U.S. SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                   FORM 10-KSB

(Mark 1)    X       Annual Report Under Section 13 or 15(d) of The Securities 
           ---      Exchange Act of 1934 (Fee Required) for the Fiscal Year
                    Ended June 30, 1996

                    Transition Report Under Section 13 or 15(d) of The
                    Securities Exchange Act of 1934 (No Fee Required) for the
                    Transition Period from ________ to ________

                         Commission file number 0-22450

                           COUNTRY WORLD CASINOS, INC.
                  -------------------------------------------
                 (Name of Small Business Issuer in its Charter)

               Nevada                                     13-3140389
      ------------------------------                  ------------------
     (State or other jurisdiction of                   (I.R.S. Employer 
     incorporation or organization)                   Identification No.)

          4155 E. Jewell Avenue
          Suite 1000
          Denver, Colorado                                   80222
          ---------------------------------------            -------
          (Address of principal executive offices)          (Zip Code)

       Registrant's telephone number, including area code: (303) 639-5001

        Securities Registered Pursuant to Section 12(b) of the Act: None

           Securities Registered Pursuant to Section 12(g) of the Act:

                          $.001 Par Value Common Stock
                          ----------------------------
                                (Title of Class)

     Check  whether  the issuer (1) filed all  reports  required  to be filed by
Sections 13 or 15(d) of the  Securities  Exchange  Act during the past 12 months
(or for such  shorter  period  that the  Registrant  was  required  to file such
reports),  and (2) has been subject to such filing  requirements for the past 90
days. Yes  X   No
    
     Check if there is no disclosure  of  delinquent  filers in response to Item
405 of  Regulation  S-B  contained  in  this  form,  and no  disclosure  will be
contained,  to the  best of  Registrant's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [  ]

         State Issuer's revenues for its most recent fiscal year - None

     The aggregate  market value of the  approximately  3,400,734  shares of the
Company's  voting stock held by  nonaffiliates,  computed at the average bid and
asked  prices of such  stock in the  over-the-counter  market,  as quoted on the
Electronic Bulletin Board on October 8, 1996 ($.328125), was $1,115,866.

     As of October 8, 1996, the Registrant had outstanding  10,836,187 shares of
its common stock, par value $.001.



<PAGE>

                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS


     (a) General Development Of Business

         Country World Casinos,  Inc., the Registrant (the "Company" or "Country
World") was incorporated on November 9, 1982 under the name,  Innovative Medical
Technology,  Inc. The Company was  organized to engage in the medical  industry.
The  Company  effected a public  offering in 1983.  The Company was  essentially
inactive until 1990 when it undertook the manufacturing of monolithic  composite
panels for use in the construction of semi-truck  trailers,  shipping containers
and industrial  buildings.  The Company  discontinued this business in September
1992.

         In  1993,  the  Company  changed  the  focus  of its  planned  business
operations to the construction of a large, full service,  first-class  casino in
Black Hawk,  Colorado.  In August,  1993, the Company  completed the acquisition
from New Allied Development Corporation and its subsidiary,  Tommyknocker Casino
Corp.,  of certain real property  located in Black Hawk,  Colorado known as Mill
Sites 12 and 13,  and the Smith  Lode  Mining  Claim,  U.S.  Survey No. 502 (the
"Property").  Except as specifically  provided elsewhere herein to the contrary,
New  Allied  Development  Corporation  and  Tommyknocker  Casino  Corp.  will be
referred to hereinafter collectively as "New Allied." See Item 2.

          Since the  Company's  purchase  of the  Property in August  1993,  the
Company's  activities  have focused on obtaining  the  necessary  financing  and
making preparations for construction of the casino on the Property.  The Company
has been able to obtain some  financing, but  sufficient  financing has not been
obtained to commence  construction of this project.  The Company's  efforts have
included the  completion of an extensive  excavation  project  consisting of the
removal of  approximately  60,000 cubic yards of rock and dirt,  preparation  of
working  drawings  for the  foundation  of the  project,  design of the interior
casino and entertainment areas of the project, work with the Colorado Department
of  Transportation  for the redesign of Highway 119, the main access road to the
Property,  and work with the Black  Hawk-Central City Sanitation  District for a
sewer tap and with the City of Black  Hawk's  Water  District to provide a water
tap to the Property. Although these efforts have not been completed, the Company
believes  that,  if  financing  were  obtainable,  it should be in a position to
construct an entertainment and gaming facility on the Property.

         In the fiscal year ended June 30,1995,  the Company borrowed $1,000,000
from Holly  Products,  Inc.  ("Holly").  On April 20, 1995,  the Company  issued
5,000,000  shares of its common stock to Holly in exchange for the  cancellation
of the $1,000,000 indebtedness,  plus interest. The Company also agreed to grant
Holly the right to  purchase  up to an  additional  20,000,000  shares of common
stock at $.20 per share (a total of  $4,000,000)  if such  funding was  provided
within a reasonable time and progress continued to be made concerning  financing
for the casino  project.  The Company and Holly agreed that Holly would  provide
$250,000  to the Company by no later than June 30,  1995,  for which the Company
would  issue  1,250,000  shares of its common  stock.  Holly did not provide the
$250,000 to the Company by June 30, 1995; however, subsequent to the advancement
of the $1,000,000  referred to above, Holly has advanced $285,068 to the Company
through June 30, 1996.

         The Company is in need of substantial, additional financing in order to
complete  construction and to commence operation of the casino.  There can be no
assurance  that the Company will be able to obtain the necessary  financing.  In
addition,  the  Company's  ability to operate the casino will be dependent  upon
substantial other conditions, including the obtaining of licenses and compliance
with governmental regulations, grading and construction of the casino, obtaining
the  necessary  permits  and  approvals  from the City of Black  Hawk and  other
regulatory  bodies,  procuring  gaming  equipment  on  satisfactory  terms,  and
accomplishing  these  objectives  in a  timely  manner.  It  will  be  extremely
difficult  for the Company to accomplish  these  objectives in order to commence
operations of the casino in the current fiscal year.


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<PAGE>

         During the fiscal year ended June 30, 1995, the Company's disagreements
with New  Allied  intensified.  As a result  of New  Allied's  unwillingness  to
cooperate  with the  Company,  New  Allied's  failure to secure a release of the
$475,000 first deed of trust on the Property, New Allied's misrepresentations to
the Company and  subsequent  legal  problems  involving New Allied,  the Company
instituted litigation against New Allied. See Item 3.

         New Allied commenced  foreclosure  proceedings  involving the Property.
Due to the pendency of these proceedings, on October 12, 1995, the Company filed
a  Voluntary  Petition  Under  Chapter 11 of the  Bankruptcy  Code in the United
States  Bankruptcy  Court,  District of Colorado  (Case No. 95 20563 RJB).  As a
result,  all  creditors of the Company are stayed from  commencing or continuing
any action or enforcing  any judgment or lien against the Company or property of
the Company,  except as otherwise authorized pursuant to Title 11 U.S.C. 362(b).
Relief  may be sought by the  filing of a  complaint  in the  Bankruptcy  Court,
pursuant to Title 11 U.S.C.  362(d).  At present,  the effects of the bankruptcy
proceeding  on the long term  outlook  for the  Company,  and the ability of the
Company to commence  development of the Property, are unclear.

         In March 1996 the  Bankruptcy  Court  granted the  Company's  motion to
approve $5 million in financing,  which  financing was obtained on May 31, 1996.
The $5 million  financing  was  obtained  from a group of lenders led by Kennedy
Funding,  Inc. and Anglo-American  Financial as agent  ("Kennedy").  The lending
group  included  Norlar,  Inc.  Norlar,  Inc.  is  a  closely-held   corporation
beneficially owned by Larry Berman and his wife. Mr. Berman is a director of the
Company, and an officer, director and principal shareholder of Holly.

         In connection with this  financing,  the Company made a Promissory Note
effective May 20, 1996 payable to Kennedy in the principal  amount of $5 million
with  interest  payable  at the rate of 15% per annum  until  May 19,  1997 (the
"First Year  Interest  Obligation")  and at a rate of 24% per annum  thereafter.
Payments of principal  and  interest are payable as follows:  (a) the First Year
Interest  Obligation was prepaid at closing;  (b) commencing on May 19, 1997 and
for each month  thereafter,  the Company is to make interest only  payments,  in
advance,  in the amount of 2% of the then existing  principal  balance due under
the Note; and (c) the entire outstanding  principal  balance,  together with all
accrued and unpaid  interest,  if not previously  paid, shall be finally due and
payable on May 19, 1999.  The holder of the Note may accelerate the due date for
the entire  balance of  principal,  interest and other sums due upon maturity in
the event of default under the Note.  The default rate of interest is 24% during
the first loan year and 36%  thereafter.  The Note is secured by a first deed of
trust on the Property,  and any buildings,  fixtures and any materials which are
now or may hereafter be located on the Property. The Note has been guaranteed by
Holly.  In addition,  Holly and the Company  have entered into an  environmental
indemnity  agreement  with  Kennedy  pursuant to which they will defend and hold
harmless the co-lenders from any environmental claims.

         The Company  received net proceeds of  approximately  $2,838,000  after
payment of loan  commitment  fees,  loan servicing fees and points to Kennedy of
approximately  $824,500 (of which  $247,500 was received by Norlar,  Inc.),  the
First Year Interest  Obligation  of $750,000 (of which  $352,500 was received by
Norlar,  Inc.) and  $610,000 for release of the prior first deed of trust on the
Property.  The  holder of that deed of trust was the  holder of a note which had
not been paid by New Allied.

         Pursuant to the Order of the Bankruptcy Court, the Company will receive
a credit  for the  amount  paid to the  holder of the note from New  Allied as a
direct offset against the Note made by the Company to New Allied.  The note from
the  Company to New Allied was  secured by a second  deed of trust  against  the
Property.  The net  proceeds  received by the Company from the loan closing have
been  paid  into an  interest  bearing  account  pending  further  order  of the
Bankruptcy  Court.  


                                        3

<PAGE>


          Gaming has become  increasingly  popular  in the United  States,  with
substantial new operations  commenced in various  locales  throughout the United
States  since 1990.  The first full year of gaming  operations  in Colorado  was
1992.  However,   because  of  the  increased   popularity  of  gaming  and  the
proliferation of gaming establishments throughout the United States, competition
for funds for new  operations  is intense.  The Company is  exploring  potential
financing alternatives,  including equity offerings, borrowings, joint ventures,
etc. The Company has no commitments for any such financings, and it is presently
unknown  whether  the  Company  will be able to  complete  its casino  plans and
commence operations.  The Company has incurred substantial net losses, and has a
working capital  deficiency of approximately  $738,600 at June 30, 1996. Insofar
as the  Company  has not  completed  its casino  facility,  it has  received  no
revenues from operations from these planned business  activities.  The Company's
financial  statements  have  been  presented  on the  basis  that  it is a going
concern,  which  contemplates  the realization of assets and the satisfaction of
liabilities in the normal course of business.  The Company's ability to continue
in  existence  is  dependent  upon its  ability to obtain  additional  long-term
financing,  achieve profitable operations and to finalize a plan satisfactory to
interested parties in the bankruptcy proceeding. The financial statements do not
include any adjustments  relating to the  recoverability  and  classification of
recorded asset or liability  amounts which might be necessary should the Company
be unable to continue in existence. See Items 6 and 7.

     (b) Business of the Company

         As  stated  above,  the  Company  has  acquired  the  Property  and has
commenced preliminary work on the construction of a gaming facility thereon. The
Property is more particularly described in Item 2.

         The Property is located in Black Hawk, Colorado.  Limited stakes gaming
($5.00  or less  per bet) was  approved  in  Colorado  in  November  1990 in two
historic gold mining areas - Black  Hawk/Central  City and Cripple Creek.  Black
Hawk and Central City are contiguous, located approximately 40 miles from Denver
and 10 miles from Interstate  Highway 70. Casinos located in Black  Hawk/Central
City  serve  primarily  the  residents  of  Denver  and  Boulder,  Colorado  and
surrounding  communities,  an area  with a  total  population  of  approximately
2,000,000.

         The City of Black Hawk is located in a narrow  valley in the  foothills
of the Colorado Rockies and is serviced by two-lane, winding mountain roads that
require extremely cautious driving, especially in bad weather. Congestion on the
roads  leading  into Black Hawk is not uncommon  during the peak summer  season,
holidays,  and other times of the year and may  discourage  potential  customers
from traveling to the Company's proposed casino.

         Limited  stakes gaming did not commence in Colorado until October 1991,
so there is limited experience in Colorado from which to evaluate the likelihood
of success of the Company's proposed gaming  operations.  Although proceeds from
gaming  operations  have  increased  significantly  since 1991,  the results may
reflect the novelty of limited gaming. In addition,  the Black Hawk/Central City
casino market is characterized by intense  competition.  As the number of gaming
machines in operation has increased over the past three years,  average revenues
per machine have declined significantly. A number of small Colorado casinos have
ceased operations,  and others have filed for protection under Chapter 11 of the
Bankruptcy Code. Others have closed temporarily or reduced  employees,  and many
casinos may not be operating profitably.  In addition,  although Colorado voters
have  rejected  the  expansion of gaming to other  markets in  Colorado,  future
initiatives  could  expand  limited  gaming in Colorado to other  locations.  In
addition to competing with other casinos in Black  Hawk/Central City and Cripple
Creek, the Company's  proposed Colorado casinos may compete for customers with a
casino  located on an Indian  reservation  in Colorado or with  casinos in other
gaming  jurisdictions.  Furthermore,  the Company  will be  competing  with many
established   companies,   some  of  which  have  greater  financial  resources,
experience and expertise than the Company. The Company is also aware of


                                        4

<PAGE>

other  companies that have announced  plans for the development and operation of
gaming and relating  facilities in Black Hawk/Central City which are anticipated
to be larger  than those  presently  operated in that area.  In general,  local,
state and national competition is expected to remain high during the foreseeable
future, as gaming  activities  expand in traditional  gambling cities and in new
jurisdictions,   many  of  which  have  adopted  or  are  considering   gambling
legislation.

          The Company  believes that its proposed gaming facility may be able to
compete  successfully  in Black Hawk based on its size,  country  western theme,
attractive  decor and parking  availability.  The  project's  projected  size of
215,000 square feet will position it as one of the largest casino facilities not
only in Black  Hawk/Central  City,  but in the  State of  Colorado.  The  gaming
operation is anticipated to include  approximately 1,000 slot machines comprised
of  nickel,  quarter,  dollar  and five  dollar  slots.  Plans  also  include 32
blackjack tables and 15 poker tables.

         A country western theme with  entertainment and special programs,  will
be the  cornerstone  of the  facility  which  will  offer a major  entertainment
theater, a large buffet, a down-home country steak house, and ample parking. The
Company  does not  believe  that  gaming  alone will  continue to be the driving
attraction to the present  casinos.  The Company believes that the lack of other
amusement  alternatives  contributed to the inability of many small,  storefront
casinos to continue in business in the Black Hawk/Central City area. The Company
believes  that  its  country  theme  will  make  it a  unique  operation,  and a
destination  facility in the Black  Hawk/Central  City area.  The  Company  will
emphasize service, friendly atmosphere,  good food and entertainment provided in
a country music style. The Company's plans are for parking in excess of 400 cars
on site and an  additional  700 car parking lot off site.  The  availability  of
parking has been a significant factor in business operations of other casinos in
the Black Hawk/Central City area.

         The ownership and operation of gaming facilities is heavily  regulated.
No gaming may be conducted  in Colorado  unless  licenses are obtained  from the
Colorado Limited Gaming Control  Commission (the "Colorado Gaming  Commission").
The  Division  of Gaming of the  Department  of Revenue of the State of Colorado
(the "Division of Gaming")  licenses,  implements,  regulates and supervises the
conduct of limited stakes  gaming.  The Director of the Division of Gaming under
the supervision of the Colorado Gaming Commission, has been granted broad powers
to insure  compliance  with the law and  regulations.  It is a stated  policy of
these  authorities  that public  confidence and trust can be maintained  only by
strict  regulation  of all  persons,  locations,  practices,  associations,  and
activities  related to the operation of licensed gaming  establishments  and the
manufacture or distribution of gaming devices and equipment.

         Prior to commencement of operations of the Company's  proposed  Country
World Casino, the Company will be required to obtain a retail gaming license and
an operator's gaming license, both of which must be renewed annually. No person,
such as the Company,  can have an  ownership  interest in more than three retail
licenses.  Hence,  the Company's  business  opportunities  in Colorado  could be
limited accordingly.

