UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended: March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from _________to _________.
Commission file number: 333-18295
COLONIAL DOWNS HOLDINGS, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Virginia 54-1826807
--------------------------------- ---------------------------------
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
3610 North Courthouse Road
Providence Forge, Virginia 23140
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (804) 966-7223
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ ] No [X]
(The registrant has filed all reports
required but only became subject to
filing requirements as of March 17, 1997.)
Applicable only to corporate issuers:
As of May 12, 1997, the number of shares outstanding of the Company's Class A
Common Stock was 5,000,000 shares and of the Company's Class B Common Stock
2,250,000 shares.
1
<PAGE>
COLONIAL DOWNS HOLDINGS, INC. AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION
Page
Item 1. - Financial Statements
Consolidated Balance Sheets - 4
March 31, 1997 (unaudited) and December 31, 1996
Consolidated Statements of Income - 5
Three months ended March 31, 1997 and March 31, 1996 (unaudited)
Consolidated Statement of Shareholders' Equity - 6
Three months ended March 31, 1997 (unaudited)
Consolidated Statements of Cash Flows - 7
Three months ended March 31, 1997 and March 31, 1996 (unaudited)
Notes to Consolidated Financial Statements 8-11
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 12-15
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 16
Item 5 - Other Information 17
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. - Financial Statements
COLONIAL DOWNS HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
-------------- --------------
<S> <C> <C>
Assets
Current
Cash and cash equivalents $ 36,424 $ 1,380
Horsemen's deposits - 338
Accounts receivable 68 39
Prepaid expenses 21 9
--------- --------
Total current assets 36,513 1,766
Property and equipment
Land 1,898 800
Building and improvements 1,512 1,487
Leasehold improvements 1,115 1,109
Equipment,furnishings and fixtures 951 869
Vehicles 19 19
Refundable advance - land 5,000 -
Construction in progress 7,898 5,080
--------- --------
18,393 9,364
Less accumulated depreciation and amortization 181 126
--------- --------
Net property and equipment 18,212 9,238
Other
Licensing costs 999 942
Financing costs - 332
Organization costs 8 8
Miscellaneous 1 51
--------- --------
1,008 1,333
Less accumulated amortization 208 161
--------- --------
Total other 800 1,172
--------- --------
Total Assets $ 55,525 $ 12,176
========= ========
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $ 3,468 $ 3,566
Management fee payable - 210
Reserve seating commitments 66 -
Accrued expenses 121 123
Uncashed pari-mutuel tickets 231 147
Income taxes payable 36 -
Current maturities of long-term debt
and capital lease obligations 64 48
Notes payable - stockholders 3,500 1,638
Purses due horsemen - 1,957
--------- --------
Total current liabilities 7,486 7,689
Long-term liabilities
Long-term debt and capital lease obligations,
net of current maturities 155 42
Notes payable - stockholders 5,500 3,449
Refundable advance - land 5,000 -
--------- --------
Total long-term liabilities 10,655 3,491
--------- --------
Total liabilities 18,141 11,180
Stockholders' equity
Preferred stock, $.01 par value, 2,000,000 shares
authorized; none issued - -
Common stock
Class A, $.01 par value, 12,000,000 shares authorized;
5,000,000 shares outstanding 50 8
Class B, $.01 par value, 3,000,000 shares authorized;
2,250,000 shares outstanding 23 23
Additional paid-in capital 37,883 1,966
Retained earnings (deficit) (572) (1,001)
--------- --------
Total stockholders' equity 37,384 996
--------- --------
Total liabilities & equity $ 55,525 $ 12,176
========= ========
</TABLE>
See accompanying notes to consolidated financial statements
Page 4
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COLONIAL DOWNS HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(IN THOUSANDS, EXCEPT SHARE DATA)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
-------------- --------------
<S> <C> <C>
Revenues
