Form 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1996
Commission file number 1-12668
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
For Quarter Ended Commission File Number
HOLLY HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
New Jersey 22-3172149
(State of jurisdiction (I.R.S. Employer
of incorporation) I.D. Number)
200 Monument Road, Suite 10, Bala Cynwyd, Pennsylvania 19004
(Address of principal executive offices)
Registrant's telephone number (610) 617-0400
HOLLY PRODUCTS, INC.
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities and Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of December 31, 1996: 4,937,488.
<PAGE>
HOLLY HOLDINGS, INC. AND SUBSIDIARIES
INDEX
Part I: FINANCIAL INFORMATION
Item 1: Financial Statements
Consolidated Balance Sheets as of December 31, 1996 [Unaudited] 1 - 2
Consolidated Statements of Operations for the three and nine
months ended December 31, 1996 and 1995 [Unaudited] 3
Consolidated Statements of Cash Flows for the nine months ended
December 31, 1996 and 1995 [Unaudited] 4 - 5
Notes to Consolidated Financial Statements [Unaudited] 6
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 7 - 11
Part II: OTHER INFORMATION
Item 1: Legal Proceedings 12 - 13
Item 2: Changes In the Rights of the Company's Security Holders 13
Item 3: Defaults by the Company on its Senior Securities 13
Item 4: Results of Votes of Shareholders 13 - 14
Item 5: Other Information 14
Item 6: Exhibits & Reports on Form 8-K 14
Signature Page 15
<PAGE>
HOLLY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1996 (UNAUDITED)
Assets:
Current Assets:
Cash and Cash Equivalents $ 579,963
Accounts Receivable Trade - [Net of Allowance for Doubtful
Accounts of $178,695] 2,030,173
Inventory 572,694
Prepaid Expenses 330,480
Total Current Assets 3,513,310
Property and Equipment - [Net of Accumulated
Depreciation and Amortization of $273,906] 11,455,405
Deposits 51,582
Intangible Assets - Net 533,328
Other Assets 62,786
Deferred Financing Costs 312,500
Total Assets $15,928,911
See Notes to Consolidated Financial Statements
<PAGE>
HOLLY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1996 (UNAUDITED)
Liabilities and Stockholders' Equity:
Current Liabilities:
Notes Payable - Related Party $ 925,000
Demand Notes Payable - Bank 1,242,823
Notes Payable - Others 5,400,000
Accounts Payable 1,428,098
Accrued Expenses 611,233
Payroll Taxes Payable 6,743
Current Portion of Long-Term Debt 139,557
Current Portion of Capital Lease Obligations 61,237
Total Current Liabilities 9,814,691
Long-Term Debt 524,360
Long-Term Portion of Capital Lease Obligations 523,537
Minority Interest 2,012,360
Commitments and Contingencies --
Stockholders' Equity:
Preferred Stock - Authorized 2,000,000 Shares:
Series D: Convertible $10.00 Par Value, $1.00 Per
Share Per Annum Cumulative Dividends, 389,975 Shares
Issued and Outstanding 3,899,750
Series E: Convertible $10.00 Par Value, 30,000 Shares
Issued and Outstanding 300,000
Series Z: Convertible $0.25 Par Value, 1,013,628 Shares
Issued and Outstanding 253,407
Additional Paid-in Capital [Preferred] (1,163,601)
Common Stock - No Par Value, Authorized 150,000,000
Shares, 4,937,488 Shares Issued and Outstanding 17,777,799
Additional Paid-in Capital [Common] (83,947)
Accumulated [Deficit] (17,929,445)
Total Stockholders' Equity 3,053,963
Total Liabilities and Stockholders' Equity $ 15,928,911
See Notes to Consolidated Financial Statements
<PAGE>
<TABLE>
HOLLY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<CAPTION>
Three months ended Nine months ended