         The  Colorado  Gaming  Commission  has the power to deny any license or
renewal thereof to any person that it considers to be "unsuitable".  In order to
be found suitable, a person must be of good moral character, honesty, integrity,
and,  in  general  terms,  must be  free  from  previous  criminal  or  unsavory
convictions  or  similar  acts.  The  Colorado  Gaming  Commission  may  require
substantial   information  in  connection  with  a  suitability   investigation,
including  personal  background  and  financial  information,  source of funding
information, and a sworn statement that such person or entity is not holding the
Company's  securities for any other party, and  fingerprinting.  The expenses of
investigation are borne by the applicant.

         During the fiscal year ended June 30, 1995, the Company did substantial
work  in  preparing  the  necessary  gaming  applications.  However,  due  to an
investigation by the SEC which was then pending and other problems involving New
Allied, it was the belief of the Company's management that it would be imprudent
to file the  applications.  During the fiscal  year  ended  June 30,  1996,  the
Company  filed its  Petition  under  Chapter 11 of the  Bankruptcy  Code and was
embroiled in dispute with New Allied. If and when the Company determines to file
the  applications,  the  investigation by the Colorado Gaming  Commission may be
extremely  lengthy and expensive.  Moreover,  the Colorado Gaming Commission has
substantial administrative


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discretion.  It may choose to inform the  Company of defects in its  application
(and  permit  the  Company  to  cure  the   deficiencies)  or  simply  deny  the
applications of persons  connected with the Company.  The Company is considering
revisions to strengthen its application. However, there can be no assurance that
the persons required to be found suitable will be found suitable by the Colorado
Gaming Commission, or that the Company will be issued a retail gaming license.

         In addition,  all the Company's employees will be required to apply for
and  receive  a support  or key  employee  gaming  license  prior to  commencing
employment. All such licenses obtained will be revocable and non-transferable.

         If the Company is successful  in obtaining a retail gaming  license and
opening its casino, it will be subject to comprehensive rules and regulations of
the  Colorado  Gaming  Commission  requiring it to maintain  adequate  books and
records and to comply with  operating,  security  and payoff  procedures.  Rules
regarding  gaming,  cheating  and  other  fraudulent  practices  have  also been
adopted,  which rules the Company will be  obligated to police and enforce.  The
Company will also be required to inform the Colorado  Gaming  Commission  of any
changes in its officers or directors or substantial  changes in equity ownership
of the Company, and of its intent to make any public offering of its securities.

         Other  state  regulatory   agencies  will  also  impact  the  Company's
operations.  It will be  particularly  important  for the  Company  to  obtain a
license to serve alcoholic  beverages.  Rules and regulations in this regard are
strict, and loss or suspension of a liquor license could  significantly  impair,
if not ruin, a licensee's operation.  Local building, parking and fire codes and
similar  regulations  could also impact the Company's  proposed  development and
operation of the Property and other  properties  the Company may seek to develop
in the future.

         Effective  October  1 of each  year,  the  Colorado  Gaming  Commission
establishes the gross gaming revenue tax for the following 12 months.  Under the
Colorado Constitution,  the Colorado Gaming Commission is authorized to increase
the gaming tax rate to as much as 40%. A recent tax limitation  amendment to the
Colorado Constitution,  however, provides that neither the State of Colorado nor
any local  government may increase the tax rate without an  affirmative  vote of
the  public;   therefore,  a  question  exists  regarding  the  Colorado  Gaming
Commission's  ability  under the  Colorado  Constitution  to increase  the state
gaming tax above 20% without such a vote.  The Colorado  Gaming  Commission  has
determined  that,  for the year  commencing  October 1, 1996,  the gross  gaming
revenue tax will be 2% of the first $2,000,000 of gross gaming  revenues;  4% of
the revenues  between  $2,000,000 and  $4,000,000;  14% of the revenues  between
$4,000,000  and  $5,000,000;   18%  of  the  revenues  between   $5,000,000  and
$10,000,000; and 20% of the revenues in excess of $10,000,000.

         In addition,  a "device fee" is required for each gaming  device (i.e.,
each gaming  machine  and each space at a gaming  table).  Effective  October 1,
1994,  the annual fee was reduced from $100 to $75 per device and is expected to
remain at this rate through 1996. The City of Black Hawk has established  annual
fees per device of $750.  The City of Black Hawk also imposes  liquor  licensing
fees, restaurant fees and parking impact fees.

         Insofar as the Company's  gaming facility has not been  developed,  the
Company  does  not have  experience  to  determine  seasonality  of  operations.
However,  it is anticipated that the highest levels of business  activities will
occur in the peak summer tourist season.  Weather  conditions can be expected to
have a significant impact on the Company's operations.

         Much of the County in which  Black Hawk is located  was once  active in
the mining  industry.  The area has been  designated  by the U.S.  Environmental
Protection  Agency (the "EPA") as a super-fund  site on the National  Priorities
List as a result of  contamination  from the mining  activity  in the area.  The
Company,   through   independent   environmental   consultants,   has  conducted
environmental  examinations.   The  Company  has  also  conducted  environmental
remediation   pursuant  to  an  administrative   consent  order  with  the  EPA.
Substantial  amounts of tailings and waste rock were removed from the  Property.
The  remediation  was performed in accordance with the approved work plan and is


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now complete and fully paid.  A barrier wall was also  constructed.  The Company
paid  $656,000 in  connection  with this work during the past two fiscal  years.
Based on the work performed to date,  and the consulting  work performed for the
Company,  the Company does not believe that further  remedial  activity  will be
required;  however,  there can be no assurance  what costs,  if any, the Company
might be  required  to incur in the  future  in  connection  with  environmental
matters relating to the Property or other sites the Company might acquire in the
future.  In connection  with the $5 million in financing  obtained from Kennedy,
the Company and Holly entered into an  environmental  indemnity  agreement  with
Kennedy pursuant to which they will defend and hold harmless the co-lenders from
any environmental claims.



ITEM 2.  DESCRIPTION OF PROPERTY

         The Company's  Property is located in the town of Black Hawk.  The town
of Black  Hawk is part of the  Central  City and Black  Hawk  National  Historic
Landmark,  established  in 1989 by the United  States  Department  of  Interior,
National Park Service.  In conformance with this designation,  the town of Black
Hawk in October 1990 established the Architectural and Design Review Guidelines,
authorizing the town to regulate historical and architectural matters within the
town.  These guidelines are used by Black Hawk's Historic  Architectural  Review
Commission ("HARC") to evaluate and approve all applications for construction.

         Furthermore,  the  amendment to the Colorado  Constitution  authorizing
limited stakes gaming provides that such gaming shall be conducted in structures
which conform, as determined by the respective  municipal governing body, to the
architectural  styles  and  designs  common to the area prior to World War I and
which conform to the requirements of applicable respective municipal ordinances,
regardless of the age of the  structure.  Accordingly,  the Company has designed
its building in  conformance  with the  requirements  of HARC,  and the building
design will reflect the architectural style consistent with the guidelines.

         The site is  located  on  Colorado  State  Highway  119,  approximately
one-quarter  mile past the Gregory  Street  turn-off  that leads to Central City
through  Black  Hawk.  As  such,  the  Company's  casino  facility  will  not be
contiguous  to the many  casinos  which are  located on Gregory  Street and Main
Street in Black  Hawk.  The  facility  will be  designed  to allow for a maximum
exposure to approaching traffic, and will be in a direct site line from the turn
from the Highway into the town of Black Hawk.  The Company  believes  that it is
this ability,  and ease of access that should  provide a competitive  benefit to
the other  casinos which are located in the central  portion of town.  Moreover,
many casinos in Black  Hawk/Central  City lack contiguous or convenient  parking
and, as a result, have had difficulty in attracting and retaining customers.  In
contrast, the Company's site will offer convenient parking to its customers.

         The Company's Property was acquired in August 1993 from New Allied. The
Company paid to New Allied $550,000 in cash,  delivered a promissory note in the
amount of $3,450,000  and issued  2,250,000  shares of a newly created  Series A
Preferred  Stock,  which is convertible to Common Stock on a one-for-one  basis.
The Company also obligated itself to file a Registration  Statement to cover the
distribution of the Series A Preferred Stock to the  shareholders of New Allied.
During the fiscal  year ended June 30,  1995,  the Company  discontinued  making
installment  payments on the  promissory  note to New Allied.  In addition,  the
Company did not file a registration  statement on behalf of New Allied.  As more
fully discussed in Item 3, the Company initiated  litigation against New Allied.
New  Allied  has filed  counterclaims  in that  litigation,  and has  instituted
foreclosure proceedings on the Property.

         In the fiscal  year ended June 30,  1995,  the  Company  continued  its
preliminary  plans  to  construct  a  casino  on  the  Property.  At a  cost  of
approximately  $1,000,000,  the Company completed the excavation of the site for
the casino in December  1994.  The  Company has also  refined its plans for site
improvement of the casino and gaming facility.  Further construction work on the
property  will be dependent  principally  upon the  Company's  ability to obtain
additional financing. The Company's majority shareholder, Holly, has engaged in

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extensive work to obtain this financing,  but currently there are no commitments
to obtain this financing.  The Company  estimates that  additional  construction
costs to  complete  and  commence  operations  of an  entertainment  and  gaming
facility will be approximately $30,000,000.

         Due  to  the  substantial   amount  of  construction   created  by  the
legalization  of limited  stakes gaming in Black  Hawk/Central  City,  the Black
Hawk/Central  City Sanitation  District's  sewage  treatment  facilities  became
inadequate.  The  District  completed  an expanded  facility in March 1995.  The
expansion  tripled  the  District's  treatment  capacity.  The  Company has been
informed that the treatment plant is currently operating at approximately 35% of
its capacity,  and has been informed by District  officials that, as a result of
the expansion,  the District will be able to handle growth for approximately the
next five to seven  years.  The  District  has  informed  the  Company  that the
estimated  fee  for the  sale of a tap to the  Company  for  the  connection  of
improvements at the Property will be $1,501,875.

         In September 1993, the Company entered into a Consulting Agreement with
First Federal Mortgage & Loan Company ("First  Federal"),  an affiliate of Grady
Sanders.  Pursuant to this Agreement,  First Federal agreed to assist and advise
the Company in  construction  and  development  of the  project,  including  the
selection of the general contractor, architect, interior designer and engineers.
The Company  agreed to pay $30,000 to First  Federal  for these  services,  plus
50,000 shares of the Company's Common Stock. The Common Stock was not issued. In
March 1995,  the Company  entered  into a new  Consulting  Agreement  with First
Federal.  It  was  agreed  that  the  50,000  shares  would  not be  issued.  As
compensation for the consulting services,  the Company agreed to pay a fee equal
to 5% of the gross expenditures  (excluding any expenditures for the acquisition
or leasing of gaming devices) paid or incurred by the Company through completion
of  construction  with  respect to any  project of the  Company  for which First
Federal  provided  services  to or on  behalf  of the  Company  pursuant  to the
Agreement.  During the fiscal year ended June 30, 1995,  the Company  terminated
the Consulting  Agreement with First  Federal.  The Company  believes that First
Federal  has been  fully  paid for its  services.  Although  First  Federal  has
disputed this contention, it is unknown whether any action will be taken.

         In August  1993,  the  Company  contracted  with New Allied to purchase
vacant land off Colorado Highway 119 near the Property. The Company will be able
to use this land for additional parking.  The Company's  preliminary,  long-term
plans are to consider the construction of a hotel on this property. There can be
no assurance that this property will be developed by the Company.

         The Company's  executive offices are located in Denver,  Colorado.  The
Company leases  approximately  1,400 square feet at The Colorado Club, 4155 East
Jewell  Avenue,  Suite 1000, in Denver for $1,543 per month.  The Company leases
the  office  from a  non-affiliate  and has agreed to this  arrangement  through
December 1996.


ITEM 3.  LEGAL PROCEEDINGS

     I. The Company is the plaintiff and a  counterclaim  defendant in a lawsuit
pending in Denver, Colorado District Court, Case No. 95CV2310,  entitled Country
World Casinos,  Inc., a Nevada  corporation,  Plaintiff,  v. Tommyknocker Casino
Corp., a Colorado corporation and New Allied Development Corporation, a Colorado
corporation,  Defendants,  v. Country World Casinos, Inc., a Nevada Corporation,
Holly Products,  Inc., a New Jersey  corporation,  Ronald G. Nathan, Sal Lauria,
Roger  D.  Leclerc,   William  H.  Patrowicz  and  David  Singer,   Counterclaim
Defendants.

         This  lawsuit  was  commenced  by the Company on May 26,  1995.  In the
Company's Amended  Complaint,  the Company has asserted eight claims against New
Allied  Development  Corporation  ("New Allied") and  Tommyknocker  Casino Corp.
("TKCC"), as follows:

         A. In its First Claim for Relief,  the Company seeks a declaration that
     it is not obligated to make any additional payments to TKCC under a certain
     promissory  note until such time as TKCC  secures the release of a certain,
     prior deed of trust. This claim arises out of a promissory note (the 


                                        8

<PAGE>

     "Note"  given to TKCC as part of the  Company's  purchase  of certain  real
     property in  Blackhawk,  Colorado  from TKCC in August,  1993.  The Note is
     secured  by a  second  deed of trust on the  property  purchased.  The Note
     provides  that  at such  time  as TKCC  received  payment  of  $725,000  in
     principal  and  interest  on the Note,  TKCC would  immediately  secure the
     release of the first deed of trust on the  property.  The Company paid said
     $725,000 to TKCC in mid-January of 1995. TKCC, however, did not secure, and
     still  has not  secured,  the  release  of the first  deed of trust,  which
     secures a  promissory  note with an unpaid  balance in excess of  $500,000.
     Accordingly,  after making the monthly  installment  payments of $33,184.30
     each under the Note in February,  March and April of 1995,  the Company has
     withheld  payments from TKCC until the first deed of trust is released as a
     lien on the  property.  The  Company  seeks a  declaration  as to its legal
     rights  and that it is not in  default  under the Note due to TKCC's  prior
     breach of its obligations under the Note.

         B. The Company  paid over  $656,000 to or on behalf of TKCC to clean up
     and remediate  environmental  contamination on the property  purchased from
     TKCC in August  1993.  The  Company  seeks to  recover  all or part of this
     amount from TKCC under the following legal theories:

               1.  That  the   environmental   contamination   on  the  property
         constitutes an encumbrance,  which is in breach of the covenant against
         encumbrances  contained in the warranty deed by which TKCC conveyed the
         property to the Company (Second Claim for Relief).

               2. That TKCC and New Allied made fraudulent misrepresentations to
         the  Company  regarding  the  costs of the  environmental  clean up and
         remediation  and  that the  Company  is  entitled  to  recover  damages
         resulting from these  misrepresentations,  as well as exemplary damages
         (Third Claim for Relief).

               3. That TKCC and New Allied made negligent  misrepresentations to
         the  Company  regarding  the  costs of the  environmental  clean up and
         remediation  and  that the  Company  is  entitled  to  recover  damages
         resulting from these  misrepresentations,  as well as exemplary damages
         (Fourth Claim for Relief).

               4. That TKCC's and New Allied's  actions violated their duties of
         good faith and fair dealing (Fifth Claim for Relief).

               5. That the  misrepresentations of TKCC and New Allied constitute
         deceptive  trade  practices  in  violation  of  the  Colorado  Consumer
         Protection Act (Sixth Claim for Relief).

               6. That any agreement under which the Company  purportedly agreed
         to pay for the  environmental  remediation  and  clean up costs  (which
         agreement the Company  denies exists) is void and  unenforceable  under
         various  principles of law,  including the statute of frauds and CERCLA
         (Seventh Claim for Relief).

         C. TKCC received 2,250,000 shares of non-voting  preferred stock in the
     Company,  which preferred stock was  subsequently  given voting rights,  as
     part of the  consideration  given by the  Company to TKCC to  purchase  the
     property.  Further, in a subsequent real estate purchase  transaction,  New
     Allied was given  250,000  shares of common stock with voting rights in the
     Company.  The  Company  claims  that  Grady  Sanders  was  involved  in and
     controlled,  directly or indirectly,  individually and/or in common control
     with others,  TKCC and New Allied at all pertinent times. Since Mr. Sanders
     has been denied  gaming  licensure by the State of New Jersey,  the Company
     claims that Mr.  Sanders,  and therefore  New Allied and TKCC,  are persons
     whom the  Colorado  Gaming  Commission  will  determine  to be  unsuitable.
     Therefore, the Company seeks a court order requiring TKCC and New Allied to
     sell to the Company their 2.5 million shares of voting stock in the Company
     at the price set forth in  ss.47.1-4.508 of Rule 4.5 of the Colorado Gaming
     Regulations (Fifth Claim for Relief).


