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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________
FORM 10-KSB
(MARK ONE)
[_] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 (FEE REQUIRED)
OR
[X] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM JULY 1, 1996 TO NOVEMBER 30, 1996
COMMISSION FILE NO. 1-11837
GRAND PRIX ASSOCIATION OF LONG BEACH, INC.
(Name of small business issuer in its charter)
CALIFORNIA 95-2945353
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(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
3000 PACIFIC AVENUE 90806
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LONG BEACH, CA (Zip Code)
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(Address of principal executive offices)
(562) 981-2600
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(Issuer's telephone number, including area
code)
Securities registered pursuant to Section 12 (b) of the Act:
NONE N/A
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(Name of exchange on which registered)
Securities registered pursuant to Section 12 (g) of the Act:
COMMON STOCK, NO PAR VALUE
--------------------------
(Title of each class)
____________________________
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No______
----
Check if there is no disclosure of delinquent filers pursuant 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 [X].
The issuer's revenues for the five month transition period ended November
30, 1996, were $1,960,000.
As of January 31, 1997 there were 3,640,565 outstanding shares of Common
stock, no par value. The aggregate market value of the voting stock of the
registrant held by non-affiliates of the registrant on January 31, 1997 based on
the average bid and asked price on such date was $22,081,922.
DOCUMENTS INCORPORATED BY REFERENCE: The Exhibit List attached hereto and
Prospectus filed pursuant to Rule 424(b).
Transitional Small Business Disclosure Format: Yes _______ No X
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INTRODUCTION
At the last Annual Meeting of Shareholders of Grand Prix Association of Long
Beach, Inc., a California corporation (the "Company"), which was held on
December 9, 1996, the Shareholders ratified a Board of Directors' resolution
changing the Company's fiscal year end from June 30 to November 30. As a result
of the change in fiscal year, this report for the five month transition period
from July 1, 1996 through November 30, 1996, is necessary.
Definitions There are numerous acronyms used in the motorsports industry and
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otherwise, several of which are used herein. For the facility of the reader,
acronyms used herein are defined below:
ARCA - Automobile Racing Club of America.
CART - Championship Auto Racing Teams, Inc.
Grand Prix - The Grand Prix of Long Beach, an annual temporary circuit
professional motorsports event held in Long Beach, California.
IPO - Initial public offering.
NASCAR - The National Association for Stock Car Auto Racing, Inc.
NHRA - The National Hot Rod Association.
SEC - Securities Exchange Commission.
SWIDA - Southwestern Illinois Development Authority.
USAC - United States Auto Club.
PART I
ITEM 1. BUSINESS
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For the past twenty-three years, the Company has been engaged in the business of
organizing and promoting automobile racing events. The Company was the first to
operate a temporary street circuit race in the United States and has held
twenty-two Grand Prix of Long Beach events. The 1996 Grand Prix had the second
highest paid attendance of any Indy car race, second only to the Indianapolis
500.
In addition to operating temporary circuit events, the Company owns two
permanent racing facilities. The Company is in the process of extensively
reconfiguring Gateway International Raceway, the permanent motorsports facility
in Madison, Illinois (near St. Louis) which the Company acquired in November
1994, into a major regional multipurpose motorsports facility. The
reconfigured facility will feature an oval track with an initial seating
capacity of 45,000 and which can be expanded to over 85,000 in the future, a
road course, and a national caliber 1/4 mile drag strip with initial seating for
20,000 and eventually 35,000, at which the Company held the facility's first
special event in September 1996.
The Company is currently engaged in making modifications and improvements
necessary to bring Memphis Motorsports Park, in Millington, Tennessee, the
permanent facility which it acquired in June 1996, up to current professional
motorsports standards. Memphis Motorsports Park has a national caliber 1/4 mile
drag strip, which hosted the NHRA Mid-South Nationals in June 1996, and when
improvements are completed will have two oval tracks as well as a road course.
Initially the Company anticipated it would complete improvements to the
permanent facilities in stages, as major event sanctions were obtained.
However, improvements to both facilities have been accelerated because the
Company has been able to secure several major event sanctions for the 1997
season, thereby requiring the improvements to be completed sooner than
initially anticipated. When completed, both facilities will also have the
capacity to host major stock car and Indy car races.
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In 1997, Gateway International Raceway will host the Motorola 300 PPG CART World
Series for Indy cars on May 22-24, the NHRA Craftsman Nationals Presented by
PartsAmerica on June 26-29, and a NASCAR Busch Series, Grand National Division
event for stock cars on July 24-26. Gateway International Raceway also plans to
host special events, as well as local and regional weekly events during the
months of March through October.
Memphis Motorsports Park will host an ARCA Super Car and USAC Silver Crown event
on September 12-14, 1997 and the NHRA Pennzoil Nationals Presented by AutoZone
on October 2-5, 1997. Additionally, Memphis Motorsports Park will host special
events, as well as local and regional events on a weekly basis during the months
of March through November.
Although in prior years the Company has derived the majority of its revenues
from the Grand Prix, when planned construction is completed and the calendar of
events is finalized at the two new permanent facilities, its reliance on the
Grand Prix as its primary revenue producer will diminish.
A major business strategy of the Company has been, and will continue to be, the
maximization of its workforce and the race related operating equipment which has
been acquired over the years to meet the annual requirements of hosting in
excess of 200,000 spectators at the Grand Prix. The Company accomplishes this
by renting its temporary structures and electrical equipment to other event
operators and providing consulting and marketing services to other entities.
While both Gateway International Raceway and Memphis Motorsports Park will need
a relatively limited amount of temporary equipment to meet peak demands, the
Company intends to enter the equipment rental business in those markets as it
has done in California. In addition to rental of temporary structures and
electrical services for other special events, the Company will continue to
provide marketing and promotional services for other entities, as well as media
production services and merchandise/souvenirs for all three of its venues - Long
Beach, Gateway International Raceway and Memphis Motorsports Park.
The Company is increasing its staff at the corporate offices to support national
activities, as well as increasing regional staff at its permanent facilities.
The Company, now employs 59 full time and 8 year-round part-time employees. The
Company plans to hire seasonal employees as required to supplement its permanent
staff at all locations. The Company is a party to collective bargaining
agreements with the Construction Laborers, Local 507 for seasonal employees only
in connection with construction related to the Grand Prix, and with the
International Brotherhood of Electrical Workers, Local 831 for its electrical
services division. Employees subject to collective bargaining agreements have
had good relationships with the Company. No work stoppages have occurred and
none are expected.
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Recent Developments
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Subsequent to November 30, 1996, the Company entered into a letter of intent for
a three year agreement with CBS to broadcast the NASCAR Busch Series Grand
National event to be held at Gateway International Raceway. In addition to the
payment of a rights fee, CBS has agreed that the Company's teleproductions
division, Grand Prix Teleproductions, will be responsible for providing below-
the-line production facilities for CBS at the site.
The Company has also recently entered into a letter of intent for a one year
sponsorship agreement with renewal options, for Motorola to be the event title
sponsor of the PPG CART World Series event to be held at Gateway International
Raceway May 22-24, 1997.
On January 27, 1997, the Company entered into a ten year lease (with four
five-year renewals) of twenty acres for the purpose of providing overflow
parking for major events on a neighboring golf course, and on February 7, 1997
entered into a five year lease with a neighboring landowner commencing March 1,
1997 covering 14.285 acres for major event parking.
On December 17, 1997, the Company entered into a one year contract with NASCAR
for a 300 mile Busch Series Grand National event to be held at Gateway
International Raceway on July 24-26, 1997.
RISK FACTORS
The Company's future results may be affected by risks and uncertainties, which
include but are not necessarily limited to the following.
Factors Affecting Earnings and Stock Price
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The statements contained in this report on Form 10-KSB which are not purely
historical, are forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934, including statements regarding the Company's expectations, hopes,
intentions or strategies regarding the future. All forward-looking statements
included in this document are based on information available to the Company on
the date hereof, and the Company assumes no obligation to update any such
forward-looking statements. It is important to note that the Company's actual
results could differ materially from those in such forward-looking statements.
The risk factors set forth in the Company's previous reports on Forms 10-KSB,
10-QSB and Annual Reports to shareholders should be consulted. Among the
factors which could cause actual results to differ materially are weather and
construction delays, failure to obtain or the loss of sanctioning, sponsorship
agreements and/or government approvals, competition, manpower overload, and
seasonality.
Weather and Construction Delays
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Adverse weather conditions could cause delays in construction at both Gateway
International Raceway and Memphis Motorsports Park which could ultimately affect
the ability of those facilities to host one or more of the major events
currently scheduled to be held in 1997. Weather conditions could also cause the
cancellation or postponement of one or more events. Construction delays
resulting from various other factors could also adversely effect the Company's
ability to meet the completion deadlines necessary to host the major events
scheduled in 1997 at Gateway International Raceway and Memphis Motorsports Park.
The Company's inability to
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host those events as scheduled could have a material adverse effect on its
business, revenues and financial condition.
Importance of Sanctioning Contracts
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The success of the Company depends in large part on its ability to attract and
retain national racing events sanctioned by motorsports' principal governing
bodies, particularly at its two new permanent facilities, Gateway International
Raceway and Memphis Motorsports Park. To date, the Company has been able to
secure three such events for Gateway International Raceway and two for Memphis
Motorsports Park. For Gateway International Raceway, the Company has agreed to
enter into a four year contract with CART for annual events, a three year lease
with the NHRA for national events with options for an additional 10 years, and a
one year agreement with NASCAR for one event. For Memphis Motorsports Park, the
Company has two years remaining on its agreement with the NHRA for annual
national events, and had entered into a one year agreement with ARCA for a
national championship stock car event, and a three year agreement with USAC for
Silver Crown Championship series annual events. The Company has two years
remaining on its sanction agreement with CART for the Grand Prix at Long Beach
with options through the year 2000. The inability of the Company to maintain
sanction agreements at this level would likely result in lower than anticipated
revenues for the Company from admissions, promotions, sponsorships, hospitality,
concessions, and merchandise, which could have a material adverse effect on the
Company's business, financial condition, and results of operations.
Competition
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The Company's racing events compete with other sports and recreational events
scheduled on the same dates, as well as with motorsports racing events
sanctioned by various other racing bodies. Racing events sanctioned by
different organizations are often held on the same dates at different tracks.
The Company will be competing with other track owners for the patronage of motor
racing spectators as well as for promotions and sponsorships. The Company's
Long Beach agreement with CART grants it the exclusive right to conduct a CART
sanctioned Indy car race in Southern California; however, the agreement further
provides that California Speedway, a new oval superspeedway currently being
constructed in Fontana in Southern California, may be granted a CART sanctioned
Indy car race so long as such race is not held within a period of several months
before or after the Grand Prix, which is traditionally held in April. The
California Speedway has recently secured a CART sanctioned Indy car event for
September 1997 and a NASCAR sanctioned event to be held in June 1997. The
conduct of such competing events by California Speedway could have a material
impact on attendance, sponsorships and other revenues from the Grand Prix.
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Manpower Overload
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Despite the addition of several new full time people to the corporate and
regional staff, it should be noted that the Company has never before faced the
challenge of organizing and promoting six major events in one year. Although
the Company believes that the local staff assembled at Gateway International
Raceway and Memphis Motorsports Park is comprised of capable, experienced
individuals, those staff members have never worked together as a team on a major
event such as those currently scheduled to take place at Gateway International
Raceway and Memphis Motorsports Park in 1997. Furthermore, the Long Beach staff
has never undertaken the promotion and operation of more than three major events
in one year. Commencing with the 1997 racing season, the Company's staff will
be expected to utilize its experience and expertise in promoting and operating
six major events. The inability of the current staff to meet the deadlines and
budgets involved in each of the events could have a material adverse effect on
the business and revenues of the Company.
Seasonality
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Historically, most of the Company's revenues have been derived from the annual
Grand Prix held each April. The Company has traditionally reported operating
losses during each of its other three fiscal quarters. It is anticipated that
as Gateway International Raceway and Memphis Motorsports Park increase their
operations, the Company's new second, third and fourth quarters will produce
operating profits, however, it is still anticipated that the Company's revenues
will remain substantially seasonal for at least the next several years.
Further, the Company anticipates that Gateway International Raceway and Memphis
Motorsports Park will have very limited, if any, racing during the winter season
and, accordingly, it is anticipated that during the period from November through
February the Company will continue to have minimal revenues resulting in an
operating loss during its first fiscal quarter.
Government Approvals
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Operation of the Grand Prix is dependent upon obtaining a permit from the City
of Long Beach to hold the race on city streets. The Company has such a permit
through the year 2010. Traditionally, the city has been cooperative in working
with the Company with respect to the terms of the permit and in extending the
term thereof; however there is no assurance that the City of Long Beach will
extend the permit after the year 2010.
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Sponsorship Contracts
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The Company derives a substantial portion of its annual revenues from
sponsorship agreements, including title sponsorship of its various events,
sponsorship of its permanent venues, and "official product" sponsorships. The
Company's title sponsorship agreements include a contract with Toyota Motor
Sales U.S.A. for title sponsorship of the Grand Prix through the year 2000; an
understanding for a one year agreement with Motorola for title sponsorship of
Gateway International Raceway's CART Indy car race in May 1997, with renewal
options; a three year agreement with Sears Craftsman to be the sponsor for the
NHRA event at Gateway International Raceway; and an agreement with the NHRA for
Pennzoil to be the sponsor of the NHRA event at Memphis Motorsports Park through
the 1998 event. Loss of these title sponsorship or other major sponsorship
agreements or failure to secure such sponsorship agreements in the future could
have a material adverse affect on the Company's revenues.
Government Regulation of Sponsors
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The Company derives a significant portion of its revenue each year from
sponsorship and advertising by various companies. Tobacco and liquor companies
have traditionally sponsored motorsports events. In August 1995, the U.S. Food
and Drug Administration announced proposed regulations which, if implemented,
could potentially restrict tobacco industry sponsorship of sporting events.
