized interest.
See Notes to Unaudited Consolidated Financial Statements.
F-7
<PAGE>
HOLLY HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [UNAUDITED]
[1] Organization and Business
Holly Holdings, Inc. (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. ("Navtech"), a manufacturer of
electronic components. 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. ("Country World"). 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. The
Company has recorded a loss on this investment of $1,700,000 related to this
rescission.
Country World has purchased land and intends to develop a hotel and parking
complex casino. The land and development costs are recorded at cost and no
depreciation will be taken until such time as the Company places the casino
into operation. Interest capitalized during the year ended March 31, 1997
amounted to approximately $633,000. Financing for the completion of the
casino development has not yet been finalized.
As of March 31, 1997, Country World has not completed construction of its
planned principal operation and has not realized any revenue from its planned
operations. Accordingly, it is considered to be in the development stage.
Discontinued Operations - HollyWood Manufacturing - In September 1995, the
Company determined to discontinue its woodworking business. The Company was
unsuccessful in its attempts to divest itself of that 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
liquidated its assets. The lease for the facility housing the woodworking
business expired on December 31, 1995 at which time the Company vacated the
premises. The Company used the funds raised through the liquidation of
assets, the collection of outstanding receivables and advances from a related
party to satisfy a secured credit facility.
Discontinued Operations - Navtech Industries, Inc. - In June 1997, Navtech's
bank informed Navtech that it would no longer continue its revolving line of
credit. Accordingly, Navtech was forced to cease ongoing operations and the
bank is liquidating the assets to pay the loan. In anticipation of this,
Navtech's results are reported as a discontinued operation in the consolidated
financial statements for all periods presented. The assets and liabilities of
Navtech have been reported in the consolidated balance sheet as net
liabilities of discontinued operations.
Net liabilities of discontinued operations of Navtech at March 31, 1997 are as
follows:
Cash Overdraft $ (5,246)
Accounts Receivable Trade $ 33,512
Accounts Payable and Accrued Expenses $ (1,086,286)
Notes Payable and Capitalized Leases $ (5,537,327)
-------------
TOTAL $ (6,595,347)
=============
F-8
<PAGE>
HOLLY HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #2 [UNAUDITED]
[2] Summary of Significant Accounting Policies
Consolidation - The accompanying consolidated financial statements include the
accounts of the Company and its subsidiary, Country World. All material
inter-company transactions and balances have been eliminated in
consolidation. The Company's other subsidiaries, HollyWood Manufacturing and
Navtech have been discontinued [See Note 1].
Property and Equipment - Property and equipment are stated at cost.
Depreciation is determined using the straight-line method over the estimated
useful lives of the related assets or the remaining lease term [See Note 5].
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
[3] Going Concern
The accompanying consolidated financial statements have been prepared on a
going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities and commitments in the normal course of business.
As reflected in the consolidated financial statements, the Company has
incurred recurring net losses from operations, an accumulated deficit, and
recurring negative cash flows from operations.
The continuation of the Company as a going concern is dependent upon its
ability to reduce operating losses and to obtain additional financing. The
Company experienced a substantial net loss for the year ended March 31, 1997.
Approximately $4,400,000 of such loss was attributable to Navtech, which has
been discontinued.
In May 1996, the Company closed on a $5,000,000 financing package for Country
World which enabled Country World to emerge from Chapter 11 proceedings and to
repay all of its outstanding indebtedness as of March 1997. Further, with the
simultaneous settlement of certain outstanding litigation [See Note 16] 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.
There can be no assurance that management's plans to reduce operating losses
or settle litigation and will be successful. The financial statements do not
include any adjustments relating to the recoverability and classification of
recorded assets, or the amounts and classification of liabilities that might
be necessary in the event the Company cannot continue in existence.
F-9
<PAGE>
HOLLY HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #3 [UNAUDITED]
[4] Fair Value of Financial Instruments
In assessing the fair value of these financial instruments, the Company was
required to make assumptions, which were based on estimates of market
conditions and risks existing at that time. For certain instruments,
including cash, cash equivalents, accounts receivable, accounts payable and
debt, the carrying amount approximates fair value for the majority of these
instruments because of their short maturities. Management estimates that the
carrying amount of long-term related party indebtedness approximates fair
value.
