Prospectus
WALLSTREET RACING STABLES, INC.
500,000 Shares of Common Stock,
Par Value $.001 per share
Offering Price: $1.00 per share
Wallstreet Racing Stables, Inc. (the "Company") offers hereby
500,000 shares of its Common Stock, par value $.001 per share (the
"Common Shares") on a "best efforts" basis at an offering price of
$1.00 per share. The offering will be conducted by the Company
through its officers and directors commencing with the date of this
Prospectus and continuing for a period of ninety (90) days thereafter,
unless such period is extended in the sole discretion of the Company
for an additional period of time not to exceed thirty (30) days in the
aggregate. The offering will be conducted by the Company through its
President, Raymond E. McElhaney, its Vice President of Corporate
Development, Ronald R. McGinnis, and its Directors Clifford Thygesen
and Wayne Bamford. The Common Shares may also be offered through
broker/dealers ("Participating Broker/Dealers") who are members of the
National Association of Securities Dealers, Inc. ("NASD"). A commission
will not be paid to the Company or its officers and directors for sales
effectuated by them. There is no minimum number of Common Shares or sales
proceeds which must be received to complete the offering. As a result, all
proceeds will be immediately deposited into the Company's bank account and
available for all valid corporate purposes. The Company may receive no or
nominal proceeds from this offering, and in that event, such level of
proceeds would significantly restrict the Company's operations and would
have a substantial adverse effect on the Company and investors.
THIS OFFERING AND THE COMMON SHARES OFFERED HEREBY INVOLVE A HIGH
DEGREE OF RISK AND IMMEDIATE SUBSTANTIAL DILUTION. (SEE "RISK
FACTORS" AND "DILUTION")
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Price Underwriting Proceeds
to the Discounts and to the
Public Commissions(1) Company(2)
Per Common Share....$ 1.00 $ 0.10 $ .90
Total...............$ 500,000 $ 50,000 $ 450,000
1. Includes a maximum ten percent (10%) selling commission payable to
Participating Broker/Dealers in connection with sales made through
the efforts of such firms. In connection with any engagement of
Participating Broker/Dealers, the Company may agree to indemnify
Participating Broker/Dealers against certain liabilities, including
liabilities under the Securities Act of 1933. No commission or other
renumeration will be paid to officers or directors of the Company,
although such persons may be reimbursed for out-of-pocket expenses
incurred in connection with the offering. (See "PLAN OF DISTRIBUTION").
2. Before deducting expenses of the offering payable by the Company
and estimated to be $20,000. (See "USE OF PROCEEDS").
The date of this Prospectus is February 13, 1998.
The remaining 54,500 Common Shares are issuable upon exercise of
oustanding Common Stock Purchase Warrants ("Warrants"). The
transferrable Warrants were issued in connection with two private
placements previously conducted by the Company. Each Warrant is
immediately exercisable and entitles the holder to acquire one (1)
Common Share at $1.00 per share until April 30, 1998. Any
solicitation of exercise of the Warrants will be made only by the
Company, through the aforementioned officers and directors, and no
commissions will be paid by the Company in connection with the
exercise of any of the Warrants.
The Common Shares currently trade in the over-the-counter market
and are quoted on the NASD Bulletin Board under the symbol "WRSB".
On February 11, 1998, the most recent date for which information
is available, the price of the Common Shares as quoted in the Bulletin
Board, was $2.00 bid and $3.00 asked. Prior to this offering,
there has been an extremely limited market for the Common Shares and
there is no assurance that one will continue after completion of this
offering. The offering price of the Common Shares has been arbitrarily
determined by the Company based on recent sales prices of the Common
Shares and bears no necessary relationship to the Company's assets, book
value, results of operations or other generally accepted criteria.
(See "RISK FACTORS" and "DESCRIPTION OF SECURITIES").
This offering is not contingent upon a minimum number of shares
being sold and is being conducted on a first come, first served
basis. If subscriptions exceed 500,000 Common Shares, all excess
subscriptions will be promptly returned to subscribers, without
interest thereon or deduction therefrom. Subscribers to the first
500,000 Common Shares will not be entitled to a return of their
subscription following receipt by the Company.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission,
450 5th Street N.W., Washington, D.C. 20549, its Registration Statement
on Form SB-2 (herein, together with all amendments thereto, the
"Registration Statement") under the Securities Act of 1933, as amended,
regarding the securities offered hereby. This Prospectus, filed as part
of the Registration Statement, omits certain information contained in the
Registration Statement. For further information regarding the Company and
the securities offered, reference is made to the Registration Statement
and the exhibits filed therewith.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "1934 Act"), and in accordance
therewith, is required to file reports, proxy statements, and other information
with the Commission. Information concerning the Company can be inspected and
copied at the offices of the Commission, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549; 500 Madison Street, Suite 1400, Chicago,
Illinois 60661; and 7 World Trade Center, New York, New York 10048. Copies of
such material can be obtained from the Public Reference Section of the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates. The Commission maintains a Web site
(http://www.sec.gov) that contains reports, proxy and information statements
and other information regarding registrants, such as the Company, that file
electronically with the Commission.
LIMITED STATE REGISTRATION
Sale of the Company's Common Stock by existing shareholders is presently
qualified only in Colorado, and the Company anticipates that the Common
Shares offered hereby will be registered or qualified for sale in a limited
number ofjurisdictions. As a result, purchasers in this offering and in any
subsequent trading market may have difficulty selling their Common Shares,
should they desire to do so. The Company has filed an application to
register sale of the Common Shares in the state of Colorado which
registration was effective concurrent with the Registration Satement of
which this Prospectus is a part. The Company also anticipates the sale of a
limited number of Common Shares in Florida, Illinois, New Jersey, Ohio and
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Texas under exemptions available in those states. Purchasers in this offering
will generally be limited to reselling the Common Shares in these states,
together with other jurisdictions in which the Company may qualify secondary
trading of the Common Shares. The Company intends to publish information in
Standard & Poor's Corporation Records in order to avail itself of the "manual"
exemption available in certain states for secondary trading. Notwithstanding
such efforts however, purchasers in this offering may have difficulty selling
the Common Shares, should they desire to do so.
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
Certain statements contained herein constitute "forward looking
statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. Such forward looking statements include without
limitation statements regarding the Company's plan of business
operations and related expenditures, anticipated race careers of
Company owned thoroughbreds and stabling and training information.
Factors that could cause actual results to differ materially include,
among others, the following: the health and training progress of the
thoroughbreds, availability of training and stabling facilities,
general economic conditions and the overall thoroughbred horse racing
industry. Most of these factors are outside the control of the
Company. Investors are cautioned not to put undue reliance on
forward looking statements. Except as otherwise required by
applicable securities, statues or regulations, the Company disclaims
any intent or obligation to update publicly these forward looking
statements, whether as a result of new information, future events or
otherwise.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE
ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER OF THE COMMON SHARES COVERED BY THIS
PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY THE COMMON SHARES IN ANY JURISDICTION
TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCE
IMPLY THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE.
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TABLE OF CONTENTS
Prospectus Summary....................................... 1
Definitions.............................................. 5
Risk Factors............................................. 6
Risk Factors Relating to the Company................ 6
Risks Relating to the Thoroughbred Racing Business.. 9
Risk Relating to the Offering....................... 10
Dilution................................................. 13
Use of Proceeds.......................................... 14
Market for Company's Securities.......................... 16
Management's Discussion and Analysis Or
Plan of Operation........................................ 17
Business................................................. 23
Management............................................... 32
Conflicts of Interest.................................... 36
Shareholdings of Management and Principal Shareholders... 37
Certain Relationships and Related Transactions........... 39
Description of Securities................................ 41
Plan of Distribution..................................... 44
Legal Matters............................................ 46
Financial Statements..................................... 47
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PROSPECTUS SUMMARY
This summary is qualified in its entirety by the detailed
information appearing elsewhere in this Prospectus. Prospective
investors should carefully review the balance of this Prospectus and
the exhibits hereto before making an investment in the Securities
offered hereby.
The Company
Wallstreet Racing Stables, Inc. (the "Company") is a Colorado
corporation organized on July 18, 1995. The Company was organized to
engage in all phases of the thoroughbred horse racing industry
including, but not limited to, acquiring, breeding, racing and
selling thoroughbred racehorses, broodmares and their offspring both
privately and at public auction. From the date of its inception, the
Company's activities have been primarily limited to acquiring its
interest in racing stock, bloodstock, organizational efforts and
obtaining initial financing.
As of the date of this Prospectus, the Company owns an interest
in five Thoroughbreds. Da Hoss is a multiple stakes winning six
year old Gelding with lifetime winnings of approximately $1,400,000.
The Company owns a fifteen percent interest in that Thoroughbred,
which is currently in training and recovering from surgery on a leg tendon.
There is no assurance that his condition will allow continued racing. In
the event Da Hoss is unable to resume his racing career, investors
should be aware the Company's operations would be adversely affected.
Further, as Da Hoss is a Gelding and therefore, unsuitable for
breeding purposes, investors should be aware the value of Da Hoss as
a Company asset would be greatly diminished. (See "BUSINESS -
Description of Company Thoroughbreds").
The Company also owns three three-year olds, all of which are currently
in training. The Company owns a 90% interest in two Colts, both of which
were acquired by the Company as Yearlings. The Company owns a 25% interest
in the remaining three-year old, a Filly also acquired as a Yearling at the
Keeneland September Yearling Sale. The remaining Thoroughbred is a two-year
old recently purchased at public auction, in which the Company owns a 90%
interest. (See Table I, "BUSINESS").
For the twelve months immediately preceding the date of this
Prospectus, management has directed its efforts at obtaining
financing to meet working capital requirements and to acquire the
Company's interest in the Company horses. Financing to date in the
amount of $109,000 has been obtained from the proceeds of two private
placements of equity securities. Management anticipates that the
future efforts of the Company will be directed toward acquiring
additional race prospects, racing them and selling or ultimately
syndicating them to generate revenues and profits for the Company.
As of the date of this Prospectus, the Company has no preliminary
agreements or understandings regarding the acquisition of additional
race prospects. Acquisition of additional bloodstock will be
directly related to the proceeds received in this offering and the
availability of working capital. In the event the Company receives
no or nominal proceeds from this offering, management anticipates
that efforts would be focused on boarding, training and racing
existing Bloodstock rather than acquiring new prospects. Management
does not anticipate that it will engage in the business of breeding
thoroughbred race horses, although management reserves the right to do
so should it ultimately be determined that it is in the best interest of
the Company and its shareholders. (See "MANAGEMENT'S DISCUSSION AND
ANALYSIS OR PLAN OF OPERATION").
The Company currently has limited revenues, and it is not anticipated that
additional revenues will be received until such time as additional horses are
adequately prepared for racing or the Company determines to sell one or more
of the Thoroughbreds. (See "BUSINESS").
Success of the Company will initially be dependent upon the
efforts and expertise of certain of its officers and directors.
Messrs. Raymond E. McElhaney and Bill M. Conrad, President and Vice-
President/Secretary, respectively, of the Company, have substantial
experience in the thoroughbred industry and will initially be
responsible for selection of racing prospects and retention of a
trainer to prepare the prospects for racing. Messrs. McElhaney and
Conrad have been engaged in different phases of the thoroughbred
industry for approximately 15 years. Messrs. McElhaney and Conrad
have also managed thoroughbred racing partnerships. (See "MANAGEMENT.").
The Company's executive offices are located at 5525 Erindale
Drive, Suite 201, Colorado Springs, Colorado 80918, and its telephone
number is (719) 260-8509.
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The Offering
Securities Offered.............. 500,000 Common Shares, par value,
$.001 per share. (See
"DESCRIPTION OF SECURITIES").
Offering Price.................. $1 per Share.
Common Shares Outstanding
Before the Offering(1)(2)....... 697,000
Common Shares Outstanding
After the Offering(1)(2)(3)..... 1,197,000
Net Proceeds(4)................. $480,000
________________________
(1) Does not include up to 1,000,000 Common Shares reserved for
issuance under the Company's Non-Qualifying Stock Option
Plan. (See"MANAGEMENT- Stock Option Plan").
(2) Excludes 54,500 Common Shares underlying warrants previously
issued by the Company.
(3) Assumes sale of all Common Shares offered hereby, of which there
is no assurance.
(4) After taking into effect the estimate expenses of this offering
of $20,000.
Use of Proceeds
The proceeds of this offering will be used primarily for
repayment of debt, the purchase of additional thoroughbred racing
stock, for expenses to be incurred in training and preparing the
prospects for racing, other maintenance expenses, general and
administrative expenses and working capital. (See "USE OF PROCEEDS").
Risk Factors
This offering involves a high degree of risk. Risk factors
involving the Company include lack of operating history, need for
additional working capital, dependence on key personnel, limited
racing prospects, risks inherent in the thoroughbred industry,
possible uninsured losses and inexperience of management. Risk
factors relating to the offering include lack of minimum offering
proceeds, "penny stock" regulation, arbitrary offering price
and limited trading market for the securities offered. (See "RISK
FACTORS").
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Summary Financial Information
The following unaudited information summarizes financial information
of the Company at June 30, 1996, for the period from inception to June 30,
1996, at June 30, 1997 and for the year then ended, at September 30, 1997
and the three month interim period ended September 30, 1997. The information
in this table should be read in conjunction with the more detailed financial
information contained in Financial Statements appearing elsewhere in this
Prospectus, together with MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION.
Period from
Three Months Inception
Ended Year ended (July 18, 1995) to
Sept. 30, 1997 June 30, 1997 June 30, 1996
Statement of Operations Data:
Revenues...................... $ 126 $104,802 -0-
Expenses...................... 51,369 157,683 $ 145,952
Other income (Expenses) ...... (182) (189) (26,692)
Net income (Loss)............. (51,425) (53,070) (172,644)
Sept. 30, 1997 June 30, 1997 June 30, 1996
Balance Sheet Data:
Working capital .............. $(61,013) $ (274) $ 9,372
Total assets.................. 61,995 56,950 39,959
Long term debt................ -0- -0- -0-
Shareholders' equity.......... (7,948) 39,477 10,047
___________________
The Company has paid no dividends since inception.
4
DEFINITIONS
As used in this Prospectus, the following definitions of terms are applicable:
Bloodstock shall mean any thoroughbred or other horse available for sale.
Colt shall mean a male horse, not castrated, prior to his fifth birthday.
Company Horses and Company Thoroughbreds shall mean one or more
thoroughbred racehorses owned by the Company for the business described herein.
Farrier shall mean an individual engaged in the business of shoeing
horses.
Filly shall mean a female horse prior to her fifth birthday.
Foal shall mean a horse under one year of age.
Foaled shall mean to give birth to a horse.
Gelding shall mean a castrated male horse.
In foal shall mean a pregnant horse.
Mare or Broodmare shall mean a female horse of breeding age. As used
with regard to a specific horse, mare means the female parent.
Sire or Stallion shall mean a male horse of breeding age and capable
of breeding. As used with regard to a specific horse, sire shall mean the
male parent.
Thoroughbred shall mean a distinctive breed of horse used primarily
for racing; generally, a thoroughbred must be registered with The Jockey Club
in the United States, or a similar institution in other countries, to
participate in sanctioned races; and, in the context of this Prospectus, any
of one or more thoroughbred horses which may be acquired, owned and sold by the
Company.
Yearling shall mean any horse during the first year following the year
of its birth. All thoroughbreds become Yearlings on January 1 following the
year of their birth.
Weanling means a foal prior to January 1st following the year to was
born.
5
RISK FACTORS
The purchase of these securities involves a high degree of risk.
Prospective investors should carefully consider the following facts,
among others set forth in this Prospectus, before making a decision
to purchase the securities offered hereby.