Revenue from tobacco company sponsorships amounted to approximately 7% of the
Company's total sponsorship revenue in the fiscal year ended June 30, 1996.
Government regulations restricting advertising by tobacco, liquor and other
potential sponsors could adversely impact the Company's revenues, as well as the
motorsports industry as a whole, and there is no assurance that alternate
sponsors could be obtained.
Reliance on the Grand Prix of Long Beach
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Traditionally, the Company has obtained in excess of 80% of its annual revenues
from the Grand Prix. In fiscal year ended June 30, 1996, the Grand Prix
accounted for 72% of the Company's revenues. Once Gateway International Raceway
and Memphis Motorsports Park are fully operational and have completed one racing
season with major events, the impact of those facilities on the Company's
revenue could be significant. Until that time, although the Company is
diversifying its operations, the Company expects that the Grand Prix will
continue to account for a significant portion of its revenues and operating
income. Although the Company has operated a racing event on the streets of Long
Beach for 22 years, there can be no assurance that the Grand Prix will continue
to be successful. Although the Company has an agreement with the City of Long
Beach to operate the Grand Prix through 2010, and with CART to sanction the
Grand Prix Indy car race through 1998, which may be extended to 2000 at the
option of the Company, the loss or cancellation of either of these agreements
could have a material adverse effect on the financial viability of the Company.
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Insurance
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The Company maintains insurance policies that provide coverage within limits
that are sufficient, in the opinion of management, to protect the Company from
material financial loss incurred in the ordinary course of business. The
Company also purchases special event insurance for motorsports events to protect
against race related liability. The Company maintains "key man" insurance on
its key corporate executives. However, there can be no assurance that such
insurance will be adequate at all times and in all circumstances. If the
Company is held liable for damages beyond the scope of its insurance coverage,
its business, financial condition and results of operations could be materially
and adversely affected.
Patents, Trademarks, Copyrights
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The Company has registered the following trademarks: "Long Beach Grand Prix",
"U.S. Grand Prix West", "200 MPH Beach Party", "LBGP" and others and regularly
copyrights its artwork, including poster art and artwork for tee shirts sold at
the Grand Prix and at Gateway International Raceway and Memphis Motorsports
Park. The Company recently patented a safety barrier. Although the Company
takes care to protect its intellectual property, the loss of any of these
trademarks or copyrights would not, in the opinion of management, have a
material adverse effect on the revenues of the Company.
ITEM 2. PROPERTIES
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Long Beach Properties
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The Company owns its principal executive offices at 3000 Pacific Avenue, Long
Beach, California, which consists of approximately 82,000 square feet of land
and a building with approximately 50,000 square feet of office and warehouse
space. The executive offices are encumbered with a first trust deed loan from
Harbor Bank and a second trust deed loan from the U.S. Small Business
Administration, which were used to acquire and improve the property in 1992
(See Note 5 of Notes to Consolidated Financial Statements included elsewhere
herein). The Company leases a 750 square foot ticket office in downtown Long
Beach for the sale of Grand Prix tickets and souvenirs and also leases storage
facilities in Long Beach for its equipment and structures when not in use. In
the opinion of the Company's management, these facilities are adequately covered
by insurance.
Gateway International Raceway Property
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Gateway International Raceway is located on approximately 194 acres of land in
Madison, Illinois, five miles from the St. Louis Arch. The Company owns
approximately 49 acres of those 194 acres and has three long term leases
(expiring in 2025, 2026, and 2070) for the remaining 145 acres, with purchase
options.
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Subsequent to November 30, 1996, the Company entered into a ten year lease (with
four five-year renewals) of twenty acres for the purpose of providing overflow
parking for major events on a neighboring golf course, and a five year lease
commencing March 1, 1997 covering 14.285 acres for major event parking. The
Company is in the process of negotiating relationships with neighboring land
owners to fulfill its major event parking needs. The Company has granted a first
mortgage lien on all the real property owned and a security interest in all
property leased by the Company at Gateway International Raceway to SWIDA as
security for the repayment of principal and interest on its $21.5 million loan
from SWIDA (See Note 5 of Notes to Consolidated Financial Statements included
elsewhere herein). Using the SWIDA loan proceeds and certain proceeds from the
IPO, the Company is in the process of extensively reconfiguring and developing
Gateway International Raceway into a major regional multipurpose motorsports
facility capable of hosting the motorsports industry's top-tier events, a law
enforcement training program, as well as continuing to host a variety of local
and regional events. The redevelopment includes replacing most of the existing
facility and putting in place a new infrastructure, including electrical
service, a sanitation system, a ground water drainage system, and ingress and
egress roads for new parking facilities, as well as four new tracks, a drag
strip tower, an oval suite tower, administrative offices, walkways, concession
stands and grandstands capable of initially hosting 45,000 spectators per event
at the oval and 20,000 per event at the drag strip and eventually 85,000 per
event at the oval and 35,000 per event at the drag strip. Construction of the
first phase which includes the drag strip, was originally scheduled for
completion at the end of September, 1996; this was accelerated to the end of
August, 1996 and the facility ran its first event on the weekend of September 7-
8, 1996. The second phase of the facility, the oval and the road courses, is
currently ahead of the original construction completion date and is now
scheduled for completion in early May, 1997. Management believes that the
insurance coverage it maintains on this property is adequate.
Memphis Motorsports Park Property
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On June 28, 1996, the Company acquired Memphis Motorsports Park, 374 acres of
land approximately ten miles northeast of downtown Memphis Motorsports Park,
Tennessee with part of the proceeds from its IPO. Memphis Motorsports Park is
located in the southwest corner of Tennessee which is one of the fastest growing
national distribution centers in the United States. The facility, which was
constructed in 1987, currently has a regulation NHRA drag strip, a road course
and two oval tracks, eighteen corporate suites, 5,500 permanent grandstand seats
and 14,238 portable grandstand seats. The Company has started making needed
improvements and expansions to Memphis Motorsports Park, including converting
the existing combination 3/8 mile clay oval to a 7/8 mile paved oval (although
originally planned as a 9/10 paved oval, recent engineering surveys indicate
that it would not be economically sound to convert to a 9/10 paved oval),
modifying the road course and
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increasing the seating capacity to enable this regional facility to be eligible
to acquire additional nationally sanctioned motorsports events as well as to
continue to host local and regional events. Engineering plans are underway for
the design of the expanded oval, and the addition of a 1/4 mile dirt oval for
the purpose of preserving the ongoing dirt racing activities for which there is
a considerable market. In the opinion of the Company's management, the property
is adequately covered by insurance.
Prior to the acquisition of each of its major properties, the Company obtained
Phase I Preliminary Site Assessment environmental reports. None of these
reports indicated any material environmental contamination. Because Phase I
reports do not include testing of soil, water or air samples, it is possible
that there may be undetected environmental contamination at one or more of the
Company's properties. The seller of Memphis Motorsports Park facility has
agreed to undertake the removal and clean up of any contamination related to the
underground fuel storage tanks located on the property which might be found, as
well as other items mentioned on the Phase I report at no expense to the
Company. To date, the underground fuel storage tanks have been removed and no
contamination has been found.
ITEM 3. LEGAL PROCEEDINGS
-----------------
The Company is not currently involved in any legal proceedings that it believes
could have, either individually or in the aggregate, a material adverse effect
on its business or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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During the five month transition period ending November 30, 1996 there were no
matters voted upon by the shareholders.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
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The Common stock of the Company began trading on June 25, 1996 (subsequent to
the initial public offering) on the Nasdaq National Market under the symbol
GPLB. Prior to the offering in June 1996, no established public trading market
existed. The following table sets forth the high and low quotations from Nasdaq
during the five month transition period.
Common Stock Price
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HIGH LOW
Transition period ended November 30, 1996 10-1/8 8
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The number of record holders of the Company's Common stock as of January 31,
1997 was 3,640,565. The Company has not paid a dividend with respect to its
Common stock since the IPO, and the Company does not anticipate paying dividends
in the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
---------------------------------------------------------
The following discussion and analysis should be read in conjunction with Item 1.
Business, with the Company's Consolidated Financial Statements and the notes
thereto and other financial information included elsewhere herein.
BASIS OF PRESENTATION
MAJOR EVENT REVENUES. Major event revenues for periods prior to 1996 only
include revenues from the Grand Prix. In 1996, major event revenues include
revenues earned from the Grand Prix and the nationally sanctioned NHRA event
held in June 1996 at Memphis Motorsports Park.
ADMISSIONS. The Company's admissions revenue represents ticket sales in
connection with the major events. Ticket sales revenue, whenever collected, is
considered earned upon completion of the related event. A substantial portion
of the Company's ticket sales revenue is collected in advance of the event to
which it relates.
SPONSORSHIPS. The Company's sponsorship revenue includes corporate sponsorships
for major events received in accordance with negotiated contracts with a diverse
group of sponsoring companies and print advertisers. The terms of the contracts
change from time to time.
ANCILLARY. Ancillary revenues for major events include, in declining order of
contribution, hospitality, broadcast services, merchandising, lifestyle/auto
expo and concessions.
OTHER OPERATING REVENUES. The Company generates other operating revenues from
promotion, marketing and public relations consulting services, and rentals of
grandstands, structures and related equipment services. The Company also
generated revenues from special, local and regional motorsports events and
related concessions, as well as venue sponsorships at Gateway International
Raceway starting in November 1994 and at Memphis Motorsports Park starting in
June 1996.
EXPENSES. The Company classifies its expenses to include major event expenses,
other operating expenses, general and administrative expenses, and depreciation.
Major event expenses principally include sanction fees, circuit construction
costs, operational direct expenses, marketing, advertising and public relations,
costs of souvenir sales, ticket sales expenses and city service fees. Sanction
agreements require race promoters to pay fees and provide services to the
relevant sanctioning
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body during the event. Other operating expenses include expenses directly
related to marketing and public relations consulting services, structures
and electrical services. Direct expenses of operating Gateway
International Raceway are included starting in November 1994 and Memphis
Motorsports Park in June 1996. General and administrative expenses include
wages and other general expenses.
RESULTS OF OPERATIONS FOR THE YEARS ENDED JUNE 30, 1995 AND 1996 AND THE FIVE
MONTH TRANSITION PERIOD ENDED NOVEMBER 30, 1996
The table below sets forth revenues and expenses as a percentage of total
revenue for the years ended June 30, 1995 and 1996 and the five month transition
period ended November 30, 1996.
<TABLE>
<CAPTION>
5 months
Year ended Year ended ended
June 30, 1995 June 30, 1996 Nov 30, 1996
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<S> <C> <C> <C>
Revenues:
Major event revenues
Admissions........................... 36.7% 36.4% 0.0%
Sponsorships......................... 21.7 19.9 0.0
Ancillary............................ 25.7 25.5 0.0
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Total major event revenues........... 84.1 81.8 0.0
Other operating revenues............... 15.9 18.2 100.0
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Total revenues....................... 100.0 100.0 100.0
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Expenses:
Major event expenses................. 48.5 47.3 0.0
Other operating expenses............. 12.5 12.9 51.5
General and administrative expenses.. 19.3 21.1 117.1
Depreciation......................... 3.2 3.0 34.1
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Total operating expenses............. 83.5 84.3 202.7
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Operating income (loss)................ 16.5 15.7 (102.7)
Other expense.......................... (1.2) (0.7) (6.5)
(Provision) benefit for income taxes... (6.3) (6.3) 40.7
Extraordinary expense.................. (0.3) 0.0 0.0
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Net income (loss)...................... 8.7% 8.7% (68.5)%
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</TABLE>
FIVE MONTH TRANSITION PERIOD ENDED NOVEMBER 30, 1996 COMPARED TO THE FIVE MONTH
PERIOD ENDED NOVEMBER 30, 1995 (UNAUDITED)
MAJOR EVENTS. The Company did not hold any major events July through November
1995 or 1996. All revenues collected during these months related to major
events are deferred until completion of the related event. All direct major
event expenses incurred during July through November are deferred until
completion of the related event.
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OTHER OPERATING REVENUES. Other operating revenues increased by $364,000 or
22.8%, primarily as a result of five months of revenues at Memphis Motorsports
Park in 1996 not operated by the Company in 1995 and increases in revenues from
grandstand rentals. While the Company anticipates that the dollar amount of
other operating revenues and expenses will increase in 1997, with the
redevelopment of Gateway International Raceway and the expansion of Memphis
Motorsports Park, other operating expenses as a percentage of other operating
revenues is anticipated to remain relatively constant.
OTHER OPERATING EXPENSES. Other operating expenses increased by 30.2% from 1995
to 1996, or 2.9% as a percentage of other operating revenues from 48.6% in 1995
to 51.5% in 1996, primarily due to the change in other operating revenues as
described above.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased by $975,000 from 1995 to 1996, and as a percentage of total revenues,
increased from 82.7% in 1995 to 117.1% in 1996. This increase is due to several
factors including five months of expenditures related to Memphis Motorsports
Park ($254,000), administrative costs related to operating Gateway International
Raceway ($136,000), increases in the number of employees over the prior period
and increases in professional fees pertaining mainly to reporting requirements
of a public company.
DEPRECIATION. Depreciation expense of $668,000 for the five months ended
November 30, 1996 increased $503,000 or 304.8%, from the five months ended
November 30, 1995. This increase is attributable to five months of depreciation
expense on Memphis Motorsports Park capital assets in 1996, depreciation on the
completed drag strip at Gateway International Raceway for three months, other
Gateway International Raceway construction and corporate capital assets
purchased during the current period.
YEAR ENDED JUNE 30, 1996 COMPARED TO YEAR ENDED JUNE 30, 1995
MAJOR EVENT REVENUES. The Company's total major event revenues of $12,477,000
for the year ended June 30, 1996 increased by $2,696,000, or 27.6%, from the
year ended June 30, 1995 as discussed below.
Grand Prix
- - ----------
Since 1991, the Company's Grand Prix reserved seating has been sold out prior to
the event. The Company has increased paid attendance over the past several
years by adding to and/or reconfiguring grandstand seating and other viewing
areas. With Grand Prix attendance at or near capacity, the Company has focused
on increasing corporate sponsorships and ancillary revenue sources, specifically
corporate hospitality and merchandising.