[5] Property and Equipment
The following is a summary of property and equipment as of March 31, 1997:
Estimated
Useful Life
Land $ 7,475,475 --
Office Furniture and Equipment 98,818 5-7 Years
Leasehold Improvements 3,713 2 Years
Casino Under Development 2,935,168 --
----------
Total 10,513,174
Less: Accumulated Depreciation 45,533
----------
Property and Equipment - Net $ 10,467,641
===========
Depreciation expense amounted to $19,151 and $111,567 for the years ended
March 31, 1997 and 1996, respectively.
[6] Intangible Assets
In February 1996, the Company paid $149,000 to the former director of Navtech
in exchange for his covenant not-to-compete with Navtech in the continental
United States for three years. Management evaluated the period of
amortization based upon analyzing projected undiscounted net cash flow from
operations and determined that the asset has become impaired. Accordingly,
the balance of the intangible asset has been written off.
Amortization expense charged to operations for 1997 and 1996 was $158,025 and
$169,184 respectively.
[7] Notes Payable - Other
[A] In January 1995, the Company borrowed, on an unsecured basis, an aggregate
of $1,000,000 [evidenced by notes payable] from three individuals and entities
at 15% annual interest. The fifteen percent [15%] notes were due and payable
on January 13, 1996. The maturity date was extended based on a loan extension
agreement. The terms of the agreement provided for a payment of $500,000
[which was paid in March 1996] and transfer of 370,000 shares of the Company's
common
F-10
<PAGE>
HOLLY HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #4 [UNAUDITED]
common stock to the note holders. The note was further extended to August 1,
1999. (See Note 19). As of March 31, 1997, a $400,000 principal balance was
owed on the notes payable.
[8] Long-Term Debt
Long-term debt consists of the following: Notes Related Party
Payable Note Payable
Note payable with interest at 15% until
May 19, 1997 and at 24% per annum
thereafter payable interest only in
monthly installments. The note is
collateralized by a first lien and deed
of trust on real property. A portion of
this financing amounting to $2,350,000
was obtained from a group of related
party lenders and accordingly is
classified as such. $2,650,000 $2,350,000
$10,445 Note Payable - interest at 15%
payable in equal monthly installments
over four (4) years. The note is
collateralized by a copy machine. $ 9,175
$725,000 Note Payable - stockholder,
interest at 8%, payable in monthly
installments over ten (10) years starting
15 months after the June 28, 1994
closing. The note is collateralized by a
first deed of trust on real property with
a net book value of approximately $1,175,000. $ 725,000
Note payable due in monthly installments
of $4,667 through September 15, 1997,
including interest at 15.50%. $ 26,776
The Company is indebted to certain officers
and directors for past due services
and reimbursements. $ 415,365
During the year ended March 31, 1996,
the Company entered into several notes
payable from Norlar, Inc., a company
owned by the Chief Executive Officer of
the Company and his spouse. Each note
payable provided for 12% interest and a 90
day maturity period. In August 1996,
$138,640 of the debt was converted to
554,560 shares of Series Z preferred stock. $ 260,000
Total Debt $2,685,951 $3,750,365
Less: Current Maturities $35,951 $1,400,365
Net Long-Term Debt $2,650,000 $2,350,000
F-11
<PAGE>
HOLLY HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #5 [UNAUDITED]
Future principal maturities for the above notes at March 31, 1997 are as
follows:
Year ended Note Related
March 31, Payable Notes Payable
1998 35,951 1,400,365
1999 2,650,000 2,350,000
2000 -- --
2001 -- --
2002 -- --
Thereafter -- --
Total Long-Term Debt $2,685,951 $3,750,365
[9] Capital Transactions
[A] Preferred Stock - Series D - At March 31, 1997, the Company had
outstanding 389,975 shares of 10% Convertible Cumulative Series D Preferred
Stock, $10 per value per share. Dividends on the Convertible Preferred Stock
are due quarterly and are in arrears. The Convertible Preferred Stock has a
liquidation preference of $10 per share and is convertible into two [2] Shares
of common stock. Holders of Convertible Preferred Stock are not entitled to
vote on any matter, except as required by law. At March 31, 1997, dividends
in arrears on such stock amounted to $402,500 or approximately $1.00 per
share.
[B] Preferred Stock - Series E - During fiscal 1996, the Company consummated a
Private Placement of 747,000 shares of its Series E Convertible Preferred
Stock resulting in gross and net proceeds of $7,470,000 and $6,449,599,
respectively. The proceeds of this offering were utilized for repayment of
debt, settlement of litigation and working capital for the Company and
Navtech. Each share of Series E Preferred Stock is non-voting, does not pay a
dividend, and 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 of the
subscription or 65% of the average closing bid price for the five [5] trading
days immediately preceding the close of conversion.