Risk Factors Relating to the Company
1. Limited Operating History and Revenues. The Company was
organized on July 18, 1995 and its revenue has been limited to a
share of purses won by Da Hoss. Consequently, the Company has only a
limited operating history and limited revenues. Activities to date
have been limited to acquiring an interest in certain thoroughbreds,
organizational efforts and obtaining initial financing. The Company
must be considered in the promotional stage and in its early phase of
development embarking upon a new venture. Prospective investors
should be aware of the difficulties encountered by such enterprises,
as the Company faces all the risks inherent in any new business,
including the absence of any prior operating history, need for
working capital and intense competition. The likelihood of success
of the Company must be considered in light of such problems, expenses
and delays frequently encountered in connection with the operation of
a new business and the competitive environment in which the Company
will be operating. (See "MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION-Plan of Operation" and "BUSINESS").
2. Limited Capitalization and Lack of Working Capital. The
Company has extremely limited capitalization and is dependent on the
proceeds of this offering, achieving profitable operations and
receipt of additional financing to continue as a going concern. The
Company has substantial commitments for boarding and training of its
existing Thoroughbreds and repayment of debt, in addition to proposed
capital expenditures for additional Bloodstock. In the event the
Company receives no or nominal proceeds from this offering,
acquisition of additional racing prospects and Bloodstock would be
curtailed. Even assuming receipt of maximum proceeds from this
offering, the Company will likely require additional capital from
outside sources in order to continue as a going concern. The Company
will endeavor to finance its need for additional working capital
through debt or private equity financing. Additional debt financing
would be sought only in the event that equity financing failed to
provide the Company necessary working capital. Debt financing may
require the Company to mortgage, pledge or hypothecate its assets,
and would reduce cash flow otherwise available to pay operating
expenses and acquire additional assets. Debt financing would likely
take the form of short-term financing provided by officers and
directors of the Company, to be repaid from future equity financing.
Additional equity financing is anticipated to take the form of one or
more private placements to qualified investors under exemptions from
the registration requirements of the 1933 Act or a subsequent public
offering. However, there are no current agreements or understandings
with regard to the form, time or amount of such financing and there is no
assurance that any of this financing can be obtained or that the Company
can continue as a going concern. (See "MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION - Plan of Operation.").
3. No Assured Racing Prospects. While the Company has an interest
in five different Thoroughbreds as of the date of this Prospectus, only four
of the horses are of sufficient age and temperament to permit racing. Three
of the Thoroughbreds are three-year olds who only recently commenced their
race training, one of which actually raced in 1997. The other, Da Hoss, is a
six-year old Thoroughbred stakes-winning Gelding in which the Company
owns a fifteen percent (15%) interest. However, Da Hoss recently underwent
6
surgery in an effort to correct an injury to his leg tendon and only recently
resumed training. While the three-year olds in which the Company currently
has an interest are currently being trained for racing, the Company is unable
to predict with any degree of certainty when, if at all, their race campaigns
will resume or commence. As a result, as of the date of this Prospectus, the
Company does not have an assured source of revenue from race prospects. (See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS - Plan of
Operation" and "BUSINESS").
4. Dependence on a Limited Number of Prospects. The proceeds
from this offering have been budgeted to acquire up to four
additional Thoroughbreds racing prospects. Management has not
entered into any definitive form of agreement or begun negotiations
with any third parties for the purchase of additional racing
prospects as of the date of this Prospectus. Accordingly, the
success of the Company will be dependent on only a limited number of
prospects. Injury or loss to any one of these prospects could
substantially and adversely effect the Company's operations. The
Company has endeavored to reduce this risk by obtaining mortality and
surgical insurance on three of the prospects currently owned, but
there is no assurance that this insurance will be continued or that
it will insure against all loses which might be incurred.
Nonetheless, the Company's future financial success will depend on
the limited number of horses currently owned until the Company can
expand and diversify its stable. (See "MANAGEMENT'S DISCUSSION AND
ANALYSIS OR PLAN OF OPERATIONS - Plan of Operation" ).
5. Dependence on Key Personnel. Initially, success of the
Company is entirely dependent upon the management efforts and
expertise of Messrs. Raymond E. McElhaney and Bill Conrad, and to a
lesser extent, Mr. Michael Dickinson, Mr. Kelly Ackerman and other
trainers to be retained by the Company. The Company intends to
utilize the experience and contacts of Messrs. McElhaney and Conrad
in acquiring racing prospects and obtaining training assistance. The
Company heavily depends upon the skills of Messrs. McElhaney and
Conrad in administration of the Company's business. Mr. Dickinson is
the trainer of Da Hoss, and as such, is responsible for his training
and racing when Da Hoss is healthy. Mr. Kelly Ackerman is the trainer of
two of the three-year olds and will be responsible for training and
certain racing decisions. A loss of the services of any of these
individuals could adversely affect the conduct of the Company's
business. In such event, the Company would be required to obtain
other personnel to manage and operate the Company, and there can be
no assurance that the Company would be able to employ a suitable
replacement for either of such individuals, or that a replacement
could be hired on terms which are favorable to the Company. The
Company currently maintains no key man insurance on the lives of any
of its officers or directors. (See "MANAGEMENT" ).
6. Conflict of Interest. Officers and directors of the
Company are subject to potential conflicts of interest in their
service to the Company. Each of the officers and directors was a
general partner of Wallstreet Racing Stables III, a Colorado General
Partnership, from which the Company acquired Da Hoss. Accordingly,
the terms and conditions of that acquisition were not negotiated in
arms length transactions. The Company did not obtain an independent
appraisal of the value of the interest in that Thoroughbred.
However, management is of the opinion that the terms and conditions
of the transaction was no less favorable than could be obtained from
Since each of the officers and directors is engaged in other
business enterprises, and has not devoted their full time to the
affairs of the Company, they are also subject to potential conflicts
with regard to time, effort and corporate opportunity. Messrs.
McElhaney, Conrad and McGinnis are each engaged in a variety of other
businesses, both within and without the Thoroughbred industry. None
7
of the officers or directors will devote full time to the affairs of
the Company. However, officers and directors are aware of their
fiduciary duty to the Company and believe they have sufficient time
to devote to its affairs. In addition, each of the officers and
directors is aware of the doctrine of corporate opportunity as it
relates to their position as officers and directors. It is
anticipated that Messrs. McElhaney and Conrad will devote
approximately 50% of their time to the affairs of the Company
subsequent to this offering. (See "CONFLICTS OF INTEREST").
7. Intense Competition. There are numerous nationally and
internationally-known corporations and entities which are engaged in
the type of business proposed to be engaged in by the Company.
Numerous individuals and entities are engaged as owners and trainers
of Thoroughbred racehorses, both within the United States and abroad.
Competition for the acquisition and training of thoroughbred
prospects is intense. All of these entities seek to place racing
prospects in the premier races throughout the United States, such as
the Kentucky Derby, the Preakness and Belmont Stakes. In the case of
disposition of the Company's Thoroughbreds, the Company would be
competing against major breeders and dealers at private and public
sales. Most of these competitors have substantially greater
financial and personnel resources than the Company. Accordingly, the
Company will be at a competitive disadvantage vis-a-vis its
competitors. (See "BUSINESS - Competition").
8. Control of the Company. Following the sale of all Common
Shares offered hereby, of which there is no assurance, officers and
directors of the Company will retain approximately 41% of all the
outstanding Common Stock, without taking into account other changes
subsequent to this offering and Common Stock issuable upon exercise
of the outstanding Warrants. Accordingly, management will have
control of the Company. (See "PRINCIPAL SHAREHOLDERS" and
"DESCRIPTION OF SECURITIES").
9. Lack of Dividends. The Company has paid no dividends on
its Common Stock to date, and there are no plans to pay any in the
foreseeable future. Initial earnings which the Company may realize,
if any, will be retained to finance growth of the Company. Any
future dividends, of which there can be no assurance, will be
directly dependent upon the earnings of the Company, its financial
requirements and other factors. (See "DESCRIPTION OF SECURITIES").
10. Possible Rule 144 Sales and Market Overhang. An aggregate
of 563,000 shares of the Common Stock presently outstanding are
"restricted securities" within the meaning of the 1933 Act and may
hereafter be sold in compliance with Rule 144 promulgated thereunder.
Rule 144 provides, among other things, and subject to certain
limitations, that a person holding restricted securities for a period
of one year may sell, every three months, those securities in
brokerage transactions in an amount equal to 1% of the Company's
outstanding Common Stock or the average weekly trading volume during
the four weeks preceding the sale, whichever amount is greater.
After two years, holders of restricted stock who are not affiliates
of the Company may apply to sell all restricted stock free of
restrictions. Possible sales of the Company's Common Shares pursuant
to Rule 144 may, in the future, have a depressive effect on the price
of the Company's Common Shares.
11. Preferred Stock Authorized. The Articles of Incorporation
of the Company, as amended, authorize the issuance of a maximum of
5,000,000 shares of Preferred Stock, par value $.01 per share.
Although no Preferred Stock has been issued or is outstanding as of
the date of this Prospectus, and there is no plan to issue any in the
8
foreseeable future, the terms of a series of Preferred Stock could
operate to the significant disadvantage of holders of outstanding
Common Stock. Such terms can include, among others, preferences as
to voting, dividends and distributions on liquidation. Moreover, the
issuance of Preferred Stock in certain circumstances could have the
effect of delaying, deterring or preventing a change in control of
the Company. (See "DESCRIPTION OF SECURITIES - Preferred Stock.")
Risks Relating to the Thoroughbred Business
12. Risks Related to Thoroughbred Racing. The business of
training and racing thoroughbreds is a high-risk venture. There is
no assurance that any thoroughbred acquired by the Company will
possess qualities of a championship character. While a thoroughbred
may have an excellent bloodline, there is no assurance that the
racing performance of the thoroughbred will conform to the bloodline.
Moreover, thoroughbreds are subject to injury and disease which can
result in forced retirement from racing, or at the extreme, natural
death or euthanasia of the animal. There can be no assurances that
the value of the thoroughbreds which may be acquired and owned by the
Company, will not decrease in the future or that the Company will not
subsequently incur losses on the racing careers or sale or other
disposition of any or all of the thoroughbreds which the Company may
acquire.
13. Valuation of Thoroughbreds. The valuation of thoroughbreds
is a highly speculative matter and prices have fluctuated widely in
recent years. The success of the Company is dependent upon the
present and future values of thoroughbreds generally, and of the
Company's Thoroughbreds in particular, as well as the racing success
of the Company's Thoroughbreds. Although the future value of
thoroughbreds generally cannot be predicted, it will be affected by
the state of the economy, the amount of money available for investment
purposes, and the continued interest of investors and enthusiasts in the
thoroughbred industry. The expense of maintaining, boarding, training
and racing thoroughbreds can be expected to increase during the term of
the Company, regardless of what happens to the future market price of
thoroughbreds or the performance of the Company Thoroughbreds.
14. Thoroughbred Racing Business. Thoroughbred racing is
extremely speculative and expensive. In the event that the Company
Thoroughbreds were to be transported to various tracks and training
centers throughout the United States, and thus exposed to many other
horses in training, the risk of injury or death increases significantly.
The Company's Thoroughbreds must earn enough through racing to cover
expenses of boarding and training. If the Company Thoroughbreds are
unsuccessful in racing, their value will be adversely affected, as will
the shareholders' investment therein. Furthermore, revenues from racing
are dependent upon the size of the purses offered. The size of the purses
depends in general on the extent of public interest in thoroughbred racing,
and in particular on the relative quality of the specific horses in
contention in any specific meeting or race. Although public interest has
been strong in recent years, there is no assurance that public interest will
remain constant, much less increase. Legalized gambling proliferating in
many states threatens to curtail interest in horse racing as a means of
recreation. In addition, there is no assurance that the Company
Thoroughbreds will be of such quality that they may compete in any races
which offer purses of a size sufficient to cover the Company's expenses.
(See "BUSINESS").
15. Government Regulation of Racing. The racing future of
and/or market for the Company's Thoroughbreds depends upon continuing
governmental acceptance of thoroughbred racing as a form of legalized
gambling. In the opinion of management, thoroughbred racing is
gaining a greater governmental acceptance and a dependence as a
source of revenue. However, at any time, thoroughbred racing could
9
be subjected to restrictive regulation or banned entirely. The value
of the Company's Thoroughbreds would be substantially diminished by
any such regulation or ban.
Thoroughbred racing is regulated in various states and foreign
countries by racing regulatory bodies with which the owners of
thoroughbred racehorses must be licensed. In addition, many
regulatory bodies require the licensing of a stable name for owners
racing their racehorses under such a designation. All of the current
officers, directors and principal shareholders are currently licensed
as owners by the Colorado and Kentucky racing commissions. As a
result of these current licenses, the lack of any disciplinary
actions against these individuals, and their reputation within the
industry, management does not anticipate any obstacles to registration
in other states. However, there is no assurance that necessary
registrations can be completed.
16. Uninsured Losses. A portion of the proceeds of this
offering have been budgeted for mortality insurance, and management
anticipates obtaining insurance on certain horses in an amount
sufficient to protect the Company's interests. The Company currently
maintains mortality insurance on its interest in Da Hoss in the
amount of $80,000, and intends to retain that insurance for the
foreseeable future if his performance warrants. In addition, upon
purchasing certain of the Colts, the Company acquired surgical
and mortality insurance on these horses in an amount equal to the
purchase price. Mortaility insurance is currently maintained on Burnt
Timber and the two-year old, Afternoon Stroll. Mortality insurance insures
against the death of a horse during the Company's ownership. Surgical
insurance covers possible risks of injury during racing or training.
However, there is no assurance that the existing insurance will be retained,
that all of the horses will be covered, that the amount of insurance will be
adequate, or that it will insure against all risks. (See "BUSINESS -
Mortality Insurance.").
Risks Relating to the Offering
17. No Minimum Proceeds Required; No Commitment to Purchase
Common Shares. The terms of this offering do not require the Company
to receive any minimum amount of proceeds, and accordingly, funds
received through sale of the Common Shares will be immediately added
to the Company's working capital. No one, including the Company or
any securities broker-dealer, has made any commitment to purchase
Common Shares; rather, the officers and directors of the Company will
use their best efforts to find purchasers for the Common Shares. All
proceeds will be immediately subject to the risks of the Company's
operations, with no assurance that the Company will receive proceeds
sufficient to fund its operation for any designated period of time.
(See "PLAN OF DISTRIBUTION" and "USE OF PROCEEDS").
18. Limited Public Market. Although there presently exists a
public market for the Company's Common Shares, there can be no
assurance that such a market can be sustained. The investment
community could show little or no interest in the Company in the
future. The Company's Common Shares are currently traded in the over-
the-counter market and are quoted on the Bulletin Board maintained by
the NASD. Many broker-dealers acting as market makers for securities
traded in the over-the-counter market have ceased trading securities
which are not listed in Nasdaq. This concern arises from new rules
relating to securities which are not quoted on Nasdaq, which
securities are referred to as "penny stocks." Failure of the Company
to achieve listing in Nasdaq will likely affect the trading market
for its Common Shares in the future. (See "MARKET FOR COMPANY
SECURITIES").
10
19. Regulation on Secondary Trading. Investors in this
offering should be aware that the offering is being conducted only in
a limited number of states. In order to enhance the ability of
investors and other Company shareholders to trade the Common Shares in
any secondary market which might develop, management anticipates
publication of information in Standard & Poor's Corporation Records
or other recognized securities manual. Statutes or regulations in
most states permit trading in the secondary market for the securities
of any entity published in a recognized securities manual. The
Company hopes to avail its of the benefits of that exemption in any
secondary market which might develop. However, there is no assurance
that such publication will be achieved or that a secondary market
will in fact develop.
The Company has undertaken efforts to register the sale of securities in
this offering in the state of Colorado, and intends to rely on exemptions
from the registration requirements of the states of Ilinois, Florida, New
Jersey, Ohio and Texas. Consequently, investors in this offering may have
difficulty selling their securities, should they desire to do so.