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<PAGE>
The Company's current contract with Toyota Motor Sales, U.S.A., Inc., which has
been the title sponsor of the Grand Prix since 1980, expires in 2000. Other
contracts extend from one year to five years with various renewal options. Of
the 27 sponsorship contracts in 1996, 13 contracts (which accounted for gross
aggregate sponsorship revenues of approximately $694,300) expired after the 1996
event. The Company has renewed 10 contracts representing gross revenues of
$803,000 and expects to renew or replace the remaining expired contracts prior
to the 1997 Grand Prix; however, no assurance can be made that these agreements
will continue to be renewed.
Grand Prix revenues of $11,041,000 for the year ended June 30, 1996 increased by
$1,260,000 or 12.9%, from the year ended June 30, 1995. Grand Prix admission
revenues increased by $415,000 or 9.7%, due to paid attendance in 1996
increasing by 6,500 or 3.2% from 1995 and a more favorable mix of ticket
packages. Sponsorships increased by $317,000 or 12.6%, from 1995 to 1996, as a
result of increases in certain existing sponsorship contracts, as well as an
increase in the number of event sponsors. Ancillary revenues increased by
$528,000 or approximately 17.7%, primarily as a result of increases in
hospitality, teleproductions, lifestyle/auto expo, race program sales and
concessions revenues.
Memphis Motorsports Park
- - ------------------------
The Company hosted its first major event at its newly acquired Memphis
Motorsports Park in June 1996. The NHRA event revenues of $1,436,000 for the
year ended June 30, 1996 consist of admission revenues of $866,000, sponsorships
revenues of $194,000 and ancillary revenues of $376,000.
OTHER OPERATING REVENUES. Other operating revenues increased by $927,000 or
50.2%, primarily as a result of a full season of revenues at Gateway
International Raceway of $1,263,000 in 1996 ($345,000 in 1995), the inclusion of
one month of other operating revenues of $34,000 from Memphis Motorsports Park
and increases in revenues from grandstand rentals. While the Company
anticipates that the dollar amount of other operating revenues and expenses will
increase in 1997, with the redevelopment of Gateway International Raceway and
the expansion of Memphis Motorsports Park, other operating expenses as a
percentage of other operating revenues are anticipated to remain relatively
constant.
MAJOR EVENT EXPENSES. The Company's major event expenses increased in total by
27.8% from 1995 to 1996 but decreased slightly as a percentage of revenues,
primarily as a result of the inclusion of the NHRA event at Memphis Motorsports
Park, as further discussed below.
-14-
<PAGE>
Grand Prix
- - ----------
Grand Prix major event expenses increased by 7.1% from 1995 to 1996, primarily
as a result of increased sanctioning fees payable to CART, increases for
additional spectator related expenses, insurance premiums and possessory
interest property taxes. It can be expected that major event expenses will
continue to increase from year to year.
Memphis Motorsports Park
- - ------------------------
NHRA major event expenses of $1,169,000 are primarily comprised of sanctioning
body related expenses, hospitality costs and advertising expenses.
OTHER OPERATING EXPENSES. The dollar amount of other operating expenses
increased by 35.3% from 1995 to 1996, but decreased as a percentage of other
operating revenues from 79.0% in 1995 to 71.1% in 1996, primarily as the result
of the increase in other operating revenues described above.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased by 43.7% from 1995 to 1996, and as a percentage of total revenues,
increased from 19.3% in 1995 to 21.2% in 1996, primarily as a result of the full
year inclusion of Gateway International Raceway and one month of Memphis
Motorsports Park.
DEPRECIATION. Depreciation expense of $451,000 for the year ended June 30, 1996
increased $80,000 or 21.6%, from the year ended June 30, 1995. This increase is
attributable to depreciation on corporate capital assets purchased during the
current year and one month of depreciation expense on Memphis Motorsports Park
capital assets in 1996.
PROVISION FOR INCOME TAXES. The Company's effective tax rate was 42% for the
years ended June 30, 1996 and 1995.
LIQUIDITY AND CAPITAL RESOURCES
Prior to June 1996, the Company relied on cash flows generated from operations,
predominantly from the Grand Prix, supplemented by bank borrowings to finance
working capital, acquisitions and capital improvements. In June 1996, as
further discussed below, the Company expanded its sources of capital through
equity and debt transactions.
The Company's bank borrowings consist of short and long term obligations
incurred in connection with specific capital improvements and expenditures. The
Company's long term debt for Gateway International Raceway includes a first
trust deed note to
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<PAGE>
SWIDA, secured by the Gateway International Raceway property, with an
outstanding principal balance of $21,500,000 on November 30, 1996. Long term
debt also includes first and second trust deed notes, secured by the Company's
corporate office, which together had an outstanding principal balance of
approximately $1,448,000 on November 30, 1996. Other long and short term debt,
totaling in the aggregate $97,000 on November 30, 1996, consisted of various
secured and unsecured borrowings (See Note 5 of Notes to Consolidated Financial
Statements).
The Company's cash balance at November 30, 1996 was $10,214,000 compared to
$12,308,000 at June 30, 1996, a net decrease of $2,094,0000, primarily
attributable to funding operating losses for the five month transition period.
The Company's restricted cash of $11,546,000 at November 30, 1996 included the
funds restricted by the terms of the SWIDA loan to fund the Gateway
International Raceway expansion project. The Company's deficit operating cash
flows was $1,164,000 for the five months ended November 30, 1996, compared to
positive operating cash flows of $2,630,000 for the year ended June 30, 1996.
The negative operating cash flow is the result of no major event being held
during the transition period. Net cash used by the Company in capital
investments totaled $11,774,000 for the five month transition period ended
November 30, 1996 as compared to $5,004,000 for the year ended June 30, 1996, an
increase of $6,770,000, used primarily for the construction at Gateway
International Raceway. Repayment of debt included in net financing activities
was $158,000 for the five month transition period ended November 30, 1996 and
$217,000 for the year ended June 30, 1996.
The Company anticipates that total expenditures related to the redevelopment of
Gateway International Raceway will be approximately $24,000,000; $18,500,000 to
be funded from the net SWIDA loan proceeds and $5,500,000 from the net initial
public offering proceeds. Projected costs of the redevelopment assume that
subcontractors adhere to the terms of their budgets, that adverse factors, such
as labor problems and weather, are kept to a minimum and that significant design
changes are not required. Any adverse changes in these items could materially
increase redevelopment costs.
As more fully described in Note 5 of Notes to the Consolidated Financial
Statements, the SWIDA loan bears interest at varying rates ranging from 8.35% to
9.25% with an effective rate of approximately 9.1%. Additionally, the Company
is required to impose a 5% ticket surcharge on all nationally sanctioned
motorsports events at Gateway International Raceway to establish an additional
debt service reserve fund. Once $2,000,000 has been accumulated in this fund,
excess funds then accumulating will be used to repay debt service annually,
estimated to commence February 1, 2002.
The Company received net proceeds of $11,934,000 from the sale of Common stock
in the initial public offering, of which the Company used $2,500,000 to fund a
portion of the purchase price of Memphis Motorsports Park. The Company intends
to use the balance of the proceeds to make $2,500,000 in improvements to Memphis
Motorsports Park, to spend $1,500,000 to furnish and equip the Gateway
International
-16-
<PAGE>
Raceway Law Enforcement Driving School, $1,500,000 to construct an oval suite
tower and administrative offices at Gateway International Raceway, $2,000,000 to
accelerate additional improvements at Gateway International Raceway due to the
three sanctioned major events awarded for 1997, to make $500,000 in additional
improvements at Gateway International Raceway, with the remaining $1,434,000 for
working capital and other general corporate purposes. The allocation of these
proceeds to be used for the construction of improvements to Gateway
International Raceway and Memphis Motorsports Park are based upon the Company's
current best estimates of the cost thereof, and actual costs may vary depending
on factors outside the control of the Company.
On June 28, 1996, the Company acquired substantially all of the assets of
Memphis Motorsports Park, including approximately 374 acres of land. As
consideration for the assets, the Company assumed certain debt totaling
$2,500,000, which was repaid by the Company with a portion of the proceeds from
the IPO and issued shares of its Series B Convertible Preferred stock valued at
$2,500,000, as further described in Notes 2 and 7 of Notes to the Consolidated
Financial Statements.
The Company's capital requirements will depend on numerous factors, including
the rate at which the Company redevelops and improves Gateway International
Raceway and Memphis Motorsports Park, establishes such facilities as profitable
operations and acquires other motorsports facilities. In addition, the Company
will have various ongoing needs for capital, including: (i) working capital for
operations; (ii) routine capital expenditures to maintain and expand its Long
Beach temporary circuit; and (iii) funds required to service corporate
obligations, including the $21,500,000 obligation under the SWIDA loan. The
Company believes the proceeds from its IPO together with proceeds from the SWIDA
loan and earnings from the Grand Prix as well as the Gateway International
Raceway and Memphis Motorsports Park major events will be sufficient to meet the
Company's anticipated needs for working capital and capital expenditures through
at least the next 12 months. Thereafter, the Company anticipates that, assuming
the Company is successful in continuing to obtain additional nationally
sanctioned events at Gateway International Raceway and Memphis Motorsports Park,
revenues from Gateway International Raceway and Memphis Motorsports Park
supplementing the Grand Prix revenue should be sufficient to provide the
necessary working capital for the Company. However, there can be no assurance
that the Company will not require additional financing or, if required, that
equity or debt financing will be available on acceptable terms or at all.
OUTLOOK FOR 1997
Gateway International Raceway
- - -----------------------------
The Company has agreed with Motorola that it will be the title sponsor for its
inaugural PPG CART Indy car race at Gateway International Raceway. The parties
have agreed that the sponsorship contract will have a term
-17-
<PAGE>
of one year with renewal options. The Company has signed a letter of
understanding with NHRA for Sears Craftsman to be the title sponsor of the
annual NHRA national events at Gateway International Raceway. Other sponsorship
contracts per major event have been signed for one year with various renewal
options. Additional sponsorship contracts are expected to be signed prior to
each major event.
Memphis Motorsports Park
- - ------------------------
The Company continues its agreement with NHRA that Pennzoil will be the title
sponsor of the National NHRA event through 1998. Additional sponsorship
negotiations are expected for the three major (ARCA, USAC and NHRA) events to be
held in 1997.
INFLATION
The effects of inflation on the Company's operations were not significant during
the periods presented herein.
NEW FINANCIAL ACCOUNTING PRONOUNCEMENTS
For the five month transition period ended November 30, 1996, the Company
adopted SFAS 121 and the pro forma disclosure provisions of SFAS 123 (the
Company will continue to account for stock based compensation in accordance with
APB Opinion No. 25). The adoption of SFAS 121 did not have a material impact on
the financial statements and no pro forma disclosures were required for the
adoption of SFAS 123 as no stock options have been granted for fiscal years
beginning after December 15, 1995.
ITEM 7. FINANCIAL STATEMENTS
--------------------
For a list of financial statements filed as part of this report, see Index to
Financial Statements at F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
Not applicable.
-18-
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
-------------------------------------------------------------
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
-------------------------------------------------
DIRECTORS
The following persons are currently directors of the Company, having been
elected at the last Annual Meeting of Shareholders which was held on December 9,
1996, for the term set forth above their names.
Three-year term:
Daniel S. Gurney, 65, was one of the founders of the Company and has served as a
Director of the Company since 1975. Since 1964, Mr. Gurney has been the owner
and Chief Executive Officer of All American Racers Incorporated of Santa Ana,
California, a company which has designed and manufactured race cars known as
"Eagles" for over thirty years. Mr. Gurney is an internationally known former
Grand Prix, Sports Car, NASCAR and Indy car driver. Mr. Gurney graduated from
Menlo College.
George S. Pellin, 56, has been a Director of the Company since 1988. Since
1984, Mr. Pellin has been the owner and General Manager of Pellin Automotive
Products Company, Inc. which manufactures automotive parts in Los Angeles,
California. Mr. Pellin is also the owner of George Pellin & Associates, a
company involved in the sale of automotive electrical equipment and parts. Mr.
Pellin earned a BS in Business from the University of Southern California in Los
Angeles.
James Sullivan, 63, is one of the original shareholders of the Company and has
served as a Director of the Company since 1980. Since 1983, Mr. Sullivan has
been the owner of S.R.E. Industries, Burbank, California, a company which
manufactures souvenir and promotional items with a large presence in the racing
community. Mr. Sullivan was educated at the University of Arizona. He has been
interested in racing since childhood and ran a Championship USAC Midget team in
the late 1970's and early 1980's.
Two-Year Term:
Neil Matlins, 50, became a Director of the Company in August 1996. For the past
five years, Mr. Matlins has been President of Matlins Financial Consulting, Inc.
Mr. Matlins has managed funds for individuals and pension plans for 13 years.
Mr. Matlins served three Illinois governors in appointed positions in budgeting,
evaluation and economic analysis. Mr. Matlins earned an MA in Managerial
Economics and Demography from Cornell University. He graduated from the
University of
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<PAGE>
Virginia in 1968 with honors. He was elected to Phi Beta Kappa and became a
Danforth Fellow.
James P. Michaelian, 53, has been employed by the Company since its inception in
1974 in various executive capacities and has been the Executive Vice President
of the Company since 1988, Chief Operating Officer ("COO") since May 1996 and a
Director since 1975. Mr. Michaelian also serves as the Executive Producer of
Grand Prix Teleproductions, a division of the Company which is responsible for
providing television broadcast services for the Grand Prix on ABC and ESPN. Mr.
Michaelian holds an MBA from University of California, Los Angeles.
Christopher R. Pook, 55, founded the Company in 1974 and has since been the
Chairman of the Board of Directors, Chief Executive Officer ("CEO") and
President of the Company. In addition, Mr. Pook currently serves as a member of
the Board of Governors of the California State University, Long Beach, is a
California delegate appointed by President Clinton to the White House Conference
on Travel and Tourism and is immediate past Chairman of the Greater Los Angeles
World Trade Center Association. Mr. Pook is one of the original developers of
the concept of modern-day racing through city streets in the United States.