                                        9

<PAGE>

         D. Lastly,  the Company seeks a full  accounting and declaration of all
     payments  which  it has  made to TKCC  under  the Note  (Eighth  Claim  for
     Relief).

         TKCC and New  Allied  have  filed an  Answer  to some of the  Company's
claims,  denying  liability.  In  addition,  they have filed a Motion to Dismiss
certain of the claims.  The  Company has filed a Motion for Summary  Judgment on
its First and Second  Claims for Relief.  None of these  Motions have been ruled
upon by the Court,  and the  matter is now stayed as a result of the  bankruptcy
filing by the Company.

         TKCC and New Allied filed Counterclaims against the Company, as well as
against Holly Products, Inc. ("Holly"), the majority shareholder in the Company,
Ronald G. Nathan ("Nathan"),  Sal Lauria ("Lauria"), and David Singer ("Singer")
former directors of the Company, and Roger G. Leclerc ("Leclerc") and William H.
Patrowicz  ("Patrowicz"),  who  are  currently  officers  and  directors  of the
Company.

         The  First  Counterclaim  is only  against  the  Company,  and seeks to
recover  principal and default  interest  allegedly due on the Note. The Company
has filed an Answer denying liability on this counterclaim.

         In its Second Counterclaim,  TKCC alleges that the Company has breached
an agreement to file a registration  statement for the preferred  stock given to
TKCC as part of the consideration for purchase of the property.  The Company has
filed an Answer denying liability on this counterclaim.

         In their  Third and  Fourth  Counterclaims,  TKCC and New  Allied  have
asserted that the Company, as well as Holly, Nathan, Lauria, Leclerc,  Patrowicz
and Singer,  breached  their  fiduciary  duties by the  issuance of five million
shares of common stock in the Company to Holly. In the Third Counterclaim,  TKCC
and New  Allied  seek  actual and  exemplary  damages  allegedly  caused by said
alleged  wrongful  issuance of stock. In the Fourth  Counterclaim,  TKCC and New
Allied seek an  injunction  requiring  the Company and its board of directors to
cancel the five million shares of stock issued to Holly.

         The Company,  as well as Leclerc,  Holly,  Patrowicz  and Singer,  have
filed  Answers  denying any  wrongful  conduct or any  liability  to TKCC or New
Allied  resulting from said issuance of stock to Holly,  and have  affirmatively
asserted that said issuance of stock was proper.  Neither  Nathan nor Lauria has
been served with the summons and counterclaim, and have not yet appeared in this
lawsuit.

         This  lawsuit has not yet been  scheduled  for trial,  particularly  in
light of the bankruptcy stay.

     II. TKCC filed a Notice of Election to  Foreclose on its Note in the office
of the Gilpin County Public  Trustee on or about June 15, 1995.  The Company has
denied  that it was or is in  default  under the Note  because  of TKCC's  prior
breach of the terms of the Note by its failure to secure the  immediate  release
of the first  deed of trust on the  property  upon its  receipt of  $725,000  in
January 1995. A Denver  District Court  Magistrate  ruled that since the Company
has not paid to TKCC the monthly installments under the Note since May 1995, the
Company is in default, despite TKCC's failure to secure the release of the first
deed  of  trust.  The  Magistrate's  Order  is not  appealable  to the  Colorado
appellate  courts and is not binding in any subsequent  proceeding.  The Company
intends  to  pursue  this  issue in Denver  District  Court  Case No.  95CV 2310
described above.

          The foreclosure sale was not held due to the bankruptcy petition filed
by the Company.

     III.  On October  12,  1995,  the  Company  filed a Chapter 11  Petition in
bankruptcy in the United States  Bankruptcy  Court for the District of Colorado,
Case No. 95-20563 RJB, which is currently pending.

          As discussed  in  "Management's  Discussion  and Analysis of Financial
Condition or Plan of Operation" in this Report, the Company obtained  $5,000,000
in  financing  which is secured by First  Deed of Trust on the  Company's  Black
Hawk, Colorado property. Pursuant to order of the Bankruptcy Court, New Allied's
security interest has been cancelled.  The payoff balance on the note due to New
Allied was in dispute and a claims hearing was held by the  Bankruptcy  Court in
September 1996 to determine the amount to be paid to New Allied.In November 1996
the  Bankruptcy  Court Judge  issued an Opinion and Order on the various  issues
between  the  Company  and New  Allied.  The Court held that the Company was not
entitled to any offset to New Allied's claim,  but that new Allied's claim for a
default rate of interest and attorneys'  fees would not be allowed.  The Company
has not  determined  whether it will appeal this  ruling.  In November  1996 the
Company paid  $1,309,000 to New Allied in what it believes is in full settlement
of amounts due to New Allied in connection  with the note payable to New Allied.
The Company  remains  obligated to pay the costs of registration of New Allied's
stockholdings in the Company.


                                       10

<PAGE>

     The Company has filed a Plan of Reorganization  and a Disclosure  Statement
for the Plan of Reorganization with the Bankruptcy Court. The Company intends to
file an  Amended  Disclosure  Statement  later  this  year.  A  hearing  will be
conducted before the Bankruptcy Court to consider the adequacy of the Disclosure
Statement.


     IV. In the fiscal year ended June 30, 1994, the Company was informed by the
Securities  and Exchange  Commission  (the "SEC") that the SEC had  instituted a
formal order of  investigation  concerning the  possibility of violations of the
federal securities laws by the Company.  In August 1996, the Company was advised
that  the  investigation  had  been  terminated  and  that,  at  this  time,  no
enforcement action has been recommended by the staff of the SEC.

     V. The Company is a Defendant in a lawsuit pending in Travis County,  Texas
District Court,  Cause No.  95-04782,  200th Judicial  District,  entitled James
Hamilton, Plaintiff v. Robert Todd Financial Corporation; Dean Anthony Esposito;
Marco Guy Fiore,  Jr.; Robert Bobak Fallah;  Optex Biomedical Inc.;  Pacific Rim
Entertainment, Inc.; Country World Casinos, Inc.; Defendants.

         The Plaintiff  James  Hamilton  ("Hamilton")  contends that  Defendants
Robert Todd Financial Corporation,  and its agents and/or employees,  Defendants
Dean  Anthony  Esposito,  Marco Guy Fiore,  Jr. and Robert  Bobak  Fallah,  made
misrepresentations  regarding  the  Company's  stock,  which  allegedly  induced
Hamilton's purchase of said stock.  Hamilton alleges that Defendants Robert Todd
Financial  Corporation,  Dean Anthony Esposito,  Marco Guy Fiore, Jr. and Robert
Bobak Fallah, were authorized agents of the Company,  and,  therefore,  Hamilton
alleges  that the  Company is liable for the  alleged  wrongful  conduct of said
Defendants.

         The Company has filed a Special Appearance and Answer, objecting to the
jurisdiction of the Travis County,  Texas District Court, as well as denying all
material allegations of Hamilton's Original Petition.


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         No matters were submitted  during the fourth quarter of the fiscal year
covered by this Report to a vote of security holders.


                                       11

<PAGE>

                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         The Company's  Common Stock is traded in the  over-the-counter  market,
and is quoted and is listed on the  Electronic  Bulletin Board under the symbol,
"CWRC".  The market for the Company's  Common Stock must be  characterized  as a
limited  market  due to the  relatively  low  trading  volume.  Set forth in the
following  table are high and low bid quotations for the Company's  Common Stock
for the fiscal  years ended June 30,  1995 and 1996.  All  quotations  have been
adjusted to reflect the 1-for-35  split of the  Company's  Common Stock in 1993.
The  quotations  represent  inter-dealer   quotations  without  retail  markups,
markdowns or commissions and may not represent actual transactions.


Quarter Ended                          High                Low
-------------                          ----                ---

September 30, 1994                    $4.75               $.125

December 31, 1994                      4.75                .125

March 31, 1995                         1.31                .25

June 30, 1995                           .75                .125

September 30, 1995                      .31                .03

December 31, 1995                       .19                .03

March 31, 1996                          .31                .03

June 30, 1996                           .56                 .06

         At May 16, 1996, there were  approximately  1,092 record holders of the
Company's Common Stock.

         The Company has not paid or declared cash distributions or dividends on
its Common Stock and does not intend to pay cash  dividends  in the  foreseeable
future.  Future cash  dividends  will be determined  by the  Company's  Board of
Directors based on the Company's earnings (if any), financial condition, capital
requirements  and other relevant  factors.  The Company may not pay dividends on
its Common  Stock  without  the consent of the holders of at least a majority of
the outstanding Series A Preferred Stock. In addition, the holders of the Series
A Preferred Stock shall be entitled to receive  dividends,  when and if declared
by the Board of Directors of the Company, on an equal share-per-share basis with
all  outstanding  shares of the  Company's  Common  Stock.  All of the shares of
Series A Preferred Stock are owned by New Allied,  a publicly held company.  New
Allied intends to distribute these shares to its shareholders.


ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
                                    OPERATION

         The Company's ability to obtain the additional financing and to proceed
with its plans for a gaming facility has been affected by the Company's disputes
with New Allied, which has culminated in litigation and foreclosure  proceedings
on the Property in 1995, and the Company's filing of a bankruptcy petition under
Chapter 11.

                                       12

<PAGE>

         Following  review and approval of Country  World's site and  excavation
plans, the City of Black Hawk, Colorado granted the Company a permit to commence
excavation of the site. This segment of  construction  was completed in December
1994 at a cost of  approximately  $1,000,000.  With the completion of excavation
work,  the  next  step  involving  the  facility  would be  construction  of the
foundation.  A  foundation  permit  from the City of Black Hawk must be obtained
prior to  commencing  this phase of the  project.  The  Company  estimates  that
expenses  for  services  and  materials  in  connection  with  constructing  the
foundation will be  approximately  $1,500,000.  Country World does not presently
have any of the funding necessary for this phase of the project. The Company has
no firm  understandings,  agreements or arrangements  for obtaining these funds.
There can be no assurance  that such  funding can be  obtained,  or if obtained,
that the terms and conditions  will be favorable to the Company.  Moreover,  the
Company estimates that the total project costs will approximate $30,000,000. The
Company has no commitments for this funding.

         During the fiscal year ended June 30, 1995, the Company's disagreements
with New  Allied  intensified.  As a result  of New  Allied's  unwillingness  to
cooperate  with the  Company,  New  Allied's  failure to secure a release of the
$475,000 first deed of trust on the Property, New Allied's misrepresentations to
the Company and  subsequent  legal  problems  involving New Allied,  the Company
instituted litigation against New Allied.

         New Allied commenced  foreclosure  proceedings  involving the Property.
Due to the pendency of these proceedings, on October 12, 1995, the Company filed
a  Voluntary  Petition  Under  Chapter 11 of the  Bankruptcy  Code in the United
States  Bankruptcy  Court,  District of Colorado  (Case No. 95 20563 RJB).  As a
result,  all  creditors of the Company are stayed from  commencing or continuing
any action or enforcing  any judgment or lien against the Company or property of
the Company,  except as otherwise authorized pursuant to Title 11 U.S.C. 362(b).
Relief  may be sought by the  filing of a  complaint  in the  Bankruptcy  Court,
pursuant to Title 11 U.S.C.  362(d).  At present,  the effects of the bankruptcy
proceeding  on the long term  outlook  for the  Company,  and the ability of the
Company to commence  development of the Property, are unclear.

         In March 1996 the  Bankruptcy  Court  granted the  Company's  motion to
approve $5 million in financing,  which  financing was obtained on May 31, 1996.
The $5 million  financing  was  obtained  from a group of lenders led by Kennedy
Funding,  Inc. and Anglo-American  Financial as agent  ("Kennedy").  The lending
group  included  Norlar,  Inc.  Norlar,  Inc.  is  a  closely-held   corporation
beneficially owned by Larry Berman and his wife. Mr. Berman is a director of the
Company, and an officer, director and principal shareholder of Holly.

         In connection with this  financing,  the Company made a Promissory Note
effective May 20, 1996 payable to Kennedy in the principal  amount of $5 million
with  interest  payable  at the rate of 15% per annum  until  May 19,  1997 (the
"First Year  Interest  Obligation")  and at a rate of 24% per annum  thereafter.
Payments of principal  and  interest are payable as follows:  (a) the First Year
Interest  Obligation was prepaid at closing;  (b) commencing on May 19, 1997 and
for each month  thereafter,  the Company is to make interest only  payments,  in
advance,  in the amount of 2% of the then existing  principal  balance due under
the Note; and (c) the entire outstanding  principal  balance,  together with all
accrued and unpaid  interest,  if not previously  paid, shall be finally due and
payable on May 19, 1999.  The holder of the Note may accelerate the due date for
the entire  balance of  principal,  interest and other sums due upon maturity in
the event of default under the Note.  The default rate of interest is 24% during
the first loan year and 36%  thereafter.  The Note is secured by a first deed of
trust on the Property,  and any buildings,  fixtures and any materials which are
now or may hereafter be located on the Property. The Note has been guaranteed by
Holly.  In addition,  Holly and the Company  have entered into an  environmental
indemnity  agreement  with  Kennedy  pursuant to which they will defend and hold
harmless the co-lenders from any environmental claims.

         The Company  received net proceeds of  approximately  $2,838,000  after
payment of loan  commitment  fees,  loan servicing fees and points to Kennedy of
approximately  $824,500 (of which  $247,500 was received by Norlar,  Inc.),  the
First Year Interest  Obligation  of $750,000 (of which  $352,500 was received by
Norlar,  Inc.) and  $610,000 for release of the prior first deed of trust on the
Property.  The  holder of that deed of trust was the  holder of a note which had
not been paid by New Allied.

                                       13

<PAGE>

          Pursuant  to the  Order of the  Bankruptcy  Court,  the  Company  will
receive a credit for the  amount  paid to the holder of the note from New Allied
as a direct offset against the Note made by the Company to New Allied.  The note
from the Company to New Allied was secured by a second deed of trust against the
Property.  The net  proceeds  received by the Company from the loan closing have
been  paid  into an  interest  bearing  account  pending  further  order  of the
Bankruptcy  Court.  In  November  1996 the Company  made a final  payment to New
Allied on the Note. See Item 3.

          The Company has filed an initial Plan of  Reorganization  (the "Plan")
with the Bankruptcy Court, which it is currently working to amend. The Company's
current cash resources are less than the Company's  expenses incurred during the
bankruptcy  proceedings  and its  other  accounts  payable.  The Plan may not be
acceptable to creditors of the Company for this or other reasons. If the Plan is
not confirmed,  a trustee could be appointed to liquidate the Company's property
which could result in no proceeds to holders of the common stock of the Company.

          The Company has had no revenues from operations.  The Company incurred
a loss from  operations  of  $416,440  in the fiscal  year ended June 30,  1996,
$(.04) per share,  as compared to a net loss of  $(757,659) or $(.11) per share,
for the year ended June 30, 1995. The ability of the Company to achieve revenues
in the  future  will be  dependant  upon  realization  of its plans to develop a
gaming and entertainment facility on the Property.

         In addition to  obtaining  the  necessary  financing,  the Company must
obtain  from  the  Colorado  Gaming  Commission   approval  to  commence  gaming
operations.   The  Commission's  action  is  predicated  upon  approval  of  the
applications of all of the Company's principals. The Company is taking the steps
necessary to go forward with its  submission to state  authorities of its gaming
application  and receive the required  approvals to engage in gaming  operations
within  the  State of  Colorado.  However,  there can be no  assurance  that the
Company will be successful in its efforts.  Management  believes that the length
of time and  disposition  of the gaming  approval  process  cannot be accurately
predicted  at this  point,  but that the  process  could be time  consuming  and
expensive.

         The Company intends to continue with its efforts of securing  necessary
construction and pre-opening capital through equity,  debt, and/or joint venture
opportunities as may be available.  Although the Company is actively  pursuing a
number of different options,  there can be no assurance that the Company will be
successful  in its  efforts  to raise the  funding  necessary  to  complete  the
project.

         Management   continues  to  be   encouraged   concerning   its  planned
development as Black Hawk continues to show its dominance in the Colorado gaming
market.  According to Colorado State Gaming Statistics released for August 1996,
Black Hawk produced  $20,528,005 of the reported  $39,525,185 gaming win for the
entire state representing  approximately 52% marketing share with only 20 of the
state's 59 operational casinos.


ITEM 7.  FINANCIAL STATEMENTS

         The Financial  Statements  are provided in the  accompanying  pages F-1
through F-20.


ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND 
         FINANCIAL DISCLOSURE

         In September 1994, the Company engaged as its principal  accountant the
firm of Ehrhardt  Keefe Steiner & Hottman P.C. The former  principal  accountant
for the  Company  (when it was known as  Monolite  Industries)  was  Schiemann &
Machen.  The Report of  Schiemann & Machen on the  financial  statements  of the

                                       14

<PAGE>

Company at and for the years  ended  June 30,  1993 and 1992  provided  that the
Company's  recurring  losses from  operations and net capital  deficiency  raise
substantial  doubt about the  Company's  ability to continue as a going  concern
unless  the  Company  obtains  future   profitable   operations  and/or  obtains
additional financing. The Report of Schiemann & Machen did not otherwise contain
an adverse opinion or disclaimer of opinion,  or modification as to uncertainty,
audit scope or accounting principles.

         There were no disagreements  on any matter of accounting  principles or
practices,  financial  statement  disclosure,  or auditing  scope or  procedure,
which,  if not  resolved  to the former  accountant's  satisfaction,  would have
caused it to make  reference  to the subject  matter of the  disagreement(s)  in
connection with its Report.  The Company was informed that the firm of Schiemann
& Machen had  disbanded.  The Company  received a letter from Fred V.  Schiemann
confirming his lack of knowledge of any disagreements.

         In September 1996, the Company engaged as its principal  accountant the
firm of Moore Stephens,  P.C. Moore Stephens, P.C. replaced the firm of Ehrhardt
Keefe Steiner & Hottman P.C. The report of Ehrhardt Keefe Steiner & Hottman P.C.
on the  financial  statements of the Company at and for the years ended June 30,
1995 and 1994 did not contain an adverse  opinion or disclaimer of opinion,  nor
was it modified as to uncertainty,  audit scope or accounting  principles,  with
the exception of the uncertainty  regarding the Company's ability to continue as
a going concern.  The Company does not believe that there were any disagreements
with  Ehrhardt  Keefe  Steiner  &  Hottman  P.C.  on any  matter  of  accounting
principles or practices,  financial  statement  disclosure or auditing  scope or
procedure,  during the past two years which,  if not  resolved to Erhardt  Keefe
Steiner & Hottman P.C.'s satisfaction, would have caused it to make reference to
the subject  matter of the  disagreement  in  connection  with its  Report.  The
Company received a letter from Erhardt Keefe Steiner & Hottman P.C. stating that
it was in agreement with the Company regarding these statements.

                                      15

<PAGE>
                                    PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS OF THE
         COMPANY; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT


         The following persons serve as officers and directors of the Company:

         Name                               Position
         ----                               --------

         Roger D. Leclerc                   President, Chief Executive Office
                                            and Director

         William H. Patrowicz               Secretary, Treasurer and Director

         Larry S. Berman                    Director

         Cary B. Berman                     Director

All of the  Company's  directors  were elected to their  positions in the fiscal
year ended June 30, 1995. The directors hold their offices until the next Annual
Meeting of the  Shareholders  of the  Company  and until  their  successors  are
elected. Officers serve at the discretion of the Company's Board of Directors.

         The  following  is  brief  biographical   information   concerning  the
Company's officer, directors and significant employees:

         Roger D. Leclerc,  age 46, has served as President of the Company since
December  1994.  Prior  thereto,  Mr.  Leclerc  served as the Company's  Project
Manager for its  proposed  Country  World  Casino  since May 1994.  Prior to his
involvement  with the Country World Casino project,  Mr. Leclerc was the General
Manager for the Bull Durham Casino in Black Hawk.  Immediately prior thereto, he
served as a General  Manager of the Miner's  Pick Casino in Central  City.  From
March, 1990 to June, 1992, he was the General Manager of A&L Enterprises Inc. in
Deadwood,  South Dakota,  which operated Ms. Kitty's  Wilderness Edge Casino and
Days Inn Hotel and Casino.

         William H. Patrowicz, age 48, has served as President,  Chief Operating
Officer and Director of Holly since June 1992.  From 1982 to December  1991, Mr.
Patrowicz was employed by Gunnebo  Fastening Corp., most recently as Senior Vice
President of Operations.

         Larry S.  Berman,  age 61,  has  served  as  Chairman  of the  Board of
Directors,  Secretary  and  Director of Holly 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 to raise debt
and equity funds.

         Cary B. Berman, age 35, served as a Sales Representative for Holly from
December  1992 until  December  1993 when he was  promoted to Vice  President of
Retail  Sales.  Prior to  joining  Holly,  Mr.  Berman was  President  of Active
American Apparel, Inc., a New York based clothing company, from 1985 to December
1992. Cary B. Berman is the son of Larry S. Berman.

         Section 16(a) of the Exchange Act requires the  Company's  officers and
directors  and  persons  who own  more  than  10% of a  registered  class of the
Company's  equity  securities,  to file  reports  of  ownership  and  changes in
ownership to the Securities  and Exchange  Commission.  Officers,  directors and
greater than 10%  stockholders are required by the regulations of the Commission
to furnish the Company with copies of all Section 16(a) reports they file. Based
solely on its  review of copies of such  reports  received  by it,  the  Company
believes that all filing  requirements  applicable  to its current  officers and
directors  were  complied  with for the fiscal  year ended  June 30,  1996.  The
Company is  unaware of the  compliance  of its 10%  shareholders  and its former
officers and directors.

                                       16

<PAGE>


ITEM 10. EXECUTIVE COMPENSATION

         The  following  table  sets  forth  all cash  compensation  paid by the
Company to each  Executive  Officer whose total annual salary and bonus exceeded
$100,000,  including all cash  compensation  paid the Company's  Chief Executive
Officers.

<TABLE>
<CAPTION>

                                            SUMMARY COMPENSATION TABLE


                                                                 Long Term Compensation
                                                                 ----------------------
                                 Annual Compensation               Awards            Payouts
                                 -------------------               ------            -------
                                                               Other
                                                               Annual          Restricted                                 All Other
Name and Principal                  Salary                     compensa-       Stock Awards     Options/       LTIP       Compensa-
Position                  Year        ($)         Bonus        tion (1)        (1)              SARs           Payouts    tion
==================        ====      =======       =====        =========       ============     ========       =======    =========
                                                                                                                 (1)
                                                                                                                 ===
<S>                       <C>          <C>          <C>           <C>           <C>              <C>            <C>          <C>
Suzanne M. Sullivan       1996        -0-          -0-           -0-             -0-              -0-            -0-         -0-
President and Secretary   1995        -0-          -0-           -0-             -0-              -0-            -0-         -0-
                          1994        -0-          -0-           -0-             -0-              -0-          12,500        -0-

Timothy M. Dougall        1996        -0-          -0-           -0-             -0-              -0-            -0-         -0-
Chairman of the Board,    1995      146,000        -0-           -0-             -0-              -0-            -0-         -0-
President and Chief       1994        -0-          -0-           -0-             -0-            1,250,000        -0-         -0-
Executive Officer


Jay R. Roberts            1996        -0-          -0-           -0-             -0-              -0-            -0-         -0-
President and Chief       1995       37,390        -0-           -0-             -0-              -0-            -0-         -0-
Executive Officer         1994       34,000       14,400         -0-             -0-              800,000        -0-         -0-

Roger D. Leclerc          1996       63,500         -0-          -0-             -0-              -0-            -0-         -0-
President and Chief       1995       61,000         -0-          -0-             -0-              -0-            -0-         -0-
Executive Officer         1994          750         -0-          -0-             -0-              -0-            -0-         -0-

</TABLE>

-----------------

(1)  The  Company's  present  management  has been  informed  that the Company's
     former  President,  Suzanne  M.  Sullivan,  was issued  714,285  shares (as
     adjusted to reflect a reverse  stock  split) of Common  Stock for  services
     valued at  $12,500.  There was no active  market for the  Company's  Common
     Stock when the issuance of the Common Stock was authorized.

     During the fiscal  year ended June 30,  1994,  the Company  entered  into a
     Management Agreement with WTD Associates,  Inc., a company owned by Timothy
     M. Dougall,  then  Chairman of the Board of Directors,  President and Chief
     Executive Officer of the Company and William M. Dougall,  a Director of the
     Company. The Agreement required the Company to pay to WTD $20,000 per month
     for its  services  through  December  31,  1993,  at which time the monthly
     payment  increased to $27,500.  The Agreement granted an option for 250,000
     shares of common stock at an exercise price of $.01 per share and a warrant
     to purchase  1,000,000  shares of common  stock with an  exercise  price of
     $3.50 per share. In March,  1994, the Agreement was terminated.  The option
     to purchase  250,000  shares of common  stock had been  exercised,  and the
     Company repurchased 125,000 shares at the exercise price of $.01 per share.
     The warrant to purchase  1,000,000 shares was cancelled.  Compensation paid
     to WTD  Associates  has been set  forth  opposite  the name of  Timothy  M.
     Dougall  in the Table set forth  above.  The  Company  is  unaware  of what
     portion of such compensation was paid to Timothy M. Dougall.


                                       17

<PAGE>

     During the fiscal year ended June 30,  1994,  the Company  entered  into an
     Employment  Agreement with its then President and Chief Executive  Officer,
     Jay R. Roberts.  Pursuant to this  Employment  Agreement,  Mr.  Roberts was
     entitled to receive an annual salary of $120,000,  which would be increased
     to $180,000 at the opening of the Country  World Casino.  In addition,  Mr.
     Roberts was entitled to incentive compensation equal to 4% of the Company's
     earnings before interest, taxes, depreciation and amortization. The Company
     also agreed to pay to Mr. Roberts an expense allowance of $57,600 per year.
     The Employment Agreement may be terminated for cause, including the failure
     of Mr. Roberts to obtain a license from the Colorado Gaming Commission. Mr.
     Roberts left the  Company's  employ in December  1994 and the agreement has
     been  terminated.  In  connection  with his  employment  arrangements,  Mr.
     Roberts  was  granted  options  to  purchase  up to  800,000  shares of the
     Company's common stock. Options to purchase 125,000 shares were exercisable
     until May 31, 1995, at $.25 per share.  Options to purchase  375,000 shares
     are  exercisable  from June 1, 1995 to May 31,  1997,  at $3.50 per  share.
     Options to purchase 300,000 shares are exercisable from June 1, 1997 to May
     31, 1999, at $6.00 per share.

     During the fiscal year ended June 30, 1994, Stanley Richards,  who was then
     Secretary-Treasurer of the Company, was also granted options to purchase an
     aggregate of 575,000 shares of the Company's common stock, of which options
     to purchase  75,000 shares at $.25 per share were exercised by Mr. Richards
     in April,  1994.  Mr.  Richards  holds options to purchase  250,000  shares
     exercisable  from  June 1,  1995 to May 31,  1997,  at $3.50  per share and
     options to purchase 250,000 shares exercisable from June 1, 1997 to May 31,
     1999,  at $5.00 per share.  Options  to  purchase  shares of the  Company's
     common stock were also granted to Messrs.  Cook,  Kaplan,  and Nation,  who
     were then Directors of the Company, as set forth in Item 12 below.



                                       18

<PAGE>

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following  table sets forth the persons known to the Company to own
beneficially  more than 5% of the outstanding  shares of common stock on October
8, 1996, and information as of October 8, 1996, with respect to the ownership of
common stock by each  director of the Company and by all officers and  directors
as a group.

  Name and Address of                  Shares Beneficially
    Beneficial Owner                         Owned                   Percent
  ---------------------                --------------------          -------

  New Allied Development                  2,500,000(1)                19.1%
   Corporation
  3200 Cherry Creek S. Drive
  Suite 360
  Denver, CO  80209

  Holly Products, Inc.                    7,185,453(2)                66.3%
  360 Crider Avenue
  Moorestown, NJ 08057

  Cary B. Berman                          7,185,453(3)                66.3%
  360 Crider Avenue
  Moorestown, NJ 08057

  Larry S. Berman                         7,185,453(3)                66.3%
  360 Crider Avenue
  Moorestown, NJ 08057

  Roger D. Leclerc
  3100 S. Cherry Creek Drive South
  Denver, Co 80209

  William H. Patrowicz                    7,185,453(3)                66.3%
  360 Crider Avenue
  Moorestown, NJ 08057


  All Officers and                        7,185,453(2)(3)             66.3%
  Directors as a Group
  (4 Persons)

----------

(1)  New Allied Development  Corporation is the owner of 2,250,000 shares of the
     Company's Series A Preferred Stock,  which constitutes all of the Company's
     outstanding  Preferred  Stock.  The Series A Preferred Stock is convertible
     into  Common  Stock on a one  share  for one share  basis.  The Table  also
     includes 250,000 shares of Common Stock owned by New Allied.

(2)  The above does not include an additional  20,000,000 shares of common stock
     which are the subject of a letter  agreement  between the Company and Holly
     dated April 17, 1995. See Item 12.


                                       19

<PAGE>



(3)  Messrs.  Larry B.  Berman,  Cary S.  Berman and  William H.  Patrowicz  are
     affiliated  with Holly  Products,  Inc.,  and therefore may be deemed to be
     beneficial owners of the Company's shares held by Holly Products, Inc.


ITEM 12.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         A former  President  of the  Company,  Suzanne  M.  Sullivan,  received
714,285 shares of Common Stock for services valued at $12,500. See Item 10.

         As more  fully  stated in Item 10 above,  the  Company  entered  into a
Management  Agreement  with WTD  Associates,  Inc.,  a firm  owned by Timothy M.
Dougall,  who was then Chairman of the Board of  Directors,  President and Chief
Executive  Officer  of the  Company,  and  William  M.  Dougall,  who was then a
Director of the Company. The Agreement was terminated in March, 1994.

         The Company  entered into an Employment  Agreement  with Jay R. Roberts
for a term commencing May 1, 1994, as more fully provided in Item 10 above. This
agreement was later terminated.

         The Company  granted stock options to its officers and directors in the
fiscal year ended June 30, 1994, as discussed in Items 10 and 11 above.

          The sole holder of the Company's Series A Convertible Preferred Stock,
New Allied,  acquired its shareholdings in connection with a sale to the Company
in August,  1993, of the property  upon which the Company  proposes to construct
its Country  World Casino.  New Allied also received cash and a promissory  note
(secured  by  a  Deed  of  Trust  on  the  Property)  in  connection  with  this
transaction.  In  June,  1994,  the  Company  completed  the  acquisition  of an
additional  375,000 square feet of vacant land located in close proximity to the
land which is the site for the proposed  Country World Casino.  The Company paid
$200,000 to New Allied,  delivered a  promissory  note in the amount of $725,000
and issued 250,000 shares of its common stock. See Items 2 and 7 of this Report.
The Company has been engaged in litigation  with New Allied as described in Item
3.

         As more particularly  described in Item 2, the Company has entered into
Consulting  Agreements  with  First  Federal  Mortgage  & Loan  Company  ("First
Federal").  The  Agreements  with First  Federal are described in Item 2 of this
Report.  Grady  Sanders is the President of First  Federal.  It is the Company's
understanding  that Mr.  Sanders has a close  personal  relationship  with Erica
Hull,  the  President  of New Allied.  The  Company  terminated  the  Consulting
Agreement with First Federal  during the fiscal year ended June 30, 1995.  First
Federal  Disputes  this  termination,  but has not  undertaken  any action.  The
Company  has  been  informed  that  Mr.   Sanders  has  consented  to  permanent
injunctions  in  1978  and  1989  in  connection  with  actions  brought  by the
Securities and Exchange  Commission.  The Company has further been informed that
these injunctions  prohibit Mr. Sanders from violating certain provisions of the
federal  securities laws and that, in connection  with his consent,  Mr. Sanders
neither  admitted nor denied the allegations made by the Securities and Exchange
Commission.

         During  the  fiscal  year ended June 30,  1995,  the  Company  borrowed
$1,000,000  from Holly,  which  indebtedness  plus  accrued  interest,  was then
cancelled by the issuance to Holly of 5,000,000  shares of the Company's  common
stock.  The  Company  also  agreed with Holly that Holly would have the right to
purchase up to an additional 20,000,000 shares of common stock at $.20 per share
if  additional  funding  were  provided  within a  reasonable  time and progress
continued to be made concerning financing for the proposed Country World Casino.

         In May 1995 the Company agreed with Holly to pay Holly $15,000 per week
as a management  fee. During the bankruptcy  proceedings,  it was agreed that no
monies would be paid to Holly for management services.


                                       20

<PAGE>

         Holly has  provided  advances to the  Company.  At June 30,  1996,  the
Company was indebted to Holly in the amount of $285,068.