20. Penny Stock Regulation. Broker-dealer practices in
connection with transactions in "Penny Stocks" are regulated by
certain penny stock rules adopted by the Securities and Exchange
Commission. Penny stocks generally are equity securities with a
price of less than $5.00 (other than securities registered on certain
national securities exchanges or quoted on the NASDAQ system). The
penny stock rules require a broker-dealer, prior to a transaction in
a penny stock not otherwise exempt from the rules, to deliver a
standardized risk disclosure document that provides information about
penny stocks and the risk associated with the penny stock market.
The broker-dealer must also provide the customer with current bid and
offer quotations for the penny stock, the compensation of the broker-
dealer and its salesperson in the transaction, and monthly account
statements showing the market value of each penny stock held in the
customer's account. In addition, the penny stock rules generally
require that prior to a transaction in a penny stock, the broker-
dealer must make a written determination that the penny stock is a
suitable investment for the purchaser and receive the purchaser's
written agreement to the transaction. These disclosure requirements
may have the effect of reducing the level of trading activity in the
secondary market for a stock that becomes subject to the penny stock
rules. If the Company's securities become subject to the penny stock
rules, investors in this offering may find it more difficult to sell
their securities.
21. Arbitrary Offering Price; Dilution. The offering price of
the Common Shares offered hereunder was determined by the Company,
and bears no necessary relationship to the appraised value of any
Bloodstock or any other ordinary investment criterion. In making
such determination, the prospects for the Company's pursuit of its
proposed business plan, the proceeds to be raised by this offering,
the relative costs and expenses involved in acquiring and training
thoroughbreds, and the competition and market for thoroughbreds
racehorses were all considered. In addition, since the Company has
not retained an underwriter for purposes of this offering, the
offering price has not been subject to evaluation by any third party
as would be the case in an underwritten offering. Investors will
likely experience dilution of their investment, as the $1 per share
price in this offering is greater than the estimated book value per
share of the currently outstanding stock of($.01) at September 30, 1997.
22. Proceeds of Offering Will Be Inadequate. The net proceeds
of this offering have been budgeted by the Company for a period of 12
months, assuming sale of all Common Shares offered hereby. However,
there is no assurance the maximum amount of Common Shares will be
sold. Continued operation of the Company will depend on revenues
11
generated by the Company through race purses, sale or syndication of
Company Thoroughbreds, if any, and additional borrowings or financing.
In order to generate revenue pending maturation of the three three-year
olds, the Company may claim or purchase privately one or more horses
of racing age, if additional financing to obtain these prospects is
available. However, there is no assurance such horses will be available
or generate sufficient revenue to continue the Company's operation beyond
the initial 12 months for which the proceeds have been budgeted. There is
no assurance that the proceeds of this offering could, if invested as
indicated in this Prospectus, result in growth or profitability for the
Company. (See "USE OF PROCEEDS" and "BUSINESS").
23. Investors Bear Risk of Loss. Substantially all of the
proceeds required to operate the Company for the next 12 months are
being sought from investors in this offering. The total investment
by present shareholders of the Company is $124,000 in cash and
contribution of a 15% interest in Da Hoss and another thoroughbred
which was subsequently sold. Accordingly, investors in this offering
will bear the risk of the Company's operations for the foreseeable
future, with no assurance that management will be successful in
applying the proceeds to increase growth and profitability of the
Company. (See- "DILUTION").
24. Limitation on Share Ownership. Existing regulations
governing thoroughbred racing in various states may limit the ability
of individuals and entities to acquire and retain Common Shares of
the Company. Such provisions are designed to regulate ownership and
control of corporations engaged in thoroughbred racing. Such
statutes provide that ownership of a substantial portion of Common
Shares, generally greater than 5 or 10% of the outstanding equity in
a corporation, must be approved by the racing commission in those
jurisdictions and submit to background checks regarding financial
history and criminal record. In order to comply with these
regulations, the Company's Articles of Incorporation, as amended,
contain a provision requiring shareholders to sell their stock back
to the Company in the event such individuals or entities fail or
refuse to become licensed where such license may be required. The
repurchase price for shares of Common Shares subject to this
provision is based on the prevailing market price of the Common
Shares at the time of repurchase. The effect of such provisions may
be to discourage acquisition of large blocks of the Company's Common
Stock and depress the price of the Company's stock in any market
which may develop. (See "DESCRIPTION OF SECURITIES - Possible
Restrictions on Common Stock").
12
DILUTION
The net tangible book value of the 697,000 shares of Common
Stock of the Company outstanding at September 30, 1997, was ($7,948)
or approximately ($.01) per Common share. Assuming the maximum number
of shares offered hereby are sold, of which there is no assurance, that per
share value will be increased as a result of this offering to approximately
$.09 (exclusive of other changes in net tangible book value subsequent to
September 30, 1997), resulting in immediate substantial dilution to new
shareholders of 91%. Dilution is the reduction of value of the purchaser's
investment measured by the difference between the price per share in this
offering and the sum of the net tangible book value at September 30, 1997
and the increase attributable to purchases by shareholders in this offering.
The following table illustrates the effect of dilution per
Common Share on purchasers in this offering based on the number of
outstanding shares at September 30, 1997 and assuming sales of different
amounts of Common Shares up to an including the maximum, of which
there can be no assurance.
Number of Shares Sold
100,000 200,000 500,000
------- ------- -------
Net Tangible Book
Value per Share
at September 30, 1997(1)..... $ (.01) $ (.01) $ (.01)
Net Tangible Book
Value per Share
After Offering(2,3).......... .09 .19 .39
Increase per Share
Attributable to
New Shareholders............. .10 .20 .40
Dilution to Purchasers
of Units..................... .91 .81 .61
Dilution as Percentage
of Purchase Price............ 91% 81% 61%
1 Net tangible book value is equal to the Company's total
assets minus its intangible assets and total liabilities.
2 Includes a net tangible book value of $(7,948) at September 30,
1997, plus net proceeds of this offering of $480,000,
$180,000 and $80,000 respectively, assuming payment of no
sales commissions to Participating Broker/Dealers.
3 Does not give effect to the possible exercise of up to
54,500 warrants currently outstanding or 54,500 Common
Shares underlying the warrants at the exercise price $1.00
per share.
13
USE OF PROCEEDS
The net proceeds to be realized by the Company from this offering,
assuming the maximum number of shares offered are sold, of which there can
be no assurance, and after allowing for estimated expenses of the Company
in connection with this offering, including legal, accounting and printing
expenses, but excluding payment of any sales commissions to Participating
Broker/Dealers, will be approximately $480,000.
The following table illustrates the proposed use of proceeds in descending
order of priority assuming sale of 100,000, 300,000 and 500,000 Common Shares,
and the net proceeds at those levels. Since the offering is being conducted on
a "best efforts" basis, there is no minimum number of Common Shares or sales
proceeds which muct be received to complete the offering. If less than
$80,000 of net proceeds is received in the offering, proceeds will be applied
to each category in the priority listed in the table and each category of
expense will be exhausted before the next item is paid. Accordingly, the
proposed use of proceeds is an follows:
Description of Use(1) Dollar Amount
$80,000 $280,000 $480,000
======= ======== ========
Thoroughbred Boarding &
Training(2) $30,000 $ 70,000 $ 90,000
General and Administrative
Expenses(3) $20,000 $ 32,000 $ 32,000
Repayment of Debt(4) $30,000 $ 46,000 $ 46,000
Thoroughbreds Acquisitions(5) $ -0- $ 50,000 $150,000
Compensation of Management(6) $ -0- $ 48,000 $ 48,000
Working Capital(7) $ -0- $ 34,000 $114,000
------- -------- --------
Total: $80,000 $280,000 $480,000
======= ======== ========
(1) Does not give effect to the possible exercise of up to
54,500 warrants currently outstanding or 54,500 Common
Shares underlying the warrants at the exercise price $1.00
per share.
(2) Includes boarding and training expenses including, but not limited
to, daily fees, insurance, veterinarian, farrier and transportation
expenses for existing Company owned horses and horses anticipated
to be acquired upon receipt of additional funds.
(3) Includes rent, licensing, travel, legal, accounting, medical
insurance and other miscellaneous general and administrative
expenses. Investors should be aware that in the event of receipt
of a nominal amount of proceeds in this offering, approximately
$6,000 may be paid to officers and directors of the Company and their
affiliates. Such amount represents rent payable to an affiliate of
two of the Company's officers and directors. Amounts payable to such
individuals and their affiliates will increase in the event of receipt
of $300,000 to $500,000 in offering proceeds, as compensation and
payment of medical insurance benefits.
14
(4) Represents repayment of loans to certain of the Company's officers
and directors for advances made by them to acquire a Thoroughbred
Yearling and for other operating expenses.
(5) Management doe not anticipate that any Thoroughbreds will be acquired
if the net proceeds of the offering are $80,000 or less. However, if
the levels indicated in the table are met, management anticipates the
purchase of up to four horses, of which two are anticipated to be
Yearlings. Also, if the Company's current horses can earn enough to
generate positive cash flow, the Company may purchase additional
horses.
(6) The Company's President and Vice President have executed employment
contracts providing for payment of monthly compensation in the amount
of $2,000 each commencing September 1, 1997. However, such
individuals intend to defer such compensation unless sufficient
proceeds are received from this offering. (See "MANAGEMENT")
(7) Management intends to use working capital for consulting fees, entry
fees for races, possible acquisition of additional horses and
unforeseen contingencies.
_____________________________
The figures set forth above are estimates only, and cannot be
precisely calculated. Consequently, the actual application is likely
to vary from that described. Revenues and profits generated by the
Company, if any, will be utilized for boarding and training expenses
and additional thoroughbred acquisitions. To the extent proceeds are
inadequate in any area of expenditure, supplemental amounts may be
drawn from working capital, if available. Any additional proceeds
necessary for operation will be obtained through additional debt or
equity financing. However, the Company has no specific plans for
other financing at present. Any proceeds not required for proposed
expenditures will be retained and used as working capital.
Pending utilization, management may make temporary investment of
the proceeds in interest bearing certificates, including United
States government securities, short term certificates of deposit,
money market funds or other short term interest bearing investments.
The Company does not intend to register as an investment company
under the Investment Company Act of 1940. Accordingly, any
investment by the Company shall be made so as to avoid regulation as
an investment company.
No portion of the proceeds of this offering will be used to make
loans to any officer, director or affiliate. However, in the event
of one or more officers or directors have advanced funds to the
Company to cover operating expenses pending receipt of proceeds of
this offering, a portion may be used to repay such loans.
15
MARKET FOR COMPANY'S SECURITIES
The Company's Common Shares are traded in the over-the-counter
market and are quoted on the OTC Bulletin Board and listed in the
"Pink Sheets" as published by the National Quotation Bureau under the
symbols "WRSB". The following table sets forth the range of high and
low bid quotations as reported for the Common Share of the Company.
Quotations on the Bulletin Board commenced on November 10, 1996,
during the Company's second fiscal quarter. There was no established
trading market for the Company's securities prior to that date.
Quotations represent prices between dealers, do not include retail
markups, markdowns or commissions and do not necessarily represent
prices at which actual transactions were effected.
Common Shares
FISCAL YEAR 1997 High Low
Second Quarter $1.375 $1.250
(Oct. 1 through Dec. 31)
Third Quarter 1.375 0.125
(Jan. 1 through March 31)
Fourth Quarter 1.250 0.625
(April 1 through June 30)
FISCAL YEAR 1998
First Quarter 1.000 .875
(July 1 through Sept. 30)
Second Quarter
(October 1 through Dec. 31) 2.000 0.875
Third Quarter
(Jan. 1 through February 13) 2.000 2.000
The number of record holders of the Common Shares as of February 13,
1998 was approximately 43, including nominees of beneficial owners. The
Company estimates that there are approximately 53 beneficial owners of its
Common Shares.
Holders of Common Shares are entitled to receive such dividends
as may be declared by the Company's Board of Directors. No dividends
on the Common Shares have been paid or declared by the Company to
date, nor does the Company anticipate that dividends will be paid in
the foreseeable future.
16
MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION
Introduction
Portions of the section include "forward looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. (See
Note regarding forward looking statements, Page iii of this Prospectus).
The Company was organized and exists for the purpose of acquiring, owning,
managing, training, racing and ultimately syndicating thoroughbred racing
prospects. It is not the intention of the Company to enter into the business
of breeding thoroughbreds, although management reserves the right to do so
should it ultimately be determined that it is in the best interest of the
Company and its shareholders. Management has set its efforts towards
producing revenues and profits through the placement of Company Thoroughbreds
in established races throughout the United States. Management anticipates
that eventually, Company revenues and profits will depend to a certain extent
upon the sale or syndication of Company owned Thoroughbreds. It is the
intention of management to primarily focus on the acquisition of Yearlings,
although horses of racing age may be acquired from time to time depending upon
the then existing circumstances. Management anticipates that acquisitions of
Bloodstock will initially be limited due to the Company's limited working
capital.
Plan of Operation
The general objective of the Company is to acquire Thoroughbred
race prospects, race them and ultimately syndicate them to generate
revenue and profit for the Company. Initially, revenue will be
limited to the Company's portion of any purses won by Da Hoss during
his racing campaign and its share of any purses won by the three-year
olds. Since Da Hoss has only recently resumed training after recovering
from an injury and the three-year olds are still in training, management does
not anticipate additional revenue from that source until 1998, if at all.
While the Company's administrative office is located in Colorado, it is
anticipated that a majority of its activities will take place outside that
state. Public sales and premier races of thoroughbreds are primarily
centered in Kentucky, California, New York and Florida.
The three three-year olds in which the Company presently owns an
interest were acquired at the Keeneland September Yearling Sale in
Lexington, Kentucky in 1996. While the Company's business plan anticipates
acquisition of additional yearlings or two-year olds in training to
supplement existing horses, the proceeds from this offering will
largely dictate the number and quality of additional racing prospects
which the Company will obtain during 1998. Receipt of no or nominal
proceeds from this offering will limit or curtail acquisition of additional
prospects by the Company. In that event, Company resources will be devoted
to boarding and training of existing Thoroughbreds and other required
expenses. If the Company receives sufficient proceeds, one or more additional
Yearlings may be acquired at public or private sales.
Important factors in predicting racing success of Thoroughbreds
are pedigree and conformation. Pedigree refers to the breeding history
of the horse determined by bloodlines from the Sire and Dam. Conformation
is the physical attributes of the horse as determined by personal observation.
Management considers both of these attributes in selecting all of its
Thoroughbreds, and anticipates suitable investigation for any future
prospects acquired by the Company. Management may retain the services
of outside consultants and veterinarians to assist in evaluation of
future Bloodstock. In the past, the Company has worked with certain
17
Bloodstock consultants who have assisted the Company in locating suitable
Thoroughbred race horses for purchase by the Company. No agreements
currently exist with any consultants, and whether management will continue
to utilize the services of the same consultants is yet to be determined;
however, management would not hesitate to recommend these consultants
for service in the future. Given the very large number of prospects
placed into the market in any given year, management does anticipate
that it may be necessary to enlist the aid of bloodstock agents in
locating thoroughbreds suitable to the Company's purpose in the
future.
In the event management determines it is in the best interest of
the Company to retain the services of bloodstock consultants, the
factors that will be relied upon in making such choices will include,
but not be limited to: the past relationship between the Company and
the consultant, if any; the consultant's reputation within the
industry; the fees charged by the consultant in performing services;
and the geographic area served by the consultant. In the event
management determines it is in the best interest of the Company to
retain the services of a bloodstock consultant, management anticipates
the term of the relationship will be limited to performance of a
specified project. Management does not anticipate that any long term
relationships or agreements will be entered into with any consultant,
although it reserves the right to do so should it be determined to be
in the Company's best interest.