One-Year Term:
Joseph F. Ainge, 67, is one of the Company's original shareholders and has
served as a Director of the Company since 1975. Mr. Ainge has been Vice
President of the Prime Electro Products Company, a distributor of electronic
components, since 1990. Mr. Ainge earned a BS in Business Management and
Marketing from the University of Utah in Salt Lake City.
Wayne Kees, 73, an original shareholder of the Company, has served as a Director
of the Company since 1975. Mr. Kees has been retired for more than five years.
Mr. Kees also serves as a member of the Board of Directors of Goodrich Petroleum
Corporation and Sizzler International.
John R. Queen, III, 31, has served as a Director of the Company since April,
1996. Since 1991, Mr. Queen has been employed as a trader and analyst for
Capital Research and Management Company, a money management firm based in Los
Angeles, California. Mr. Queen holds a BS in Industrial Management from Purdue
University.
COMPENSATION OF DIRECTORS
Non-employee directors receive compensation of $500 per board meeting attended
and $500 per committee meeting attended. Prior to June 1996, they also received
stock options. In December 1993, 149,395 shares of Common stock from the 1993
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<PAGE>
Stock Option Plan (See Note 8 to Notes to Consolidated Financial Statements)
were set aside to be granted to the ten then existing non-employee directors in
consideration of their past service to the Company. Each of those directors was
granted an option to purchase one-tenth of the shares held in the pool,
contingent upon their attendance at a minimum of four board meetings a year.
Options granted to the directors were granted at an exercise price of $1.09 per
share and were to vest over the subsequent five year period at a rate of 20% per
year, the first 20% to vest in December 1994. None of the options has been
exercised by existing or retired directors. Stock Option Agreements under the
1993 Stock Option Plan further provided that if any director were asked to
resign, his or her options would become immediately vested. The Company further
agreed to compensate the directors who have granted options by paying them the
consideration necessary to exercise the 20% of the options which vested in
December 1995. Of the ten then-existing non-employee directors, five are still
board members and each has 60% of his options vested. The retired non-employee
directors are still eligible to exercise their options, all of which immediately
vested upon resignation. Options granted under the 1993 Stock Option Plan will
continue to vest 20% per year for those current directors who received them,
provided they attend at least four meetings a year. Directors are eligible to
participate in the Company's 1996 Stock Option Plan; however to date no options
have been granted under that plan.
BOARD MEETINGS
During the five month transition period ended November 30, 1996, the Board met
in person four times. During the twelve months ended November 30, 1996, each of
the Directors attended 75% or more of the aggregate of the total number of
meetings of the Board of Directors held during the time he was a director, and
the total number of meetings held by all committees of the Board on which he
served during such period. In the five month transition period, all directors
except Daniel Gurney attended 80% or more of the meetings of the Board and of
the Committees upon which they served during their term of office.
COMMITTEES OF THE BOARD
Audit Committee. The Audit Committee makes recommendations concerning the
engagement of independent public accountants, reviews the independent public
accountants' plans and results of the audit engagement, approves professional
services provided by the independent public accountants, reviews the
independence of the independent public accountants, considers the range of audit
and non-audit fees and reviews the adequacy of the Company's internal accounting
controls. The Audit Committee currently consists of Messrs. Queen, Pellin and
Ainge, all of whom are currently Directors of the Company.
Nominating Committee. The Nominating Committee selects and nominates qualified
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<PAGE>
persons to serve as directors of the Company. The Nominating Committee currently
consists of Messrs. Pook, Kees, Gurney and Ainge. Mr. Pook is currently an
officer and Director of the Company and Messrs. Kees, Gurney and Ainge are
currently Directors of the Company.
Compensation Committee. The Compensation Committee determines the annual
compensation of executive officers and key employees of the Company. The
Compensation Committee currently consists of Messrs. Sullivan, Kees and Ainge,
none of whom are officers or employees of the Company but all of whom are
Directors.
Stock Option Committee. The Stock Option Committee administers the Company's
1993 Stock Option Plan and its 1996 Employee and Director Stock Incentive Plan.
The Committee determines who are to receive grants under these plans and the
terms of all grants subject to the applicable provisions of the plans. The
Stock Option Committee currently consists of Messrs. Pook, Michaelian, Kees,
Queen, Gurney and Pellin, all of whom are Directors of the Company. Messrs.
Pook and Michaelian are also officers of the Company.
Executive Committee. The Executive Committee has and exercises all of the
powers and authority of the Board in the management of the business and affairs
of the Company that may lawfully be delegated to it by the Board. The Executive
Committee does not have the power to amend the Certificate of Incorporation or
Bylaws of the Company, to adopt an agreement of merger or consolidation, to
recommend to the shareholders the sale, lease or exchange of all or
substantially all of the property and assets of the Company or the dissolution
of the Company, to declare a dividend or authorize the issuance of stock, or to
file bankruptcy. The Executive Committee currently consists of Messrs. Pook,
Michaelian, Kees, Queen, Gurney and Pellin. Messrs. Pook and Michaelian are the
Chief Executive Officer and Chief Operating Officer, respectively, and all of
the committee members are Directors of the Company.
COMPLIANCE WITH SECTION 16(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than ten percent
(10%) of a registered class of the Company's securities to file reports of
ownership on Form 3 and changes in ownership on Form 4 or 5 with the SEC and the
National Association of Securities Dealers. Such officers, directors and ten
percent shareholders are also required by SEC rules to furnish the Company with
copies of all Section 16(a) reports that they file. Based solely upon a review
of copies of such reports received or written representations from certain
reporting persons, the Company believes that it complied with all Section 16(a)
filing requirements applicable to its officers, directors and ten percent
shareholders during the transition period ended November 30, 1996.
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<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
----------------------
EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES OF THE COMPANY
Christopher R. Pook founded the Company in 1974 and has since been the Chairman
of the Board of Directors, Chief Executive Officer and President of the Company.
In addition, Mr. Pook currently serves as a member of the Board of Governors of
the California State University, Long Beach, is a California delegate appointed
by President Clinton to the White House Conference on Travel and Tourism and is
immediate past Chairman of the Greater Los Angeles World Trade Center
Association. Mr. Pook is one of the original developers of the concept of
modern-day racing through city streets in the United States.
James P. Michaelian has been employed by the Company since its inception in 1974
in various executive capacities and has been the Executive Vice President of the
Company since 1988, Chief Operating Officer since May 1996 and a Director since
1975. Mr. Michaelian also serves as the Executive Producer of Grand Prix
Teleproductions, a division of the Company which is responsible for providing
television broadcast services for the Grand Prix on ABC and ESPN. Mr. Michaelian
holds an MBA from University of California, Los Angeles.
Marlene A. Davis has been the Chief Financial Officer of the Company since 1993.
During 1992, Ms. Davis served as a financial consultant for Ron Harding Moving &
Service Company. From 1989 to 1991, Ms. Davis was the Chief Financial Officer of
HemoCue, a medical instrument distribution company. Ms. Davis holds a BS degree
in Business Administration from the University of Southern California.
Gemma A. Bannon has been with the Company since 1982. She is Director of
Administration, primarily responsible for management of human resources for the
Company, and since 1990 has served as Corporate Secretary of the Company. She
has also served as Executive Assistant to the President of the Company since
1982. Ms. Bannon attended University of Toronto, in Toronto, Canada.
Dwight R. Tanaka has been employed by the Company for the past 19 years and has
been the Vice President of Operations of the Company since 1984. In addition,
Mr. Tanaka is the Chief Operating Officer of the Company's subsidiary
responsible for the grandstand rental and installation business.
Michael S. Clark has been employed by the Company since 1988 and has served as
Vice President of Marketing for the Company since 1991. Mr. Clark also serves as
the Director of Marketing for Competitive Promotional Solutions, a division of
the Company responsible for providing promotion, marketing and public relations
services primarily for organizations involved in the motorsports industry. Mr.
Clark holds a BS degree in Communications from the University of Texas.
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<PAGE>
Richard W. Lalor, Jr. has served as Vice President of Communications/Public
Relations for the Company since January 1995. From 1992 to 1994, Mr. Lalor was
responsible for motorsports public relations for Nissan Motor Corporation USA.
From 1987 to 1991, Mr. Lalor was Director of Communications for the National Hot
Rod Association.
Rodney G. Wolter was retained by the Company in October 1995 to serve as General
Manager of Gateway International Raceway and to supervise the planned
redevelopment of the Gateway facility. Since June 1996, he has been a Vice
President of the Company. From 1987 to 1994, Mr. Wolter served as Manager of the
Nebraska Motorplex in Scribner, Nebraska and was responsible for the operations
of that motorsports facility. From 1962 to February 1993, Mr. Wolter served as a
construction project manager for Kiewit Construction in Omaha, Nebraska.
Todd Bridges joined by the Company in June 1996 as General Manager of Memphis
Motorsports Park. From 1991 to 1996, Mr. Bridges was the owner of Binex
Outsourcing Services which provided management consulting services to various
businesses, including Kansas City International Raceway, where he was
Marketing/Operations Manager from 1988 to 1991. Mr. Bridges has been involved in
motorsports for 20 years.
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<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded to, earned by or paid
for services rendered to the Company in all capacities during the last two
fiscal years and the five month transition period ending November 30, 1996 by
the Company's Chief Executive Officer and the Company's other three most highly
compensated executive officers (the "Named Officers") whose total annual salary
and bonus exceeded $100,000 during the twelve months preceding November 30,
1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term Compensation
-----------------------------------------------
Annual Compensation Awards Payouts
----------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h)
SECURITIES LONG-TERM
FISCAL OTHER ANNUAL RESTRICTED STOCK UNDERLYING INCENTIVE
YEAR SALARY BONUS COMPENSATION (1) AWARDS (2) OPTIONS/SARS (2) PAYOUTS (2)
NAME AND POSITION ENDED ($) ($) ($) ($) (#) ($)
- - --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Christopher R. Pook 5-mos 93,750 - - - - -
Chairman, CEO and 6/96 185,390 112,194 - - - -
President 6/95 172,620 105,561 - - - -
James P. Michaelian 5-mos 72,917 - - - - -
COO 6/96 153,586 69,283 - - - -
6/95 141,173 66,127 - - - -
Dwight R. Tanaka 5-mos 41,490 - - - - -
VP Operations 6/96 100,096 37,074 - - - -
6/95 94,814 31,850 - - - -
Michael S. Clark 5-mos 29,291 - - - - -
VP Marketing 6/96 72,400 49,680 - - - -
6/95 65,975 40,425 - - - -
<CAPTION>
(i)
ALL OTHER
COMPEN-
SATION (3)
NAME AND POSITION ($)
- - -----------------------------------------
<S> <C>
Christopher R. Pook $1,200
Chairman, CEO and 3,510
President -
James P. Michaelian 875
COO 3,810
-
Dwight R. Tanaka -
VP Operations -
-
Michael S. Clark 1,188
VP Marketing 3,498
-
====================================================================================================================================
</TABLE>
Footnotes:
(1) The aggregate amount of perquisites and other personal benefits,
premiums for health, life and disability insurance, securities or
property, given to each of the Named Officers valued on the basis of
aggregate incremental cost to the Company was less than either $50,000
or 10% of such officer's total annual salary and bonus during the five
month transition period and during fiscal years ended June 30, 1995 and
June 30, 1996.
(2) There were no grants of stock options, stock appreciation rights, or
stock options granted in tandem with stock appreciation rights made by
the Company during the five month transition period covered by this
report or during its fiscal years ended June 30, 1996 or 1995 to the
Named Officers. There were no exercises by any of the Named Officers of
any stock options, stock appreciation rights or stock options granted
in tandem with stock appreciation rights during the five month
transition period ended November 30, 1996, or during fiscal years ended
June 30, 1996 or 1995.
(3) The amounts reported consist of matching contributions by the Company
pursuant to its 401(k) Plan.
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<PAGE>
EMPLOYMENT AGREEMENTS
The Company has entered into an Employment Agreement dated as of May 16, 1996
with Christopher R. Pook to serve as the President and Chief Executive Officer
of the Company through May 16, 2001 (the "Pook Employment Agreement"). Pursuant
to the Pook Employment Agreement, Mr. Pook is to receive an initial base salary
of $225,000 per year, which may be increased from time to time by the Board of
Directors. Mr. Pook is also entitled to participate in any bonus plan, stock
option plan or any other employee benefit or compensation plan that the Company
may have in effect from time to time. Therefore, Mr. Pook's compensation
involves a large percentage of pay which is "at risk" inasmuch as it is based on
the performance of the Company. If Mr. Pook's employment is terminated as a
result of a change in control of the Company, or otherwise terminated without
cause by the Company, Mr. Pook will be entitled to receive a severance payment
equal to 30 months of his full base salary, accelerated vesting of all
outstanding stock options and other benefits, continued participation in all
benefit plans for a period of 12 months following his termination and legal fees
incurred by Mr. Pook with respect to contesting the termination of his
employment agreement or securing performance of the terms of his employment
agreement. The Pook Employment Agreement provides that the Company will
indemnify Mr. Pook against any acts or omissions made by him in good faith while
performing services for the Company. The members of the Compensation Committee
consulted with Lipis Consulting, an independent compensation and benefits
consultant, to draft the Pook Employment Agreement. The agreement was intended
to recognize Mr. Pook's importance as the founder of the Company and to bring
Mr. Pook's base salary in line with other executives in comparable positions in
the industry, while continuing the Company's risk/reward philosophy by linking a
significant part of his compensation to the bonus plan described below.
The Company has entered into an Employment Agreement dated as of May 16, 1996
with James P. Michaelian to serve as the Chief Operating Officer of the Company
through May 16, 2001 (the "Michaelian Employment Agreement"). Pursuant to the
Michaelian Employment Agreement, Mr. Michaelian is to receive an initial base
salary of $175,000 per year, which may be increased from time to time by
the Board of Directors. Mr. Michaelian is also entitled to participate in any
bonus plan, stock option plan or any other employee benefit or compensation plan
which the Company may have in effect from time to time. A significant portion of
Mr. Michaelian's compensation is also "at risk" and based on performance. If Mr.