Pari-mutuel commissions - import simulcasting $ 4,997 $ 1,179
Admissions 139 39
Programs 208 69
Miscellaneous 73 18
------- -------
Total revenues 5,417 1,305
------- -------
Operating expenses
Direct operating expenses
Purses & awards 1,232 295
Totalisator and simulcast expenses 833 187
Breeder's fund fees 237 57
Pari-mutuel taxes 600 143
Direct salaries, payroll taxes and employee benefits 599 128
Other direct expenses 595 146
Consulting fees 475 114
------- -------
Total direct operating expenses 4,571 1,070
------- -------
General and administrative expenses
Management fees - stockholders 38 45
Attorney and professional fees 55 106
Other 173 95
------- -------
Total general and administrative expenses 266 246
------- -------
Depreciation and amortization 102 32
------- -------
Total operating expenses 4,939 1,348
------- -------
Income (loss) from operations 478 (43)
Other income (expense)
Interest expense - stockholders (38) (24)
Interest income 25 1
------- -------
Total other income (expense) (13) (23)
------- -------
Income (loss) before income taxes 465 (66)
Taxes on income (36) -
------- -------
Net income (loss) $ 429 $ (66)
------- -------
Earnings (loss) per share data:
Earnings (loss) per share $ 0.12 $ (0.02)
------- -------
Weighted average number of shares outstanding 3,614 3,000
========= ========
</TABLE>
See accompanying notes to consolidated financial statements
Page 5
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COLONIAL DOWNS HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
(Unaudited)
<TABLE>
<CAPTION>
Common Stock
--------------------------------------------------
Class A Class B Additional Retained
--------------------- ---------------------- Paid-in Earnings
Shares Amounts Shares Amounts Capital (Deficit) Total
------ ------- ------ ------- ------- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, at January 1, 1997 750,000 $ 8 2,250,000 $ 23 $ 1,966 $ (1,001) $ 996
Issuance of common stock 4,250,000 42 - - 35,917 - 35,959
Net income for the three months
ended March 31, 1997 - - - - - 429 429
--------- -------- --------- ----- ------- -------- --------
Balance at March 31, 1997 5,000,000 $ 50 2,250,000 $ 23 $37,883 $ (572) $ 37,384
========= ======== ========= ===== ======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
Page 6
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COLONIAL DOWNS HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(IN THOUSANDS)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
-----------------------------------
1997 1996
-------------- ------------
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $ 429 $ (66)
Adjustments to net income (loss)
Depreciation and amortization 102 32
Increase in uncashed tickets 84 52
(Increase) decrease in accounts receivable and other assets (30) (12)
Increase (decrease) in accounts payable (99) 215
Increase in reserve seating commitments 66 -
(Decrease) in management fees payable (210) 45
Increase in accrued expenses and other 22 44
(Increase) decrease in horsemen's purses and deposits (1,620) 191
-------- -----
Net cash provided (absorbed) by operating activities (1,256) 501
-------- -----
Investing activities
Purchases of property and equipment (4,028) (600)
Investment in other assets (6) -
-------- -----
Net cash absorbed by investing activities (4,034) (600)
-------- -----
Financing activities
Net proceeds from stock offering 36,291 -
Net increase in financing costs - (25)
Proceeds from long-term debt and capital leases 129 9
Proceeds from stockholder notes payable 4,613 500
Payments on stockholders' advances and notes payable (699) (227)
-------- -----
Net cash provided by financing activities 40,334 257
-------- -----
Net increase in cash and cash equivalents 35,044 158
Cash and cash equivalents, beginning of period 1,380 330
-------- -----
Cash and cash equivalents, end of period $ 36,424 $ 488
======== =====
</TABLE>
At March 31, 1997 and 1996, $2,863,000 and $1,015,000, respectively, were
due vendors for property and equipment purchases.
Non cash activities
For the three months ended March 31, 1997, approximately $332,000 of
previously paid finance cost was netted against additional paid in capital.
See accompanying notes to consolidated financial statements.