[C] Preferred Stock - Series Z - In April 1996, 550,000 of the 2,000,000
authorized shares of preferred stock of the Corporation was designated Class
"Z" Voting Preferred Stock, $.25 par value.
[D] Country World Acquisition - During fiscal 1996, the Company issued 744,592
shares of common stock valued at $2,187,733 toward the purchase of Country
World.
[E] Debt to Equity Conversions - In May 1995, certain related party
indebtedness aggregating $50,000 was converted into 50,000 shares of Series C
Preferred Stock. In July 1995, certain related party indebtedness aggregating
$100,000 was converted into 100,000 shares of Series C Preferred Stock. In
August 1995, indebtedness in the amount of $30,000 was converted into 30,000
shares of Series C Preferred Stock. During fiscal 1996, $4,167 in dividends
were paid to the holders of the Series C Preferred Stock. In October and
December 1995, such shares of Series C Preferred Stock were converted,
pursuant to the terms thereof, into an aggregate of 720,000 shares of Company
common stock.
[F] Preferred to Common Conversion - In July 1995, certain related party
Series B Preferred Stock was converted into 450,000 shares of Series C
Preferred Stock. During fiscal 1996, $32,812 in dividends was paid to the
holders of Series B Preferred Stock. In August 1995, such preferred stock was
converted [pursuant to the terms thereof] into 1,800,000 shares of common
stock.
F-12
<PAGE>
HOLLY HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #6 [UNAUDITED]
[G] Legal Settlement - In August 1995, the Company issued 25,000 shares of its
common stock relating to a legal settlement. The Company has reflected a
charge to the statement of operations of $75,000 to reflect settlement.
[H] Exchange for Services - In August 1995, the Company issued 12,500 shares
of its common stock to each of two individuals in return for legal services
performed. Additionally, the Company issued 7,500 shares of its common stock
in return for other legal services performed. The statement of operations
reflects a charge of $98,750 to reflect the estimated fair value of such
services.
In October 1995, the Company issued 30,000 shares of its common stock to two
individuals as a retainer for legal services to be performed through July
1996. The estimated fair value of such services was $78,750. The statement
of operations reflects a charge of $43,750 for the expensed portion of the
retainer.
In December 1995, the Company issued 300,000 shares of its common stock in
return for services rendered in connection with the liquidation of its
woodworking subsidiary and the reorganization of Country World Casinos, Inc.
The Company has reflected a charge to the statement of operations of $862,500
to reflect the estimated fair value of such services.
In January 1996, the Company issued 50,000 shares of its common stock in
return for legal services performed. The Company reflected a charge to the
statement of operations of $128,100 to reflect the estimated fair value of
such services.
In February 1996, the Company hired Martin Janis & Company to act as agent for
the Company in providing public relations for a three month period. The
Company issued 35,000 shares of its common stock for such services.
In 1996, 497,000 shares of Series E Preferred Stock were converted pursuant to
the terms thereof into 1,911,214 shares of Company common stock.
[H] Debt to Equity Conversion - In January 1996, certain related party
indebtedness aggregating $38,756 was converted into 27,932 shares of Company
common stock.
[I] Preferred to Common Conversion - During fiscal year 1996, 12,525 shares of
Series D Preferred Stock and 160,000 shares of Series E Preferred Stock were
converted, pursuant to the terms thereof, into 25,050 shares and 2,450,786
shares, respectively, 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 they performed for the Company.
[J] Authorized Common and Preferred Stock - In June 1996, the Company
increased its authorized common stock to 50,000,000 shares.
[K] Outstanding Warrants - At March 31, 1997, 4,805,000 common stock purchase
warrants were outstanding. Each warrant entitles the holder to purchase one
share of Company common stock at any time through December 20, 1998 at a price
of $5.75.
F-13
<PAGE>
HOLLY HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #7 [UNAUDITED]
[10] Public Relations Agreement
In January 1996, the Company hired Corporate Relations Group, Inc. ["CRG"] to
act as the Company's financial public relations firm through July 1996. The
agreed fee for these services was $350,000 payable in cash, or at the
Company's option, by delivering 273,437 shares of its common stock. In
connection with such hiring, Norlar, Inc., a company owned by the Company's
Chairman and his spouse, transferred to CRG the 273,437 shares. In February
1996, the Company paid Norlar, Inc. $350,000 in lieu of issuing additional
shares of stock to replace the shares transferred to CRG.