Michaelian's employment is terminated as a result of a change in control of the
Company, or otherwise terminated without cause by the Company, Mr. Michaelian
will be entitled to receive a severance payment equal to 30 months of his full
base salary, accelerated vesting of all outstanding stock options and other
benefits, continued participation in all benefit plans for a period of 12 months
following his termination and legal fees incurred by Mr. Michaelian with respect
to contesting the termination of his employment agreement or securing
performance of the terms of his employment agreement. The Michaelian Employment
Agreement provides that the Company will
-26-
<PAGE>
indemnify Mr. Michaelian against any acts or omissions made by him in good faith
while performing services for the Company. The members of the Compensation
Committee consulted with Lipis Consulting, an independent compensation and
benefits consultant, prior to drafting the Michaelian Employment Agreement. The
agreement was intended to recognize Mr. Michaelian's importance as a one of the
original officers and directors of the Company and to bring his base salary in
line with other executives in comparable positions in the industry, while
continuing the Company's risk/reward philosophy by linking a significant part of
his compensation to the bonus plan described below.
The Company also has employment agreements with other members of the senior
management team, each of which is intended to implement the Company's
risk/reward philosophy and each of which provides that in the event the Company
terminates the employment of the employee, the Company shall pay 60 days
severance to the employee plus all outstanding bonus incentives due to the
employee.
STOCK OPTION AND STOCK INCENTIVE PLANS
1996 Employee and Director Stock Incentive Plan. In May 1996, the Board of
Directors and shareholders of the Company approved the Company's 1996 Employee
and Director Stock Incentive Plan (the "1996 Plan"). The 1996 Plan was adopted
in order to enable the Company to attract, retain and motivate key employees and
directors by providing for or increasing the proprietary interests of such
persons in the Company. All directors and non-seasonal salaried employees of the
Company are eligible to participate in the 1996 Plan. The 1996 Plan is
administered by the Stock Option Committee of the Board of Directors (the
"Committee"). Pursuant to the 1996 Plan, the Committee may grant, without
limitation, any of the following awards to employees or directors: shares of
Common stock or any option, warrant, convertible security, stock appreciation
right or similar right with an exercise or conversion privilege at a price
related to an equity security, or similar securities with a value derived from
the value of an equity security (an"Award"). Awards are not restricted to any
specified form or structure and may include, without limitation, sales or
bonuses of stock, restricted stock, stock options, stock purchase warrants,
other rights to acquire stock, securities convertible into or redeemable for
stock, stock appreciation rights, limited stock appreciation rights, phantom
stock, dividend equivalents, performance units or performance shares, and an
Award may consist of one such security or benefit, or two or more of them in
tandem or in the alternative. The Committee, in its sole discretion, determines
all of the terms and conditions of each Award granted under the 1996 Plan.
An aggregate of 400,000 shares of Common stock have been reserved for issuance
in connection with Awards made to employees and directors under the 1996 Plan.
The 1996 Plan is effective for a period of 10 years, through May 2006. The Board
of Directors of the Company may amend or terminate the 1996 Plan at any time and
in any manner; provided, however, that no such amendment or termination may
-27-
<PAGE>
terminate or modify any Award previously granted under the 1996 Plan without the
consent of the recipient of the Award. As of November 30, 1996, no grants of
Awards have been made under the 1996 Plan.
1993 Stock Option Plan. In December 1993 the Company adopted its 1993 Stock
Option Plan (the "1993 Plan"), which was approved and adopted by the Board of
Directors and shareholders of the Company. The 1993 Plan is administered by the
Stock Option Committee, but no further options will be granted under the 1993
Plan. The 1993 Plan was terminated in early 1996.
The exercise price of options granted to optionees under the 1993 Plan had to be
equal to the fair market value of a share of Common stock on the date the option
was granted (110% with respect to optionees who own at least 10% of the
outstanding Common stock). All options granted under the 1993 Plan are non-
qualified stock options.
Options to purchase an aggregate of 602,451 shares of Common stock have been
granted under the 1993 Plan, all of which options (except for options to
purchase 31,729 shares of Common stock which were granted in January 1995), were
granted in December 1993 at an exercise price of $1.09 per share. None of the
options so granted have yet been exercised.
AGGREGATED OPTION/SAR EXERCISES IN FIVE MONTH TRANSITION PERIOD
AND FIVE MONTH TRANSITION PERIOD END OPTION/SAR VALUES
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Value of Unexercised
Shares Number of Securities In-the-
Acquired on Value Underlying Unexercised Money Options/SARs at
Exercise Realized Options/SARs at 11/30/96(#) 11/30/96($)
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
---- --- --- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Christopher R. Pook 0 $0 104,662 69,774 $906,369 $604,246
Chairman, CEO and
President
James P. Michaelian 0 0 65,220 43,480 564,817 376,545
COO
Dwight R. Tanaka 0 0 31,245 20,830 270,580 180,387
VP Operations
Michael S. Clark 0 0 19,037 12,691 164,862 109,908
VP Marketing
</TABLE>
-28-
<PAGE>
401(K) PLAN
On November 1, 1995, the Company adopted a 401(k) plan (the "401(k) Plan")
pursuant to which employees who have completed at least one year of service with
the Company if hired after November 1, 1995, and meet certain other eligibility
requirements, may contribute, on a pre-tax basis, a percentage of the employee's
total annual income from the Company, subject to certain Internal Revenue Code
limitations. The Company may make matching contributions to the 401(k) Plan in
its discretion, and for the first two years the Company has committed to make a
matching contribution equal to 25% of employee contributions. All contributions
are allocated to the employee's individual account. Contributions made by the
Company to the 401(k) Plan vest 100% after the employee has been employed for
five years.
BONUS PLAN
Since 1990, the Company has had in effect a three tier bonus plan in which year-
round full-time salaried employees are eligible to participate (the "Bonus
Plan") which is geared toward sharing the risk and reward achieved by the
Company, as well as compensating personal initiative. In the first tier of the
Bonus Plan a bonus is paid based on the Company's marketing department having
surpassed its projected earnings for the Grand Prix event. This bonus is
allocated among the members of the Company's marketing department as well as
among the employees participating in the third tier of the Bonus Plan. The
second tier of the Bonus Plan offers incentives to employees for bringing new
business into the Company unrelated to the Grand Prix of Long Beach. Salaried
employees in all departments of the Company are eligible to participate in the
second tier of the Bonus Plan. The third tier of the Bonus Plan is based on the
general profitability of the Company overall, and, with the exception of the
Company's marketing department employees, all employees are eligible to
participate in this third tier of the Bonus Plan; however, the senior executive
officers of the Company receive most of the bonus compensation from this third
tier of the Bonus Plan. Before any bonus is payable under the third tier of the
Bonus Plan, the following financial goal must be met: the Company's pre-tax
profits for the year in which the bonus is to be calculated must exceed the
average of 75% of the pre-tax profits of the three previous years. In the
Company's fiscal year ended June 30, 1996 an aggregate of $421,579 or
approximately 18.5% of the Company's pre-tax profits were distributed pursuant
to the Company's Bonus Plan. There will be no distributions under the Bonus Plan
for the five month transition period ended November 30, 1996. The Bonus Plan may
be terminated or modified at any time in the sole discretion of the Company.
LIMITATION OF LIABILITY
The Company's Articles of Incorporation and Bylaws contain provisions limiting
the personal liability of directors to the Company or its shareholders and
indemnifying directors, officers, employees and agents of the Company for
actions, in their capacity as such, to the fullest extent permitted by law. In
August 1994, each of the then-
-29-
<PAGE>
existing non-employee directors of the Company entered into an indemnification
agreement with the Company pursuant to which the Company has agreed to indemnify
the non-employee directors against expenses incurred by the non-employee
director arising out of any act or omission of the director arising out of his
or her duties as a director of the Company. The Company anticipates that it will
enter into similar agreements with non-employee directors of the Company who
became directors of the Company after August 1994. Further, the Pook
Employment Agreement and Michaelian Employment Agreement provide that the
Company shall indemnify and hold harmless Messrs. Pook and Michaelian against
any acts or omissions made by them in good faith while performing services for
the Company. The Company has a directors and officers liability insurance
policy.
At present there is no pending litigation or proceeding involving a director,
officer, employee or agent of the Company where indemnification will be required
or permitted. The Company is not aware of any threatened litigation or
proceeding that may result in a claim for indemnification by any director or
officer.
-30-
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
PRINCIPAL SHAREHOLDERS
The following table sets forth ownership of the Company's voting securities as
of November 30, 1996 by (i) each person or group who is known by the Company to
own beneficially more than 5% of the outstanding shares of each class of voting
securities, (ii) each director, nominee director and named executive officer and
(iii) all executive officers, significant employees and directors as a group.
<TABLE>
<CAPTION>
AMOUNT AND PERCENTAGE OF
---------- ------------
NATURE OF CLASS
--------- -----
NAME OF BENEFICIAL OWNER(3) TITLE BENEFICIAL OUTSTANDING
- - --------------------------- ----- ---------- -----------
OF CLASS OWNERSHIP (2)
-------- ---------
(1)
<S> <C> <C> <C>
Christopher R. Pook(4) Common 480,674 12.83%
James P. Michaelian(5) Common 241,720 6.52%
Dwight R. Tanaka(6) Common 86,449 2.35%
Michael S. Clark(7) Common 51,227 1.40%
Marlene A. Davis(7) Common 19,037 0.52%
Joseph Ainge(8)(14) Common 54,991 1.51%
Daniel S. Gurney(8) Common 91,806 2.52%
Wayne Kees(8) Common 54,991 1.51%
Neil Matlins (11) Common 107,225 2.95%
George Pellin(8) Common 68,160 1.87%
John R. Queen, III(9) Common 35,570 0.98%
James Sullivan(8)(10) Common 54,991 1.51%
Memphis International Motorsports Series B 250,000 100.0%
Park, Inc.(12) Preferred
Nicholas Company, Inc. (13) Common 246,000 6.76%
All executive officers, significant Common 1,404,421 35.49%
employees and directors
as a group (16 persons)(15)
</TABLE>
Footnotes:
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of Common stock subject to options or warrants held by that person
that are currently exercisable, or will become exercisable within 60 days
from November 30, 1996, are deemed outstanding. Such shares, however, are
not deemed outstanding for purposes of computing the percentage ownership
of any other person.
-31-
<PAGE>
Footnotes (continued):
(2) Based on 3,640,565 shares of Common stock outstanding, and 250,000 shares
of unregistered Series B Convertible Preferred stock outstanding.
(3) Unless otherwise noted, the address for each person listed is 3000 Pacific
Avenue, Long Beach, California 90806. Unless otherwise noted, each person
has sole voting and investment power over the shares of Common stock or
Series B Mandatorily Redeemed Convertible Preferred stock listed opposite
his or her name, subject to community property laws where applicable.
(4) Includes options to purchase 104,662 shares of Common stock exercisable
within 60 days. Includes 65,805 shares of Common stock owned by Ellen Pook,
the spouse of Mr. Pook.
(5) Includes options to purchase 65,221 shares of Common stock exercisable
within 60 days.
(6) Includes options to purchase 31,245 shares of Common stock exercisable
within 60 days.
(7) Includes options to purchase 19,037 shares of Common stock exercisable
within 60 days.
(8) Includes options to purchase 8,964 shares of Common stock exercisable
within 60 days.
(9) Excludes an aggregate of 212,871 shares and vested options of Common stock
owned by Mr. Queen's father, grandmother and brother, of which shares Mr.
Queen disclaims beneficial ownership.
(10) Includes 7,114 shares of Common stock owned by the spouse of Mr. Sullivan,
also includes 41,799 shares of Common stock held by Mr. Sullivan as Trustee
of the SRE Industries Pension Trust.
(11) Includes 66,600 shares of Common stock held by The Lincoln Fund LP, 18,750
shares of Common stock held by The Lincoln Fund Tax Advantaged LP, 15,625
shares of Common stock held by The Gordon Fund and 6,250 shares of Common
stock held by Matlins Financial Consulting Inc. Profit Sharing Plan which
are managed by Mr. Matlins.
(12) Represents shares transferred to the seller as part of the consideration
for the purchase of Memphis Motorsports Park. Series B Mandatorily
Redeemable Convertible Preferred shares are entitled to be voted in the
same manner as Common stock. Series B shares are not registered. The
address of Memphis International Motorsports Park, Inc. is P. O. Box 1651,
Cordova, Tennessee 38088-1651.
(13) Includes 246,000 shares held by Nicholas Company, Inc., a Wisconsin
corporation, an Investment Advisor registered under the Investment
Advisor's Act of 1940, which acts as investment advisor to Nicholas Limited
Edition, Inc., a Maryland corporation, an open end management investment
company registered under the Investment Company Act of 1940, which retains
beneficial ownership rights to vote the shares purchased by Nicholas
Company, Inc. for its account. Nicholas Company, Inc. has the right to
direct the investment of the shares it holds for Nicholas Limited Edition,
Inc. Albert O. Nicholas, the president, director and majority shareholder
of Nicholas Company, Inc. owns no shares for his individual account. The
address of Nicholas Company, Inc, is 700 North Water Street, Milwaukee,
Wisconsin 53202.
(14) All stock held in the names of Joseph Ainge and Constance Ainge as Trustees
of the Ainge Family Revocable Living Trust.
(15) Includes all executive officers, significant employees and current
directors of the Company.
-32-
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
The Company has purchased certain merchandise in the normal course of business
from a company owned by a member of the Board of Directors and from a company
owned by the daughter and son-in-law of one of the executive staff, as described
in Note 11 of Notes to Consolidated Financial Statements.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits.
Exhibits required to be filed by Item 601 of Regulation S-B are listed in
the Exhibit Index attached hereto, which is incorporated herein by
reference.