December 31, December 31,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net Sales $ 1,221,426 $ 721,039 $ 4,259,659 $ 3,110,913
Cost of Sales 664,686 651,878 2,665,255 3,268,390
Gross Profit [Loss] 556,740 69,161 1,594,404 (157,477)
Operating Expenses:
General, Selling and Administrative 1,474,312 2,246,103 4,245,921 3,842,764
Operating [Loss] (917,572) (2,176,942) (2,651,517) (4,000,241)
Other [Expense]:
Other Income 11,163 (41,729) 54,601 11,137
Interest Expense (165,472) (146,988) (387,256) (297,638)
Other [Expense] - Net (154,309) (188,717) (332,655) (286,501)
Minority Interest Share in Loss of Subsidiary 96,090 31,764 202,161 102,699
[Loss] Income from Continuing Operations (975,791) (2,333,895) (2,782,011) (4,184,043)
Discontinued Operations:
Income [Loss] from Operations of
Woodworking Business 158,999 (79,161) 486,663 (2,275,239)
Estimated [Loss] on disposal of
Woodworking Business -- (1,201,633) -- (2,043,056)
Net [Loss] (816,792) (3,614,689) (2,295,348) (8,502,338)
Preferred Stock Dividends 0 201,250 0 301,875
Net [Loss] Available to Common Stockholders $ (816,792) $(3,815,939) $(2,295,348) $(8,804,213)
Loss Per Common Share:
[Loss] from Continuing Operations $ (0.22) $ (3.36) $ (0.89) $ (7.06)
Income [Loss] from Discontinued
Operations $ 0.04 $ (0.11) $ 0.15 $ (3.84)
Estimated Loss on Disposal of
Woodworking Business $ -- $ (1.73) $ -- $ (3.45)
Net [Loss] Per Common Share $ (0.18) $ (5.49) $ (0.74) $ (14.86)
Weighted Average Number of
Common Shares Outstanding 4,492,823 695,524 3,115,978 592,672
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
HOLLY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine months ended
December 31,
1996 1995
Operating Activities:
[Loss] From Continuing Operations $ (2,782,011) $ (4,184,043)
Adjustments to Reconcile Net [Loss]
to Net Cash [Used for] Operating
Activities:
Depreciation and Amortization 88,367 140,318
Amortization of Deferred Financing
Activities 320,433 112,500
Minority Interest 202,161 --
Changes in Assets and Liabilities:
[Increase] Decrease in:
Accounts Receivable 1,651,723 (277,607)
Inventory (342,818) (420,722)
Other Current Assets (4,534) 21,685
Due from Stockholders & Related
Parties -- 25,000
Note Receivable -- 1,050,000
Deposits (194,880) --
Prepaid Expenses (116,500) --
Other Assets (546,726) --
Increase [Decrease] in:
Accounts Payable and Accrued
Expenses (897,390) 1,888,508
Payroll Taxes Payable (75,080) 71,249
Other Current Liabilities (14,182) --
Total Adjustments 70,574 2,610,931
Net Cash - Continuing Operations - Forward (2,711,437) (1,573,112)
Discontinued Operations:
Net [Loss] From Discontinued Operations 486,663 (2,275,239)
Adjustments to Reconcile Net [Loss] to
Net Cash Operations:
Depreciation and Amortization -- 59,540
Bad Debts -- --
Changes in Net Assets, Liabilities
and Losses (575,007) 2,228,959
Estimated Loss in Disposal of
Woodworking Business -- (2,043,056)
Net Cash - Discontinued Operations - Forward (88,344) (2,029,796)
Investing Activities - Continuing Operations:
Acquisition of Assets (1,889,148) (90,508)
Purchase of Navtech - Net of Cash -- --
Net Cash - Investing Activities - Continuing
Operations - Forward $(1,889,148) $ (90,508)
See Notes to Consolidated Financial Statements
<PAGE>
HOLLY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS [UNAUDITED]
Nine months ended
December 31,
1996 1995
Net Cash - Continuing Operations -
Forwarded $ (2,711,437) $ (1,573,112)
Net Cash - Discontinued Operations -
Forwarded (88,344) (2,029,796)
Net Cash - Investing Activities -
Continuing Operations - Forwarded (1,889,148) (90,508)
Financing Activities - Continuing Operations:
Proceeds from Notes Payable-Other 5,223,714 500,000