Pending receipt of sufficient proceeds from this offering or
other sources, the Company may also investigate opportunities for
acquisition of older racing prospects through public or private sale
or by claiming a horse. These methods of acquisition may allow the
Company to obtain a horse of racing age and disposition without the
need for additional breaking or training. Private sales of horses
stabled throughout the United States can be negotiated directly or
through Bloodstock agents. Management will rely on its contacts in
the thoroughbred industry to investigate such opportunities.
Claiming is the process by which a thoroughbred can be purchased off
the racetrack at a predetermined price immediately following a race.
A claiming horse might be acquired in order to provide the Company an
immediate source of revenue while awaiting development of younger
prospects. However, it is not anticipated that claiming horses will
represent a majority of the Company's Bloodstock.
The Company does not maintain any boarding or training
facilities of its own. Accordingly, all of its Thoroughbreds are
boarded with independent third parties. (See "BUSINESS - Boarding").
Many factors will influence the Company's determination of
whether and where to race the thoroughbreds acquired by the Company.
Pedigree, past performance, conditioning and purses will be evaluated
by the Company in conjunction with any trainers retained by the
Company in plotting the horse's racing campaign. While no specific
venue has been determined as of the date of this Prospectus, it is
anticipated that the Thoroughbreds will be raced at the race tracks
in the United States, as the condition and breeding of its Bloodstock
dictates. Possible venues include Churchill Downs and Keeneland in
Kentucky, Hollywood Park and Santa Anita in Los Angeles, Del Mar in
San Diego, Remington Park in Oklahoma City, Aqueduct and Saratoga in
New York, Arlington Park in Chicago and Garden State in New Jersey.
Evaluation of racing venues will depend primarily on recommendations
of trainers retained by the Company and the condition, training and
breeding of Company racing prospects. Shareholders may be provided
specific information as to important races in advance and results
following conclusion of races conducted by thoroughbreds of the
Company.
18
Horses not deemed qualified to be raced by the Company may be
"pinhooked" or resold by the Company shortly following acquisition.
Pinhooking can be a means of reducing the Company's risk in any
particular prospect by transferring the horse prior to completion of
his development. A ready market for resale of Thoroughbred racing
prospects exists in various parts of the United States, and
management is familiar with various sales in those venues. While
pinhooking may be utilized to reduce the Company's risk in any single
fiscal year, it is not anticipated to be a major source of revenue in
the foreseeable future.
At the end of a racing season, any Company horses may be
marketed for sale, syndicated or retained for future competition.
The Company's ultimate objective is to syndicate one or more of its
racing prospects which have demonstrated success during its racing
campaign. Syndication of a racing Colt allows the owners to
participate in stud fees generated through breeding. Syndication of
a Filly or Mare allows the owners to participate in breeding and
foaling by the Broodmare. Considerations affecting disposition of
the horse following its racing season will be past performance,
perceived value and state of the thoroughbred industry. Any decision
to sell or syndicate Company horses will be made to maximize value to
the Company and its shareholders. Any Company Thoroughbreds which
are not sold or otherwise disposed of following completion of the
racing season will be boarded by the Company. Typical locations for
off-seasoning boarding include Kentucky, South Carolina, Florida,
Arizona and California.
The Company's long term objective is to is develop a stable of
race horses sufficient to generate a steady stream of revenue and
profit. In order to achieve this objective, management anticipates
the need for substantial additional capital. Depending upon the
success of its initial efforts, on the state of the thoroughbred
industry and other factors beyond the Company's control, management
anticipates conducting a subsequent public offering in the future to
obtain such capital. Syndication or sale of Company Thoroughbreds
may also provide a source of capital.
Liquidity and Capital Resources
September 30, 1997
At September 30, 1997, the Company had a working capital deficit of
$61,013, consisting of current assets of $8,930 and current liabilities of
$69,943. Management is of the opinion that the Company is dependent upon
the proceeds of this offering, obtaining additional capital and achieving
profitable operations to continue as a going concern. The Company continues
to require cash from outside sources to continue operations, as the Company's
operations use, rather than provide cash. For the three months ended September
30, 1997, the Company's operations utilized $6,064. All of the cash necessary
for operation during the three month period ended September 30, 1997 was
provided by certain principal shareholders in the form of loans.
Loans made by the principal shareholders are represented by promissory
notes executed by the Company. The amount of such notes has been increased
to approximately $46,000 subsequent to September 30, 1997 to defer ongoing
expenses. Each of notes bears interest at the rate of nine percent (9%) per
annum and are due and payable in full on or before March 31, 1998.
Management anticipates that the promissory notes may be extended pending
receipt of sufficient proceeds from this offering.
19
Management anticipates that the acquisition of additional horses will be
curtailed pending receipt of sufficent proceeds in this offering or future
financing. Current assets exisiting at September 30, 1997, together with the
proceeds of this offering and any additional revenue will be retained for
payment of boarding, maintenance and other ongoing expenses.
Subsequent to September 30, 1997, the Company sold its interest in two of
the Thoroughbreds for cash. Fifi La Boom Boom, a twelve-year old Broodmare
originally acquired by the Company in November, 1996, was sold for a cash price
of $47,000 on January 10, 1998, of which the company received 25% before
expenses. The foal of this Broodmare was sold in November, 1997 for a total
price of $42,000, of which the company received 25%, or $10,500. The Company's
share of the proceeds, net of expenses and breeding fees, was approximately
$15,000, all of which was added to working capital for operations.
June 30, 1997
At June 30, 1997, the Company had a working capital deficit of $274,
consisting of current assets of $17,199 and current liabilities of $17,473.
Management is of the opinion that the Company is dependent upon the proceeds of
this offering, obtaining additional capital and achieving profitable operations
to continue as a going concern. The Company continues to require cash from
outside sources to continue operations, as the Company's operations use, rather
than provide cash. For the year ended June 30, 1997, the Company's operations
utilized $7,758.
With limited exceptions, the Company has financed all of its operations
through June 30, 1997 with the proceeds from the private placement of equity
securities. During the year ended June 30, 1997, the Company sold an
aggregate of 58,500 units for proceeds of $58,500. Each unit sold in that
offering consisted of one (1) share of Common Stock and one (1) Common Stock
Purchase Warrant. The remaining cash has been obtained from the Company's
share of purses won by one of its Thoroughbreds during the year.
The Company's need for working capital includes acquisition of
Thoroughbreds and other Bloodstock, boarding and training expenses
associated with care and maintenance of the horses and general and
administrative expenses. During the year ended June 30, 1997, the
Company spent an aggregate of $47,588 on the acquisition of horses.
Additional expenses, including boarding and training, sales commissions
to Bloodstock agents and general and administrative expenses totaled
$157,683 for the year ended June 30, 1997.
Management anticipates that the Company will experience a need
for working capital until such time, if ever, the Company can interest
an underwriter in conducting a substantial offering of the Company's
securities to obtain sufficient proceeds for an extended period of time.
June 30, 1996
From inception to June 30, 1996, the Company has relied upon the
issuance of Common Shares to finance operations. From inception at July 18,
1995 through June 30, 1996, the Company raised $109,000 and acquired Da
Hoss and another thoroughbred through the issuance of Common Shares.
Cash proceeds from the sale of Common Shares were used to fund
operations, including boarding and training expenses associated with
the Company's Thoroughbreds and general and administrative expenses.
Management is of the opinion that the Company will continue to rely
20
on capital from outside sources to fund operations until such time as
revenues are sufficient to cover the Company's ongoing expenses.
At June 30, 1996, the Company has working capital of $9,372,
consisting of current assets of $20,188 and current liabilities of
$10,816. All of the current liabilities consist of trade payables
incurred during the ordinary course of business. Working capital
existing at June 30, 1996 was insufficient to meet the Company's
liquidity and capital needs for the 1997 fiscal year and accordingly,
the Company undertook additional efforts to obtain funding. Capital
needs for the 1997 fiscal year included acquisition of additional
Bloodstock, boarding and training expenses associated with the
Company's Thoroughbreds and general and administrative expenses.
From inception through June 30, 1996, the Company had issued an
aggregate of 638,500 Common Shares for aggregate proceeds of $59,191,
net of offering costs. A majority of those proceeds were received in
a private placement completed in May, 1996, when the Company sold 50,500
Common Shares for gross proceeds of $50,500. The remaining shares were
issued to the Company's founders and other investors, and to acquire
thoroughbred race horses from an affiliated party.
Under appropriate circumstances, the Company may issue its
securities, including Common Shares, to consultants or advisors
retained by the Company to supplement its working capital. In
appropriate circumstances, such consultants or advisors may include
officers and directors of the Company and their affiliates.
Appropriate circumstances would include payment of finder's fees in
connection with purchase or sale of Bloodstock or racing prospects by
the Company or services rendered in connection with syndication of
any of the Company's Thoroughbreds. In each case, such securities
will likely be valued at their estimated fair market value at the
time of the transaction, and the amount of such fees would be in
accordance with industry standards. As of the date of this Prospectus,
the Company has no agreements or arrangements for the payment of finders
or other fees to any individuals, including officers, directors or their
affiliates.
Results of Operations
Three Months Ended September 30, 1997
For the three months ended September 30, 1997, the Company realized a
loss from operations of $51,243 on revenues of $126. Including other income
or expense, the net loss was $51,425, or $(.07) per share. Management
anticipates that the Company will incur losses until such time, if ever,
revenues from racing purses and the sale or syndication of Company
Bloodstock is sufficent to cover operating, general and administrative
expenses.
Year Ended June 30, 1997
For the year ended June 30, 1997, the Company realized a loss
from operations of $52,881 on revenues of $104,802. Including other
income or expense, the net loss was $53,070, or $(.08) per share.
This compares to a net loss of $172,644, or $(.34) per share for the
period from inception through June 30, 1996. Revenues for the year
ended June 30, 1997 represents the Company's share of racing purses
won by Da Hoss. Such amount represents the Company's prorata share of
Da Hoss's winning from The Breeder's Cup Mile in October, 1996. Expenses
from that race, included in operating expenses, included jockey fees of
$10,358 and other race expenses of $20,613.
21
Other significant expenses include boarding and training
($24,959), legal and accounting ($9,982) primarily related to the
Company's status as a publicly traded company and the accompanying
legal and audit fees, officers' salaries of $24,000 and travel and
entertainment of approximately $24,000. While the Company recorded
$24,000 of an expense for officers' salaries, such amount was contributed
by the officers through capital, and no cash was actually paid to such
individuals.
Period from Inception to June 30, 1996
For the period from inception (July 18, 1995) to June 30, 1996,
the Company realized a net loss from operations of $145,952, on no revenues
and operating expenses of $145,952. The Company also realized a loss on
the sale of one of its previously owned Thoroughbreds in the amount
of $26,683, resulting in a net loss for the period of $172,644. This
horse was injured repeatedly during the Company's ownership, and
accordingly, a decision was made to sell him.
Lack of revenues during the period ended June 30, 1996 is
attributable to a lack of horses racing at the track during that time
and lack of sales of Company Bloodstock. Da Hoss, acquired in
January, 1996, had not commenced his racing campaign for calendar
year 1996 through the period June 30, 1996. The Company's other
Thoroughbreds were not of racing age at that time.
The primary component of expenses experienced by the Company
during the period ended June 30, 1996 were compensation to officers,
boarding and training, depreciation, thoroughbred maintenance and legal
and accounting. Compensation of $91,100 was primarily a non-cash expense,
as the Company recognized $79,100 of compensation in connection with
acquisition of Da Hoss. Such amount represents the excess of the fair market
value of Da Hoss assigned by the parties, and the historical cost of Da Hoss
which the Company recognized under applicable accounting rules. Depreciation,
also a non-cash expense, contributed significantly to the Company's expenses
through June 30, 1996. Management anticipates this expense will increase in
the future as the Company acquires additional thoroughbreds, but will
constitute an increasingly smaller percentage of its total expenses as the
operations increase. Boarding and training will also increase commensurate
with acquisition of additional thoroughbreds. The remaining expenses are
primarily administrative expenses, including legal and accounting, and are
anticipated to remain generally constant for the foreseeable future except
for salaries payable to management.
22
BUSINESS
Introduction
Wallstreet Racing Stables, Inc. was organized under the laws of
the State of Colorado on July 18, 1995. The Company was organized to
engage in all phases of the thoroughbred industry.
The Company currently has an interest in five Thoroughbreds, including a
six-year old Gelding, three three-year olds and a two-year old. The Gelding,
known as Da Hoss, was acquired from an affiliate of the Company and is
currently managed by Prestonwood Farms, owner of a majority interest. The
Company also owns three three-year olds acquired at the Keeneland September
Yearling Sale in 1996. One Colt by Beau Genius was foaled on February 3,
1995. The second Colt by Digamist was foaled on April 17, 1995. Finally, the
Company owns a 25% interest in a Filly by Shadeed. All of these three-year
olds are currently in training in preparation for their intended racing careers.
In September, 1997, the Company acquired a then-yearling Colt at the
Keeneland September Yearling sale, subsequently named "Afternoon Stroll."
This Colt, sired by Strolling Along out of Sippewisset, was purchased for
$18,000. The Company also formerly owned a 25% interest in a Broodmare named
Fifi La Boom Boom acquired by the Company in foal to Summer Squall. The foal
was born in February, 1997 and sold for $42,000 at the Breeding Stock Sale at
Keeneland in November, 1997 (of which the Company received 25%, or $10,500,
before sale expenses). The Broodmare was sold at the Horses of All Ages Sale
at Keeneland on January 10, 1998 for an aggregate purchase price of $47,000,
of which the Company received 25%, less expenses.
In addition to acquisition of its interest in these Thoroughbreds, the
Company's activity since inception has been limited to organizational
efforts and obtaining initial financing. The Company has had only limited
revenues to date.
The business purpose of the Company is to acquire, own, manage,
train, race and ultimately sell or syndicate thoroughbred prospects.
The Company does not intend to be in the business of breeding thoroughbreds,
although it reserves the right to do so consistent with its stated objectives.
Breeding activites would be limited to the acquisition or disposition of
thoroughbred broodmares already in foal, and solely for the purpose of
evaluating their offspring as racing prospects consistent with the Company's
business plan. The financial goal of the Company is to produce revenue and
profit through racing purses and ultimately, through the sale or syndication
of its racing prospects. Management intends to primarily focus on the
acquisition of Yearlings, although horses of racing age may be acquired in
appropriate circumstances. Due to its limited working capital, initial
acquisition of Bloodstock by the Company will be limited.
The Company's activities will be supervised by Raymond E.
McElhaney, President and Chief Executive Officer, and Bill M. Conrad,
Vice-President and Secretary. Both Messrs. McElhaney and Conrad will
supplement their efforts and experience by retaining qualified consultants
to acquire, train and race Company Thoroughbreds. Both Messrs. McElhaney
and Conrad have prior experience in the thoroughbreds racing industry and
will devote a substantial portion of their time to the business of the
Company. However, neither individual will devote his full time to the
affairs of the Company. It is anticipated that Messrs. Conrad and McElhaney
will devote approximately 50% of their time to the affairs of the Company.
(See "MANAGEMENT - Directors and Officers.").
23
The Company's principal and executive offices are presently
located at 5525 Erindale Drive, Suite 201, Colorado Springs, Colorado
80918. Its telephone number is (719) 260-8509.
Description of Company Thoroughbreds
The Company currently has an interest in five Thoroughbreds,
ranging from a two-year old to a six-year old Gelding. Four of the
Thoroughbreds were acquired during 1996, while the two-year old was
acquired in September, 1997. The following table summarizes certain
information with regard to the Company's Thoroughbreds as of the date
of this Prospectus:
Name of Horse Characterization Date Acquired % of Ownership
Da Hoss 6 year old Gelding January 1, 1996 15%
El Gato Grande 3 year old Colt September 12, 1996 90%
Burnt Timber 3 year old Colt September 12, 1996 90%
Ipanema Paradise 3 year old Filly September 14, 1996 25%
Afternoon Stroll 2 year old Colt September 11, 1997 90%
Information summarized in the table regarding each of the Thoroughbreds is
discussed in more detail below.