(b) Reports on Form 8-K.
Two reports on Form 8-K were filed during the transition period covered
by this report, one relating to the acquisition of Memphis Motorsports
Park which was filed July 10, 1996 and one relating to the appointment
of Neil Matlins to fill a vacancy on the Board of Directors filed on
September 18, 1996.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: February 27, 1997
GRAND PRIX ASSOCIATION OF
LONG BEACH, INC.
By /s/ Christopher R. Pook
-----------------------
Christopher R. Pook
Chairman of the Board, President,
and Chief Executive Officer
-33-
<PAGE>
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Christopher R. Pook Chairman of the Board, February 27, 1997
- - -----------------------
CHRISTOPHER R. POOK President and Chief Executive
Officer (Principal Executive Officer)
/s/ James P. Michaelian Chief Operating Officer and February 27, 1997
- - -----------------------
JAMES P. MICHAELIAN Director
/s/ Marlene A. Davis Chief Financial Officer February 27, 1997
- - --------------------
MARLENE A. DAVIS (Principal Financial and
Accounting Officer)
/s/ Joseph Ainge Director February 27, 1997
- - ----------------
JOSEPH AINGE
/s/ Daniel Gurney Director February 27, 1997
- - -----------------
DANIEL GURNEY
/s/ Wayne Kees Director February 27, 1997
- - --------------
WAYNE KEES
/s/ George Pellin Director February 27, 1997
- - -----------------
GEORGE PELLIN
/s/ James Sullivan Director February 27, 1997
- - ------------------
JAMES SULLIVAN
/s/ John R. Queen, III Director February 27, 1997
- - ----------------------
JOHN R. QUEEN, III
/s/ Neil Matlins Director February 27, 1997
- - ----------------
NEIL MATLINS
</TABLE>
-34-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
GRAND PRIX ASSOCIATION OF LONG BEACH, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Page
----
<S> <C>
Consolidated Financial Statements:
Report of Independent Public Accountants........................................... F-2
Consolidated Balance Sheet as of November 30, 1996................................. F-3
Consolidated Statements of Income for the Years ended June 30, 1995 and 1996
and the Five Month Transition Period ended November 30, 1996................... F-4
Consolidated Statements of Shareholders' Equity for the Years ended June 30, 1995
and 1996 and the Five Month Transition Period ended November 30, 1996.......... F-5
Consolidated Statements of Cash Flows for the Years ended June 30, 1995
and 1996 and the Five Month Transition Period ended November 30, 1996.......... F-6
Notes to Consolidated Financial Statements......................................... F-8
</TABLE>
-F-1-
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Grand Prix Association of Long Beach, Inc.:
We have audited the accompanying consolidated balance sheet of the Grand Prix
Association of Long Beach, Inc. (a California corporation) and subsidiaries as
of November 30, 1996, and the related consolidated statements of income,
shareholders' equity and cash flows for the years ended June 30, 1995 and 1996
and the five month transition period ended November 30, 1996. 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 audits.
We conducted our audits 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 audits provide 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 Grand Prix Association of Long
Beach, Inc. and subsidiaries as of November 30, 1996, and the results of their
operations and their cash flows for the years ended June 30, 1995 and 1996 and
the five month transition period ended November 30, 1996, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Los Angeles, California
February 27, 1997
-F-2-
<PAGE>
GRAND PRIX ASSOCIATION OF LONG BEACH, INC.
CONSOLIDATED BALANCE SHEET
NOVEMBER 30, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 10,214
Accounts receivable 456
Prepaid expenses and other current assets 245
Deferred major event expenses 194
Deferred income tax asset 860
----------
Total current assets 11,969
Property and equipment, net 22,279
Restricted cash 11,546
Other assets 1,092
----------
Total assets 46,886
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable, current $ 73
Accounts payable 680
Other accrued liabilities 49
Accrued interest 817
Deferred major event revenues 1,424
----------
Total current liabilities 3,043
Notes and bonds payable, long term 22,932
Deferred income tax liability 928
----------
Total liabilities 26,903
----------
Series B Mandatorily Redeemable Convertible Preferred stock;
250,000 shares issued and outstanding 2,500
----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, no par value; 10,000,000 shares authorized -
Common stock, no par value; 20,000,000 shares authorized; 3,641,000
shares issued and outstanding 15,544
Paid-in capital 129
Retained earnings 2,193
Shareholders' notes (383)
----------
Total shareholders' equity 17,483
----------
Total liabilities and shareholders' equity $ 46,886
==========
</TABLE>
The accompanying notes are an integral part of this consolidated balance sheet.
-F-3-
<PAGE>
GRAND PRIX ASSOCIATION OF LONG BEACH, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED JUNE 30, 1995 AND 1996 AND
THE FIVE MONTH TRANSITION PERIOD ENDED NOVEMBER 30, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR YEAR FIVE MONTHS
ENDED ENDED ENDED
JUNE 30, 1995 JUNE 30, 1996 NOVEMBER 30, 1996
-------------- ------------- -----------------
<S> <C> <C> <C>
Revenues:
Major event revenues
Admissions $ 4,271 $ 5,552 $ -
Sponsorships 2,522 3,033 -
Ancillary 2,988 3,892 -
-------------- -------------
Total major event revenues 9,781 12,477 -
Other operating revenues 1,845 2,774 1,960
-------------- ------------- -----------------
Total revenues 11,626 15,251 1,960
-------------- ------------- -----------------
Expenses:
Major event expenses 5,638 7,208 -
Other operating expenses 1,457 1,971 1,010
General and administrative 2,249 3,232 2,295
Depreciation 371 451 668
-------------- ------------- -----------------
Total expenses 9,715 12,862 3,973
-------------- ------------- -----------------
Income (loss) from operations 1,911 2,389 (2,013)
Other income (expense):
Interest income 54 119 647
Interest expense, net of capitalized interest
of $186 for November 30, 1996 (183) (174) (764)
Other, net (5) (59) (10)
-------------- ------------- -----------------
Total other income (expense) (134) (114) (127)
-------------- ------------- -----------------
Income (loss) before (provision) benefit for income
taxes and extraordinary item 1,777 2,275 (2,140)
(Provision) benefit for income taxes (735) (955) 797
-------------- ------------- -----------------
Income (loss) before extraordinary item 1,042 1,320 (1,343)
Extraordinary flood related losses (less related
income tax benefit of $21 for June 30, 1995) (30) - -
-------------- ------------- -----------------
Net income (loss) 1,012 1,320 (1,343)
Dividends on Series B Mandatorily Redeemable
Convertible Preferred stock - - (44)
-------------- ------------- -----------------
Net income (loss) applicable to common stock $ 1,012 $ 1,320 $ (1,387)
============== ============= =================
Income (loss) per share:
Continuing operations $ .51 $ .62 $ (.38)
Extraordinary item (.01) - -
-------------- ============= =================
$ .50 $ .62 $ (.38)
============== ============= =================
Weighted average number of common and
common equivalent shares outstanding 2,026,640 2,137,351 3,640,574
============== ============= =================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-F-4-
<PAGE>
GRAND PRIX ASSOCIATION OF LONG BEACH, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1995 AND 1996 AND
THE FIVE MONTH TRANSITION PERIOD ENDED NOVEMBER 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK PAID-IN RETAINED SHAREHOLDERS'
--------------------- -----------------
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS NOTES TOTAL
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, June 30, 1994 1,960 $ 1,259 - $ - $ 129 $ 1,250 $ (407) $ 2,231
Repurchase of
common stock (4) (3) - - - (1) - (4)
Cash received on
shareholders' notes - - - - - - 8 8
Net income - - - - - 1,012 - 1,012
------------------------------------------------------------------------------------------------
BALANCE, June 30, 1995 1,956 1,256 - - 129 2,261 (399) 3,247
Issuance of
common stock 23 25 - - - - - 25
Repurchase of
common stock (1) (1) - - - (1) - (2)
Cash received on
shareholders' notes - - - - - - 16 16
Issuance of Series A
redeemable preferred
stock, net of issuance
costs of $170 - - 313 2,330 - - - 2,330
Conversion of Series A
redeemable preferred stock 313 2,330 (313) (2,330) - - - -
Issuance of common stock
for cash in connection
with the initial public
offering, net of issuance
costs of $1,566 1,350 11,934 - - - - - 11,934
Net income - - - - - 1,320 - 1,320
------------------------------------------------------------------------------------------------
BALANCE, June 30, 1996 3,641 15,544 - - 129 3,580 (383) 18,870
Net loss - - - - - (1,343) - (1,343)
Dividends - - - - - (44) - (44)
------------------------------------------------------------------------------------------------
BALANCE, November 30, 1996 3,641 $15,544 - $ - $ 129 $ 2,193 $ (383) $ 17,483
================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-F-5-
<PAGE>
GRAND PRIX ASSOCIATION OF LONG BEACH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1995 AND 1996 AND
THE FIVE MONTH TRANSITION PERIOD ENDED NOVEMBER 30, 1996
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR YEAR FIVE MONTHS
ENDED ENDED ENDED
JUNE 30, 1995 JUNE 30, 1996 NOVEMBER 30, 1996
------------- ------------- -----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $1,012 $ 1,320 $ (1,343)
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation 371 451 668
Minority investor's allocation of loss (27) - -
Amortization of deferred financing costs - - 30
Interest earned on restricted cash - - (400)
Gain on sale of assets (159) (1) (2)
Changes in assets and liabilities:
Accounts receivable 14 (249) 421
Notes receivable 2 (3) -
Prepaid expenses and other current assets (43) (80) 94
Accounts payable and other accrued liabilities 424 1,323 (1,943)
Accrued interest - - 817
Deferred major event revenues - - 1,424
Deferred major event expenses - - (194)
Other assets - - 50
Income taxes payable 193 (129) -
Deferred income taxes (88) (2) (786)
------ -------- --------
Net cash (used in) provided by operating activities 1,699 2,630 (1,164)
------ -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (506) (2,400) (11,774)
Memphis acquisition - (2,604) -
Restricted cash - construction fund - (17,124) 11,036
Cash received for sale of assets 298 4 10
Intangible assets (45) - -
------ -------- --------
Net cash used in investing activities (253) (22,124) (728)
------ -------- --------
</TABLE>
-F-6-
<PAGE>
GRAND PRIX ASSOCIATION OF LONG BEACH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1995 AND 1996 AND
THE FIVE MONTH TRANSITION PERIOD ENDED NOVEMBER 30, 1996
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR YEAR FIVE MONTHS
ENDED ENDED ENDED
JUNE 30, 1995 JUNE 30, 1996 NOVEMBER 30, 1996
------------- ------------- -----------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under notes payable $ 91 $ 16 $ -
Repayment under notes payable (465) (217) (158)
Borrowings under loans payable - 21,460 -
Repurchase of Common stock (4) (2) -
Restricted cash - debt service reserve fund - (2,504) -
Restricted cash - interest fund - (2,554) -
Bond issuance costs - (1,048) -
Proceeds from Series A Preferred stock sale, net - 2,330 -
Proceeds from initial public offering, net - 11,934 -
Dividends - - (44)
Shareholders' notes 8 16 -
------ ------- -------
Net cash (used in) provided by financing activities (370) 29,431 (202)
------ ------- -------
Net increase (decrease) in cash 1,076 9,937 (2,094)
Cash and cash equivalents at beginning of period 1,295 2,371 12,308
------ ------- -------
Cash and cash equivalents at end of period $2,371 $12,308 $10,214
====== ======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 166 $ 174 $ 60
Income taxes $ 397 $ 960 $ 199
Cash received during the period for:
Interest $ 54 $ 119 $ 622
DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
Conversion of accrued liabilities to notes payable $ 150 $ - $ -
Intangible recorded on issuance of Common stock
for minority interest in subsidiaries $ - $ 25 $ -
Series B Preferred stock issued for Memphis acquisition $ - $ 2,500 $ -
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-F-7-
<PAGE>
GRAND PRIX ASSOCIATION OF LONG BEACH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1996
NOTE 1 - DESCRIPTION OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES:
GENERAL
Grand Prix Association of Long Beach, Inc. and its wholly-owned subsidiaries
(the "Company") engage primarily in the organization, promotion and management
of auto racing events. The Company's wholly-owned subsidiaries are:
Del Mar Race Management, Inc.
Automotive Safety & Transportation Systems, Inc.
Event Construction Services, Inc.
Gateway International Motorsports Corporation
Gateway International Services Corporation
Memphis International Motorsports Corporation
Motorsports Services Corporation of Memphis
In November 1994, the Company purchased certain operating and other assets of
Gateway International Raceway located in Madison, Illinois. See Note 2 for
acquisition details.
In June 1996, the Company purchased Memphis Motorsports Park located in
Millington, Tennessee. See Note 2 for acquisition details.
On December 9, 1996, the shareholders of the Company ratified a Board of
Directors resolution to change the fiscal year end from June 30 to November 30.
Unaudited results of operations for the comparable five month period ended
November 30, 1995 are as follows:
(Dollars in thousands, except per share data)
Revenues $ 1,596
Loss from operations (665)
Loss before benefit for income taxes (806)
Net income (loss) (467)
=========
Income (loss) per share $ (.23)
=========
Weighted average number of common shares outstanding 2,018,000
=========
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
-F-8-
<PAGE>
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 revenues and expenses during the reporting period.
Actual results could differ from those estimates.
STATEMENTS OF CASH FLOWS
The Company prepares its statements of cash flows using the indirect method as
defined under Statement of Financial Accounting Standards No. 95, "Statement of
Cash Flows" (SFAS 95). The Company considers all short term investments with a
maturity at the date of purchase of three months or less to be cash equivalents.
CONCENTRATION OF RISK
Balances on deposits at banks in the United States are insured by the Federal
Deposit Insurance Corporation up to $100,000 per institution per corporation.
As of November 30, 1996, the uninsured portion of these balances held at banks
aggregated $9,659,000. In addition, the Company has established certain
restricted cash funds which are held by a trustee. See Note 3.