Page 7
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Colonial Downs Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
1. Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the following entities
of Colonial Downs Holdings, Inc. (collectively, the "Company"), which are
affiliated through common ownership and control:
Colonial Downs, L.P. ("Partnership")
Stansley Racing Corp. ("SRC")
Colonial Downs Holdings, Inc. ("CD Holdings")
The consolidated financial statements have been prepared as if the
entities had operated as a single consolidated group as of December 31, 1993.
All significant intercompany accounts and transactions have been eliminated.
The Company's initial public offering ("IPO") became effective on March
17, 1997. The company sold 4, 250,000 shares of its common stock raising $35.9
million (net of expenses) which will be used to develop, construct, and operate
a pari-mutuel horse racing facility and up to six satellite wagering facilities
in Virginia.
The financial information has been prepared in accordance with the
Company's customary accounting practices and has not been audited. In the
opinion of management, the information presented reflects all adjustments
necessary for a fair statement of interim results. All such adjustments are of a
normal and recurring nature. The foregoing interim results are not necessarily
indicative of the results of operation for the full year ending December 31,
1997.
Construction in Progress
Construction in progress is recorded at cost and includes capitalized
costs such as architect, contractor, and engineering fees. Estimated cost to
complete the racetrack, including all furnishings and equipment, is
approximately $30.6 million as of March 31, 1997. Approximately $66,000 of
interest expense was capitalized during the first quarter of 1997 in connection
with the construction of the racetrack.
In March, 1997 the Company purchased land in Hampton, VA for a purchase
price $1,097,500 to construct its third satellite wagering facility, with an
estimated cost of $3.8 million (including land), and entered into purchase
contracts for real estate in Brunswick County to locate and construct its fourth
satellite facility at an estimated cost of $1.3
Page 8
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million (including land). The Company expects to open both facilities in the
third quarter of 1997.
Horsemen's Purses and Awards
Amounts due for live racing purses under agreements with the Virginia
Horsemen's Benevolent and Protective Association, Inc. and the Virginia Harness
Horse Association (collectively "the Associations"), are accrued based on the
terms of agreements with the Associations. Funds not yet remitted for purses to
satisfy the liability are held in restricted cash accounts. As of March 31,
1997 approximately $3,155,000 was held in the restricted cash accounts, which
equals the amounts due purses as of March 31, 1997 based upon the amounts
wagered at the Company's satellite wagering facilities and terms of the
agreements with the Associations.
Income Taxes
The Company and its subsidiaries will file a consolidated income tax
return. Prior to the Reorganization, the Partnership and SRC (an "S" corporation
for income tax purposes) filed income tax returns as separate entities. No
provisions has been made for income taxes for the Partnership and SRC as income
taxes are the liabilities of the individual partners and shareholders,
respectively. CD Holdings' activity began March 18, 1997 and the income tax from
such time forward has been provided for in the statements.
2. Management and Consulting Agreement with Maryland - Virginia Racing Circuit.
The Company entered into a consulting agreement with the Maryland -
Virginia Racing Circuit, Inc. an affiliated of the Maryland Jockey Club ("MJC").
Pursuant to the agreement, MJC will suspend live racing at Pimlico and Laurel
racetracks during the Company's live thoroughbred racing meet and manage the
thoroughbred racing at the Company's racing facility. The first live
thoroughbred meet is expected to commence September 1 and end October 12, with
30 days of racing. Under this agreement the Company paid MJC approximately
$475,000 for the three months ended March 31, 1997.
3. Land Conveyance and Land Development
The land required to build the racetrack and facilities in New Kent
County was conveyed to the Company, at no cost to the Company other than the
payment of transfer and filing fees and taxes, in March, 1997 from Chesapeake
Forest Products Company ("Chesapeake Forest"), the previous owner. Under the
deed the land is subject to reversion to Chesapeake Forest if the Company fails
to complete, open and operate for three years a racetrack licensed by the
Virginia Racing Commission. Further, the deed restricts use of the property to
operation of a horse racetrack and certain ancillary activities. The land was
recorded in March 1997, at its fair value, which the Company estimates to be
approximately $5,000,000. Due to the retention of a reversionary interest by
Chesapeake Forest, the land was recorded as a refundable advance with an offset
to a liability account. The refundable advance will be reclassified to land, and
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the corresponding liability will be reclassified to contributed capital when the
likelihood for reversion is remote, which is expected to be when the Company
completes the racing facility and has shown the ability to conduct live racing
during the next three years.