         In March 1996,  the  Bankruptcy  Court granted the Company's  motion to
approve  $5,000,000 in financing,  which financing was obtained on May 31, 1996.
The  $5,000,000  financing  was obtained  from a group of lenders led by Kennedy
Funding,  Inc., and Anglo-American  Financial as agent ("Kennedy").  The lending
group  included  Norlar,  Inc.  Norlar,  Inc.  is  a  closely-held   corporation
beneficially owned by Larry Berman and his wife. Mr. Berman is a director of the
Company,  and an officer,  director  and  principal  shareholder  of Holly.  The
Company received net proceeds of approximately  $2,838,000 after payment of loan
commitment  fees,  loan  servicing  fees and points to Kennedy of  approximately
$824,500  (of which  $247,500  was  received  by Norlar,  Inc.),  the first year
interest obligation of $750,000 (of which $352,500 was received by Norlar, Inc.)
and $610,000 for release of the prior first deed of trust on the Property.


ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K

     (a)  Exhibits
          --------

Exhibit No.  Description
-----------  -----------

3.1  Articles of Incorporation of the Company,  as amended,  previously filed as
     an Exhibit to the  Company's  Report on Form 10-KSB for the year ended June
     30, 1994, is incorporated herein by reference.

3.2  Bylaws of the  Company,  previously  filed as an Exhibit  to the  Company's
     Report on Form 10- KSB for the year ended June 30,  1994,  is  incorporated
     herein by reference.

4.1  Certificate  of  Designation  of  Series A  Preferred  Stock,  as  amended,
     previously  filed as an Exhibit to the Company's  Report on Form 10-KSB for
     the year ended June 30, 1994, is incorporated herein by reference.

10.1 Letter  agreement  dated July 29, 1993,  between the Company and New Allied
     Development  Corporation,  previously  filed as an Exhibit to the Company's
     Report on Form  10-KSB for the year ended June 30,  1993,  is  incorporated
     herein by this reference.  Letter  agreements dated February 3, 1994, March
     31,  1994  and  August  12,  1994,  between  the  Company  and  New  Allied
     Development  Corporation,  amending  the July 29,  1993  Letter  Agreement,
     previously  filed as an Exhibit to the Company's  Report on Form 10-KSB for
     the year ended June 30, 1994 is incorporated herein by reference.

10.2 Letter agreement dated August 25, 1993,  between the Company and New Allied
     Development  Corporation  regarding  the  purchase  of vacant land in Black
     Hawk,  Colorado,  previously filed as an Exhibit to the Company's Report on
     Form 8-K, filed on or about  September 8, 1993, is  incorporated  herein by
     this reference.

10.3 Office Lease between the Company and Rosewood Property Company, dated 1993,
     previously  filed as an Exhibit to the Company's  Report on Form 8-K, filed
     on or about October 2, 1993, is incorporated herein by this reference.

10.4 Employment Agreement between the Company and Jay R. Roberts,  effective May
     1, 1994,  previously  filed as an Exhibit to the  Company's  Report on Form
     10-KSB  for the year  ended  June  30,  1994,  is  incorporated  herein  by
     reference.


                                       21

<PAGE>

10.5 Consulting Agreement between the Company and First Federal Mortgage & Loan,
     dated  March 10,  1994,  previously  filed as an Exhibit  to the  Company's
     Report on Form  10-KSB for the year ended June 30,  1994,  is  incorporated
     herein by reference.

10.6 Construction Contract between the Company and Haselden Construction,  Inc.,
     dated July 11, 1994, previously filed as an Exhibit to the Company's Report
     on Form 10-KSB for the year ended June 30, 1994, is incorporated  herein by
     reference.

10.7 Letter Agreement between the Company and Holly Products,  Inc., dated April
     17, 1995,  previously  filed as an Exhibit to the Company's  Report on Form
     8-K, filed on or about May 2, 1995, is incorporated herein by reference.

10.8 Promissory  Note, dated May 20, 1996, in the principal amount of $5,000,000
     made by the Company to Kennedy Funding, Inc., and Anglo-American Financial.

10.9 Environmental Indemnity Agreement,  dated May 17, 1996, made by the Company
     and Holly  Products,  Inc. for the benefit of Kennedy  Funding,  Inc.,  and
     Anglo-American Financial.

16.1 Letter from Fred V. Schiemann,  former  accountant,  previously filed as an
     exhibit to the Company's  Report on Form 8-K, filed on or about December 8,
     1994, is incorporated herein by this reference.

16.2 Letter from  Ehrhardt  Keefe  Steiner & Hottman  P.C.,  former  accountant,
     previously  filed as an exhibit to the Company's  report on Form 8-K, filed
     on September 23, 1996 is incorporated herein by this reference.

      (b)  Reports on Form 8-K

           No reports on Form 8-k were filed  during the last  quarter of the
           fiscal year ended June 30, 1996.

                                       22

<PAGE>

COUNTRY WORLD CASINOS, INC.
[DEBTOR-IN-POSSESSION]
[A DEVELOPMENT STAGE COMPANY]
--------------------------------------------------------------------------------


TABLE OF CONTENTS
--------------------------------------------------------------------------------



                                                                       Page

Report of Independent Auditors ....................................    F-2

Independent Auditors' Report ......................................    F-3

Financial Statements:

   Balance Sheet as of June 30, 1996............................... F-4 - F-5

   Statements of Operations for the years ended
   June 30, 1996 and 1995 and for the period from
   November 9, 1982 [date of inception] through June 30, 1996 .....    F-6

   Statement of Stockholders' Equity for the
   period from November 9, 1982 [date of inception]
   through June 30, 1996...........................................  F-7 - F-9

   Statements of Cash Flows for the years ended
   June 30, 1996 and 1995 and for the period from
   November 9, 1982 [date of inception] through June 30, 1996 ...  F-10 - F-11

Notes to Financial Statements..................................... F-12 - F-21







                                . . . . . . . . .

                                       F-1
<PAGE>

                         REPORT OF INDEPENDENT AUDITORS


To the Board of Directors and Stockholders
   Country World Casinos, Inc.
   Denver, Colorado


     We have audited the  accompanying  balance sheet of Country World  Casinos,
Inc.  [Debtor-in-Possession]  [a Development Stage Company] as of June 30, 1996,
and the related statements of operations,  stockholders'  equity, and cash flows
for the year then ended.  These financial  statements are the  responsibility of
the Company's  management.  Our responsibility is to express an opinion on these
financial statements based on our audit.

     We conducted  our audit in  accordance  with  generally  accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

     In our opinion,  the financial statements referred to above present fairly,
in all material respects,  the financial position of Country World Casinos, Inc.
[Debtor-in-Possession]  [a  Development  Stage Company] as of June 30, 1996, and
the  results  of its  operations  and its cash  flows for the year then ended in
conformity with generally accepted accounting principles.  We express no opinion
on the cumulative period from inception (November 9, 1982)through June 30, 1996.

     The  accompanying  financial  statements  have been prepared  assuming that
Country World Casinos,  Inc. will continue as a going  concern.  As discussed in
Note 1 to the financial  statements,  the Company has suffered  recurring losses
from  operations  and has filed a voluntary  petition for  reorganization  under
Chapter  11 of the  federal  bankruptcy  laws and is  currently  operating  as a
Debtor-in-  Possession.  These conditions raise  substantial doubt about Country
World Casinos, Inc.'s ability to continue as a going concern. Management's plans
in  regard  to  these  matters  are  also  discussed  in Note 1.  The  financial
statements  do  not  include  any  adjustments   that  might  result  from  this
uncertainty.







                                                 MOORE STEPHENS, P.C.
                                                 Certified Public Accountants.



Cranford, New Jersey
September 20, 1996

                                       F-2

<PAGE>

                          INDEPENDENT AUDITORS' REPORT


To the Board of Directors and Stockholders
Country World Casinos, Inc.
Denver, Colorado


We have audited the  statements  of  operations,  stockholders'  equity and cash
flows for Country World Casinos, Inc. (a development stage company) for the year
ended June 30, 1995 and the June 30,  1995  amounts  included in the  cumulative
amounts from  inception  of the  Company.  These  financial  statements  are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards  require that we plan and perform the audit to obtain reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
missstatements.   An  audit  includes  examining,  on  a  test  basis,  evidence
supporting  the amounts and  disclosures in the financial  statements.  An audit
also includes assessing the accounting principles used and significant estimates
made by the management,  as well as evaluating the overall  financial  statement
presentation.  We believe  that our audit  provides a  reasonable  basis for our
opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the results of operations and cash flows of Country World
Casinos, Inc. (a development stage company) for the year ended June 30, 1995 and
the June 30, 1995 amounts  included in the cumulative  amounts from inception of
the Company, in conformity with generally accepted accounting principles.

The accompanying  financial  statements have been prepared assuming that Country
World Casinos,  Inc. will continue as a going concern. As discussed in Note 1 to
the financial statements, the Company has filed for bankruptcy under Chapter 11,
is in the development  stage, and has suffered  recurring losses from operations
and has a working  capital  deficiency that raises  substantial  doubt about the
Company's ability to continue as a going concern.  Management's  plans in regard
to these  matters  are  discussed  in Note 1. The  financial  statements  do not
include any adjustments that might result from this uncertainty.


                                       /S/  EHRHARDT KEEFE STEINER & HOTTMAN PC
                                       ----------------------------------------
                                            Ehrhardt Keefe Steiner & Hottman PC


October 5, 1995 (except for Note 1
 the date of which is October 12, 1995)
Denver, Colorado






                                       F-3

<PAGE>



COUNTRY WORLD CASINOS, INC.
[DEBTOR-IN-POSSESSION]
[A DEVELOPMENT STAGE COMPANY]
--------------------------------------------------------------------------------


BALANCE SHEET AS OF JUNE 30, 1996.
--------------------------------------------------------------------------------






Assets:
Current Assets:
   Cash                                                   $  1,773,509
   Prepaid Interest                                            687,500
                                                          ------------

   Total Current Assets                                      2,461,009
                                                          ------------
Property and Equipment:
   Land                                                      7,475,475
   Casino Under Development                                  4,501,208
   Furniture and Equipment                                      48,068
                                                          ------------

   Total                                                    12,024,751
   Less: Accumulated Depreciation                              (12,900)
                                                          ------------

   Total Property and Equipment                             12,011,851
                                                          ------------
Other Asset:
   Deposits                                                        440
   Restricted Cash                                              49,994
                                                          ------------
   Total Other Asset                                            50,434
                                                          ------------
   Total Assets                                           $ 14,523,294
                                                          ============



See Notes to Financial Statements.


                                       F-4

<PAGE>



COUNTRY WORLD CASINOS, INC.
[DEBTOR-IN-POSSESSION]
[A DEVELOPMENT STAGE COMPANY]
--------------------------------------------------------------------------------


BALANCE SHEET AS OF JUNE 30, 1996.
--------------------------------------------------------------------------------




Liabilities and Stockholders' Equity:
Current Liabilities:
   Accounts Payable                                        $    147,409
   Accrued Expenses                                             100,085
   Accrued Interest                                             146,586
   Due to Parent Company                                        285,068
   Capital Lease Obligation                                       3,155
                                                           ------------

   Total Current Liabilities                                    682,303
                                                           ------------

Long-Term Liabilities:
   Long-Term Debt - Related Party                             2,350,000
   Long-Term Debt - Others                                    2,650,000
   Capital Lease Obligations                                      7,535
                                                           ------------

   Total Long-Term Liabilities                                5,007,535
                                                           ------------

Commitments and Contingencies                                      --
                                                           ------------
Liabilities Subject to Compromise:
   Accounts Payable                                             415,365
   Accrued Expenses                                              41,937
   Notes Payable - Stockholder                                1,834,837
   Accrued Interest                                             225,135
                                                           ------------

   Total Liabilities Subject to Compromise                    2,517,274
                                                           ------------
Stockholders' Equity:
   Preferred Stock, $.001 Par Value, 25,000,000
   Shares Authorized - Convertible Preferred,
    2,250,000 Shares Issued and Outstanding
     [Liquidation Preference $7,492,500]                          2,250

   Common Stock, $.001 Par Value, 50,000,000
     Shares Authorized,10,836,187 Issued and Outstanding         10,836

   Additional Paid-in Capital                                 9,562,550

   Accumulated Deficit                                       (3,259,454)
                                                            -----------

   Total Stockholders' Equity                                 6,316,182
                                                            -----------

   Total Liabilities and Stockholders' Equity              $ 14,523,294
                                                           ============




See Notes to Financial Statements.

                                       F-5

<PAGE>

<TABLE>
<CAPTION>


COUNTRY WORLD CASINOS, INC.
[DEBTOR-IN-POSSESSION]
[A DEVELOPMENT STAGE COMPANY]
-----------------------------------------------------------------------------------------------------------------


STATEMENTS OF OPERATIONS
-----------------------------------------------------------------------------------------------------------------
                                                                                                      For the
                                                                                                    period from
                                                                                                     November 9,
                                                                                                     1982 [Date
                                                                                                    of Inception]
                                                                        Years ended                    through
                                                                         June 30,                      June 30,
                                                              ------------------------------        --------------
                                                                 1 9 9 6           1 9 9 5              1 9 9 6
                                                                 -------           -------              -------
<S>                                                          <C>                  <C>                    <C>    
Costs and Expenses:
   Research and Development Costs                             $       --          $       --          $    122,000
   Loss on Non-Marketable Securities                                  --                  --                85,000
   Write off of Loan Receivable                                       --                  --                90,000
   General and Administrative Expenses                             414,930             806,977           2,954,623
   Depreciation Expense                                              6,398               4,903              35,647
                                                              ------------        ------------        ------------

   Totals                                                          421,328             811,880           3,287,270
                                                              ------------        ------------        ------------

Other Income [Expense]:
   Interest Income                                                   6,719               9,095              67,369
   Rental Income                                                      --                45,126              45,126
   Forfeited Deposit                                                  --                  --              (100,000)
                                                              ------------        ------------        ------------

   Totals                                                            6,719              54,221              12,495
                                                              ------------        ------------        ------------

   [Loss] Before Bankruptcy Expenses, Extraordinary
     Item and Discontinued Operations                             (414,609)           (757,659)         (3,274,775)

Bankruptcy Expenses:
   Professional Fees                                               151,831                --               151,831
                                                              ------------        ------------        ------------

   [Loss] from Continuing Operations Before
     Discontinued Operations and Extraordinary Item               (566,440)           (757,659)         (3,426,606)
                                                              ------------        ------------        ------------

Discontinued Operations:
   Gain on Disposal of Subsidiaries                                   --                  --               389,286
   [Loss] from Discontinued Operations                                --                  --              (389,286)
                                                              ------------        ------------        ------------

   Total Discontinued Operations                                      --                  --                  --
                                                              ------------        ------------        ------------

   [Loss] Before Extraordinary Item                               (566,440)           (757,659)         (3,426,606)

Extraordinary Item:
   Extraordinary Gain on Forgiveness of Debt                       150,000                --               167,152
                                                              ------------        ------------        ------------

   Net [Loss]                                                 $   (416,440)       $   (757,659)       $ (3,259,454)
                                                              ============        ============        ============

Per Share Data:
   Net [Loss] Per Share Before Extraordinary Item             $       (.05)       $       (.11)
   Extraordinary Item Per Share                                        .01                --
                                                              ------------        ------------

   Net [Loss] Per Share                                       $       (.04)       $       (.11)
                                                              ============        ============

Weighted Average Number of Shares                               10,836,187           6,694,097
                                                              ============        ============

See Notes to Financial Statements 
</TABLE>

                                               F-6

<PAGE>
<TABLE>
<CAPTION>
COUNTRY WORLD CASINOS, INC.
[DEBTOR-IN-POSSESSION]
[A DEVELOPMENT STAGE COMPANY]
-------------------------------------------------------------------------------------------------------------------


STATEMENT OF STOCKHOLDERS' EQUITY
-------------------------------------------------------------------------------------------------------------------
                                                                                          Common Stock 
                                                                              --------------------------------------------  
                                                        Preferred Stock                                    Subscribed  
                                                       ------------------                               ------------------       
                                                       Shares      Amount     Shares       Amount       Shares      Amount   
                                                       ------      ------     ------       ------       ------      ------   

<S>                                                      <C>      <C>        <C>          <C>           <C>       <C> 
November 9, 1982 [Date of Inception]                       --    $   --           --      $     --        --      $    --   

Issuance of Shares for Cash                                --        --        2,971            15        --           --   

Issuance of Common Stock to the Public                     --        --        1,474             8        --           --   

Deferred Offering Costs                                    --        --           --            --        --           --   

Cancellation of Common Stock                               --        --         (800)           (4)       --           --   

Issuance of Shares for Services                            --        --       85,714           429        --           --   