Da Hoss
Effective January 1, 1996, the Company acquired a 15% interest
in Da Hoss, a multiple stakes winning six-year old Thoroughbred
Gelding. Da Hoss was acquired from an Affiliate of the Company and
is managed by Prestonwood Farms, owner of a majority interest. In 17
races since beginning his career as a two-year old, Da Hoss has won
10 times, placed second in 4 and placed third in 2. He is the winner
of approximately $1,400,000 in his career. In his most recent outing
at the Breeder's Cup Mile in October 1996, Da Hoss took the winner's
share of the $1,000,000 purse. Da Hoss is also the winner of the
$300,000 Del Mar Invitational on September 4, 1995, the $150,000 New
Jersey Derby on May 27, 1995, the $100,000 Four Star Dave on July 29,
1996, the $75,000 added Best Turn Stakes on March 4, 1995, as well as
other stakes races.
Da Hoss was injured while preparing for his 1997 racing campaign.
In May, 1997, management was notified by Michael Dickinson, trainer of
Da Hoss, that he had suffered an injury to his tendon. In consultation with
an equine veterinarian, it was determined to perform surgery in an effort to
correct the injury. Consequently, later that month, Da Hoss underwent tendon
splitting surgery. Following a period of recovery lasting approximately seven
months, Da Hoss commenced training in anticipation of resuming his racing
career in 1998. He returned to training with Michael Dickinson on November 15,
1997, and continues in that capacity as of the date of this Prospectus.
However, there is no assurance that he will successfully return to racing
from this surgery.
24
Da Hoss is a thoroughbred Gelding in which the Company acquired
a minority interest on January 1, 1996. He is a multiple stakes-
winning six-year old Thoroughbred sired by the stakes winning
Stallion, Gone West. Gone West, the Sire of Da Hoss, has sired 23
stakes winners and was himself a multiple stakes winner over two
years of racing. Gone West was a winner of $682,000, having won the
Dwyer States (Grade I) the Grade II Gotham Stakes, Grade II Withers
Stakes and placing second in the Wood Memorial Invitational Stakes
(Grade I), the Peter Pan Stakes (Grade II) and the Grade III
Hutcheson Stakes. Gone West is the son of the prolific Stallion, Mr.
Prospector, himself a son of Raise A Native, and grandson of Native
Dancer. Secrettame, the Mare of Gone West, is a daughter of
Secretariat, winner of the Triple Crown.
Da Hoss was originally acquired by WS III in September, 1993 at
the Keeneland September Select Yearling Sale. In 1994, he was placed
in the fall sale of the Arizona Thoroughbred Breeders Association,
but did not bring his reserve price, and was reacquired by WS III.
Da Hoss was raced by WS III during the balance of 1994. In February,
1995, representatives of WS III were approached to sell Da Hoss,
which negotiations culminated in a sale of an 85% interest to
Prestonwood Farms for $200,000. Da Hoss has been managed by
Prestonwood and trained by Mr. Dickinson since that date.
As co-owner with Prestonwood Farms, the Company shares income
and expense associated with Da Hoss's racing campaign. The Company
is obligated to pay a pro rata share of all expenses associated with
his maintenance and training, including trainer, veterinarian,
Farrier, transportation and entry fees. The Company also shares in
all revenue generated by Da Hoss as a result of his racing efforts.
As owner of a majority interest in Da Hoss, Prestonwood Farms is
responsible for all decisions on conduct of his racing campaign. Due
to his status as a Gelding, the objective of Prestonwood Farms is to
maximize revenue from racing while preserving his health.
El Gato Grande
Effective September 12, 1996, the Company acquired a 90%
interest in two Colts at the Keeneland September Yearling Sale. The
first, El Gato Grande, a dark bay or brown Colt, was foaled on February 3,
1995, by Beau Genius, a stakes winner of over $1,000,000. The second,
Burnt Timber, a bay Colt, was foaled on April 17, 1995, by Digamist,
a stakes winner in Ireland and was Stakes placed in England, who had
approximate winnings of $263,000 in his first year of racing as a two year
old. As the owners of a majority interest in the two Colts, the Company, in
conjunction with trainers and other consultants, makes all decisions regarding
their upbringing, training, racing and ultimately, disposition.
El Gato Grande was foaled on February 3, 1995 by Beau Genius out
of Full Treasure. The Sire of this Colt, Beau Genius, is a multiple
stakes winner having collected purses in the amount of $1,055,600.
Beau Genius has won the Display Stakes, Autumn Handicap, Thistledown
Breeders' Cup Sprint Handicap, the Philip H. Iselin Handicap (Grade
I), Michigan Mile and One-Eighth Handicap (Grade II), the Arlington
Challenge Cup Invitational Stakes, Deputy Minister Handicap, Olympic
Handicap, Churchill Downs Handicap, Hallandale Handicap, Isaac Murphy
Stakes and the Aristides Breeders' Cup Stakes. Beau Genius' first
crop of foals produced nine stakes winners with winnings of
$1,300,000 including a Champion and a Grade I Stakes winner. In
addition, Beau Genius is the leading second crop Sire by winners and
wins in the United States and a top five second crop sire worldwide.
His second crop of foals includes Big Foot Kid who won five of his first
six starts including four Stakes races.
25
El Gato Grande started one race in February, 1998, but failed to place.
Burnt Timber
Burnt Timber, the bay Colt, was foaled on April 17, 1995 by
Digamist out of Sophisticated Lynn. The Sire of Burnt Timber,
Digamist, is a stakes winner in Ireland having won the Heinz `57
Phoenix Stakes (Grade I) and is a stakes placed winner in England at
the Coventry Stakes (Grade III). Digamist is by Blushing Groom who
had 7 wins in 10 starts during his second and third years of racing,
in England and France, including Poule d'Essai des Poulains (Grade
I), Grand Criterium (Grade I), Pr.de la Salamandre (Grade I), Pr.
Morny (Grade I), Pr. Robert Papin (Grade I), and Pr. de Fontinebleau
Derby (Grade I). Blushing Groom has 48 other sons at stud including
Rainbow Quest, Sire of six Champions including Lighted Rainbow (Horse
of the Year in Belgium), Mt. Livermore, Sire of two Champions
including Eliza, the Champion two-year old at the Breeder's Cup
Juvenile Fillies Stakes (Grade I) and Runaway Groom, Sire of two
Champions including Cherokee Run Champion Sprinter, Breeders Cup
Sprint Stakes (Grade I). The Dam, Sophisticated Lynn, is a stakes
winner with five wins from the age of two to four and total purses of
approximately $87,000.
Following his initial training as a two-year old, Burnt Timber has
started three races, where he has failed to place.
Ipanema Paradise
Effective September 14, 1996 the Company acquired a 25% interest
in Ipanema Paradise, a Filly by Shadeed, at the Keeneland September
Yearling Sale. Shadeed is a Stakes winner in the United States and
England with winnings of $292,545. Mariano Villar Urquiza is the
owner of the majority interest in this Thoroughbred, and responsible
for her training.
Ipanema Paradise is by Shadeed out of Paradise. The Sire of
this Filly, Shadeed, is a stakes winner in England having won Houghton
Stakes as a two year old and the General Accident Two Thousand Guineas
(Grade I), the Queen Elizabeth II Stakes (Grade II), the Craven Stakes
(Grade III) as a three year old. Shadeed is by Nijinski II who had
eleven wins as a two and three year old and was named the horse of the
year in England and Champion two and three year old in England. His wins
include the Derby Stakes, Two Thousand Guineas Stakes, St. Leger Stakes,
Irish Sweeps Derby, Railway Stakes, Anglesey Stakes, Beresford Stakes,
Dewhurst Stakes, Gladness Stakes, and the King George II and Queen
Elizabeth Stakes. Nijinski II has 109 other active sons at stud including
Green Dancer, the sire of 5 champions including Suave Dancer, winner of the
CIGA Pr. de l'Arc de Triomphe (France-Grade I), Meadow Meats Irish Champion
Stakes (Ireland-Grade I) and the Market Booster Stakes (Germany- Grade I).
The Dam of this Filly, Paradise, is a stakes winner as a two and three year
old in France having won the Prix Cleopatre (Grade III) and a winner as a
four year old in the United States.
Afternoon Stroll
The Company acquired a 90% interest in this dark bay or
brown Colt at the Keeneland September Yearling Sale for $18,000.
This Colt was sired by Strolling Along, himself a stakes winner of
six races in the total amount of $450,852. Strolling Along won the
Futurity Stakes (Grade I), the Gulfstream Park Budweiser Breeder's
26
Cup Handicap (Grade II) and the Lawrence Realization Stakes (Grade
III). Foals sired by Strolling Along during 1996 were his only crop,
as Strolling Along died during that year. The Colt's Dam, Sippewisset,
is sired by Damascus and a winner of $9,150 at age 2. Sippewisset also
foaled Money Run the winner of three races ages 2 to 6 and stakes placed
in the Stanford Stakes (Grade III).
Boarding of Company Thoroughbreds
When thoroughbred horses are not actively engaged in training or
racing, they are boarded at stable facilities specifically designed
for that purpose. Such facilities typically provide for the care,
feeding and maintenance of a number of past, present or future racing
prospects.
As the Company does not own or operate any of its own boarding
facilities, it contracts with unrelated third parties to provide
boarding services. Factors considered by the Company in selecting
such facilities include the reputation of the owners/operators,
proximity to intended racing venues, costs, facilities and climate.
Due to the costs of constructing and maintaining such facilities,
management does not anticipate the Company will acquire its own
boarding or training facilities in the foreseeable future.
As mentioned previously, Da Hoss is currently boarded at Fair
Hill, Maryland, where he recently resumed training following surgery.
The Company is currently charged a prorata share of $55 per day for
training plus its share of necessary expenses, including veterinarian
and Farrier costs. Finally, the two-year old recently acquired at
Keeneland is boarded at Abracadabra Farms in Ocala, Florida, where the
Company is charged $31 per day.
The Company is an owner of a minority interest in Da Hoss and
Ipanema Paradise and contributes to, but does not have final say in,
decisions effecting their care and maintenance. As the owner of a
majority interest in the Colts, the Company is responsible for making
decisions which affect their care and maintenance. It is anticipated
that Thoroughbreds acquired by the Company in the future may be boarded
under similar arrangements.
Training
When thoroughbreds reach an age and disposition to commence
racing, they are typically placed for breaking and training with
qualified professionals. This process typically begins during the
second year of a horse's life, although such time may be later
depending upon conformation and disposition of the animal. Breaking
is usually accomplished at off-track venues, where the horse is
introduced to various aspects of racing, including equipment, jockeys
and racetrack facilities. This process typically lasts from thirty
to ninety days, although the process varies widely depending upon the
temperment and maturity of the animal. Once the process of breaking
a horse has been completed, it is typically placed at a race track to
continue training in preparation for commencement of its racing
career. At the track, the horse will undergo additional physical
conditioning, together with increased simulation of actual race
circumstances. The ultimate goal is to prepare the horse for race
participation.
The Company retains the services of different individuals for
training as the needs of its Thoroughbreds dictate. Two three-year olds,
27
El Gato Grande and Ipanema Paradise, are currently trained by Kelly Ackerman
at Carmi, Illinois, located near Ellis Park Race Track. The Company is
charged $20 per day for this arrangement. Burnt Timber is currently stabled
in Colorado, but expected to resume training early in 1998. Management is
currently evaluating various alternatives regarding training of Burnt Timber.
Management continuously evaluates arrangements in view of the needs and
progress of their various Thoroughbreds.
It is usual and customary in the thoroughbred racing industry
that the trainer of a racehorse receives between 10% - 13% of the
purses won by a thoroughbreds trained by him. Jockeys are also
typically paid 10% of the purse. In addition, a trainer may be
entitled to receive from the Company a commission on the sale of any
of the Company Thoroughbreds which are sold privately at the request
of the Company. Any trainer who may be engaged by the Company to
train Company Thoroughbreds will also be engaged in the training and
racing of thoroughbreds owned by other persons and entities, which
may result in conflicts of races, time and training.
Thoroughbred Racing in the United States
Thoroughbred racing is a multi-billion dollar industry in the
United States. The following information has been obtained from
Thoroughbred Racing Comm., Inc. During 1994, nearly 75,000 thoroughbreds
competed in races in North America, with several thousand more in
training. With an estimated average annual cost of $20,000 per
horse, approximately $1.7 billion is spent each year on the care of
thoroughbred race horses. Parimutuel handle in North America totaled
$10.8 billion in 1994, up more than $500 million over the previous
year. The value of the 12,500 thoroughbreds sold at auction as
racing prospects in 1994 was approximately $329 million.
During 1994, thoroughbred racing continued as a healthy
industry, despite the encroachment of lotteries and small stakes
gambling proliferating throughout the United States. While the
number of live races in the United States declined marginally during
1994, and has declined each year since 1990, total prize money showed
a healthy increase in 1994 from 1993. Total purses in the United
States for 1994 equaled almost $748 million, an increase of 4.4% from
1993. Gross purses in North America have increased annually for all
but two years since 1980. Parimutuel betting also increased from
1993, from $9.6 billion in 1993 to $10.2 billion in 1994. Management
is confident that the interest in thoroughbred racing will continue
in the future.
Types of Races
During its career, a thoroughbred may run in a variety of races.
In "allowance" races, the weight that each horse will carry is set by
the track's racing secretary, making specific allowances in weights
for horses with less impressive past performances and saddling better
horses with more weight. A "weight for age" race is one in which a
standard scale of weights established by the Jockey Club, which
assigns certain weights to horses based upon their age and the month
of the year, is used.
The most important thoroughbreds races, "stakes" races, attract
the best horses, the most public attention and, consequently, the
highest purses. Owners must pay a "nomination" fee or a series of
nomination fees well in advance, and a "starter fee" at the time of
that race. The stakes money raised by these fees is supplemented by
"added" money contributed to the purse by the track, and in some
28
cases, further supplemented by state breeders association awards or
sponsors' contributions. Examples of some of the more prestigious
stakes races are the Kentucky Derby, the Preakness and the Belmont
Stakes.
A "claiming" race is a race in which any horse running may be
purchased at a specified "claiming" price which is posted as a
condition of entry. During 1994, claiming races accounted for 70% of
all races run. However, based on the proceeds anticipated to be
received from this offering, it is anticipated that any thoroughbreds
acquired by the Company will run in predominantly stakes or allowance
races. However, the final determination as to which race is
appropriate for any Thoroughbreds owned by the Company will be made
by management in conjunction with the trainer and other experts
retained for that purpose.
The Jockey Club
The Jockey Club, 380 Madison Avenue, New York, New York, 10017,
is the organization which registers bloodlines of thoroughbreds
horses in the United States. In order to race a thoroughbreds at
sanctioned thoroughbreds races, a thoroughbreds must be named and
registered with The Jockey Club.
Stable Name and Racing Colors
The Company Thoroughbreds will race under the stable name of
Wallstreet Racing Stables. It will be necessary for the Company to
obtain stable racing colors and jockey silks. Management shall have
responsibility for securing the same.
Insurance
Due to the potential loss resulting from the injury or death of
any of the Company Thoroughbreds, management has obtained insurance on its
interest in certain Thoroughbreds and will endeavor to insure the Company's
interest in additional Bloodstock proposed to be acquired from the proceeds of
this offering. The Company currently maintains mortality and surgical
insurance on its interest in Da Hoss and two of its Colts, although there
is no assurance such insurance will be continued indefinitely. The
continuation and amount of insurance is generally dictated by the perceived
value of the horse. Mortality insurance insures against financial loss to the
Company from the premature death of a thoroughbred. Surgical insurance
protects against costs incurred in connection with medical procedures
necessary to diagnose and repair injury or sickness of Company Thoroughbreds
up to the amount of $5,000 per horse. However, investors should be aware
that insurance does not protect or insure against every loss which the
Company might incur.