Accounts receivable represent unsecured balances due from its customers and the
Company is at risk to the extent such amounts become uncollectible. The Company
performs credit evaluations of each of its customers and maintains allowances
for potential credit losses. Such losses have generally been within
management's expectations.
A substantial portion of the Company's revenues (84% and 72% for the years ended
June 30, 1995 and 1996, respectively) is earned in connection the annual Grand
Prix race (normally in April) in Long Beach, California. In connection with the
Grand Prix race, the Company has an agreement with the City of Long Beach to
conduct certain open wheel racing one weekend a year through June 30, 2010. The
Company has been conducting sanctioned Indy car events since 1984 and
Championship Auto Racing Teams, Inc. ("CART") currently has an agreement which
(including the option periods) expires in April 2000. Should these contracts be
terminated or if the Company is not successful in extending the contracts, this
would have a significant impact on the Company. Management is exploring other
racing venues and other ancillary revenue sources in order to reduce the
Company's reliance on the Grand Prix although there can be no assurance that it
will be successful in doing so.
INVENTORIES
Inventories are stated at the lower of cost (weighted average) or market and
consist principally of purchased finished product.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using the
straight-line depreciation method over the estimated useful lives of the various
classes of property and equipment, which range from five to thirty-one and a
half years. Betterments, renewals and extraordinary repairs that extend the
life of an asset are capitalized. Other repairs and maintenance are expensed.
-F-9-
<PAGE>
INTANGIBLE ASSETS
Intangible assets, which consist primarily of a non-competition agreement, are
amortized using the straight-line method over their estimated useful life of
five years. For the years ended June 30, 1995 and 1996 amortization expense
amounted to $25,000 and $14,000, respectively, and is included in general and
administrative expenses. For the five month transition period ended
November 30, 1996, amortization expense amounted to $800.
DEBT ISSUANCE COSTS
Costs associated with the issuance of the Southwestern Illinois Development
Authority ("SWIDA") loan have been capitalized and included in other assets in
the accompanying consolidated balance sheet. These costs are being amortized
over the life of the loan using the effective interest rate method and are
included in interest expense in the accompanying consolidated statements of
income. For the five month transition period ended November 30, 1996,
amortization expense amounted to $30,000.
INCOME TAXES
The Company accounts for income taxes using the liability method as required by
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109"). Under SFAS 109, a deferred tax liability or asset is
recognized for the estimated future tax effects attributable to temporary
differences and carryforwards. The measurement of deferred income tax assets is
adjusted by a valuation reserve, if necessary, so that the net tax benefits are
recognized only to the extent that they will be realized.
NON-MONETARY TRADE AGREEMENTS
The Company enters into agreements to exchange advertising, exhibit space,
hospitality or event tickets for goods or services. The recorded value of the
goods or services received is based on their fair market value. The recorded
value of non-monetary trade agreements included within major event revenues for
the years ended June 30, 1995 and 1996 amounted to $137,000 and $176,000,
respectively. There were no such agreements recorded during the five month
transition period ended November 30, 1996.
REVENUE RECOGNITION
The Company records race event and related revenues at the date the event is
held. Revenues related to public relations and marketing services and other
operating revenues are recorded as services are rendered.
DEFERRED COSTS
Direct costs associated with and incurred prior to major race events primarily
consisting of deposits for convention facilities, hospitality facilities,
construction of the racing circuit, sanctioning body fees and other direct costs
are initially capitalized and then charged to expense at the date of the event.
Indirect costs and period costs are charged to expense when incurred.
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform with the current
year presentation.
-F-10-
<PAGE>
NET INCOME PER SHARE
Net income per share is calculated using the weighted average number of shares
of Common stock outstanding during the period. The calculations are based on
the treasury stock method. In accordance with this method, unexercised dilutive
options and warrants are assumed to have been exercised at the beginning of the
period or at the date of issuance, if later. The assumed proceeds are then used
to purchase Common stock at the average market price during the period.
Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No. 83,
Common stock issued for consideration below the estimated offering price of
$10.00 per share and stock options and warrants issued with exercise prices
below the offering price during the twelve month period preceding the initial
filing of the initial public offering, have been included in the calculation of
Common shares, using the treasury method, as if they were outstanding for all
periods presented prior to the initial public offering. The effect of the
Series A convertible stock issued at consideration below the initial public
offering price was to increase the weighted average shares outstanding for the
years ended June 30, 1995 and 1996 and the five month transition period ended
November 30, 1995 by 62,500 shares. Stock options and warrants were not included
in the weighted average shares for the five month periods ended November 30,
1995 and 1996 as they were anti-dilutive.
NEW FINANCIAL ACCOUNTING PRONOUNCEMENTS
The requirements of Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets to be Disposed Of", ("SFAS
121") issued in March 1995 and Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation", ("SFAS 123") issued in
October 1995, are effective for financial statements for years that begin after
December 15, 1995.
The Company adopted SFAS 121 for the five month transition period ended
November 30, 1996 and there was no material impact on the current period
financial statements.
The Company applies Accounting Principles Board Opinion 25 and related
Interpretations in accounting for its fixed stock option plans. Accordingly, no
compensation cost has been recognized. The Company adopted the disclosure
method as permitted under SFAS 123 for the five month transition period ended
November 30, 1996. The adoption of SFAS 123 had no impact on the Company as
there were no options granted during the period from July 1, 1995 through
November 30, 1996.
NOTE 2 - ACQUISITIONS:
GATEWAY INTERNATIONAL RACEWAY
- - -----------------------------
On November 8, 1994 the Company purchased specific assets of Gateway
International Raceway for $280,000. The purchase price was allocated to track,
building and equipment ($230,000), land ($5,000) and other assets ($45,000).
Consulting agreements with the two previous owners for a term of one year and
covenants not to compete with both individuals for a five year period were part
of the purchase.
A former shareholder of the seller of the assets of the Gateway International
Raceway purchased a minority (10%) interest in two new subsidiaries for $28,000.
In February 1996, the Company acquired this 10% minority interest in exchange
for 23,121 shares of the
-F-11-
<PAGE>
Company's Common stock valued at approximately $1.09 per share (estimated market
price at date of issuance).
MEMPHIS MOTORSPORTS PARK
- - ------------------------
On June 28, 1996, the Company acquired substantially all of the assets of
Memphis Motorsports Park for a total acquisition cost of $5,104,000. In
connection with the acquisition, the Company paid certain indebtedness of the
seller of the Memphis Motorsports Park totaling $2,500,000 and issued 250,000
shares of Series B Mandatorily Redeemable Convertible Preferred stock valued at
$2,500,000 which bears a cumulative 4.185% dividend rate (see Note 7). In
accordance with the purchase agreement, the results of operations have been
included in the June 30, 1996 statement of operations for the period from
June 1, 1996 through June 30, 1996.
The allocation of the acquisition cost (based upon relative fair value of
assets) was as follows:
Buildings $ 2,308,000
Land 983,000
Safety systems and materials 1,258,000
Track 887,000
Other 429,000
Equipment 181,000
Vehicles and equipment 98,000
Office furniture and fixtures 14,000
Deferred income taxes (1,054,000)
-----------
$ 5,104,000
===========
Deferred income taxes have been recorded for the basis differential of the
assets acquired between financial reporting purposes and tax purposes, as this
acquisition has been structured as a non-taxable transaction. This transaction
has been accounted for using the purchase method.
Unaudited pro forma results of operations of the Company assuming this
transaction, the private placement as discussed in Note 6, and the SWIDA loan
discussed in Note 5 had all taken place effective as of July 1, 1994 are as
follows:
Year ended June 30,
---------------------
1995 1996
------ ------
Revenues $14,478,000 $16,416,000
Net loss (181,000) (38,000)
Pro forma loss per share (0.05) (0.01)
Pro forma weighted average number
of common shares outstanding 3,959,000 3,939,000
The pro forma loss per share calculated assuming that the Series B Convertible
Preferred stock is not converted and deducting dividends related to the Series B
Convertible Preferred stock ($105,000 for the years ended June 30, 1995 and
1996) would be $(0.08) per share and $(0.03) per share for the years ended June
30, 1995 and 1996, respectively.
-F-12-
<PAGE>
NOTE 3 - RESTRICTED CASH:
The Company has established certain restricted cash funds as required by the
SWIDA loan (see Note 5) which are held by the Trustee (Magna Bank & Trust) and
consisted of the following as of November 30, 1996:
Debt service reserve fund $ 2,561,000
Interest fund 2,609,000
Construction fund 6,376,000
-----------
$11,546,000
===========
These funds are invested in cash equivalents with a trust company.
NOTE 4 - PROPERTY AND EQUIPMENT:
Property and equipment as of November 30, 1996 consist of the following:
Buildings $ 3,841,000
Safety systems and materials 4,041,000
Land 2,827,000
Vehicles and equipment 1,585,000
Facilities 5,855,000
Office furniture and fixtures 882,000
Equipment 704,000
Construction in process 6,142,000
Other 781,000
-----------
26,658,000
Less: accumulated depreciation (4,379,000)
-----------
$22,279,000
===========
The cost of fully depreciated property included above is $1,465,000.
Construction in process relates to the redevelopment of Gateway International
Raceway and Memphis Motorsports Park and includes capitalized interest of
$186,000.
-F-13-
<PAGE>
NOTE 5 - NOTES AND LOANS PAYABLE:
Notes and loans payable as of November 30, 1996 are as follows:
SWIDA loan for Gateway redevelopment, net of $40,000
original issue discount $21,460,000
First trust deed on Long Beach office note payable to bank;
bearing interest at a variable rate of prime plus
2% per annum (10.25% at November 30, 1996); payable in
monthly installments of principal and interest of $7,000
through May 2002; final payment of principal and interest
totaling $730,000 due June 2002. 775,000
Second trust deed on Long Beach office note payable to bank;
bearing interest at 7.519% per annum; payable in monthly
installments of principal and interest of $6,000 through
December 2012. 673,000
Other 97,000
-----------
23,005,000
Less: current portion (73,000)
-----------
$22,932,000
===========
The Company entered into an agreement with Southwestern Illinois Development
Authority ("SWIDA") to receive the proceeds from a Municipal Bond Offering (the
"SWIDA loan") which issued "Taxable Sports Facility Revenue Bonds, Series 1996
(Gateway International Motorsports Corporation Project)" municipal bonds in the
aggregate principal amount of $21,500,000. The offering of the Bonds closed on
June 21, 1996. The repayment terms and debt service reserve requirements of the
Bonds issued in the Municipal Bond Offering correspond to the terms of the SWIDA
loan. SWIDA loaned all of the proceeds from the Municipal Bond Offering to the
Company for the purpose of the redevelopment, construction and expansion of
Gateway International Raceway, and the proceeds of the SWIDA loan are
irrevocably committed to complete all planned construction of Gateway
International Raceway, to fund interest, to create a debt service reserve fund
and to pay for the cost of issuance of the Bonds. The SWIDA loan bears interest
at varying rates ranging from 8.35% to 9.25% with an effective rate of
approximately 9.1%. The structure of the Bonds permits amortization from
February 1997 through February 2017 with debt service beginning in 2000
following interest only payments from February 1997 through August 1999. In
addition, a portion of the property tax revenues to be paid by the Company (if
any) to the City of Madison Tax Incremental Fund have been pledged to the annual
retirement of debt.
The Company has a line of credit agreement with a bank which allows the Company
to borrow up to $150,000 with all amounts outstanding bearing interest at 9.25%
and due and payable in February 1997. Maximum borrowings under this line of
credit during the year ended June 30, 1996 were $94,000 with a weighted average
balance for the period of $84,000. No amounts were outstanding as of
November 30, 1996.
-F-14-
<PAGE>
Aggregate annual maturities of long term debt are as follows:
Years ending November 30,
-------------------------
1997 $ 73,000
1998 72,000
1999 40,000
2000 369,000
2001 622,000
2002 - 2007 5,688,000
Thereafter 16,141,000
-----------
$23,005,000
===========
Certain of these notes are secured by the Company's Long Beach office (land and
building) with a net book value of $2,183,000. The SWIDA loan is secured by a
first mortgage lien on all the real property owned and a security interest in
all property leased by the Company at Gateway International Raceway with an
approximate net book value of $951,000.
The carrying values of long term debt approximates their fair value.
NOTE 6 - EQUITY:
In May 1996, the Company effected a recapitalization pursuant to which the
Company (i) increased its authorized shares of Common stock to 20,000,000
shares, (ii) effected a 1:35.57013 stock split and (iii) authorized 10,000,000
shares of Preferred stock. Share and per share information have been
retroactively restated for all periods presented to reflect this
recapitalization.
In April and May 1996, the Company conducted a private placement of 312,500
shares of its Series A Convertible Preferred stock for $2,500,000. The private
placement closed concurrently with the closing of the SWIDA loan to the Company.
Effective June 25, 1996, the Series A Convertible Preferred stock automatically
converted into Common stock at $8.00 per share. Additionally, the placement
agent for the Series A Convertible Preferred stock offering has received
warrants to purchase 31,250 shares of Common stock at $10.00 per share. The net
proceeds from the private placement of approximately $2,330,000 were used by the
Company to establish a portion of the debt service reserve fund required for the
SWIDA loan.
The Company received net proceeds of $11,934,000 from the sale of 1,350,000
shares of Common stock offered at the initial public offering price of $10.00
per share (aggregate gross proceeds of $13,500,000), with the deduction of
offering expenses and underwriting discounts ($1,566,000). The Company applied
approximately $2,500,000 of the net proceeds to fund the acquisition of Memphis
Motorsports Park, and intends to use the remaining proceeds to make improvements
to Memphis Motorsports Park ($2,500,000), furnish and equip the Gateway Law
Enforcement Driving School ($1,500,000), construct an oval suite tower and
administrative offices at Gateway International Raceway ($1,500,000), accelerate
construction of additional improvements at Gateway International Raceway due to
the awards of three major sanctioned events in 1997 ($2,000,000), make
additional improvements at Gateway
-F-15-
<PAGE>
International Raceway ($500,000) and for working capital and other general
corporate purposes ($1,434,000). The allocation of these proceeds to be used
for the construction of improvements to Gateway International Raceway and
Memphis Motorsports Park have been updated and are based upon the Company's
current best estimates of the cost thereof, and actual costs may vary depending
on factors outside the control of the Company.