Payment of Notes Payable - Other (150,000) --
Proceeds from Demand Notes Payable -
Stockholders and Related Parties -- 322,000
Payment of Demand Notes Payable -
Stockholders and Related Parties (2,971,504) (262,427)
Proceeds of Demand Note Payable - Banks 384,470 1,164,792
Proceeds from Issuance of Preferred Stock 1,679,000 2,400,000
Proceeds from Sale of Warrants 168,750 --
Dividends Paid -- (100,625)
Net Cash - Financing Activities -
Continuing Operations 4,334,430 4,023,740
Financing Activities - Discontinued Operations:
Payment of Demand Note Payable -- (334,287)
Proceeds from Demand Note Payable -- --
Net Cash - Financing Activities -
Discontinued Operations -- (334,287)
Net Increase (Decrease) in Cash and Cash
Equivalents (354,499) (3,963)
Cash and Cash Equivalents - Beginning of
Periods $ 934,462 189,180
Cash and Cash Equivalents - End of
Periods $ 579,963 $ 185,217
Supplemental Disclosures of Cash Flow Information:
Cash paid during the periods for:
Interest $ 178,272 $ 334,931
Income Taxes $ -- $ --
Supplemental Schedule of Non-Cash Investing and Financing Activities:
See notes to consolidated financial statements for details of certain
non-cash investing and financing activities.
See Notes to Consolidated Financial Statements.
<PAGE>
HOLLY HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [UNAUDITED]
[1] SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies of Holly Holdings, Inc. are set forth in the
Company's Form 10-KSB for the period ended March 31, 1996, as filed with the
Securities and Exchange Commission.
[2] BUSINESS OF REPORTING
The accompanying unaudited condensed financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Item 310(b)
of Regulation S-B. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, such statements include
all adjustments [consisting of normal recurring items] which are considered
necessary for a fair presentation. Operating results for the three and nine
months ended December 31, 1996 and 1995 are not necessarily indicative of the
results that may be expected for the year ended March 31, 1997. It is
suggested that these financial statements be read in conjunction with the
financial statements and notes for the period ended March 31, 1996, included
in the Holly Holdings, Inc. Form 10-KSB.
[3] INVENTORY
At December 31, 1996 inventory consisted of the following:
Work-in-Process $ 110,000
Raw Materials 800,694
Total 910,694
Less Reserve (338,000)
Total $ 572,694
Inventory is stated at the lower of cost [first-in, first-out method] or
market.
[4] EARINGS PER SHARE
Earnings per share are based on 4,492,823 and 695,524 shares outstanding for
the three months ended December 31, 1996 and 1995, respectively, and 3,115,978
and 592,672 for the nine months ended December 31, 1996 and 1995,
respectively. Such amounts of shares represent the weighted average number of
shares outstanding for the periods. Shares in escrow and the effect of
outstanding warrants were not included in the calculations, as their effect
would be anti-dilutive. Effective December 26, 1996, the shareholders of the
Company approved an amendment to reflect a one-for-ten reverse split of the
Company's Common Stock.
[5] EQUITY TRANSACTIONS
During the quarter, 167,500 shares of Series E Preferred Stock were converted
pursuant to the terms thereof into 7,960,097 shares of Company common stock.
In October, November and December 1996, the Company issued 82,500 shares of
Series E Preferred Stock resulting in gross proceeds of $825,000. In October
1996, the Company issued 450,000 shares of its Common Stock to Sparta Capital
Ltd. for the exercise of 450,000 warrants.