The amount and extent of insurance to be acquired or retained by
the Company will depend on management's evaluation of its economic
benefit to the Company. It is not anticipated that all thoroughbreds
will be insured. Rather, management may determine to insure only the
more valuable Bloodstock which may be acquired. The amount of
coverage on any particular horse is generally a function of its
perceived value; initially, the amount of insurance may be based on
the purchase price of Yearling Thoroughbreds. Thereafter, the
Company may obtain appraisals from brokers or insurance experts in
order to determine the appropriate level of insurance.
The cost of surgical insurance is not anticipated to be material
to the Company's business.
29
Government Regulation
As a form of legalized gambling, horse racing is subject to
regulation throughout the United States. Every state that sanctions
horse racing has a racing commission which regulates the licensing of
owners, trainers, and their employees, and determines the eligibility
of horses to compete in racing events within its jurisdiction.
Accordingly, to the extent the Company determines to participate in
racing in any particular state, the Company will be forced to comply
with the rules and regulations of that states' racing commission.
Requirements for obtaining a racing license include the filing
of an application and payment of a registration fee. Following these
initial steps, research and investigation into the applicant's personal
and financial background is conducted by the appropriate jurisdiction.
While the Company is not privy to deliberations by the various racing
commissions regarding the issuance of license, obstacles likely include
past criminal conduct or financial insolvency. The Company does not
consider the issuance of the requisite license to be a material obstacle to
the conduct of its business.
The Company or its officers and directors will be required to be
licensed in each jurisdiction within which the Company chooses to
race its Thoroughbreds. Licenses are generally obtained only in
those jurisdictions where the Company anticipates racing its prospects
in the immediate future. All of the officers and directors, together
with Dewey Williams, the owner of more than 5% of the Company's outstanding
stock, are currently licensed in the states of Colorado and Kentucky. Due
to the fact that such individuals are currently licensed in these states,
and have formerly been licensed in a number of other states, it is not
anticipated that the Company will incur any obstacles to registration in
the future. However, there is no assurance that necessary registrations
can be completed.
Competition
Competition in the thoroughbred industry is intense. The
Company will face competition for the acquisition of racing prospects
from major, established thoroughbred owners and trainers located
throughout the United States and in other countries. While it is
difficult to estimate the number of competitors, management is of the
opinion that a large number of these companies and individuals are
large, well established entities with substantial financial
capabilities and sound earnings records. Thoroughbred markets are
international and select auctions are internationally advertised.
Accordingly, acquisition, sale and/or syndication of the Company's
Thoroughbreds will be subject to intense competition from major horse
breeders and dealers throughout the United States and abroad.
The Company will also face stiff competition for acquisition of
trainers to prepare and manage its Bloodstock for racing. Also in
this respect, the Company will face competition from larger, well
established companies and individuals with greater financial resources
than the Company. While the Company's Thoroughbreds are currently trained
by Michael Dickenson and Kelly Ackerman, there is no assurance they will
continue in that capacity indefinitely and the Company may consider
different or additional trainers in the future. (See "MANAGEMENT -
Consultants").
30
Company Facilities
The Company maintains its administrative offices in Colorado
Springs, where it leases space from an affiliate. The Company shares
office space, conference and reception area, with MCM Capital
Management, Inc., in exchange for payment of $500 per month. The
lease also provides administrative service, including reception and
secretarial services at an hourly rate and subject to availability.
The Company occupies this space on a month to month basis. (See
"CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS."). The Company
may lease or acquire additional space in the future, as the needs of
its business require and its working capital permits. However,
management is of the opinion that such space is adequate for the
needs of the Company for the foreseeable future.
Employees
The Company currently has three employees, its President and
Chief Executive Officer, Vice President and Vice President of
Corporate Development. All of these individuals have devoted only a
minor portion of their time to the Company prior to this offering.
However, management anticipates that subsequent to this offering,
Messrs. McElhaney and Conrad, the President/Chief Executive Officer
and the Vice President/Secretary/Treasurer, respectively, will devote
approximately 50% of their time to the affairs of the Company. All
of these individuals serve without compensation, although the Company
may pay medical insurance on behalf of such individuals. The Company
has entered into employment contracts with the President and Vice
President, providing for payment of compensation beginning in
September, 1997. Such individuals may devote additional time to the
Company as its business requires and as working capital permits.
The Company will retain other individuals on a contract basis to
fulfill specific needs, including Bloodstock consultants, veterinarians,
trainers and jockeys. Bloodstock agents or consultants are typically
paid a commission for purchases or sales effected with their assistance.
Trainers are paid a day rate for horses, plus a percentage of purses won
by horses under their care. Jockeys are paid a percentage of purses
obtained through their efforts on the Company's behalf. Finally, the
Company may obtain secretarial and administrative support on an hourly
basis pursuant to its lease with MCM.
The Company may retain additional personnel in the future as its
needs dictate and its working capital permits. However, management
believes that its present and contemplated arrangements will be
satisfactory for the foreseeable future.
Legal Proceedings
Neither the Company nor any of its officers or directors in
their capacity as such is a party to any pending legal proceeding and
no such proceeding is contemplated to the best of their knowledge and
belief.
31
MANAGEMENT
Directors and Officers
Name Age Position
Raymond E. McElhaney 41 President, Chief
Executive Officer,
Chief Financial Officer and
Chairman of the Board of Directors
Bill M. Conrad 41 Vice President, Secretary,
Treasurer and Director
Ronald R. McGinnis 63 Vice President-Corporate
Development and Director
Clifford C. Thygesen 62 Director
Wayne Bamford 60 Director
Messrs. McElhaney, Conrad and McGinnis should be considered
"founders" and "parents" of the Company (as such terms are defined by
rule under the Securities Exchange Act of 1934, as amended), inasmuch
as each has taken initiative in founding and organizing the business
of the Company.
The Board of Directors of the Company has been divided into
classes. Pursuant to authority contained in the Articles of
Incorporation, the term of the first class, including Messrs. Bamford
and Thygesen, expire on the first annual meeting of shareholders; the
term of the second class, including Messrs. McGinnis and Conrad,
expire on the second annual meeting of shareholders; and the term of
the third class, presently including Mr. McElhaney, expires on the
third annual meeting of the shareholders. Upon election of their
successors, directors will serve successive terms of two or three
years, as appropriate. Officers will serve at the will of the Board
of Directors.
RAYMOND E. McELHANEY. Mr. McElhaney has served as President,
Chief Executive and Financial Officer and director of the Company
since inception. Mr. McElhaney is also President and a director of
MCM Capital Management, Inc., a private Colorado corporation engaged
in financial public relations, where he devotes a minor portion of
his time. Mr. McElhaney has occupied that position since 1984. MCM
Capital Management was also the managing partner of Wallstreet Racing
Stables II (hereinafter referred to as "WS II") and Wallstreet Racing
Stables III (hereinafter referred to as "WS III"), both general
partnerships engaged in the acquisition, training and racing of
thoroughbreds horses. (See "-Previous Experience with Thoroughbreds
Syndications."). From December 1993, until June 1995, and again from
December 1996 to August 1997, Mr. McElhaney was Secretary, Treasurer
and a Director of Gold Capital Corporation, a precious metal development
company. From 1987 to January, 1997, Mr. McElhaney was the President,
Treasure and a director of Consolidated Capital of North America, Inc.,
a publicly traded real estate company with securities traded on the NASD
over-the-counter bulletin board.
32
BILL M. CONRAD. Mr. Conrad has served as Vice-President,
Secretary, Treasurer and a Director of the Company also since
inception. He was also President and a Director of Gold Capital
Corporation from 1993 to 1995 and from 1996 to August 1997. From
1989 to January, 1997, he also served as Vice-President of Corporate
Development, Secretary and a director of Consolidated Capital of
North America, Inc. He is also currently Vice President and a
director of MCM Capital Management, Inc.
RONALD R. McGINNIS. Mr. McGinnis has been the Vice President of
Corporate Development and a director of the Company since inception.
He was also associated with Consolidated Capital of North America,
Inc., in the capacity of Vice-President and a director. Mr. McGinnis
was also Vice President and a director of United States Exploration,
Inc., a publicly traded corporation engaged in the oil and gas
business from May, 1990 to August, 1997. Since 1990, he has also
been President, sole director and shareholder of ARGAS Pipeline
Company, a private Kansas corporation. Mr. McGinnis is also a joint
venture partner with ARGAS, Inc., a privately held company engaged in
the business of oil and gas drilling and installation of natural gas
collection systems since March, 1987.
CLIFFORD C. THYGESEN. Mr. Thygesen has been a director of
the Company since August 9, 1995. Since 1988, Mr. Thygesen has been
principally engaged as a private investor. Prior to that, he was in
managerial and executive positions with a recreation supply company
based in Boulder, Colorado. He is also currently President and a
director of American Educational Products, Inc., a publicly traded
company involved in the manufacture and distribution of educational
products. The securities of American Educational Products, Inc. are
traded on NASDAQ.
WAYNE BAMFORD. Mr. Bamford has been a director of the Company
since August 9, 1995. He has been a self employed businessman for
approximately ten years, managing numerous investments and business
interest during that time. Prior to that, Mr. Bamford was the
operator of a ranch located southeast of Denver, where he boarded,
bred and raised thoroughbred race horses on behalf of himself and
independent third parties. Prior to that time, Mr. Bamford assisted
his father in the operation of a ranch near Sterling, Colorado where
he was also involved in the ownership, breeding, raising and training
of thoroughbred racehorses. Mr. Bamford has been associated with
thoroughbred race horses in various capacities for over forty years.
No family relationships exist between any of the officers and
directors of the Company.
Compensation
Employees have received no compensation for their services as
officers or directors of the Company, although each individual is
entitled to participate in the Company's Non-Qualifying Stock Option
and Stock Grant Plan, and to be reimbursed for reasonable out of
pocket expenses incurred on behalf of the Company. However, the
Company has executed employment agreements with certain of its
officers providing for payment of compensation beginning September 1,
1997. (See "MANAGEMENT - Employment Contracts" below). The Company
may also pay medical insurance premiums on behalf of the officers,
upon approval of the Board of Directors. The Company also retains
the right to compensate members of the Board of Directors and an
advisory board for special services rendered to the Company including
assistance in the sale or syndication of Company Thoroughbreds.
33
Employment Contracts
Effective June 1, 1997, the Company entered into employment
agreements with Messrs. McElhaney and Conrad, President and Vice
President of the Company, respectively. The Employment Agreements
are effective for a period of eighteen months and are automatically
renewable unless written notice of termination is given by the
Company not less than 90 days prior to expiration of the eighteen
month term. The Agreements may also be terminated by the Company for
cause, and by the employee on not less than 90 days advance written
notice.
Each employment agreement provides for payment of monthly compensation
in the amount of $2,000 commencing September, 1997. However, each individual
has agreed to defer receipt of such compensation pending receipt of
sufficient proceeds from this offering. Each individual is also entitled to
be reimbursed for reasonable and necessary expenses incurred on behalf of the
Company. Finally, Messrs. McElhaney and Conrad are entitled, pursuant to the
terms of the Employment Agreements, to participate in group health,
disability, life, bonus, profit sharing and stock option plans maintained for
other employees and directors of the Company.
Stock Option Plan
The Company has adopted a Non-Qualified Stock Option and Stock
Grant Plan ("Plan") for the benefit of key personnel and others
providing significant services to the Company. An aggregate of
1,000,000 shares of Common Stock have been reserved for issuance
under the Plan. As of the date of this Prospectus, no options have
been granted pursuant to the Plan.
The Plan is administered by the Board of Directors, who shall
select optionees and recipients of any stock grants, the number of
shares and the terms and condition of any options or grants of key
persons defined in the Plan. In determining the value of services
rendered to the Company, the Board will consider, among other things,
such person's employment position in relationship with the Company,
his duties and responsibilities, ability, productivity, length of
service or association, moral, interest in the Company, recommendation
by supervisors and the value of comparable services rendered by others
in the community who are similarly situated. All options granted
pursuant to the Plan shall be exercisable at a price not less than
the fair market value of the Common Stock on the date of grant. Unless
otherwise specified, the options expire ten years from the date of grant.
Previous Experience in Thoroughbreds Syndications
Messrs. McElhaney and Conrad have been involved in three recent
thoroughbred syndications, together with additional experience owning,
training and racing thoroughbreds individually. Their participation
in the thoroughbreds industry commenced in approximately 1982. While
engaged in unrelated businesses, Messrs. McElhaney and Conrad acquired
thoroughbreds individually and in partnership with other individual for
purposes of training and racing. Those endeavors, while generally
self-sustaining from a financial standpoint, came to a conclusion in
approximately 1986, when the thoroughbred industry underwent a substantial
retrenchment. Tax legislation adopted in that year, including adoption of
the passive activity rules, substantially effected economics in the
thoroughbreds industry. Accordingly, Messrs. McElhaney and Conrad
temporarily abandoned their participation.
34
Their interest in horse racing was rekindled in approximately
1992. Since that date, they have organized three general partnerships
devoted to the acquisition, training and racing of thoroughbred horses,
in addition to the Company.
Most recently, through MCM Capital Management, Messrs. McElhaney
and Conrad organized WS III, prior owner of Da Hoss. That entity was
organized in the summer of 1993 to acquire, train, race and sell or
syndicate thoroughbred Yearlings. The partnership raised initial
capital of $56,000, which, together with additional contributions,
was used to acquire four Thoroughbred Yearlings, including Da Hoss.
A Yearling Filly by "Bet Twice" was acquired at the Fasig-Tipton
September sale for $12,000. Subsequent to acquisition, the Filly was
raced, but did not place, and was sold for $2,500 to an independent
third party. WS III also acquired a Yearling Colt by "Relaunch" for
$27,000 at the Keeneland September Select Yearling Sale. Prior to
commencing his racing career, that Colt was sold for $20,000.
Finally, WS III acquired a "Woodman" Filly for $20,000 in 1994. That
Filly was subsequently sold at the Barrett's March select sale for 2
year olds in training for $27,000. WS III also received revenues of
approximately $38,000 from racing Da Hoss prior to sale of an 85%
interest to Prestonwood Farm for $200,000, and approximately $90,000
additional since that time.
Prior to WS III, Messrs. McElhaney and Conrad organized WS II,
another general partnership organized to acquire and race
thoroughbreds. That entity acquired a thoroughbred Gelding called
"Lucky Sync" together with two Yearlings at the Keeneland September
Select Yearling Sale in 1992. Lucky Sync's racing career came to an
end shortly after being named 1992 Colorado Older Horse of the Year
and earning $30,000 for the Partnership and was sold for a price of
$8,000 to one of the partners.
The careers of the two Yearlings acquired by that partnership
were cut short due to injury of the horses. A four year old Filly
named "Cherokee Go" of which the Company acquired a one half interest
at the Keeneland September Yearling Sale for $13,000, was injured
shortly after commencing what looked to be a very promising racing
career, and was subsequently sold for an aggregate price of $2,500.
"Seminole Win" was a five year old Gelding acquired at the same time
for $20,000. His racing career included starts in Arizona, California,
Colorado and Iowa, where he started 19 times, winning four, placing
second five times and third twice. His career earnings were approximately
$46,500.
WS II also claimed "Maggie's Bid" for $6,250 as a four year old
with then-earnings of $11,500, including twelve starts and five wins.
Under the management of WS II, Maggie's Bid subsequently raced and
was sold for $5,000, after upping his career earnings to $29,000,
including 34 starts, ten wins, four seconds and two thirds.