NOTE 7 - MANDATORILY REDEEMABLE PREFERRED STOCK:
On June 28, 1996, the Company issued 250,000 shares of a new series of Preferred
stock designated as Series B Convertible Preferred stock which is mandatorily
redeemable (the number of shares of Series B Convertible Preferred stock was
based upon the initial public offering price of the Common stock) for the
acquisition of Memphis Motorsports Park. The Series B Convertible Preferred
stock bears a cumulative 4.185% dividend rate paid quarterly and is convertible
on a one-for-one basis at the option of the holders on or after June 30, 1997
into the Company's Common stock. If the Series B Convertible Preferred stock
has not been converted into Common stock by December 31, 1998, the Company is
obligated to redeem any outstanding Series B Convertible Preferred stock at a
nominal consideration plus unpaid dividends and assume specified liabilities of
the seller not to exceed $1,500,000.
NOTE 8 - STOCK REPURCHASE AND STOCK OPTION PLAN:
All options under the Company's 1990 Stock Option Plan were exercised and
resulted in the Company receiving notes from employees, officers and board
members with the stock received upon exercise of the option being pledged as
collateral for these notes. The notes bear interest at 6.5% with interest only
payable annually through December 1997 and are included under Shareholders'
notes on the Balance Sheet.
The Company granted options to purchase 602,451 shares of Common stock pursuant
to the Company's 1993 Stock Option Plan at an exercise price of $1.09 per share
(estimated fair market value at date of grant) to certain key employees,
officers and members of the Board of Directors. All options granted under the
1993 Stock Option Plan vest over a five year period and no stock options have
been exercised under the 1993 Stock Option Plan which terminates December 13,
2003. As of November 30, 1996, approximately 391,350 shares have vested and are
exercisable. Accelerated vesting was given to retiring board members
participating in this plan and amounted to 29,879 additional vested shares
included above.
-F-16-
<PAGE>
In May 1996, the 1996 Employee and Director Stock Incentive Plan (the "1996
Plan") was approved with all directors and year-round salaried employees of the
Company eligible to participate. Pursuant to the 1996 Plan, the Stock Option
Committee may grant, without limitation, any of the following awards to
employees or directors: shares of Common stock or any option, warrant,
convertible security, stock appreciation right or similar right with an exercise
or conversion privilege at a price related to an equity security, or similar
securities with a value derived from the value of an equity security (an
"Award"). Awards are not restricted to any specified form or structure and
may include, without limitation, sales or bonuses of stock, restricted stock,
stock options, stock purchase warrants, other rights to acquire stock,
securities convertible into or redeemable for stock, stock appreciation rights,
limited stock appreciation rights, phantom stock, dividend equivalents,
performance units or performance shares, and an Award may consist of one such
security or benefit, or two or more of them in tandem or in the alternative. The
Committee, in its sole discretion, determines all of the terms and conditions of
each Award granted under the 1996 Plan. An aggregate of 400,000 shares of
Common stock have been reserved for issuance in connection with Awards made to
employees and directors under the 1996 Plan. No stock options have been granted
under the 1996 Plan which terminates in May 2006. The Board of Directors of the
Company may amend or terminate the 1996 Plan at any time and in any manner;
provided, however, that no such amendment or termination may terminate or modify
any Award previously granted under the 1996 Plan without the consent of the
recipient of the Award.
NOTE 9 - INCOME TAXES:
The provisions (benefit) for income taxes for the years ended June 30, 1995 and
1996 and the five month transition period ended November 30, 1996 are as
follows:
YEAR YEAR FIVE MONTHS
ENDED ENDED ENDED
JUNE 30, 1995 JUNE 30, 1996 NOVEMBER 30, 1996
------------- ------------- -----------------
Taxes currently payable
(receivable):
Federal $620,000 $744,000 $ (22,000)
State 182,000 213,000 11,000
-------- -------- ---------
802,000 957,000 (11,000)
Taxes applicable to temporary
differences (88,000) (2,000) (786,000)
-------- -------- ---------
Provision (benefit) for
income taxes $714,000 $955,000 $(797,000)
======== ======== =========
The provision (benefit) for income taxes for the years ended June 30, 1995 and
1996 and the five month transition period ended November 30, 1996 resulted in an
effective tax rate of 42%, 42%, and 37%.
YEAR YEAR FIVE MONTHS
ENDED ENDED ENDED
JUNE 30, 1995 JUNE 30, 1996 NOVEMBER 30, 1996
------------- ------------- -----------------
Federal income tax rate 34% 34% (34%)
State income tax,
net of federal tax effect 6% 6% (4%)
Effect of permanent
disallowable deductions 2% 2% 1%
--- --- ---
Effective tax rate 42% 42% (37%)
=== === ===
-F-17-
<PAGE>
Temporary differences which give rise to a significant portion of deferred taxes
as of November 30, 1996 are:
Deferred tax assets:
Net operating losses $ 793
Reserves and other 118
Depreciation on property 152
-------
1,063
-------
Deferred tax liabilities:
Reserves and other (51)
Deferred gain on property (1,080)
-------
(1,131)
-------
Net deferred tax liability $ (68)
=======
NOTE 10 - COMMITMENTS AND CONTINGENCIES:
The Company leases office space under a non-cancelable operating lease through
December 1999 for its box office operations at an annual lease payment of
$9,000. This is subject to annual adjustments based on changes in the Los
Angeles consumer price index or five percent (5%), whichever is greater. Total
rental payments charged to operations amounted to $9,000 in fiscal years ended
June 30, 1995 and 1996 and $4,000 in the five month transition period ended
November 30, 1996.
The Company also leases certain property at Gateway International Raceway with
leases expiring at various dates through 2070, subject to annual adjustments
based on increases in the consumer price index. Total rental payments charged
to operations amounted to $55,000 and $84,000 in the fiscal years ended June
30, 1995 and 1996, respectively, and $50,000 in the five month transition period
ended November 30, 1996. In addition, one lease contains a commitment of the
Company to pay additional payments aggregating $120,000 payable in $35,000
installments due June 1, 1996, 1997 and 1998 and $15,000 due June 1, 1999 for
the option to purchase the property in 2015. If the Company does not exercise
its option, these payments will be applied toward reducing the Company's rent
payments after 2015 at the rate of $1,000 per month.
The minimum lease payments due under the aforementioned leases are as follows:
1997 $ 170,000
1998 184,000
1999 164,000
2000 140,000
2001 138,000
2002 and thereafter 4,453,000
The Company has entered into several sanctioning agreements which allow the
Company to conduct various race competitions in Long Beach, at Gateway
International Raceway and Memphis Motorsports Park. The Grand Prix in Long
Beach hosts a CART Indy car race. Gateway International Raceway will host a CART
Indy car race, an NHRA National event and NASCAR Busch Series Grand National
Division Championship event with an ARTGO Challenge Series support race in its
Inaugural Season. Memphis Motorsports Park will conduct an ARCA Super Car and
USAC Silver Crown event followed by its NHRA National event in 1997. These
contracts expire between 1997 and 2000 with certain options to extend
thereafter.
-F-18-
<PAGE>
In connection with the major events, fixed commitments related to various
contracts in place (including city agreement through 2010, convention
facilities, temporary seating and hospitality facilities, among others) require
the following minimum payments as of November 30:
Years ending November 30,
- - -------------------------
1997 $5,345,000
1998 4,556,000
1999 2,381,000
2000 2,184,000
2001 185,000
2002 and thereafter 1,270,000
in addition to these fixed commitments, certain of the agreements call for
additional payments based upon the profitability (as defined) of the events.
In May 1996, the Company entered into employment agreements for two key
executive officers. The agreements call for a total base salary of $400,000 and
expire in May 2001. Annual increases in base salary are based on increases in
the consumer price index. Future minimum payments required under the employment
agreements as of November 30 are as follows:
Years ending November 30,
- - -------------------------
1997 $400,000
1998 400,000
1999 400,000
2000 400,000
2001 183,000
NOTE 11 - RELATED PARTIES:
During the years ended June 30,1995 and 1996, the Company purchased
approximately $5,000 and $12,000, respectively, worth of merchandise from a
company owned by a director. There were no such purchases during the five month
transition period ended November 30, 1996.
Included in accounts receivable as of November 30, 1996, is $8,500 due from
directors.
During the year ended June 30,1996 the Company purchased approximately $5,000
worth of merchandise from a company owned by the daughter and son-in-law of a
director. There were no such purchases during the five month transition period
ended November 30, 1996, however, deposits of $23,000 were made toward purchases
of merchandise to be delivered in the fiscal year ending November 30, 1997.
-F-19-
<PAGE>
NOTE 12 - BENEFIT PLANS
On November 1, 1995, the Company adopted a 401(k) profit sharing plan (the
"Plan") pursuant to which employees who have completed at least one year of
service with the Company and meet certain other eligibility requirements, may
contribute, on a pre-tax basis, a percentage of the employee's total annual
income from the Company subject to certain Internal Revenue Code limitations.
The Company may make matching contributions to the 401(k) Plan at its
discretion, and for the first two years, the Company has committed to make a
matching contribution equal to 25% of employee contributions. Contributions
made by the Company to the Plan were $12,000 for the five month transition
period ended November 30, 1996 and $23,000 for the year ended June 30, 1996.
Since 1990, the Company has had in effect a three tier bonus plan for eligible
employees (the "Bonus Plan") which is geared toward sharing the risk and reward
achieved by the Company, as well as compensating personal initiative. In the
first tier of the Bonus Plan, a bonus is paid based on the Company's marketing
department having surpassed its projected earnings for the Grand Prix event.
The second tier of the Bonus Plan offers incentives to employees for bringing
new business into the Company unrelated to the Grand Prix of Long Beach. The
third tier of the Bonus Plan is based on the general profitability of the
Company overall. In the fiscal years ended June 30, 1995 and 1996 an aggregate
of $316,000 and $422,000, respectively, were distributed pursuant to the
Company's Bonus Plan. There will be no distributions under the Bonus Plan for
the five month transition period ended November 30, 1996. The Bonus Plan may be
terminated or modified at any time at the sole discretion of the Company.
Certain Grand Prix employees are covered by union sponsored, collectively
bargained multi-employer pension plans. The Company contributed approximately
$50,000 and $5,000 for such plans in the year ended June 30, 1996 and the five
month transition period ended November 30, 1996 respectively. Information from
the plans' administrators is not sufficient to permit the Company to determine
its share of unfunded vested benefits, if any.
-F-20-
<PAGE>
EXHIBIT NO. EXHIBIT
- - ----------- -------------------------------------------------------------
10.18** Revolving Line of Credit Agreement with West Pointe Bank and
Trust Company dated February 24, 1995, as amended by
Extension/Modification Agreement dated February 24, 1996
10.19** Memorandum of Understanding dated February 26, 1996 by and
between the United States of America, Gateway International
Motorsports Corporation and BBJJ Land Trust
10.20** Form of Stock Option Agreement for 1993 Stock Option Plan
10.21** Lease Agreement dated as of June 12, 1996 by and between Helen
M. Bergfield, trustee and Gateway International Motorsports
Corporation
10.22** Lease Agreement dated as of April 1, 1996 by and between Ruth C.
Franke and Gateway International Motorsports Corporation
10.23** Lease Agreement dated as of June 1, 1996 by and between Joseph
E. Trover and Gateway International Motorsports Corporation
10.24** Form of Loan Agreement by and between Southwestern Illinois
Development Authority and Gateway International Motorsports
Corporation dated as of May 1, 1996
10.25** Form of Guaranty Agreement made by the Company and Automotive
Safety & Transportation Systems, Inc. to Magna Trust Company,
Trustee, dated as of May 1, 1996
10.26** Form of Mortgage and Security Agreement by and between Gateway
International Motorsports Corporation, as mortgagor and
Southwestern Illinois Development Authority, as mortgagee dated
as of May 1, 1996
10.27** Indenture of Trust dated as of May 1, 1996 by Southwestern
Illinois Development Authority to Magna Trust Company, as
trustee
10.28** Form of Tax Escrow Agreement to be entered into between the City
of Madison, Illinois, Magna Trust Company, as escrow agent and
Gateway International Motorsports Corporation
21** Subsidiaries of Registrant
23.1** Consent of Arthur Andersen LLP
27 Financial Data Schedule at November 30, 1996.
- - ---------
** Incorporated herein by reference to the Company's Registration Statement on
Form SB-2 filed with the Commission on May 17, 1996, as amended on June 24,
1996.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF THE GRAND PRIX ASSOCIATION OF LONG BEACH, INC. AT
NOVEMBER 30, 1996 AND FOR THE FIVE MONTH TRANSITION PERIOD THEN ENDED AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 5-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> NOV-30-1996
<CASH> 10,214,000
<SECURITIES> 0
<RECEIVABLES> 456,000
<ALLOWANCES> 0
<INVENTORY> 51,000
<CURRENT-ASSETS> 11,969,000
<PP&E> 26,658,000
<DEPRECIATION> (4,379,000)
<TOTAL-ASSETS> 46,886,000
<CURRENT-LIABILITIES> (3,043,000)
<BONDS> (22,932,000)
(2,500,000)
0
<COMMON> (15,544,000)
<OTHER-SE> (1,939,000)
<TOTAL-LIABILITY-AND-EQUITY> (46,886,000)
<SALES> 0
<TOTAL-REVENUES> 1,960,000
<CGS> 0
<TOTAL-COSTS> 3,973,000
<OTHER-EXPENSES> (10,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 764,000
<INCOME-PRETAX> (2,140,000)
<INCOME-TAX> (797,000)
<INCOME-CONTINUING> (1,343,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,343,000)
<EPS-PRIMARY> (0.38)
<EPS-DILUTED> (0.38)
</TABLE>