4. Notes Payable and Capital Lease Obligations
Notes payable and capital lease obligations consists of the following:
<TABLE>
<CAPTION>
March 31, December 31,
--------- ------------
1997 1996
---- ----
<S> <C> <C>
Note payable to Arnold Stansley, maturing March 1998, non-interest
bearing, unsecured................................................................ $ ___ $ 211,788
Note payable to Arnold Stansley, maturing January 1997, non-interest
bearing, unsecured................................................................ $ ___ $ 175,000
Note payable to Norglass, Inc., maturing March 1998, non-interest
bearing, unsecured................................................................ $ ___ $ 236,994
Note payable to Norglass, Inc., maturing January 1997, non-interest
bearing, unsecured................................................................ $ ___ $ 75,000
Note payable to CD Entertainment Ltd. maturing January 1998 bearing
interest at LIBOR (5.625% at December 31, 1996) plus 2%;
collateralized by land & building................................................. $ ___ $ 3,000,000
Note payable to CD Entertainment Ltd. bearing interest at LIBOR
(5.625% at December 31, 1996) plus 2%, with a maximum borrowings
of $5,000,000, unsecured.......................................................... $ ___ $ 1,387,619
Demand note payable to a Bank, with interest payable at prime plus 2%
(10.5% at March 31, 1997); unsecured.............................................. $ 20,100 $ 20,100
Installment notes and capitalized leases collateralized by certain
vehicles, machinery, and equipment, maturing at various dates,
primarily March 1997 through January 1999, at interest ranging
from 3% to 12%.................................................................... $ 199,056 $ 69,737
Note payable to CD Entertainment Ltd., maturing upon closing of a $10 million
construction loan estimated to close the later part of the second quarter,
1997. Interest is payable monthly at a rate of Libor plus 2%; collateralized
by a deed of trust on the Richmond facility....................................... $ 3,500,000 $ ___
Convertible subordinated note to CD Entertainment Ltd., maturing March 2000 with
interest payable quarterly at a rate of 7.25%; collateralized by a second deed
of trust on the racetrack facility................................................ $ 5,500,000 $ ___
</TABLE>
Page 10
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5. Related Party Transactions
The Company had a management agreement to pay directly or indirectly to
SRC and CD Entertainment Ltd. a monthly management fee of $10,000 and $5,000,
respectively, per month until the closing of the IPO. In March 1997 the Company
paid$247,742 in accrued management fees. The management agreements terminated
upon the closing of the IPO.
Virginia Concessions, L.L.C., an affiliate of shareholder CD
Entertainment Ltd., was granted an option by the Company to manage the food and
beverage concessions at the satellite facilities. Under the agreement, Virginia
Concessions, L.L.C. pays rent to the Company based on gross sales. This rental
income for the Company for the three months ending March 31, 1997 was $49,961.
Norglass, Inc., an affiliate of shareholder James M. Leadbetter, is
engaged as the general contractor to construct the racetrack and related
facilities in New Kent County, Virginia. The contract value with Norglass, Inc.
for the facility is $29.5 million. Norglass, Inc. has also been engaged to
perform construction management related to the satellite facilities. Total
construction cost incurred with Norglass, Inc. were approximately $8,275,000
through March 31, 1997. Norglass, Inc. receives a fee of $2 million under the
construction contract and reimbursement of up to $1 million for certain out-of-
pocket expenses.
The Company agreed to pay Premier One Development Co. ("Premier"), a
company affiliated with a shareholder of the Company, CD Entertainment Ltd., a
fee of $250,000 (of which $125,000 was paid in 1996 and $32,000 in March 1997)
for services related to the construction of the Track and the development of the
satellite facilities.