[11] Loss Per Share
Loss per share for the years ended March 31, 1997 and 1996 are based on
6,739,161 and 2,649,874 respectively, weighted average shares outstanding.
The effect of outstanding warrants were not included in the calculation as
their effect would be anti-dilutive. As supplementary primary loss per share
information, had the conversions to common stock described in Note 9 taken
place at the beginning of the year, loss per share would have been affected as
follows:
Pro Forma:
Year ended
March 31, 1997
Loss Per Common Share:
Loss from Continuing Operations $ (.82)
Loss from Discontinued Operations $ (.58)
Estimated Loss on Disposal of Woodworking Business $ (.53)
Net Loss Per Common Share $ (1.93)
[12] Commitments and Contingencies
[A] Leases - The Company entered into a noncancelable operating lease for
office space in Pennsylvania. This operating lease expires on January 31,
1998. The rent expense amounted to $28,800 and $266,182 for the years ended
March 31, 1997 and 1996, respectively.
The Company entered into various noncancelable automobile leases on a
month-to-month basis. Future minimum lease payments for the next five years
are as follows:
Office Auto
Facilities Leases
March 31,
1998 $ 24,000 $ 16,733
1999 -- 9,349
2000 -- --
2001 -- --
2002 -- --
Thereafter -- --
Totals $ 24,000 $ 26,082
[B] Guaranty - In December 1995, the Company committed to guaranty a $27.35
million loan for Country World in the form of permanent financing to replace
construction financing to construct a casino in the state of Colorado.
F-14
<PAGE>
HOLLY HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #8 [UNAUDITED]
[13] Income Taxes
The Company has net operating loss carryovers of approximately $28,000,000 as
of March 31, 1997, expiring in the years 2008 through 2011. However,
utilization of the loss carryovers is subject to Internal Revenue regulations
where the corporation has issued substantial additional stock. Accordingly, a
portion of this loss carryover may not be available to the Company.
Generally Accepted Accounting Principles require the establishment of a
deferred tax asset for all deductible temporary differences and operating loss
carryforwards. The deferred tax asset attributable to operating loss
carryforwards amounted to approximately $5,400,000 at March 31, 1997. Because
of the uncertainties discussed in Note 3, however, any deferred tax asset
established for utilization of the Company's tax loss carryforwards would
correspondingly require a valuation allowance of the same amount pursuant to
SFAS No. 109. Accordingly, no deferred tax asset is reflected in these
financial statements.
[14] Business Combination
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. The results of operations of Country World are included in the
consolidated statements of operations from that date. 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 March 31,
1996, the Company owns 66.3% of the outstanding shares of Country World common
stock and 54.9% of the total voting stock [common and preferred] of Country
World.
Country World intends to develop a 200,000 square foot country western motif
casino complex in the gaming district of Black Hawk, Colorado, which is
located approximately 35 miles west of Denver, including a 79,000 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].
The minority interest represents the portion of Country World not owned by the
Company. At March 31, 1997, substantially all of the minority interest is
represented by preferred stockholders of Country World. There are no dividend
requirements related to the preferred stock. The Company owns no Country
World preferred stock. As shown in the statements of operations for the year
ended March 31, 1997 and 1996, respectively approximately $348,000 and
$143,000 of the loss from operations of Country World for such period has been
attributed to the minority interest.
[15] Casino Under Development
In August 1993, Country World closed on an acquisition of approximately 79,000
square feet of vacant land located within the city of Black Hawk, Gilpin
County, Colorado. Country World paid $550,000 cash, delivered a promissory
note in the amount of $3,450,000, and delivered 2,250,000 shares of its
Convertible Preferred stock which is convertible to common stock on a 1 for 1
basis. The acquisition of the land was subject to a first deed of trust in
the amount of $475,000. The Company is obligated to file a registration
statement to cover the distribution of the Convertible Preferred stock to the
shareholders of the selling entity, which is a publicly-held corporation based
in Denver, Colorado.
F-15
<PAGE>
HOLLY HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #9 [UNAUDITED]
Subsequently, the Company closed on an acquisition to an additional 375,000
square feet of vacant land located in close proximity to the original land
purchased. The Company paid $200,000 cash, delivered a promissory note in the
amount of $725,000, and delivered 250,000 shares of its common stock.