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CERTAIN STATEMENTS INCLUDED HEREIN OR INCORPORATED BY REFERENCE CONSTITUTE
"FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995 (THE "REFORM ACT"). THE COMPANY DESIRES TO TAKE
ADVANTAGE OF CERTAIN "SAFE HARBOR" PROVISIONS OF THE REFORM ACT AND IS
INCLUDING THIS SPECIAL NOTE TO ENABLE THE COMPANY TO DO SO. FORWARD-LOOKING
STATEMENTS INCLUDED OR INCORPORATED BY REFERENCE IN THIS PART INVOLVE KNOWN
AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH WOULD CAUSE THE
COMPANY'S ACTUAL RESULTS, PERFORMANCE (FINANCIAL OR OPERATING) OR ACHIEVEMENTS
TO DIFFER MATERIALLY FROM THE FUTURE RESULTS, PERFORMANCE (FINANCIAL OR
OPERATING) OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD LOOKING
STATEMENTS.
GENERAL
The Company experienced a substantial loss for the year ended March 31,
1996, such loss was attributable primarily to its woodworking business, which
was conducted through its wholly owned subsidiary, HollyWood Manufacturing,
Inc. ("HollyWood"). The Company explored ways to reduce losses in this
business, including divesting itself of its woodworking business while
continuing the sales operations. The Company held discussions with potential
purchasers of its woodworking business. An offer was presented but, the
potential buyer was unable or unwilling to consummate a transaction.
Accordingly, the Company was unsuccessful in its attempts to divest itself of
its woodworking business and consequently, ceased ongoing operations of the
woodworking business to reduce any further losses. The Company dismissed the
entire staff and management of its woodworking operation and liquidated its
assets. The lease for the facility housing HollyWood expired on December 31,
1995 at which time the Company vacated the premises. The Company used the
funds raised through the liquidation of assets and collection of outstanding
receivables to satisfy a secured credit facility with Riviera Finance of
Chicago, Illinois.
In April 1996, the company moved its wholly owned subsidiary, Navtech
Industries, Inc. ("Navtech"), from Blanding, Utah to Shiprock, New Mexico.
The move allowed Navtech to operate from one facility totaling 54,000 square
feet in lieu of three separate facilities totaling 20,000 square feet. This
enables the company to operate with greater efficiency and substantial less
cost through consolidation of functions, elimination of transportation and
reduction in management and supervisory staff. In its new location in
Shiprock, New Mexico, Navtech is located on the Navajo Reservation which
allows for rebates in employing Native Americans, reduced energy costs and a
forgiveness of rent payments on the new facility until such time as the move
and refurbishing costs to the building are fully paid. It is estimated that
this process will take approximately 10 years. It is anticipated that the new
facility will allow Navtech to expand its revenues substantially.
Additionally, during the Company's first quarter of 1996 (April - June) the
Company changed the management of Navtech with a smaller and more qualified
group of professionals to carry out Navtech's plan and meet targeted budgets
for the upcoming year. The nine months results for this subsidiary show a
significant turnaround to its income statement as compared to a $2 million
loss last year.
The five million dollar financing package for the Company's majority
owned subsidiary, Country World Casinos, Inc. ("Country World"), consummated
in May 1996, should enable Country World to emerge from Bankruptcy proceedings
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
in the immediate future, therefore eliminating substantial legal, travel and
management expense associated with these proceedings. Further, with the
simultaneous settlement of all outstanding State litigation (see Part II,
Item 1) 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 in Blackhawk, Colorado. Additionally, Country World
has moved to smaller, less expensive quarters substantially reducing its
operating costs and plans to eliminate its office requirements in Denver during
this fiscal year. As of December 31, 1996, Country World vacated its Denver
office.
In late October 1995, Country World petitioned the U.S. Bankruptcy Court
for the District of Colorado for protection under the rules of Chapter 11 of
the Bankruptcy Code in order to stop the foreclosure on the property
identified as Millsites 12, 13 and the Smith Mining Claim by Tommyknocker, a
subsidiary of New Allied Development Corporation ("New Allied"). In May 1995,
Country World filed suit against New Allied in State Court for amongst other
things, failure to satisfy a first deed of trust obligation, overcharges in
conjunction with an EPA remediation plan and action taken by a New Allied
officer and related parties requiring Securities and Exchange Commission
sanctions which in turn could jeopardize Country World's ability to obtain a
gaming license. In June 1995, New Allied filed a counterclaim to this action.