6. Earnings per share
Earnings per share for the three months ended March 31, 1997 and March
31, 1996 was computed by dividing the net income by the weighted average number
of shares outstanding during the periods. (Prior to the reorganization of the
Company effective March 12, 1997, the private owners of the Company held
partnership interests which were converted to 3,000,000 shares of stock as part
of the reorganization). No outstanding stock options were exercisable as of
March 31, 1997 and were not included in such calculation. Additionally, shares
issuable upon the conversion of an outstanding convertible subordinated
promissory note were excluded from the earnings per share calculation since the
conversion price exceeded the average market price for the three months ended
March 31, 1997.
Page 11
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS
Financial Condition
The Company was organized to pursue opportunities for horse racing and
pari-mutuel wagering in Virginia. The Company is the only entity that has been
awarded unlimited licenses to own and operate a horse racetrack with pari-mutuel
wagering in Virginia and is currently the only entity eligible to apply for
licenses to own and operate satellite wagering facilities (SWF's") in Virginia.
The Company currently operates SWFs in Chesapeake and Richmond, Virginia and has
received licenses to own and operate facilities in each of Hampton and Brunswick
County, Virginia. The Company plans to conduct thoroughbred and standardbred
("harness") horse racing at a racetrack that it is currently constructing in New
Kent County, Virginia (the "Track"). The Company's inaugural thoroughbred meet
is scheduled to commence September 1, 1997 with thirty (30) days of live racing
ending October 12, 1997. The Company also intends to conduct pari-mutuel
wagering at the Track and at its SWFs on races run at the Track and on races
telecast from out-of-state tracks. After it begins live racing at the Track, the
Company will seek to increase its revenues by entering into agreements to
simulcast races run at the Track to out-of-state racetracks, SWFs, casinos, and
other gaming facilities.
The Company's goal is to establish the Track as one of the premier venues
for thoroughbred horse racing in the East by attracting high quality horses and
offering an appealing environment for racing participants and customers. The
Company believes that it average purses will be competitive with those currently
offered by most other tracks in the mid-Atlantic region that hold racing meets
at the same time as the Company's scheduled meets, enabling the Track to attract
high quality thoroughbred horses, trainers, and jockeys to the Company's meets.
For the first quarter of 1997, assets of the Company increased from
$12,176,000 at December 31, 1996 to $55,525,000 at March 31, 1997 largely as
result of the closing of the Company's IPO, yielding the Company net proceeds of
approximately $35.9 million. The Company has invested these proceeds on a short
term basis pending expenditures for the continuing development, construction and
equipping of its racetrack, satellite wagering facilities and related
facilities. Additionally the Company took title to the real estate upon which
the racetrack is being constructed. (The value of such property is treated as a
refundable advance until such time as the likelihood of reversion to the
property's grantor is remote. See footnote 3 to the financial statements).
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Total liabilities increased in the same period from $11,180,000 at December
31, 1996 to $18,141,000 at March 31, 1997. The increase in liabilities is mainly
attributable to the entry of the contribution of land to the Company by
Chesapeake Forest Products Company as a refundable advance (see footnote 3 to
the financial statements), and an increase in loans from the Company's
shareholders.
Results of Operations
Current Period Performance
For the three months ended March 31, 1997, the Company had net earnings of
$429,000 or $0.12 per common share compared with a net loss of ($66,000) or
($0.02) per common share for the first three months of 1996. Operating earnings
in the first quarter of 1997 were $478,000 compared with an operating loss of
($43,000) in the same period a year ago. The change in operating results is
generally attributable to the operation of two satellite wagering facilities -
one each in Chesapeake and Richmond, Virginia - for the full quarter compared to
operation of a single facility for approximately one-half of the first quarter
of 1996.
Three months ended March 31, 1997 compared to three months ended March 31, 1996
- -------------------------------------------------------------------------------
Total revenue increased by approximately $4.1 million or 315% from $1.3
million for the three months ended March 31, 1996 to $5.4 million for the three
months ended March 31, 1997. The increase was attributable to two satellite
wagering facilities, in Chesapeake and Richmond, being in operation during the
entire three months of 1997 versus only the Chesapeake facility, which opened
February 17, 1996, conducting satellite wagering operations for a portion of the
three months ended March 31, 1996.