[16] Litigation and 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.
F-16
<PAGE>
HOLLY HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #10 [UNAUDITED]
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
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.
F-17
<PAGE>
HOLLY HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #11 [UNAUDITED]
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
[18] New Authoritative Pronouncements
The Financial Accounting Standards Board ("FASB") has issued Statement of
Financial Accounting Standards ("SFAS") No. 125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities." SFAS No.
125 is effective for transfers and servicing of financial assets and
extinguishment of liabilities occurring after December 31, 1996. Earlier
application is not allowed. The provisions of SFAS No. 125 must be applied
prospectively; retroactive application is prohibited. Adoption on January 1,
1997 is not expected to have a material impact on the Company. The FASB
deferred some provisions of SFAS No. 125, which are not expected to be
relevant to the Company.
The FASB issued SFAS No. 128, "Earnings Per Share," and SFAS No. 129,
"Disclosure of Information about Capital Structure" in February 1997. SFAS
No. 128 simplifies the earnings per share ("EPS") calculations required by
Accounting Principles Board ("APB") Opinion No. 15, and related
interpretations, by replacing the presentation of primary EPS with a
presentation of basis EPS. SFAS No. 128 requires dual presentation of basic
and diluted EPS by entities with complex capital structures. Basic EPS
includes no dilution and is computed by dividing income available to common
stockholders by the weighted-average number of common shares outstanding for
the period. Diluted EPS reflects the potential dilution of securities that
could share in the earnings of an entity, similar to the fully diluted EPS of
APB Opinion No. 15. SFAS No. 128 is effective for financial statements issued
for periods ending after December 15, 1997, including interim periods; earlier
application is not permitted. When adopted, SFAS no. 128 will require
restatement of all prior-period EPS data presented; however, the Company has
not sufficiently analyzed SFAS No. 128 to determine what effect SFAS No. 128
will have on its historically reported EPS amounts.
SFAS No. 129 does not change any previous disclosure requirements, but rather
consolidates existing disclosure requirements for ease of retrieval.
F-18
<PAGE>
HOLLY HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #12 [UNAUDITED]
The FASB has issued SFAS No. 130, "Reporting Comprehensive Income." SFAS No.
130 is effective for fiscal years beginning after December 15, 1997. Earlier
application is permitted. Reclassification of financial statements for earlier
periods provided for comparative purposes is required. SFAS No. 130 is not
expected to have a material impact on the Company.
The FASB has issued SFAS No. 131, "Disclosures About Segments of an Enterprise
and Related Information." SFAS No. 131 changes how operating segments are
reported in annual financial statements and requires the reporting of selected
information about operating segments in interim financial reports issued to
shareholders. SFAS No. 131 is effective for periods beginning after December
15, 1997, and comparative information for earlier years is to be restated.
SFAS No. 131 need not be applied to interim financial statements in the
initial year of its application. SFAS No. 131 is not expected to have a
material impact on the Company.
[19] Subsequent Events
In June 1996, the Company increased its authorized common stock to 50,000,000
shares.
Note Payable - Other
In consideration of the extension of the maturity date, consideration of
$200,000 was paid to the noteholders in May 1997.
Related Party Note Payable
In May 1997, the balance due on this note of $260,000 was paid.
Country World
(A)In July 1997, the Company issued 1,000,000 shares of its common stock,
valued at approximately $200,000, to Eastern Equities Consultants, Ltd. for
efforts to secure casino and hotel financing.
(B)In September 1997, the Company issued 395,500 shares, valued at
approximately $74,000, of its common stock to Sommer & Schneider LLP, its
securities attorneys, for payment of legal fees and a six month retainer.
(C)Casino Management Contract - On October 21, 1997, the Company signed a
management agreement with Luciani and Associates which will supervise, direct
and control the management and operation of the proposed casino and related
business as agent for the Company.
(D)Interim Construction Loan - The total amount of indebtedness with respect to
the PCL Construction loan described in Note 2 was $998,000 as of October 20,
1997.
(E)Norlar Debt - As of October 20, 1997, the Company was indebted to Norlar,
Inc. in the amount of approximately $550,000. Warrants to purchase 3,000,000
shares of common stock at $.20 per share have been issued to Norlar, Inc. in
connection with this indebtedness.
...........
F-19
<PAGE>
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<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
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<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
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