Issuance of Common Stock at a Discount                     --        --    1,339,212         6,696        --           --   
 
Capital Contribution                                       --        --           --            --        --           --   

Net Loss for the Period from November 9,
   1982 [Date of Inception] Through
   June 30, 1992                                           --        --           --            --        --           --   
                                                        -----   --------   ----------    ----------    -----       ------

   Balance - June 30, 1992                                 --        --     1,428,571         7,144       --           --   

Issuance of Common Stock at a Discount
   for Services                                            --        --       714,287         3,571       --           --   

Net Loss for Year Ended June 30, 1993                      --        --            --            --       --           --   
                                                         ----   --------   ----------    ----------     ----       ------

   Balance - June 30, 1993 - Forward                       --   $    --     2,142,858    $   10,715       --       $   --   

 
                                                                     Deficit                 
                                                                   Accumulated               
                                                    Additional     During the         Total  
                                                      Paid-in      Development    Stockholders'   
                                                     Capital         Stage          Equity      
                                                   ------------  ------------- ---------------  
November 9, 1982 (Date of Inception)               $      --       $   --        $      --   

Issuance of Shares for Cash                            1,510           --            1,525

Issuance of common Stock to the Public               644,992           --          645,000

Deferred Offering Costs                             (115,690)          --         (115,690)

Cancellation of Common Stock                               4           --               --   

Issuance of Shares for Services                       14,571           --           15,000

Issuance of Common Stock at a Discount                13,304           --           20,000

Capital Contribution                                   2,850           --            2,850

Net Loss for the Period from November 9,
   1982 (Date of Inception) Through
   June 30, 1992                                          --      (221,169)       (221,169)
                                                    --------      --------        --------                 Deficit
                                                    
Balance - June 30, 1992                              561,541      (221,169)        347,516

Issuance of Common Stock at a Discount
   for Services                                        8,929            --          12,500

Net Loss for Year Ended June 30, 1993                     --      (373,401)       (373,401)
                                                   ---------     ---------       ---------
                                                                         
See Notes to Financial Statements
</TABLE>
                                                                    F-7


<PAGE>
<TABLE>
<CAPTION>

COUNTRY WORLD CASINOS, INC.
[DEBTOR-IN-POSSESSION]
[A DEVELOPMENT STAGE COMPANY]
---------------------------------------------------------------------------------------------------------------------------------
STATEMENT OF STOCKHOLDERS' EQUITY
---------------------------------------------------------------------------------------------------------------------------------
                                                                                                 Common Stock 
                                                                                 ------------------------------------------------ 
                                                        Preferred Stock                                            Subscribed  
                                                       ------------------                                      ------------------ 
                                                       Shares      Amount         Shares       Amount          Shares      Amount   
                                                       ------      ------         ------       ------          ------      ------   
<S>                                                     <C>             <C>          <C>                        <C>     
  Balance - June 30, 1993 - Forwarded                     --     $     --        2,142,858    $   10,715          --     $     --

Change in Par Value from $.005 to $.001                   --           --               --        (8,572)         --           --

Issuance of Stock for Cash issued September 1993          --           --          600,000           600          --           --

Issuance of Stock for Cash issued September 1993          --           --        1,500,000         1,500          --           --

Issuance of Convertible Preferred Stock for
  Acquisition of Land Valued at $1.00
  Per Share issued July 1993                         2,250,000        2,250             --            --          --           --

Issuance of Stock to Related Party for Cash and
  Services Pursuant to Exercise of Options                --           --          250,000           250          --           --   

Purchase and Cancellation of  Treasury  Stock             --           --         (125,000)         (125)         --           --   

Issuance of Stock for Cash [140,000 Shares and
  60,662 Shares issued December 1993 and
  January 1994, Respectively]                             --           --          200,662           200          --           --   

Issuance of Common Stock for Acquisition of Land
  Valued at $1.00 Per Share issued June 1994              --           --          250,000           250          --           --   

Issuance of Common Stock for Cash and
  Services Pursuant to Exercise of Options
  [75,000 Shares and 20,000 Shares issued
  April and June 1994, Respectively]                      --           --           95,000            95          --           --   

Issuance of Common Stock for Services
  Rendered Valued at $2.50 Per Share issued
  April 1994                                              --           --          200,000           200          --           --   

Subscription of Common Stock Pursuant to
  Private Placement Offering                              --           --             --            --         262,667        263

Net Loss for Year Ended June 30, 1994                     --           --             --            --            --           --   
                                                    ----------   ----------     ----------    ----------     ---------   --------

  Balance - June 30, 1994 - Forward                 2,250,000    $    2,250      5,113,520    $    5,113       262,667   $    263




                                       F-8 (Continued on following page)
<PAGE>

COUNTRY WORLD CASINOS, INC.
[DEBTOR-IN-POSSESSION]
[A DEVELOPMENT STAGE COMPANY]
---------------------------------------------------------------------------------------------------------------------------------
STATEMENT OF STOCKHOLDERS' EQUITY
---------------------------------------------------------------------------------------------------------------------------------
                                                                         Deficit                 
                                                                       Accumulated               
                                                         Additional     During the         Total  
                                                           Paid-in      Development    Stockholders'   
                                                          Capital         Stage          Equity      
                                                        ------------  -------------    -------------       

<S>                                                      <C>             <C>             <C>                     
  Balance - June 30, 1993 - Forwarded                   $  570,470      $ (594,570)     $   (13,384)            
                                                 
Change in Par Value from $.005 to $.001                      8,572              --               --         
                                                 
Issuance of Stock for Cash issued September 1993           599,400              --          600,000
                                                 
Issuance of Stock for Cash issued September 1993         1,498,500              --        1,500,000
                                                 
Issuance of Convertible Preferred Stock for      
  Acquisition of Land Valued at $1.00            
  Per Share issued July 1993                             2,247,750              --        2,250,000               
                                                 
Issuance of Stock to Related Party for Cash and  
  Services Pursuant to Exercise of Options                 249,750              --          250,000               
                                                                                                                                   
Purchase and Cancellation of  Treasury  Stock             (124,875)             --         (125,000)          
                                                                                                                                   
Issuance of Stock for Cash [140,000 Shares and                                                                                     
  60,662 Shares issued December 1993 and                                                                                           
  January 1994, Respectively]                              499,800              --          500,000              
                                                                                                                                   
Issuance of Common Stock for Acquisition of Land                                                                                   
  Valued at $1.00 Per Share issued June 1994               249,750              --          250,000
                                                                                                                                   
Issuance of Common Stock for Cash and                                                                                              
  Services Pursuant to Exercise of Options                                                                                         
  [75,000 Shares and 20,000 Shares issued                                                                                          
  April and June 1994, Respectively]                       237,405              --          237,500              
                                                                                                                                   
Issuance of Common Stock for Services                                                                                              
  Rendered Valued at $2.50 Per Share issued                                                                                        
  April 1994                                               499,800              --          500,000                
                                                                                                                                   
Subscription of Common Stock Pursuant to                                                                                           
  Private Placement Offering                               787,737              --          788,000                  
                                                                                                                                   
Net Loss for Year Ended June 30, 1994                           --      (1,490,785)     (1,490,785)               
                                                        ----------      ----------       ---------                
                                                                                                                                   
  Balance - June 30, 1994 - Forward                    $ 7,324,059     $(2,085,355)    $ 5,246,330                    
                                                                                                                                    
See Notes to Financial Statements.
                                                             F-8                                                              
<PAGE>


COUNTRY WORLD CASINOS, INC.
[DEBTOR-IN-POSSESSION]
[A DEVELOPMENT STAGE COMPANY]
----------------------------------------------------------------------------------------------------------------------------


STATEMENT OF STOCKHOLDERS' EQUITY
----------------------------------------------------------------------------------------------------------------------------
                                                                                             Common Stock 
                                                                       -----------------------------------------------------  
                                                Preferred Stock                                            Subscribed 
                                            -----------------------                                  -----------------------   
                                             Shares         Amount       Shares       Amount          Shares      Amount    
                                             ------         ------       ------       ------          ------      ------    

<S>                                          <C>             <C>        <C>         <C>               <C>        <C>        
   Balance - June 30, 1994 - Forwarded      2,250,000       $2,250     5,113,520   $     5,113       262,667    $       263

Issuance of Common Stock Pursuant
  to Private Placement Offering                 --            --         460,000           460          --             --   

Issuance of Stock for Outstanding Note
   issued April 20, 1995                        --            --       5,000,000         5,000          --             --   

Convert Subscribed Stock to Common
   And Record Fees                              --            --         262,667           263      (262,667)          (263)

Net Loss for Year Ended June 30, 1995           --            --            --            --            --             --   
                                         -----------      --------    ----------   -----------   -----------    -----------

   Balance - June 30, 1995                 2,250,000         2,250    10,836,187        10,836          --             --   

Net Loss for Year Ended June 30, 1996           --            --            --            --            --             --   
                                         -----------      --------   ----------   -----------   -----------    -----------

   Balance - June 30, 1996                 2,250,000      $  2,250    10,836,187   $    10,836          --      $      --   
                                         ===========      ========    ==========   ===========   ===========    ===========


                                                                  Deficit                        
                                                                Accumulated                      
                                               Additional       During the             Total        
                                                 Paid-in        Development         Stockholders'    
                                                 Capital           Stage               Equity          
                                              ------------     -------------        -------------    
<S>                                           <C>                <C>                 <C>        
  Balance - June 30, 1994 - Forwarded         $ 7,324,059        $(2,085,355)        $ 5,246,330

Issuance of Common Stock Pursuant            
  to Private Placement Offering                 1,229,040               --             1,229,500
 
Issuance of Stock for Outstanding Not
   issued April 20, 1995                        1,009,451               --             1,014,451

Convert Subscribed Stock to Common
   And Record Fees                                   --                 --                  --   

Net Loss for Year Ended June 30, 1995                --             (757,659)           (757,659)
                                              -----------        -----------         -----------

   Balance - June 30, 1995                      9,562,550         (2,843,014)          6,732,622

Net Loss for Year Ended June 30, 1996                --             (416,440)           (416,440)
                                              -----------        -----------         -----------

   Balance - June 30, 1996                    $ 9,562,550        $(3,259,454)        $ 6,316,182
                                              ===========        ===========         ===========
See Notes to Financial Statements 
                                                                                                                      
                                                      F-9                                                                          
</TABLE>
                             
<PAGE>                                                                         
<TABLE>                                                
<CAPTION>



COUNTRY WORLD CASINOS, INC.
[DEBTOR-IN-POSSESSION]
[A DEVELOPMENT STAGE COMPANY]
------------------------------------------------------------------------------------------------------------------------


STATEMENTS OF CASH FLOWS
------------------------------------------------------------------------------------------------------------------------
                                                                                                            For the
                                                                                                           period from
                                                                                                            November 9,
                                                                                                            1982 [Date
                                                                                                           of Inception]
                                                                                Years ended                  through
                                                                                 June 30,                    June 30,
                                                                      ------------------------------       ------------
                                                                       1 9 9 6             1 9 9 5            1 9 9 6
                                                                       -------             -------            -------
<S>                                                                   <C>                <C>                 <C>   
Operating Activities:
   Continuing Operations:
     [Loss] Before Extraordinary Item                                 $ (566,440)       $   (757,659)       $(3,426,606)
                                                                      ----------        ------------        -----------
     Adjustments to Reconcile Net [Loss] to Net Cash
       [Used for] Operating Activities:
       Depreciation                                                         6,398              4,903             35,647
       Common Stock Issued for Interest                                      --               14,451             14,451
       Common Stock Issued for Services                                      --                 --              837,500
       Loss on Nonmarketable Securities                                      --                 --              (85,000)
       Write off on Loan Receivable                                          --                 --              (90,000)
       Extraordinary Item                                                 150,000               --              167,152

     Changes in Assets and Liabilities:
       [Increase] Decrease in:
         Due from Related Party                                            16,136            (16,136)              --
         Noncurrent Assets                                                   --                 --              237,000
         Prepaid Expenses                                                (687,500)              --             (687,500)

       Increase [Decrease] in:
         Accounts Payable                                                 147,409               --              147,409
         Accounts Payable - Liabilities Subject to
           Compromise                                                    (253,229)           308,238            415,365
         Accrued Expenses                                                  70,315           (126,350)           208,347
         Accrued Expenses - Subject to Compromise                          41,937               --               41,937
         Due to Parent Company                                            285,068               --              285,068

     Discontinued Operations:
       Net [Loss]                                                            --                 --             (389,286)
       Adjustments to Reconcile Net [Loss] to Net Cash
         [Used for] Operating Activities:
         Gain on Disposal of Assets                                          --                 --              389,286
                                                                      -----------        -----------        -----------

       Total Adjustments                                                 (223,466)           185,106          1,527,376
                                                                      -----------        -----------        -----------

   Net Cash Used for Operating Activities - Forward                      (789,906)          (572,553)        (1,899,230)
                                                                      -----------        -----------        -----------

Investing Activities:
   Purchase of Land and Payment of Casino
     Development Costs                                                   (872,420)        (1,956,579)        (5,038,225)
   Purchase of Furniture and Equipment                                       --               (1,780)           (57,406)
   Investment in Patent                                                      --                 --              (62,000)
   Deposits and Other                                                       3,363             15,750               (440)
   Increase in Restricted Cash                                            (49,994)              --              (49,994)
                                                                      -----------        -----------        -----------

   Net Cash Used for Investing Activities - Forward                   $  (919,051)      $ (1,942,609)       $(5,208,065)

See Notes to Financial Statements

                                                           F-10
</TABLE>

<PAGE>
<TABLE>
<CAPTION>



COUNTRY WORLD CASINOS, INC.
[DEBTOR-IN-POSSESSION]
[A DEVELOPMENT STAGE COMPANY]
----------------------------------------------------------------------------------------------------------------------


STATEMENTS OF CASH FLOWS
----------------------------------------------------------------------------------------------------------------------
                                                                                                         For the
                                                                                                        period from
                                                                                                        November 9,
                                                                                                        1982 [Date
                                                                                                       of Inception]
                                                                              Years ended                through
                                                                                June 30,                 June 30,
                                                                     ----------------------------     --------------
                                                                       1 9 9 6           1 9 9 5         1 9 9 6
                                                                       -------           -------         -------
<S>                                                                  <C>              <C>               <C>  
   Net Cash Used for Operating Activities -
     Forwarded                                                       $  (789,906)     $  (572,553)     $(1,899,230)
                                                                     -----------      -----------      -----------

   Net Cash Used for Investing Activities - Forwarded                   (919,051)      (1,942,609)      (5,208,065)
                                                                     -----------      -----------      -----------

Financing Activities:
   Payment of Capital Lease Obligation                                    (2,718)            --             (2,718)
   Proceeds from Long-Term Borrowings                                  5,000,000        1,000,000        6,000,000
   Repayments on Long-Term Borrowings - Subject to
     Compromise                                                       (1,553,027)        (387,136)      (2,340,163)
   Proceeds from Stock Issuance                                             --          1,229,500        5,220,835
   Capital Contribution                                                     --               --              2,850
                                                                     -----------      -----------      -----------

   Net Cash Provided for Financing Activities                          3,444,255        1,842,364        8,880,804
                                                                     -----------      -----------      -----------

   Net Increase [Decrease] in Cash                                     1,735,298         (672,798)       1,773,509

Cash - Beginning of Years                                                 38,211          711,009             --
                                                                     -----------      -----------      -----------

   Cash - End of Years                                               $ 1,773,509      $    38,211      $ 1,773,509
                                                                     ===========      ===========      ===========

</TABLE>


Supplemental Disclosure of Cash Flow Information:
   Interest  paid in fiscal  year  ended  June 30,  1996 and 1995 was $1,830 and
$-0-, respectively, net of interest capitalized.

Supplemental Disclosure of Non-Cash Investing and Financing Activities:
   During the year ended June 30,  1996,  the  Company  capitalized  $468,796 in
accrued  interest  related to the  construction of the casino.  The Company also
acquired equipment for $13,409, by assuming liability under a capital lease.

   During the year ended June 30, 1995, the Company converted a note payable for
$1,000,000 plus accrued interest of $14,451 into 5,000,000 common shares.



See Notes to Financial Statements.