The initial partnership organized by Messrs. McElhaney and
Conrad was Wallstreet Racing Stables, a partnership comprised of nine
individuals and aggregate capital contributions of $10,000. Those
contributions were utilized to acquire Lucky Sync for $3,000, at that
time a six-year old thoroughbred Gelding who had been laid off from
racing. Subsequent to acquisition by Wallstreet I, Lucky Sync earned
an aggregate of $23,000, including winning the Mt. Elbert Stakes and
was named 1992 Colorado Older Horse of the Year and was runner up to
Colorado Horse of the Year in 1993. Lucky Sync was subsequently
acquired by Wallstreet II.
35
CONFLICTS OF INTEREST
Acquisition of Da Hoss
The Company acquired its interest in Da Hoss from WS III, a
Colorado general partnership in which an affiliate of Messrs.
McElhaney and Conrad was the managing general partner. All of the
remaining officers and directors of the Company were also general
partners in WS III. The Company acquired its 15% interest in Da Hoss
in exchange for the issuance of 80,000 shares of Common Stock
pursuant to a Purchase Agreement effective January 1, 1996. Messrs.
McElhaney, Conrad , McGinnis, Thygesen and Bamford are partners in WS
III and comprised the entire Board of Directors participating in the
decision to acquire the Company's interest in that thoroughbred.
Accordingly, the Purchase Agreement was not negotiated in an arms-
length transaction. The value placed on Da Hoss in that transaction
was based on a valuation obtained by WS III for insurance purposes.
Accordingly, while the Company did not obtain an independent appraisal,
management is of the opinion that the terms and conditions of the
Purchase Agreement is no less favorable than could be obtained from an
unaffiliated third party. Nonetheless, the Board of Directors was
subject to a conflict of interest in negotiating and completing the
acquisition of this Thoroughbred.
General
As participants in a number of business endeavors, Messrs.
McElhaney, Conrad and McGinnis will be faced with potential conflicts
of interest in regard to time, effort and corporate opportunity on
behalf of the Company. Although each will devote substantial time to
the affairs of the Company, none will devote full time to their
duties as officers. Management anticipates that subsequent to this
offering, Messrs. McElhaney and Conrad will devote approximately 50%
of their time to the affairs of the Company and Mr. McGinnis approximately
ten hours per month. Accordingly, their responsibilities as officers
of the Company will conflict with other commitments outside the Company.
Nonetheless, Messrs. McElhaney, McGinnis and Conrad believe they have
sufficient time to devote to the affairs of the Company. Finally, while
none of the other entities with which Messrs. McElhaney, Conrad and
McGinnis are currently affiliated are engaged in the thoroughbred business,
they are aware of the doctrine of corporate opportunity. Such doctrine
provides that business opportunities which come to the attention of
company officers within the realm of its business activities must first
be offered to the Company. Messrs. McElhaney, Conrad and McGinnis have
recognized this obligation in their position as officers of the Company.
36
SHAREHOLDINGS OF MANAGEMENT AND PRINCIPAL SHAREHOLDERS
As of the date of this Prospectus, there were a total of 697,000
shares of Common Stock of the Company outstanding. The following
tabulates holdings of Common Shares of the Company by each person
who, as of the date of this Prospectus, holds of record or is known
by management of the Company to own beneficially more than 5% of the
voting securities outstanding and, in addition, by all directors and
officers of the Company individually and as a group. The table does
not reflect the possible exercise of outstanding warrants or up to
1,000,000 shares of Common Stock under the Company's Incentive Stock Option
Plan. The shareholders listed below have sole voting and investment
power, except as otherwise noted.
Number Percent
Name and Address of Shares of Voting Securities
Before After
Offering Offering(3,4)
Raymond E. McElhaney(1,2)
5525 Erindale Drive, Suite 201
Colorado Springs, CO 80918 172,834 24.80% 14.44%
Bill Conrad(1,2)
5525 Erindale Drive, Suite 201
Colorado Springs, CO 80918 164,833 23.65% 13.77%
Ronald R. McGinnis(1)
5525 Erindale Drive, Suite 201
Colorado Springs, CO 80918 46,333 6.64% 3.87%
Clifford C. Thygesen(1)
4893 Idylwild Trail
Boulder, CO 80301 56,333 8.08% 4.71%
Wayne Bamford(1)
5948 East King Court
Parker, CO 80134 46,333 6.64% 3.87%
Dewey L. Williams
4611 Langland Road, #104
Dallas, Texas 75244 77,333 11.10% 6.47%
All Officers and Directors
as a Group (5 persons) 485,166 69.61% 40.53%
- -----------------------------
1 Officer or director.
2 Includes 1,500 shares held by MCM Capital Management of which
Messrs McElhaney and Conrad are officers, directors and
principal shareholders.
3 Assumes sale of all Common Shares offered hereby, of which there
is no assurance.
4 Does not take into account the issuance of 54,500 Common Shares
issuable upon exercise of outstanding warrants.
- ------------------------------
37
The Company knows of no arrangement, including the pledge by any
person of securities of the Company, which may at a subsequent date
result in a change of control of the Company.
Finally, it is conceivable that certain of the officers and
directors could become eligible for stock option grants under one or
both of the Company stock option plans.
38
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Recent Private Financings
The Company commenced its capitalization on July 19, 1995 by issuing
500,000 shares of its Common Stock to Messrs. Raymond McElhaney and Bill
Conrad, President and Vice-President of the Company, respectively, for a
price of $.01 per share. Messrs. McElhaney and Conrad comprised a majority
of the Board of Directors when that transaction was approved, but abstained
from voting due to the inherent conflict of interest. In February, 1996,
Messrs. McElhaney and Conrad each donated 75,000 shares back to the Company.
On August 9, 1995, the Company issued an aggregate of 75,000 shares to
Mr. Ronald McGinnis, Vice-President for Corporate Development and Messrs.
Clifford Thygesen and Wayne Bamford, directors of the Company, for
consideration totaling $2,500 each, or $.10 per share. That transaction was
approved by the Board of Directors consisting of Messrs. McElhaney and Conrad,
the sole disinterested members at that time.
Beginning in September, 1997, certain officers or directors of the Company
have advanced funds to finance acquisition of Company Thoroughbreds and for
operating expenses. Messrs. McElhaney, Conrad, and Thygesen loaned in the
aggregate $46,232.75 to the Company from September, 1997 to the date of this
Prospectus. Of that amount, Mr. McElhaney advanced $32,132.75, Mr. Conrad
$9,100 and Mr. Thygesen $5,000. All of these loans are represented by
promissory notes bearing interest at the rate of 9% per annum and are due and
payable in full on or before June 30, 1998.
Acquisition of Da Hoss
Effective January 1, 1996, the Company acquired its interest in
Da Hoss from WS III, an Affiliate of the Company. Messrs. McElhaney,
Conrad, McGinnis, Thygesen and Bamford were also general partners in
WS III at the time of these transactions. The Company issued 80,000
Common Shares for a 15% interest in Da Hoss valued at $80,000 for
purposes of this transaction. As partners in WS III, each member of
the Board of Directors received one sixth interest in the Common
Stock received by WS III in this transaction. The value placed on Da
Hoss in this transaction was based on a valuation of that interest
received by WS III for mortality insurance purposes. However, no
appraisal was obtained from an independent third party regarding the
fairness of the transaction to the Company. Nonetheless, management
is of the opinion that the transaction was no less favorable than
could be obtained from an unaffiliated third party.
Acquisition and Disposition of Broker John
Also effective January 1, 1996, the Company acquired the two-
year old Colt, Broker John. The Company acquired a 100% interest in
this Colt for $39,000, based on an original purchase price of $31,000
plus training and boarding expenses accrued to that date. Broker
John was acquired from WS III for $15,000 cash and 48,000 Common
Shares. Broker John's race career was marred by injuries and
consequently, management determined that he should be sold at
auction. The sale of Broker John netted the Company $9,000 in
proceeds, which was added to working capital.
39
Miscellaneous Transactions
The Company currently shares office facilities, consisting of
office space with conference facilities, with MCM Capital Management,
Inc. pursuant to an oral agreement effective September 1, 1995. The
agreement provides the Company with office space, conference
facilities and other support for a monthly payment of $500. The
agreement is effective on a month to month basis commencing September
1. Messrs. McElhaney and Conrad are also officers, directors and
principal shareholders of MCM.
40
DESCRIPTION OF SECURITIES
The Company's authorized capital consists of 15,000,000 shares
of Common Stock, $.001 par value and 5,000,000 shares of Preferred
Stock, $.01 par value. The following description of the Company's
securities is qualified in its entirety by reference to the Company's
Articles of Incorporation, as amended, a copy of which is available
upon request to the Company.
Common Stock
Each Common Share is entitled to one vote at all meetings of
shareholders. All shares are equal to each other with respect to
liquidation rights and dividend rights. There are no preemptive
rights to purchase any additional Shares. The Articles of
Incorporation of the Company prohibit cumulative voting in the
election of directors. In the event of liquidation, dissolution or
winding up of the Company, holders of shares of Common Shares will be
entitled to receive on a pro rata basis all assets of the Company
remaining after satisfaction of all liabilities and all liquidation
preferences, if any, granted to holders of the Company's Preferred
Stock.
All of the Company's issued and outstanding Common Shares are,
and, when paid for according to the terms of the offering will be,
fully paid and non-assessable and are not subject to any future call.
Possible Restrictions on Common Stock
Under regulations adopted by various state racing commissions,
persons who acquire substantial amounts of a corporation licensee's
stock (generally ranging from four to ten percent) must themselves be
licensed by the racing commission. The process of licensing involves
applications with the racing commission, payment of a small fee and a
background investigation, including financial condition and criminal
history. In order to accommodate the possibility that one or more
purchasers of Company Stock may not qualify as licensees, the Company's
Articles of Incorporation have been amended to provide that the Company
may repurchase any stock of an investor who fails to qualify as a
licensee when required. The Amendment provides, in pertinent part,
that the investor will sell, and the Company will purchase, any Common
Share of such person or entity for a purchase price equal to the current
market price of the securities within thirty days of written request by
the Company. Stop transfer instructions will be placed with the Company's
transfer agent for Common Share owned by any investor who refuses to comply
with such provision.
The restrictions noted in the foregoing paragraph will be contained
in a legend on each certificate issued by the Company.
Preferred Stock
The Articles of Incorporation vest the Board of Directors of the
Company with authority to divide the Preferred Stock into series and
to fix and determine the relative rights and preferences of the
shares of any such series so established to the full extent permitted
by the laws of the State of Colorado and the Articles of Incorporation
in respect to, among other things, (i) the number of shares to constitute
such series and the distinctive designations thereof; (ii) the rate and
preference of dividends, if any, the time of payment of dividends, whether
41
dividends are cumulative and the date from which any dividend shall accrue;
(iii) whether Preferred Stock may be redeemed and, if so, the redemption
price and the terms and conditions of redemption; (iv) the liquidation
preferences payable on Preferred Stock in the event of involuntary or
voluntary liquidation; (v) sinking fund or other provisions, if any, for
redemption or purchase of Preferred Stock; (vi) the terms and conditions
by which Preferred Stock may be converted, if the Preferred Stock of any
series are issued with the privilege of conversion; and (vii) voting rights,
if any.
There are no shares of Preferred Stock issued or outstanding on
the date of this Prospectus and management has no present intent or
plan to issue any shares. Preferred Stock could be issued to deter
or delay a takeover which is unwanted by management or, in connection
with a business acquisition. (See "Risk Factors").
Warrants and Options
Warrants In connection with two private placements of its
securities pursuant to exemptions from the registration requirements
of the 1933 Act, the Company currently has outstanding 54,500 warrants
(the "Warrants"). Each Warrant entitles the holder thereof to purchase
one Common Share for the purchase price of $2.00 per share and is exercisable
until April 30, 1998 (the "Exercise Period"). Thereafter, the Warrants
will expire, become void and of no further force or effect, unless extended
in the sole discretion of the Company. The Company reserves the right to
modify the exercise price. All of the Company's Warrants have been issued
under a Warrant Agreement between the Company and Corporate Stock Transfer,
Inc. ("Transfer Agent"). The Company has authorized and reserved for issuance
up to 54,500 shares of Common Stock issuable upon exercise of the Warrants.
Any decision to extend the exercise period of the Warrants or
change the exercise price will rest in the discretion of the Company.
In the event a decision is made to extend the Exercise Period or
change the exercise price, such notice shall be delivered to holders
by written notice not less than thirty days prior to expiration of
the Exercise Period. Upon expiration of the Exercise Period, it is
anticipated that any market which might have existed for the Warrants
will terminate.
The Warrants contain the usual anti-dilution provisions so as to
avoid dilution of the equity which is represented by the underlying
Common Stock upon the occurrence of certain events, such as stock
dividends or splits. In the event of liquidation, dissolution, or
winding up of the Company, holders of the Warrants will not be
entitled to participate in the assets of the Company. Holders of
Warrants will have no voting, preemptive, liquidation or other rights
of a stockholder, and no dividends will be declared on the Warrants.
The Warrants are redeemable at the election of the Company upon
thirty days advanced written notice to the holders at a redemption
price of $.0001 per Warrant. Notice of the Company's decision to
redeem the Warrants shall be given to the holders by regular mail at
the last known address maintained by the Company's Warrant Agent.
The failure of the holder of such Warrants to purchase the Common
Stock within the thirty day period will result in such holders'
forfeiture of the right to purchase the Common Stock underlying the
Warrants.
42
The Warrants may not be exercised unless the holder resides in a
state where such exercise will be permitted under applicable state
securities laws. The Company anticipates that the issuance of the
Common Stock underlying the Warrants will be permitted in each jurisdiction
wherein holder of the Warrants reside. However, subsequent transfer of the
Warrants may result in the inability of the holder to exercise the Warrants.
Reports to Shareholders
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "1934 Act"). In connection therewith, the Company
is required to file annual and quarterly reports with the Securities and
Exchange Commission and will be required to comply with the proxy
solicitation rules contained in the 1934 Act. Shareholders of the Company will
receive an annual report containing audited financial statements of the Company
in conjunction with any annual meeting of shareholders. The Company may also
prepare and deliver quarterly and other interim statements to shareholders as
management deems appropriate.
Transfer and Warrant Agent
The Company's transfer agent for the Common Stock and Warrants
is Corporate Stock Transfer, 370 17th Street, Suite 2350, Denver,
Colorado 80203, telephone number (303) 595-3300.
Dividends
No dividend has been declared or paid by the Company on its
shares of Common Stock since inception and no dividends on shares of
Common Stock are contemplated in the foreseeable future.
43
PLAN OF DISTRIBUTION
Plan of Distribution
The Company is offering, through its officers and directors, on
a "best efforts" basis at an offering price of $1.00 per Common Share a
total of 500,000 Common Shares of the Company. These shares are being
offered by the Company for cash for a period of ninety days from the
date of this Prospectus, unless extended for an additional period not to
exceed thirty days in the aggregate. The Common Shares will be offered on
the Company's behalf primarily by Raymond E. McElhaney, and to a lesser
extent, Ronald R. McGinnis, Clifford C. Thygeson and Wayne Bamford. Mr.
McGinnis is the Vice President-Corporate Development of the Company
and Messrs. Thygeson and Bamford are directors of the Company. In
connection with their efforts, these officers and directors will rely
on the "safe harbor" provisions of Rule 3a4-1 of the Securities
Exchange Act of 1934 (the "1934 Act"). Generally speaking, Rule 3a4-
1 provides an exemption from the broker/dealer registration requirements
of the 1934 Act for associated persons of an issuer. A commission will
not be paid to the Company or its officers and directors for sales
effectuated by them. No one, including the Company, has made any
commitment to purchase any or all of the Common Shares. Rather, the
officers and directors will use their best efforts to find purchasers for
the Common Shares for a period of 90 days from the date of this Prospectus,
subject to an extension in the sole discretion of the Company for an
additional period not to exceed 30 days in the aggregate.