Total operating expenses increased by approximately $3.6 million or
266% from $1.3 million for the three months ended March 31, 1996 to $4.9 million
for the three months ended March 31, 1997. The increase in operating expenses
resulted from operating two satellite wagering facilities for a full quarter in
1997 versus only one for approximately 1.5 months of the first quarter of 1996.
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Income from operations increased by approximately $521,000 from a loss of
($43,000) to income of $478,000 due to the factors described above.
Net income increased by approximately $495,000 from a loss of ($66,000) to
net income of $429,000 for the three months ended March 31, 1997 due to the
factors described above. Income tax expense increased from $0 to $36,000 due to
the increase in net income for the period.
Liquidity and Capital Resources
- -------------------------------
The Company's primary sources of liquidity and capital resources have been
stockholders loans and proceeds from the initial public offering of the
Company's common stock. During the three months ended March 31, 1997, the
Company's cash position increased by approximately $35 million from $1.4 million
at December 31, 1996 to $36.4 million at March 31, 1997 as a result of
approximately $35.9 million net proceeds from the stock offering and $5.5
million convertible subordinated shareholder loan (of which $.9 million was
previously loaned as of December 31, 1996) offset primarily by $5.3 million cash
absorbed by operations and purchases of property and equipment.
Net cash absorbed by operating activities for the three months ended March
31, 1997 totaled approximately $1.3 million resulting from $1.6 million used to
fund the horsemen's deposit account (to be used to pay purses during the live
upcoming race meets) offset by net cash provided by operations of $.3 million.
For the three months ended March 31, 1996 net cash provided by operations was
$.5 million.
Cash flows used in investing activities totaled approximately $4.0 million
for the three months ended March 31, 1997 as compared to $.6 million for the
three months ended March 31, 1996.
Capital expenditures made in the quarter ended March 31, 1997 were
primarily for the purchase of land for the Hampton satellite facility ($1.1
million) and for the continued construction of the race track in New Kent County
($2.8 million). For the three months ended March 31, 1996 capital expenditures
were primarily for the build out and equipping of the Chesapeake satellite
wagering facility ($.6 million).
Cash flows from financing activities for the three months ended March
31, 1997 totaled approximately $40.3 million primarily from the stock offering
of 4,250,000 shares of common stock providing net proceeds of approximately
$35.9 million and net increased stockholder loans of $4.6 million. For the three
months ended March 31, 1996 cash flows from financing activities was
approximately $.3 million primarily from increased stockholder loans.
The Company has a $5.5 million convertible subordinate note, $3.5
million shareholder note payable and is expecting to close in the next quarter a
$15.0 million credit facility
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with a commercial bank. Upon the closing of the bank credit facility, net
proceeds from the stock offering will be used to repay the $3.5 million note
payable to a shareholder. The remaining proceeds from the stock offering and
from the foregoing loans will be use to complete construction and equipping of
the racetrack (approximately $30.6 million), complete construction of the
Hampton satellite facility (approximately $2.6 million and currently under
construction and projected to open in the third quarter of this year), complete
construction of the Brunswick County satellite facility (approximately $1.3
million and projected to open in the third quarter of this year), and
approximately $2.0 million to complete the opening of two additional satellite
facilities projected for 1998.
The Company believes that the cash on hand, cash generated from
operations, and the above credit facility will be sufficient to fund its
anticipated future cash requirements.
Seasonality
- -----------
The Company's revenues and net income may fluctuate from quarter to
quarter for a variety of reasons. For example, revenues may be higher during
scheduled live racing than other times of the year (the Company conducted no
live racing in the first quarter of 1997, only imported simulcasting at its
SWFs). In addition, weather conditions sometimes cause cancellation of outdoor
horse races or curtail attendance, both of which reduce wagering. Attendance and
wagering at both outdoor races and indoor SWFs also may be adversely affected by
certain holidays and professional and college sports seasons as well as other
recreational activities. Conversely, attendance and wagering may be favorably
affected by special racing events which stimulate interest in horse racing, such
as the Triple Crown races in May and June and the Breeders' Cup in November.