                                      F-11

<PAGE>



COUNTRY WORLD CASINOS, INC.
[DEBTOR-IN-POSSESSION]
[A DEVELOPMENT STAGE COMPANY]
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------



[1] Summary of Significant Accounting Policies and Business Activity

Organization  and Business - Country  World  Casinos,  Inc.  [formerly  Monolite
Industries] [the "Company"], a Nevada corporation,  was incorporated on November
9, 1982, and is in the development  stage. The original planned operation of the
Company was for the purpose of development, licensing and production of products
on a subcontracting basis, and the sale of products and devices in or related to
the medical and/or  biotechnical  fields.  In May of 1990, the Company  acquired
another company through the issuance of 1,142,857  shares  [restated for reverse
stock split] of its common stock. The newly merged entity formed a subsidiary on
November 29, 1990, called Trail-Lite, Inc. The planned operation through the new
subsidiary was for the purpose of manufacturing  monolithic composite panels. In
September 1992, the Company  disposed of its subsidiary,  Trail-Lite,  Inc. [See
Note 6].

In fiscal year 1994, the Company changed its focus of business operations and in
two separate transactions, acquired approximately 79,000 and 375,000 square feet
of vacant land located in the city of Black Hawk, Gilpin County, Colorado and is
in the process of  constructing  a casino.  As of June 30, 1996, the Company has
not  completed  construction  of  its  planned  principle  operation  nor it has
realized any revenue from its planned operations and, accordingly, is considered
to be in the development stage.

The Company is a majority-owned subsidiary of Holly Products, Inc. [See Note 4].

Reorganization  and Business - The accompanying  financial  statements have been
prepared in conformity  with generally  accepted  accounting  principles,  which
contemplates  continuation  of the Company as a going concern and realization of
assets and  settlement of  liabilities  and  commitments in the normal course of
business.  The Company has  suffered  recurring  losses from  operations  and on
October 12, 1995 filed a voluntary petition for reorganization  under Chapter 11
of the federal  bankruptcy  laws in the United States  Bankruptcy  Court for the
District of Colorado.  These  factors,  among  others,  indicate  the  Company's
ability to continue  as a going  concern is  dependent  on its ability to obtain
additional  financing  and  the  outcome  of  the  bankruptcy  proceedings.  The
financial   statements   do  not  include  any   adjustments   relating  to  the
recoverability  and  classification of recorded asset or liability amounts which
might be necessary  should the Company be unable to continue in  existence.  The
Company is  currently  operating  the  business  as  Debtor-in-Possession  under
supervision of the Bankruptcy Court.

As a result of the  Chapter  11  proceedings,  the  Company  may have to sell or
otherwise  dispose of assets and  liquidate  or settle  liabilities  for amounts
other than those  reflected in the  accompanying  financial  statements.  In the
event a plan of  reorganization  is not confirmed by the Bankruptcy  Court,  the
Company may not be able to continue as a going concern. The financial statements
do not give effect to any adjustments to the carrying value of assets or amounts
and  classifications  of liabilities that might be necessary as a consequence of
these bankruptcy  matters.  The appropriateness of using the going concern basis
is dependent upon, among other things, confirmation of a plan of reorganization,
success of future operations,  and the ability to generate  sufficient cash from
operations and financing sources to meet obligations.

The Company's  financial  statements as of June 30, 1996 have been  presented in
conformity  with  the  American  Institute  of  Certified  Public   Accountant's
("AICPA")  Statement  of  Position  90-7,  "Financial  Reporting  by Entities in
Reorganization  Under the  Bankruptcy  Code,"  issued  November  19,  1990 ["SOP
90-7"].  The  statement  requires  a  segregation  of  liabilities   subject  to
compromise by the Bankruptcy Court as of the bankruptcy filing date.

Under Chapter 11 certain  claims  against the Company prior to the filing of the
petition  for relief  under the  federal  bankruptcy  laws are stayed  while the
Company continues business operations as Debtor-in- Possession. These claims are
reflected  in the  June  30,  1996  balance  sheet as  "Liabilities  Subject  to
Compromise."

                                      F-12

<PAGE>



COUNTRY WORLD CASINOS, INC.
[DEBTOR-IN-POSSESSION]
[A DEVELOPMENT STAGE COMPANY]
NOTES TO FINANCIAL STATEMENTS, Sheet #2
--------------------------------------------------------------------------------



[1] Summary of Significant Accounting Policies and Business Activity [Continued]

Reorganization  and Business  [Continued] - As of the petition date,  actions to
collect  prepetition  indebtedness are stayed and other contractual  obligations
may not be enforced against the Company. In addition, under the Bankruptcy Code,
the Company may reject executory contracts including lease obligations.  Parties
affected  by these  rejections  may file  claims  with the  Bankruptcy  Court in
accordance with the reorganization process.  Substantially all liabilities as of
the petition date are subject to settlement under a Plan of Reorganization to be
voted  on  in  accordance  with  the  provisions  of  Chapter  11.  The  Company
anticipates that all liabilities as of the petition date will be dealt with in a
Plan of Reorganization.

In March 1996, the Bankruptcy  Court approved  financing of $5,000,000 which was
obtained in May 1996.  Pursuant to the  financing,  the Company was  required to
prepay  interest  totaling  $750,000.  On May 13,  1996,  the Company  filed its
initial Plan of Reorganization  and Disclosure  Statement and subsequently filed
amended plans and disclosure statements.

While the Company's  management believes the Bankruptcy case has potential for a
favorable outcome,  an unfavorable  outcome is still possible and could occur on
several issues.  The overall Plan of  Reorganization  has the possibility of not
being  confirmed and creditors may not vote to accept the plan. The  possibility
also  exists  that the  Company  may be  unable  to put  forth an  adequate  and
confirmable Plan and/or Disclosure Statement. The Company has represented to the
Bankruptcy  Court it intends to pay all allowed  claims in full.  If the Company
cannot propose an otherwise  confirmable Plan of Reorganization,  the Bankruptcy
Court would  seriously  consider the  appointment of a Trustee in the Chapter 11
Bankruptcy  proceeding.  This would  generally  result in a  liquidation  of the
Casino  Property  in the  Chapter  11  Bankruptcy  proceeding  or a more  likely
scenario would be that the Bankruptcy  Court either before or after  appointment
of a trustee,  would  convert the case to Chapter 7. In a conversion of the case
to Chapter 7, or in the event of a  liquidation  of the Casino  Property,  it is
unlikely that any  shareholders of the Company would receive any value for their
shares  with the  exception  of the  preferred  shareholders  based  upon  their
liquidation preference. Similarly, different individual aspects or components of
the case may have an  unfavorable  outcome.  These could  include  issues on the
various claims hearings, including the stockholder claim [See Note 10].

In the event a Plan of  Reorganization  is  approved  by the  Bankruptcy  court,
continuation  of  the  business  after  reorganization  is  dependent  upon  the
Company's obtaining  additional  financing for the casino under development [See
Note 2], the obtaining of related  licenses,  the  successful  completion of its
construction and success of its future operations. Limited stakes gaming did not
commence in Colorado  until  October  1991,  so there is limited  experience  in
Colorado  from which to  evaluate  the  likelihood  of success of the  Company's
proposed gaming  operations.  In addition,  the Black  Hawk/Central  City casino
market  is  characterized  by  intense  competition.  The  competition  includes
established   companies,   some  of  which  have  greater  financial  resources,
experience and expertise than the Company.

Concentration  of Credit  Risk - The  Company  maintains  cash  balances in bank
deposit accounts,  which, at times, exceed federally insured limits. At June 30,
1996,  the  Company had  approximately  $1,672,000  in a  financial  institution
subject to normal credit risk beyond insured amounts.

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 income and costs and expenses during the
reporting period. Actual results could differ from those estimates.


                                      F-13

<PAGE>


COUNTRY WORLD CASINOS, INC.
[DEBTOR-IN-POSSESSION]
[A DEVELOPMENT STAGE COMPANY]
NOTES TO FINANCIAL STATEMENTS, Sheet #3
--------------------------------------------------------------------------------


[1] Summary of Significant Accounting Policies and Business Activity [Continued]

Restricted  Cash - Restricted cash consists of cash held in escrow and committed
for the payment of long-term debt.

Casino Under Development - The Company's 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.

Furniture and Equipment - Furniture and equipment is stated at cost and is being
depreciated  on a  straight-line  basis over  estimated  useful lives of five to
seven years.

Loss Per  Share - Loss per  share of  common  stock  was  computed  based on the
weighted average number of common shares outstanding  during the period.  Common
stock equivalents are not included as their effect would be antidilutive.

Cash Equivalents - The Company considers all highly liquid instruments purchased
with a maturity of three months or less to be cash equivalents.  The Company did
not have any cash equivalents at June 30, 1996.

[2] Casino Under Development

On August 6, 1993, the Company closed on an acquisition of approximately  79,000
square  feet of vacant  land from a  stockholder  [See Notes 3 and 10]  ["Parcel
One"]  located  within the city of Black  Hawk,  Gilpin  County,  Colorado.  The
Company paid  $550,000  cash,  delivered a  promissory  note [See Note 3] in the
amount  of  $3,450,000,  and  delivered  2,250,000  shares  of  its  Convertible
Preferred  stock [See Note 4] which is  convertible to common stock on a 1 for 1
basis valued at $1.00 per share. The Company is obligated to file a registration
statement  with the  Securities  and  Exchange  Commission  ["SEC"] 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.

On June 28, 1994, the Company closed on an acquisition of an additional  375,000
square  feet of vacant  land from a  stockholder  [See Notes 3 and 10]  ["Parcel
Two"]  located in close  proximity to the original land  purchased.  The Company
paid $200,000  cash,  delivered a promissory  note [See Note 3] in the amount of
$725,000,  and delivered  250,000 shares of its common stock valued at $1.00 per
share [See Note 4].

Subject to future financing and other factors,  the Company intends to construct
a casino on Parcel One. The Company has  capitalized the following costs related
to the casino construction through June 30, 1996:

Interest on Long-Term Debt                                 $    999,796
Architectural Fees and Fees for Construction
   and Design Services                                        3,501,412
                                                           ------------
                                                           $  4,501,208
                                                           ============



                                      F-14

<PAGE>



COUNTRY WORLD CASINOS, INC.
[DEBTOR-IN-POSSESSION]
[A DEVELOPMENT STAGE COMPANY]
NOTES TO FINANCIAL STATEMENTS, Sheet #4
--------------------------------------------------------------------------------



[3] Long-Term Debt

Long-term debt consists of:
                                                                      June 30,
                                                                      1 9 9 6
                                                                      -------


$5,000,000 note payable,  interest at 15% for
     year one, and 24% thereafter; due on May
     31,   1999.   The   note   has   no  set
     installments and no amounts are expected
     to be paid within one year.  The note is
     collateralized  by a first lien and deed
     of  trust  on real  property  with a net
     book  value of  $6,300,475.  The loan is
     fully guaranteed by the Company's parent
     company.                                                     $ 5,000,000

The  financing  was obtained  from a group of
     lenders  which  included  Norlar,   Inc.
     Norlar,    Inc.   is   a    closely-held
     corporation   beneficially  owned  by  a
     director  of the  Company.  The  Norlar,
     Inc.  portion of the financing  amounted
     to  $2,350,000   and  is  classified  as
     related party indebtedness.                                    2,350,000
                                                                   ----------

     Others                                                       $ 2,650,000
                                                                  ===========

Subject to Compromise -

$3,450,000   note   payable  -   stockholder,
     interest at 8%, payable in equal monthly
     installments   over   ten   [10]   years
     commencing  with  the  earliest  of  the
     completion  of the  casino  or 15 months
     from August 6, 1993.                                        $ 1,109,837

$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
                                                                 -----------

   Total Long-Term Debt Subject to Compromise                    $ 1,834,837
                                                                 ===========

[4] Stockholders' Equity

Issuance of Common Stock at a Discount - On May 31, 1993, the Company authorized
the issuance of its  remaining  authorized,  but  unissued,  common stock to the
Company's former president as compensation, which the Company valued at $12,500.

Reverse Stock Split - During the year ended June 30, 1994, the Company  declared
a 1 for 35 reverse stock split.  This split was effective with the  commencement
of business on August 9, 1993,  with respect to all shares which were issued and
outstanding  as of August 6, 1993.  The Company  also  changed its par value per
share of common  stock from  $.005 to $.001 per  share.  All share and per share
amounts have been restated to retroactively reflect the stock split.





                                      F-15

<PAGE>



COUNTRY WORLD CASINOS, INC.
[DEBTOR-IN-POSSESSION]
[A DEVELOPMENT STAGE COMPANY]
NOTES TO FINANCIAL STATEMENTS, Sheet #5
--------------------------------------------------------------------------------



[4] Stockholders' Equity [Continued]

Preferred   Stock  -  In  July  1993,  the  Company   amended  its  Articles  of
Incorporation  to provide for 25,000,000  shares of preferred  stock,  $.001 par
value,  with such  rights,  preferences,  designations  and to be issued in such
series as to be determined by the Company's Board of Directors.

In August 1993,  the Board of Directors  created a series of Class A convertible
preferred ["Convertible Preferred"] stock valued at $1.00 per share. The maximum
issuable shares under the series is 2,250,000 shares. Holders of the Convertible
Preferred  shares  shall be entitle to  dividends  as  declared  by the Board of
Directors.

The  Convertible  Preferred  stockholders,  in the event of  liquidation  of the
Company will receive an amount equal to $3.33 per share plus declared and unpaid
dividends  before any holder of common stock. A sale,  lease, or transfer of all
or substantially all of the Company's assets shall be deemed to be a liquidation
for purposes of the liquidation preference.

Each  Convertible  Preferred share is convertible into one share of common stock
at any  time  or  automatically  upon  the  conversion  of the  majority  of the
Convertible  Preferred  stock  or in  the  event  of a  public  offering  of the
Company's common stock at not less than $6.66 per share.

Casino Property - In connection with the acquisition of the Casino property, the
Company issued 2,250,000 shares of Convertible Preferred stock to a third party.
At the date of the  acquisition,  the  Company's  stock was selling at $1.00 per
share and  therefore,  the  transaction  was  recorded  at the fair value of the
stock, $1.00 per share as determined by the Board of Directors.

In order to raise funds to make the down  payment for the purchase of the casino
property  [See Note 2], the Company sold  600,000  shares of its common stock at
$1.00 per share in conjunction with two private placement offerings.  The shares
are restricted.

Sales of Common Stock - In August  1993,  the Company sold five units of Company
stock to offshore  investors  for  $300,000  per unit.  Each unit  consisted  of
300,000  shares of the Company's  common stock and warrants to purchase  300,000
shares of common  stock at $3.50 per share  within two years of August 31, 1993.
As of August 31, 1995, all warrants had expired unexercised.

During  November and December of 1993,  the Company sold an  additional  140,000
shares of common stock at $2.50 per share for a total of $350,000, pursuant to a
private  offering.  During January 1994,  the Company sold an additional  60,662
shares  at  $2.47  per  share  for a total of  $150,000  pursuant  to a  private
offering.

Issuances  of  Stock  for  Services  - The  Company  entered  into a  management
agreement  with a company  owned by certain  stockholders  and  officers  of the
Company [See Note 7]. In conjunction  with the  agreement,  the Company paid the
related  company  approximately  $146,000 in fees,  granted an option to acquire
250,000  shares  of common  stock at $.01 and  granted  a  warrant  to  purchase
1,000,000 shares of common stock at $3.50 per share.

The related company  exercised its option to purchase the 250,000 shares at $.01
with the difference  between fair market value of the stock on the date of grant
of $1.00 and the exercise price of $.01 or $247,500, capitalized in construction
in progress. Subsequently, the agreement with the company was terminated and the
former President and  Secretary/Treasurer of the Company resigned. As stipulated
in the agreement, the Company repurchased 125,000 shares of common stock at $.01
and canceled the shares.



                                      F-16

<PAGE>



COUNTRY WORLD CASINOS, INC.
[DEBTOR-IN-POSSESSION]
[A DEVELOPMENT STAGE COMPANY]
NOTES TO FINANCIAL STATEMENTS, Sheet #6
--------------------------------------------------------------------------------


[4] Stockholders' Equity [Continued]

Issuances of Stock for Services [Continued] - The financial statements reflect a
reduction of $247,500 in construction in progress  [$124,875 against  additional
paid in capital for the difference  between the fair market value of the 125,000
shares  repurchased  and the original  exercise  price,  with the  remainder and
$123,750 as  compensation  expenses as the  construction  project will no longer
benefit  from the  management  agreement].  Additionally,  the  1,000,000  share
warrant was canceled.

In April 1994,  the Company issued 200,000 shares of common stock in conjunction
with a financial  advisory and investment  banking  agreement.  The shares had a
fair market value of $2.50 resulting in  compensation  expense to the Company of
$500,000.

Issuance/Exchange of Stock - On April 20, 1995, a $1,000,000 note payable by the
Company and accrued  interest of $14,451  owed to Holly  Products,  Inc.  [which
subsequently  became the Parent Company] was converted into 5,000,000  shares of
common stock.