The Company, on behalf of Country World, has obtained a financing
commitment for 5 million dollars ($5,000,000) which will enable Country World
to repay all of its outstanding indebtedness and emerge from Bankruptcy. This
financing proposal has been approved by the Bankruptcy Court and the Company
has acquired the funds and distribution will be made in accordance with the
Court's order. Final settlement hearings were held in late September 1996 and
Country World received final rulings from the court. The Court's order finds
that Tommyknocker Casino Corporation/New Allied is not entitled to default
interest at the rate of 18%, however Country World was ordered to pay 8% per
annum on the unpaid balance due Tommyknocker. Furthermore, Country World was
not obligated to pay attorneys fees, as each party has been directed by the
court to pay their own accordingly.
The Court further finds that Country World 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.
Lastly, the Court's order upheld Tommyknocker's/New Allied's claim that
Country World was not entitled to an offset on the environmental clean up, due
to the fact that the work was completed and Country World paid all clean up
costs without objection, prior to the Company's acquisition of a majority
ownership in Country World.
Both parties were ordered to confer and agree on a specific dollar amount
by November 15, 1996. The parties came to an agreement and approximately $1.3
million was paid to Tommyknocker Casino Corp./New Allied with the Court's
approval in December 1996.
In December 1996, Country World petitioned the Court to pay the unsecured
creditors. All of the unsecured creditors have reached an agreement with
Country World, however Tommyknocker Casino Corporation/New Allied objected to
such payout asking the Court to hold these funds for future payments, possibly
due to them or payment due to Kennedy Funding.
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Country World anticipates that it will require an additional
approximately $27,350,000 to construct an operational and licensed Casino. At
present, a letter of intent for the permanent financing is in place to fund
the Casino after construction, however there can be no assurance that the
closing of such financing will be obtained.
RESULTS OF OPERATIONS
Nine Months Ended December 31, 1996 Compared to Nine Months Ended
December 31, 1995
Based on the following results of operations and the substantial losses
attributable to HollyWood, the Company decided to cease ongoing operations of
this segment of the Company's business. Due to the plan of discontinuance for
HollyWood, revenues and net losses have been eliminated from the statement of
operations. The following comparison, therefore, does not include the results
attributable to HollyWood, but contains the costs of discontinued operations.
Revenues for the nine months ended December 31, 1996 were $4,259,659 as
compared to $3,110,913 for the nine months ended December 31, 1995. The
increase in revenues is a result of the ability of the Company to fund
increased sales through funds raised earlier this year.
Cost of sales for the nine months ended December 31, 1996 was $2,665,255
as compared to $3,268,390 for the nine months ended December 31, 1995. This
decrease was primarily the result of selling items with a higher gross profit
margin.
Gross profit was $1,594,404 for the nine months ended December 31, 1996,
as compared to a $157,477 gross loss for the nine months ended December 31,
1995. This increase of $1,751,881 in gross profit is attributable to
increased sales for the period, as well as the improvements and adjustments in
cost of sales.
Total operating expenses for the nine months ended December 31, 1996 were
$4,245,921 as compared to $3,842,764 for the comparable period ended December
31, 1995. The majority of these expenses are attributable to one time costs
associated with the reorganization of Navtech, closing costs for the $5
million funding associated with the Country World Chapter 11 Proceedings,
increased legal and other professional fees, raising of working capital,
consulting, stock expenses, as well as promotional fees.
Discontinued operations showed a income of $486,663 for the nine months
ended December 31, 1996 as compared to a loss of $2,275,239 for the nine
months ended December 31, 1995. The change was a result of the close down of
this aspect of operations during the prior year. In the current period,
income was primarily a result of the Company being able to settle past debt of
the closed down operations at a substantial discount.