Forward Looking Statements
- --------------------------
Statements regarding the anticipated opening of additional satellite
wagering facilities, scheduling of the thoroughbred and harness meets, and
certain other statements contained in this quarterly report are forward-looking
statements and as such involve known and unknown risks, uncertainties and other
factors which may cause the actual results, performance or achievements of the
Company to be materially different from any future results, performance or
achievements, expressed or implied by such forward-looking statements. Such
potential risks, uncertainties and factors include, but are not limited to,
risks of construction delays, including unforeseen environmental, engineering or
geological problems, governmental regulation, including licensing of additional
satellite wagering facilities, approval by the Virginia Racing Commission of
harness dates for 1998, competition with other sporting events and forms of
entertainment, and the success of planned, advertising, marketing and
promotional efforts.
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Part II - Other Information
Item 1 - Legal Proceedings
Robin J. Pearsall and Monument Avenue Park Association, an unincorporated
association representing certain individuals residing close to the Richmond
satellite wagering facility ("SWF"), filed suit in Richmond Circuit Court on
July 11, 1996, against the Virginia Racing Commission. (Robin J. Pearsall and
Monument Avenue Park Association v. The Virginia Racing Commission.) The Company
intervened as a party on January 28, 1997. The suit seeks to overturn the award
of the Company's licenses for the Richmond SWF on the grounds that the
referendum approving the locating of an SWF in Richmond was void; that the
Virginia Racing Commission did not have authority to issue the licenses under
the Virginia Racing Act; and that no SWF licenses could be issued until
completion of construction of the Track. The case was dismissed by order entered
February 20, 1997, in which the judge found that Ms. Pearsall and the
Association lacked standing to challenge the Virginia Racing Commission's
actions. Ms. Pearsall and the Association filed a motion to vacate the court's
order, which motion was denied by order dated March 12, 1997. Ms. Pearsall and
the Association appealed the court's decision to the Virginia Court of Appeals,
an intermediate appellate court, by notice of appeal filed March 21, 1997.
Although the ultimate outcome of this proceeding cannot be predicted, the
Company believes that it will be ultimately resolved in a manner that will not
have a material adverse effect on the Company's results of operations,
liquidity, or financial condition.
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Item 5 - Other Information
The Company expects to construct and open two additional satellite wagering
facilities in the third quarter of 1997 in each of Hampton and Brunswick County,
Virginia. Construction commenced at the site of the planned Hampton facility on
May 5, 1997 and permitting of the planned Brunswick County facility continues.
The planned opening dates of the facilities are subject to change as a result of
construction delays, delays in securing requisite permits, unforeseen
environmental, engineering or geological problems, and other risks generally
associated with the construction of new buildings.
The Virginia Racing Commission has approved a revision to the Company's
proposed race days, resulting in the movement of the start of the thoroughbred
meet from July 1 to September 1, 1997. This change in schedule would have
resulted in a November - December harness meet, a difficult period in which to
conduct a harness meet because of weather and lack of availability of horses.
After discussion with representatives of the harness horsemen, the Company
intends to hold its inaugural harness meet from April 23, 1998 to July 4, 1998
followed by a 10-day super meet in November of 1998, subject to the approval of
the Virginia Racing Commission. As a consequence of such scheduling change,
anticipated revenue from the planned harness meet will be deferred from 1997
to 1998.
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<PAGE>
Signatures
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Colonial Downs Holdings, Inc.
Date: May 15, 1997 /s/ O. James Peterson, III
--------------------------------------
O. James Peterson, III, President and
Chief Operating Officer
Date: May 15, 1997 /s/ Robert H. Hughes
--------------------------------------
Robert H. Hughes
Chief Financial Officer
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