In addition,  Holly Products, Inc. [See Note 1] acquired an additional 2,250,453
shares of the  Company's  common stock from  certain  existing  shareholders  of
Country  World,  in  exchange  for  744,592  shares of its common  stock.  Holly
Products,  Inc. also  acquired  16,667 shares of Country World common stock in a
separate transaction for $50,000. As of June 30, 1996, Holly Products, Inc. owns
66.9% of the  outstanding  shares of Country World common stock and 55.4% of the
total voting stock [common and preferred] of Country World.

Additional Land  Acquisition - In August 1993, the Company entered into a letter
of intent to acquire  vacant  land when the fair market  value of the  Company's
common stock was $1. The Company  closed the  acquisition  in June 1994,  and in
conjunction with the  acquisition,  issued 250,000 shares of common stock to the
seller.  The  transaction  was recorded at the fair market value of the stock at
the date the letter of intent was signed,  $1 per share,  as  determined  by the
Board of Directors.

Exercise of Options - Two  stockholders  and  officers of the Company  exercised
options to acquire  95,000  shares of common  stock for $.25.  The options  were
granted  at a time  when the fair  market  value of the  stock  was  $2.50.  The
difference  between  the fair  market  value and the  exercise  price of $.25 is
reflected as compensation expense in the financial statements.

Private  Placement  Offering - In June 1994,  the  Company  undertook  a private
placement  offering for up to 5,000,000  shares of common stock at $3 per share.
At December 31, 1995, the Company had received $2,017,500, net of offering costs
of $150,000 for 722,667 shares.

[5] Income Taxes

Effective July 1, 1993, the Company adopted SFAS No. 109, "Accounting for Income
Taxes," which requires  recognition of deferred tax  liabilities  and assets for
the expected  future tax  consequences  of events that have been included in the
financial statements or tax returns. Under this method, deferred tax liabilities
and  assets  are  determined  based  on the  difference  between  the  financial
statement and tax basis of assets and  liabilities  using  expected tax rates in
effect  for the year in which the  differences  are  expected  to  reverse.  The
measurement  of deferred tax assets is reduced,  if necessary,  by the amount of
any tax  benefits  that,  based on  available  evidence,  are not expected to be
realized.

The Company has not generated taxable income since its inception, and therefore,
no provision for income taxes has been made.



                                      F-17

<PAGE>



COUNTRY WORLD CASINOS, INC.
[DEBTOR-IN-POSSESSION]
[A DEVELOPMENT STAGE COMPANY]
NOTES TO FINANCIAL STATEMENTS, Sheet #7
--------------------------------------------------------------------------------


[5] Income Taxes [Continued]

At June 30, 1996,  the Company had net operating loss  carryforwards  for income
tax purposes of approximately  $3,260,000 which expire through 2012. The Company
has an approximate  $1,110,000  deferred tax asset, an increase of approximately
$142,000 over the preceding year, as a result of the net operating  losses which
has been  fully  reserved  due to  uncertainty  as to its  utilization.  The net
operating  losses  are  limited,  however  due  to a more  than  50%  change  in
ownership.

[6] Discontinued Operations

On  September  15,  1992,  the Company  entered  into an  agreement  to transfer
ownership in its subsidiary, Trail-Lite, Inc. for a general release agreement of
existing claims to the former shareholders of Trail-Lite,  Inc. This represented
a reduction of accounts payable, short-term borrowings and other related debt in
the  amount of  $389,286,  which is the full  amount of losses  incurred  by the
Company to date from the operations of the subsidiary.

The decision was  precipitated by the large losses incurred from the business of
manufacturing  monolithic  composite panels.  Based on the initial operations of
the business,  the Board of Directors and management  determined that profitable
operations would not be realized from the business as it was then structured and
decided to sell the  subsidiary.  Management  determined  the  subsidiary had no
value and it was  transferred  to an entity  controlled  by the prior  principal
shareholders,  officer and director of the Company for the related debt that had
been incurred.

[7] Related Party Transactions

Management  Agreement - In May 1995,  the Company made an  arrangement  with the
majority shareholder whereby the Company agreed to pay the related party $15,000
per week for a management fee. As of June 30, 1995, the Company had not made any
payments  related to the  arrangement  and  accordingly  owed the related  party
$150,000.  This  agreement  was  canceled in the Chapter 11  proceeding.  It was
agreed that there will be no monies due the related party. In February 1996, the
$150,000  accrual  was  reversed  and  the  arrangement  was  terminated.   This
forgiveness of debt is reflected as an  extraordinary  item in the statements of
operations.

Consulting  Agreements - The Company  entered  into an agreement  with a company
related  through common  ownership to serve as  consultants  with respect to the
operation  of the casino in Black Hawk,  Colorado.  The  agreement  required the
Company to pay the  related  entity  $20,000 per month for its  services  [which
includes  reimbursement  for expenses]  through December 31, 1993, at which time
the monthly payment  increased to $27,500.  The agreement  granted an option for
250,000  shares of  common  stock at an  exercise  price of $.01 per share and a
warrant to purchase  1,000,000  shares of common stock with an exercise price of
$3.50 per share. On March 2, 1994, the agreement was terminated.

As a result of the  closing of the  $5,000,000  loan [See  Notes 1 and 3],  loan
servicing  fees  and  prepaid  interest  payments  were  made  to  Norlar,  Inc.
aggregating $600,000. This amount was capitalized to casino under development.

In April  1996,  the Company  entered  into a month to month,  $1,583  bi-weekly
employment agreement with the President of the Company.

Stockholder  Funding - In March 1995, the Company entered into an agreement with
their  parent  company  whereby  the parent  company  will  receive the right to
purchase up to 20,000,000  shares of common stock at $.20 per share if specified
funding is provided according to the agreement.




                                      F-18

<PAGE>



COUNTRY WORLD CASINOS, INC.
[DEBTOR-IN-POSSESSION]
[A DEVELOPMENT STAGE COMPANY]
NOTES TO FINANCIAL STATEMENTS, Sheet #8
--------------------------------------------------------------------------------


[7] Related Party Transactions [Continued]

Stockholder  Funding  [Continued]  - The  parent  company's  funding  of monthly
expenses  is  classified  as Due  to  Parent  Company  for  financial  statement
purposes.  The  amount  due at June 30,  1996  was  $285,068.  There  are no set
repayment terms and the advances are non-interest bearing.

Indemnification - The Company and its parent, Holly Products, Inc., have entered
into an environmental  indemnity agreement with the co-lenders of the $5,000,000
loan [See Notes 1 and 3] pursuant  to which they will  defend and hold  harmless
the co-lenders  from any  environmental  claims  connected to the property which
collateralizes  the  loan.  The  Company,   through  independent   environmental
consultants,  has conducted  environmental  examinations on the property and has
made environmental  remediation pursuant to an administrative consent order with
the U.S.  Environmental  Protection  Agency.  The  remediation  was performed in
accordance  with the  approved  work plan.  Based upon the work  performed,  the
Company  does not believe  that  further  remedial  activity  will be  required.
However,  there can be no assurance what costs,  if any, the Company might incur
in the future in connection with environmental matters related to the property.

[8] Fair Value of Financial Instruments

Generally  accepted  accounting  principles require disclosing fair value to the
extent   practicable   for  financial   instruments   which  are  recognized  or
unrecognized in the balance sheet.  The fair value of the financial  instruments
disclosed herein is not necessarily  representative  of the amount that could be
realized  or  settled,   nor  does  the  fair  value  amount  consider  the  tax
consequences  of realization or settlement.  The Company's  principal  long-term
financial  instrument has an interest rate which approximates the Company's cost
of capital, and therefore its carrying value approximates its fair value.

For certain  instruments,  including cash, and trade payables,  it was estimated
that the  carrying  amount  approximated  fair value for the  majority  of these
instruments because of their short maturities.

The fair value of amounts classified as liabilities subject to compromise may be
affected by the Company's  petition for  reorganization  under Chapter 11 of the
federal  bankruptcy  laws [See Note 1]. The fair value of these  liabilities may
differ from those recorded in the financial statements. It is not practicable to
estimate what those amounts might be. Also, due to unspecified  repayment  terms
of the amounts due to the parent company, it is not practicable to determine the
fair value of the non-interest amount due to parent.

[9] Commitment and Contingencies

In addition to the commitment and contingencies  discussed below, the Company is
party to litigation and bankruptcy proceedings [See Notes 1 and 10].

Consulting Agreements - In September 1993, the Company entered into a consulting
agreement  with a company to assist and advise the Company in  construction  and
development  of the hotel and casino project as well as selection of the general
contractor, architect, interior designer and engineers. The Company began paying
the company $5,000 per month in October, 1993 for six months and capitalized the
costs as construction in progress. In addition,  the Company was to issue 50,000
shares  of  common  stock  to the  company.  On  March  10,  1994,  the  Company
renegotiated the consulting and construction management agreement and the 50,000
shares of stock  previously due were  canceled.  Further,  compensation  for the
consultant  services  pursuant  to the  agreement  shall  be paid  equal to five
percent  of  the  gross   expenditures   [excluding  any  expenditures  for  the
acquisition  or leasing  of gaming  devices]  paid or  incurred  by the  Company
[including  the value of any in-kind  services or materials  contributed  by any
person] through  completion of  construction  with respect to any project of the
Company for which  consultant  provides  services to or on behalf of the Company
pursuant to the  agreement.  In fiscal year ended June 30, 1995,  the consulting
agreement was terminated.

                                      F-19

<PAGE>



COUNTRY WORLD CASINOS, INC.
[DEBTOR-IN-POSSESSION]
[A DEVELOPMENT STAGE COMPANY]
NOTES TO FINANCIAL STATEMENTS, Sheet #9
--------------------------------------------------------------------------------



[9] Commitment and Contingencies [Continued]

Consulting  Agreements  [Continued] - In April 1994, the Company entered a three
year  agreement with an entity to advise the Company in financial  matters.  The
agreement  requires the Company to make equal monthly  payments over three years
of $2,770  and to issue  200,000  shares of the  Company's  common  stock.  This
agreement was canceled.

Employee  Agreement  - In May,  1994,  the  Company  entered  into a three year,
$120,000  per year  employment  agreement  with an officer of the  Company.  The
agreement  granted  the  officer  options  to  purchase  800,000  shares  of the
Company's common stock over a 5 year period at exercise prices ranging from $.25
to $6.00 per share.  Employment  was  terminated  during the year ended June 30,
1995 and pursuant to the employment agreement, the options expired 30 days after
termination.

SEC  Investigation  - In the fiscal  year ended June 30,  1994,  the Company was
informed by the Securities and Exchange  Commission [the "SEC"] that the SEC had
instituted  a formal  order  of  investigation  concerning  the  possibility  of
violations of the federal  securities laws by the Company.  As of June 30, 1996,
the Company  had not been  notified of any action  being  instituted  by the SEC
against the Company [See Note 11].

Operating  Lease - The  Company  leases  office  space  under  operating  leases
expiring  through  January  1997.  Rent  expense was $40,766 and $47,370 for the
years ended June 30, 1996 and 1995, respectively. The Company does not intend to
renew this lease and will relocate during February 1997.

Capital Leases - The Company is the lessee of office  equipment  under a capital
lease expiring in June 1, 1999. The assets and liabilities  under capital leases
are recorded at the present value of the net minimum lease  payments.  The asset
is amortized  over its estimated  useful life.  Amortization  of the asset under
capital lease is included in depreciation expense.

The following is a summary of equipment held under capital leases:

Furniture and Equipment                                          $ 13,409
Less:  Accumulated Amortization                                     2,682
                                                                 --------
   Total                                                         $ 10,727
                                                                 ========

Minimum  future lease  payments under this capital lease for the next five years
and in the aggregate are:

1997                                                             $ 4,548
1998                                                               4,548
1999                                                               4,169
Thereafter                                                            --
                                                                 -------

Net Minimum Lease Payments                                        13,265
Less:  Amount Representing Interest                               (2,575)
                                                                 -------

   Present Value of Net Minimum Lease Payments                  $ 10,690
                                                                ========



                                      F-20

<PAGE>


COUNTRY WORLD CASINOS, INC.
[DEBTOR-IN-POSSESSION]
[A DEVELOPMENT STAGE COMPANY]
NOTES TO FINANCIAL STATEMENTS, Sheet #10
--------------------------------------------------------------------------------



[10] Litigation

Notes  Payable - In July 1995,  Tommyknocker  Casino  Corp.  ["TKCC"],  the note
holder, on the $3,450,000 note payable [See Note 3] declared the note in default
and began foreclosure proceedings on the real property collateralizing the note.
In  addition,  payments  due on a  related  $725,000  note  due  to  New  Allied
Development  Corporation.  ["NADC"]  had not  been  made  and  accordingly  NADC
considered  the note in default.  The Company is a plaintiff and a  counterclaim
defendant in a lawsuit  against NADC and its wholly owned  subsidiary,  TKCC. In
1993,  TKCC sold to the Company the land in Black Hawk,  Colorado upon which the
Company plans to construct a gaming entertainment facility. The Company believes
that TKCC  committed  wrongful acts in connection  with the land  purchase.  The
lawsuits  and the  foreclosure  proceedings  have been stayed by the  Bankruptcy
filing [See Note 11].

Litigation - The Company is a defendant in a lawsuit  pending in Travis  County,
Texas  District  Court.  The  plaintiff  contends that several  defendants  made
misrepresentations  regarding the Company's  stock,  which allegedly  induce the
plaintiff  to purchase  the  Company's  stock.  The  plaintiff  alleges that the
Company is liable  for the  alleged  wrongful  conduct  of the  defendants.  The
plaintiff  has  additionally  filed a Proof  of Claim  in the  Bankruptcy  Court
setting forth a claim of approximately $40,000.

There are various mechanic liens litigations totaling approximately $325,000. An
issue  exists as to whether the  mechanic  liens  claims are in fact  secured or
unsecured  claims.  These  liens are  included  in the  liabilities  subject  to
compromise.

The  management of Country World Casinos,  Inc. has responded  vigorously to the
defense of and  prosecution of the  Bankruptcy  Court  litigation  [See Note 1].
Management  has on numerous  occasions  attempted  to seek a  settlement  of the
issues with the  Company's  major  opposition.  The  Company's  efforts to reach
settlement on a reasonable  basis have been rebuffed.  Accordingly,  the Company
will continue to vigorously pursue the reorganization.

[11] Subsequent Events

In August 1996, the Company was advised by the SEC that the SEC's  investigation
had been terminated and that no enforcement action has been recommended by staff
of SEC.

[12] Subsequent Events  [Unaudited]  Subsequent to the Date of the Report of the
Independent Auditors

A claims  hearing for the TKCC  $3,450,000  note was held in  September  1996 to
determine  the  settlement  of the debt [See Note 10].  In  November  1996,  the
Company received final rulings from the court. The Court's order finds that TKCC
and NADC were not  entitled  to  default  interest  at the rate of 18%,  however
Country World was ordered to pay 8% per annum on the unpaid balance.

In November 1996, the Company tendered an amount of approximately  $1,309,000 to
TKCC in what it  believes  is full  settlement  of the  remaining  amount of the
$3,450,000 note including accrued interest.



                              . . . . . . . . . . .

                                      F-21


<PAGE>

                                   SIGNATURES

         In  accordance  with the  requirements  of  Sections 13 or 15(d) of the
Securities  Exchange Act of 1934,  as amended,  the  Registrant  has caused this
Report to be signed on its behalf by the undersigned, thereunto duly authorized.

                                                   COUNTRY WORLD CASINOS, INC.


Dated: November 22, 1996                             By: /s/Roger D. Leclerc
                                                     ---------------------------
                                                    Roger D. Leclerc, President
                                                    and Chief Executive Officer

         In  accordance  with the  Securities  Exchange Act of 1934, as amended,
this  Report has been  signed  below by the  following  persons on behalf of the
Registrant and in the capacities and on the dates indicated.


Dated:  November 22, 1996                    /s/ Roger D. Leclerc
                                            -----------------------------------
                                            Roger D. Leclerc, President,
                                            Chief Executive Officer and
                                            Director


Dated:  November 22, 1996                    /s/ William H. Patrowicz
                                            -----------------------------------
                                            William H. Patrowicz, Secretary,
                                            Treasurer and Director


Dated:  November 22, 1996                    /s/ Larry S. Berman
                                            -----------------------------------
                                            Larry S. Berman, Director


Dated:  November 22, 1996                    /s/ Cary B. Berman
                                            -----------------------------------
                                            Cary B. Berman, Director