Operating losses totaled $2,651,518 for the nine months ended December
31, 1996, as compared to an operating loss of $4,000,241 for the same period
in 1995 for the reasons described above.
Interest expense for the nine months ended December 31, 1996 was $387,256
as compared to $297,638 for the nine months ended December 31, 1995. This
cost is primarily attributable to the Navtech revolving line of credit with a
local lending institution in Farmington, New Mexico and notes payable for the
Company's financing of Country World.
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Three Months Ended December 31, 1996 Compared to Three Months Ended December
31, 1995
Revenues for the three months ended December 31, 1996 were $1,221,426 as
compared to $721,039 for the three months ended December 31, 1995. The
increase in revenues is a result of the Company to fund increased sales through
funds raised earlier this year and a better selection of product sales.
Cost of sales for the three months ended December 31, 1996 was $664,686
as compared to $651,876 for the three months ended December 31, 1995. There
was a decrease in the percentage to sales, primarily the result of selling
items with a higher gross profit margin.
Gross profit was $556,740 for the three months ended December 31, 1996,
as compared to a $69,161 gross profit for the three months ended December 30,
1995. This increase in gross profit is attributable to increased gross profit
percentage for the period due to a better selection of product sales.
Total operating expenses for the three months ended December 31, 1996 was
$1,473,313, as compared to $2,246,103 for the three months ended December 31,
1995. This decrease of $772,103 is attributable to the high costs incurred
last year related to the operations of Navtech, the acquisition and
development of Country World, resulting in high legal and other administrative
costs.
Operating losses totaled $917,572 for the three months ended December 31,
1996 as compared to an operating loss of $2,176,942 for the period ended
December 31, 1995, a decrease of $1,259,370.
Interest expense for the three months ended December 31, 1996 was
$165,472 as compared to $146,988 for the comparable period in 1995.
Discontinued operations showed a income of $158,999 for the three months
ended December 31, 1996 as compared to a loss of $79,161 for the three months
ended December 31, 1995. The change was a result of the close down of this
aspect of operations during the prior year. In the current period, income was
primarily a result of the Company being able to settle past debt of the closed
down operations at a substantial discount.
LIQUIDITY AND CAPITAL RESOURCES
To the extent the Company has ceased operations of its woodworking
business, its cash requirements have diminished accordingly, and an extended
line of credit has been secured to fund Navtech's operations with The First
National Bank of Farmington in Farmington, New Mexico. The terms of this
facility are for a receivable and inventory line of credit in an amount not to
exceed $1,500,000 with a monthly floating interest rate of 1.5% over prime.
As of December 31, 1996, Navtech was indebted to the bank in the amount of
approximately $1.2 million. This loan becomes due on March 15, 1997.
Additionally, during this quarter, the Company raised $825,000 through a
private equity placement of the Company's Series E Preferred Stock.
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
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Chairman, transferred 370,000 shares of the Company's Common Stock owned by him
in exchange for an extension until August 9, 1996 at which time a balance
payment of $400,000 to be due. The parties further agreed to extend the August
9th deadline until such time as Country World emerges from the Chapter 11
Proceedings. The Company utilized the $1,000,000 to make a loan to Country
World, which indebtedness was canceled in exchange for the issuance of
5,000,000 shares of Country World common stock to the Company. The Company
plans to invest up to an additional $35 million to develop and construct the
casino and hotel complex in Black Hawk, Colorado. At present, a letter of
intent for the permanent financing is in place to fund the Casino after
construction, however, there can be no assurance that the closing of such
financing will be obtained.
The Company consummated a Private Placement of 767,000 shares of its
Series E Convertible Preferred Stock in March of 1996, resulting in gross and
net proceeds of $7,670,000 and $6,628,000, respectively. The proceeds of this
offering were utilized for repayment of debt, settlement of litigation fees
associated with securing financing for Country World Casinos, Inc. and working
capital for the Company and Navtech. Each share of Series E Preferred Stock
is convertible into shares of the Company's Common Stock at the rate
determined by dividing $10.00 by the lesser of 75% of the closing bid price as
reported by NASDAQ, of the Company's Common Stock on the date of the closing
of the subscription or 65% of the average closing bid price for the five (5)
trading days immediately preceding the date of conversion. In August through
December 1996, the Company consummated a second placement of an aggregate
197,500 shares of its Series E Convertible Preferred Stock under the same
terms described above.
In February 1996, the Company hired Martin Janis & Company to act as
agent for the Company in providing additional public relations services for a
three month period. The Company issued 35,000 shares of its Common Stock for
such services and in May 1996, paid an additional fee of approximately $24,000
for such three month period. Additionally, the Company will retain limited
services from Martin Janis & Company for the next nine months at a fee of
$3,000 per month.
In 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 June 1996, the Company issued an aggregate of 1,300,000 shares of its
Common Stock to Messrs. Irwin Schneider, Eugene Lombardo and Scott Schneider
in return for certain services performed by these individuals on behalf of
the Company.
In September 1996, the Company issued 573,333 shares of Common Stock to N
& A Promotions in return for certain services performed for the Company.
In September 1996, a debt of $30,000 owed to Sunrise, Inc. was converted
into 30,000 shares of Series C Preferred Stock and pursuant to the terms
thereof, into 120,000 shares of Common Stock.
In October 1996, the Company issued 450,000 shares of Common Stock to
Sparta Capital Ltd. for the exercise of its warrants.
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, if the need should arise.
<PAGE>
HOLLY HOLDINGS, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1 - LEGAL PROCEEDINGS
On May 26, 1995, the Company's majority owned subsidiary Country World
Casinos, Inc. ("CWC") commenced a lawsuit against Tommyknocker Casino Corp.
("Tommyknocker") and New Allied Development Corporation ("New Allied") in the
District Court of Denver, County of Denver, Colorado, case number 95CV 2310.
This action is primarily for breach of contract in connection with the
acquisition of certain real property by CWC from the defendants. CWC is
seeking monetary damages and declaratory relief.
On August 15, 1995, Tommyknocker and New Allied filed a counterclaim in
the aforementioned action against CWC, the Company, Ronald Nathan, Sal Lauria
and David Singer who are former board members of CWC, Roger LeClerc, President
of CWC and William Patrowicz director of CWC. The counterclaim alleges that
CWC is in default under the Promissory Note issued by CWC to Tommyknocker in
connection with the acquisition of the real property, CWC failed to register
stock on behalf of Tommyknocker and that the Company has acquired control of
CWC to the detriment of Tommyknocker and New Allied.
In a related action on June 28, 1995, Tommyknocker filed a Rule 120
Motion in the District Court, City and County of Denver, Colorado, case number
95CV 2799. This motion sought foreclosure of the real property discussed
above. On October 4, 1995, the magistrate in this case granted Tommyknocker's
motion and authorized the sale of the property pursuant to the foreclosure on
October 12, 1995.
On October 12, 1995, CWC filed a bankruptcy petition under Chapter 11 of
Title 11 of the United States Code. The case was filed in the United States
Bankruptcy Court, District of Colorado, case number 95-20563rjb. Pursuant to
the filing of the Bankruptcy, an automatic stay went into effect pursuant to
11 U.S.C. Section 362 prohibiting the foreclosure sale. Tommyknocker filed a
Motion for Relief from the stay and a hearing on this matter was held on
December 22, 1995. On January 3, 1996, the Court ruled that CWC should be
given an opportunity to proceed with its Bankruptcy proceedings in a diligent
and timely fashion. The Court conditioned continuation of the stay pending
the approval or denial as the case may be of CWC's financing proposal and
certain other conditions. In March 1996, the Court approved CWC's financing
proposal and in May 1996, CWC submitted a plan of reorganization to the Court
which is pending. 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 the Court
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.
Lastly, 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.
<PAGE>
HOLLY HOLDINGS, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Both parties were ordered to confer and agree on a specific dollar amount
by November 15, 1996. The parties came to an agreement and approximately $1.3
million was paid to Tommyknocker/New Allied with the Court's approval in
December 1996.
On October 10, 1995, Phil B. Acton, Trustee of the Calvin Black Trust
commenced a lawsuit against the Company in the United States District Court
for the District of Utah, Central Division, case number 95CV 09305. This
action seeks repayment of a promissory note in the principal amount of
$500,000. On January 15, 1996 the Company, the Calvin Black Trust and Norlar,
Inc. a corporation owned by Mr. Larry Berman, the Chairman and Chief Executive
Officer of the Company and his spouse entered into a Sale and Forbearance
Agreement pursuant to which The Calvin Black Trust sold to Norlar $250,000 of
the indebtedness owed by the Company in exchange for $250,000 in cash from
Norlar and Norlar agreed to deliver to the Calvin Black Trust upon the
effectiveness of a Registration Statement either 250,000 shares of the
Company's Common Stock or $500,000 worth of the Company's Common Stock
whichever be greater. In exchange, The Calvin Black Trust agreed to forbear
from taking any further actions for a period of six months from the date of
the Sale and Forbearance. The Company will repay Norlar the $250,000 and
replace the shares of the Company's Common Stock that Norlar is required to
deliver to The Calvin Black Trust pursuant to the terms of the Sale and
Forbearance Agreement in either cash or the Company's securities as determined
by the Company's Board of Directors. In April 1996, the Agreement was amended
and the Trust was paid an additional $150,000 and Norlar agreed to deliver to
the Trust, upon effectiveness of a Registration Statement, either 200,000
shares of the Company's Common Stock or $348,000 worth of the Company's Common
Stock, whichever be greater, for an extension of time to file a registration
statement. The Company has failed to comply with the terms of the amended
agreement. The Plaintiff put the Company on notice that it intended to pursue
this matter and seek collection of the remaining balance due under the Note.
Following extensive negotiations, the Company and the Trust reached settlement
by the Company delivering shares of stock in RoomSystems, Inc. in lieu of
payment. Upon such delivery, the lawsuit was dismissed.
The negative outcome of any of these actions will have a material impact
on the operations of the Company and would result in a disruption of the
Company's business.
Item 2 - Changes In the Rights of the Company's Security Holders
None
Item 3 - Defaults by the Company on its Senior Securities
None
Item 4 - Results of Votes of Shareholders
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;
<PAGE>
HOLLY HOLDINGS, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
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 were approved by the shareholders and were
effective December 26, 1996.
Item 5 - Other Information
None
Item 6 - Exhibits & Reports on Form 8-K
(A) There are no exhibits to be filed at this time.
(B) No reports on Form 8-K were filed during the quarter for which this
report is filed.
<PAGE>
HOLLY HOLDINGS, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HOLLY PRODUCTS, INC.,
__/s/ William H. Patrowicz________________
By: William H. Patrowicz
President, Chief Operating Officer,
Treasurer (Principal Financial and
Accounting Officer) and Director
Date: February 13, 1997
<PAGE>
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<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> DEC-31-1996
<CASH> 579,963
<SECURITIES> 0
<RECEIVABLES> 2,208,868
<ALLOWANCES> 178,695
<INVENTORY> 572,694
<CURRENT-ASSETS> 3,513,310
<PP&E> 11,729,311
<DEPRECIATION> 273,906
<TOTAL-ASSETS> 15,928,911
<CURRENT-LIABILITIES> 9,814,691
<BONDS> 0
0
3,289,556
<COMMON> 17,693,852
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 15,928,911
<SALES> 4,259,659
<TOTAL-REVENUES> 4,259,659
<CGS> 2,665,255
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<OTHER-EXPENSES> (332,655)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 387,256
<INCOME-PRETAX> (2,295,348)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,782,011)
<DISCONTINUED> (486,663)
<EXTRAORDINARY> 0
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<NET-INCOME> (2,295,348)
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