There is no minimum number of Common Shares or sales proceeds which must
be received to complete the Offering. As a result, all proceeds will be
immediately deposited in the Company's bank account and available for all valid
corporate purposes. Purchasers in this offering will not be entitled to a
return of their purchase price following receipt by the Company.
The Company anticipates making sale of Common Shares to persons
whom it believes may be interested or who have contacted the Company
with interest in purchasing the securities. The Company may sell
Common Shares to such person if they reside in a state in which the
Common Shares may be sold and in which the Company is permitted to
sell the Common Shares. The Company is not obligated to sell Common
Shares to any such person.
Officers, directors, present shareholders of the Company and
persons associated with them may be sold some of the Common Shares.
However, officers, directors, and their affiliates shall not be
permitted to purchase more than 20% of the Common Shares sold
hereunder and such purchases will be held for investment and not for
resale. In addition, no proceeds from this offering will be used to
finance any purchases by such persons.
Investors should be aware that while this offering is being
conducted through its officers and directors, the Company retains the
right to utilize the services of Broker/Dealers ("Participating
Broker/Dealers") who are members of the National Association of
Securities Dealers, Inc. ("NASD"). The Company reserves the right to
pay commission in connection with sales effectuated through Participating
Broker/Dealers in an amount not to exceed 10% of the sales price for sale
effectuated by them. The Company will amend the Prospectus and the
Registration Statement of which it is a part to identify any Participating
Broker/Dealer who sells more than 5% of the securities offered hereby.
44
In the view of the Commission, any Participating Broker/Dealer
that sells securities in this offering would be deemed a "underwriter"
as defined in Section 2(11) of the 1933 Act. Further, prior to the
participation of any Participating Broker/Dealer, the Company must obtain
a no objection opinion from the NASD regarding the contemplated underwriting
compensation and arrangements.
Pricing the Offering
The offering price of the Common Shares was determined by the Company
based primarily upon recent sales prices of the Common Shares. In arriving
at the offering price, the Company took into account such factors as the
history and lack of operation of the Company, its assets and anticipated
expenses of acquiring and maintaining the thoroughbreds and the current
trading price of the Common Shares. However, the offering price of the
Common Shares should not be utilized as an indication of value of the
securities or an assurance that purchasers will be able to resell these
securities for an amount equal to the offering price or any price in excess
of that amount. The offering price of the Common Shares bears no necessary
relationship to the Company's assets, book value, lack of earnings, net worth
or any other traditional criterion of value.
In as much as the Company is offering the Common Shares and an
underwriter was not retained for such purposes, the Company's
determination of the offering price and the exercise price has not been
determined by negotiation with an underwriter, as is customary in most
offerings. To the extent an underwriter has not been involved in
determining the offering price, subscribers are subject to an increased
risk that the price of the Company's securities has been arrived at
arbitrarily.
45
LEGAL MATTERS
The legality of the securities of the Company offered hereby
will be passed on for the Company by Overton, Babiarz & Sykes, P.C.,
7720 East Belleview Avenue, Suite 200, Englewood, Colorado 80111,
legal counsel for the Company. Overton, Babiarz & Sykes, P.C. owns
fifteen thousand (15,000) Common Shares of the Company.
EXPERTS
The financial statements of the Company included herein and in
the Registration Statement have been examined by Kish, Leake &
Associates, P.C., independent certified public accountants, and are
included herein and in the Registration Statement in reliance upon
the report of such firm given on their authority as experts in
accounting and auditing.
46
WALLSTREET RACING STABLES, INC.
TABLE OF CONTENTS
Page
Independent Auditors' Report 1
Balance Sheet 2
Income Statement 3
Statement of Retained Earnings 4
Statement of Cash Flows 5
Notes to Financial Statements 6-9
47
Independent Auditors' Report
We have audited the accompanying balance sheet of Wallstreet Racing Stables,
Inc., as of June 30, 1997, and the related statements of income, shareholders'
equity and cash flows for the fiscal year ended June 30, 1997 and the period
July 18, 1995 (Inception) through June 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and the
overall financial statement presentation. We believe that our audit provides
a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Wallstreet racing Stables,
Inc. at June 30, 1997 and the results of its operations and its cash flows for
the fiscal year ended June 30, 1997 and the period July 18, 1995 (Inception)
through June 30, 1996 in conformity with generally accepted accounting
principles.
Kish, Leake & Associates, P.C.
Certified Public Accountants
Englewood, Colorado
September 9, 1997
-1-
Wallstreet Racing Stables, Inc.
Balance Sheet
June 30, 1997
Unaudited Audited
September June
Notes 30, 1997 30, 1997
ASSETS
Current Assets:
Cash $4,823 $12,087
Accounts Receivable 1 219 144
Prepaid Expenses 3,888 4,968
----- ------
Total Current Assets 8,930 17,199
Property And Equipment
Broodmares 10,250 10,250
Racehorses 2,7 54,437 38,238
------ ------
Total 64,687 48,488
Accumulated Depreciation (11,622) (8,737)
------ ------
Net Property And Equipment 53,065 39,751
TOTAL ASSETS $61,995 $56,950
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities - Accounts Payable - Trade 50,822 17,473
Accrued Salaries 4,000 0
Accrued Interest - Shareholders 121 0
Notes Payable - Shareholders 15,000 0
------ ------
Total Current Liabilities 69,943 17,473
------ ------
Long-Term Liabilities 0 0
- -
TOTAL LIABILITIES 69,943 17,473
------ ------
SHAREHOLDERS' EQUITY 2
Preferred Stock - $.01 Par Value,
5,000,000 Shares Authorized; -0-
Shares Issued And Outstanding 0 0
Common Stock - $.001 Par Value,
15,000,000 Shares Authorized;
697,000 Shares Issued and Outstanding 697 697
Capital Paid In Excess Of Par Value 1,5 268,494 264,494
Retained (Deficit) (277,139) (225,714)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY (7,948) 39,477
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $61,995 $56,950
======= =======
The Accompanying Notes Are An Integral Part Of These Financial Statements.
-2-
Wallstreet Racing Stables, Inc.
Statement Of Operations
Unaudited
For The For The
Three Month Period
Interim Period For The July 18,1995
Ended Year Ended (Inception)
September June Through June
Notes 30, 1997 30, 1997 30, 1996
Revenue - Purses $126 $104,802 0
Operating Expenses:
Advertising 60 0 0
Boarding And Training 12,298 24,959 8,344
Commissions 1,800 4,575 0
Depreciation 2,885 8,512 4,288
Horseshoeing expense 550 180 0
Horse Transportation 299 3,120 599
Insurance 2,008 6,549 720
Jockey Fees 126 10,358 0
Legal And Accounting 4,550 9,982 5,325
Offering Costs 1 0 67 20,000
Office 4,543 6,377 1,813
Race Expenses 1,703 20,613 0
Rent 4 1,500 6,000 3,000
Salaries 2,5 8,000 24,000 91,100
Telephone 495 2,706 653
Travel And Entertainment 7,197 23,893 6,110
Vet Expenses 3,355 5,792 4,000
----- ------- -------
Total Operating Expenses 51,369 157,683 145,952
------ ------- -------
(Loss) From Operations (51,243) (52,881) (145,952)
-------- -------- --------
Other Income (Expense):
Interest Income 33 470 0
Interest (Expense) (215) (659) (9)
(Loss) On Sale Of Horse 0 0 (26,683)
- - --------
Total Other Income (Expense) (182) (189) (26,692)
----- ----- --------
(Loss) Before Taxes (51,425) (53,070) (172,644)
Income Tax Expense 0 0 0
Net (Loss) ($51,425) ($53,070) (172,644)
========= ========= =========
Weighted Average Common Shares
Outstanding 697,000 677,500 503,775
(Loss) Per Share 1 (0.07) (0.08) (0.34)
The Accompanying Notes Are An Integral Part Of These Financial Statements.
-3-
Wallstreet Racing Stables, Inc.
Cash Flow Statement
Unaudited
For The For The
Three Month Period
Interim Period For The July 18, 1995
Ended Year Ended (Inception)
September June Through June
Notes 30, 1997 30, 1997 30, 1996
Net (Loss) (51,425) ($53,070) ($172,644)
Items Not Affecting Cash Flow:
Depreciation 1 2,885 8,512 4,288
Contribution of Services 5 4,000 24,000 12,000
Loss on Sale of Horse 0 0 26,683
Stock Issued for Other-Than Cash 0 0 110,600
(Increase) Decrease in Receivable (75) 9,206 (9,350)
(Increase)(Decrease)in Prepaid Expenses 1,080 (3,063) (1,905)
Increase in Accounts Payable 33,350 6,657 10,816
Increase in Accrued Interest 121 0 0
Increase in Accrued Salaries 4,000 0 0
----- - -
Net Cash Flows Provided From
(Used By) Operations (6,064) (7,758) (19,512)
------- ------- --------
Cash Flows From Investing Activities:
Sale of Horses 0 0 10,000
Purchase Of Horses (16,200) (47,588) (40,746)
-------- -------- --------
Net Cash Flows Provided From
(Used By) Investing (16,200) (47,588) (30,746)
-------- -------- --------
Cash Flows Provided From Financing
Activities:
Notes Payable - Shareholder 15,000 0 0
Sale Of Common Stock 2 0 58,500 60,000
Stock Subscriptions Exercised 0 5,500 0
Deferred Offering Costs 1 0 0 (6,309)
- - -----
Net Cash Flows Provided From
(Used By) Financing 15,000 64,000 53,691
------ ------ ------
Net Increase In Cash (7,264) 8,654 3,433
Cash At Beginning Of Period 12,087 3,433 0
------ ------ -----
Cash At End Of Period $4,823 $12,087 $3,433
====== ======= ======
Summary Of Non-Cash Investing And
Financing Activities:
Horses Purchased From Related
Parties For Common Stock 2 0 0 $24,900
= = =======
Stock Issued For Subscriptions
Receivable 2 0 0 $5,500
= = ======
Stock Issued For Legal Services 2 0 0 $7,500
= = ======
Horses Purchased From Related
Parties For Services In Exchange
For Common Stock 2 0 0 $79,100
= = =======
The Accompanying Notes Are An Integral Part Of These Financial Statements.
-4-
Wallstreet Racing Stables, Inc.
Statement Of Shareholders Equity
Number Of Number Of Capital Paid
Common Preferred Common In Excess Of Accumulated
Notes Shares Shares Stock Par Value (Deficit) Total
Balance At 1,2
July 18, 1995 0 0 $0 $0 $0 $0
Issuance Of
Common Stock:
July 1995 For Cash
@ $.01 Per Share 500,000 0 500 4,500 5,000
August 1995 For
Cash @ $.10 Per
Share 45,000 0 45 4,455 4,500
August 1995 for
Subscriptions
Receivable @ $.10
Per Share 55,000 0 55 5,445 5,500
January/February
1996 For:
Purchase Race Horse
@ $.50 Per Share 48,000 0 48 23,952 24,000
Legal Services
@ $.75 Per Share 10,000 0 10 7,490 7,500
Purchase Race Horse
@ $1.00 Per Share 900 0 1 0 1
Services Provided By
Related Party 79,100 0 79 79,920 79,999
May 1996 Private
Offering For Cash
@ $1.00 Per Share 50,500 0 51 50,449 50,500
Deferred Offering
Costs (6,309) (6,309)
February 1996
Returned And
Cancelled Shares (150,000) 0 (150) 150 0
Contributed Services 12,000 12,000
Net (Loss)
June 30, 1996 (172,644) (172,644)
------- - --- ------ --------- --------
Balance At
June 30, 1996 638,500 0 639 182,052 (172,644) 10,047
======= = === ====== ======== =======
November 1996
Private Offering
For Cash @ $1.00
Per Share 58,500 58 58,442 58,500
Contributed Services 24,000 24,000
Net (Loss)
June 30, 1997 (53,070) (53,070)
------- - ---- -------- ---------- --------
Balance At
June 30, 1997 697,000 0 $697 $264,494 ($225,714) $39,477
======= = ==== ======== ========== ========
Contributed Services 4,000 4,000
Unaudited Net(Loss)
September 30, 1997 (51,425) (51,425)
Unaudited Balance
at September 30,
1997 697,000 0 $697 $268,494 ($277,139) ($7,948)
======= = ==== ======== ========== ========
The Accompanying Notes Are An Integral Part Of These Financial Statements.
-5-
Wallstreet Racing Stables, Inc.
Notes to Financial Statements
For the Year Ended June 30, 1997
Note 1 - Organization and Summary of Significant Accounting
Policies
Organization
On July 18, 1995 Wallstreet Racing Stables, Inc. (the Company) was
incorporated under the laws of Colorado. The Company's primary purpose is
to engage in all phases of the thoroughbred horse racing industry.
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.
Depreciation
Race Horses are stated at cost and are depreciated over their estimated
economic lives ranging from 1 to 5 years depending on their age when purchased.
Brood mares are stated at cost and are depreciated over their estimated
economic lives ranging from 3 to 7 years depending on their age when purchased.
Broodmares
Broodmares consist of registered thouroughbred horses. If a broodmare is
acquired in foal, the cost is allocated between the broodmare and the unborn
foal on the basis of their relative value at the time of acquisition.
Deferred Offering Costs
In connection with the offering of its common shares, the Company incurred
offering costs consisting of legal, printing, and underwriting fees totaling
$20,000 for an unsuccessful public offering and $6,309 consisting of legal and
printing for a successful private offering. The costs are reflected on the
balance sheet as deferred offering costs until such time as the offering is
completed or terminated. Should the offering be unsuccessful, deferred
offering costs to date will be charged to expense. Therefore $20,000 has been
charged against expense and $6,309 reduced the offering proceeds at June 30,
1996.
-6-
Wallstreet Racing Stables, Inc.
Notes to Financial Statements
For the Year Ended June 30, 1997
Statement of Cash Flows
For purposes of the statement of cash flows, the Company considered demand
deposits and highly liquid-debt instruments purchased with a maturity of three
months or less to be cash equivalents.
Cash paid for interest during the year ended June 30, 1997 was $659. Cash
paid for income taxes for the year ended June 30, 1997 was $ -0-.
Accounts Receivable - Allowance for Doubtful Accounts
Bad debts are provided on the allowance method based on historical experience
and management's evaluation of outstanding accounts receivable at the end of
each year. The allowance at June 30, 1997 was $ -0-.
Net Income (Loss) Per Common Stock
The net income (loss) per common share is computed by dividing the net income
(loss) for the year by the weighted average number of common shares outstanding
at June 30, 1997.
Revenue Recognition
Revenue is recognized when a purse from a race is earned.
Note 2 - Equity
The Company initially authorized 20,000,000 shares of stock. 5,000,000 shares
of $.01 par value preferred stock and 15,000,000 shares of $.001 par value
common stock.
In July 1995 the Company issued various officers and directors 500,000 shares
of common stock for $5,000 cash or $.01 per share. In February 1996, 150,000
of these shares were returned to the Company and canceled. In August 1995,
the Company issued 100,000 shares of common stock for $10,000 cash or $.10
per share. In January and February 1996, the Company exchanged 10,000 shares
of common stock for legal services valued at $7,500 or $.75 per share, the
48,000 shares of stock valued at $24,000, based on predecessor cost, or $.50
per share for part of the purchase price of a racehorse from an entity owned
by a related party, and 80,000 shares of common stock valued at $80,000 or
$1.00 per share for a 15% ownership in a race horse from an entity owned by
a related part. Because this horse was acquired from a related party the
horse was booked at predecessor cost, or $900 in accordance with APB
16. (See Note 4 - Related party Events) with the remaining $79,100 expensed
to compensation.
-7-
Wall Street Racing Stables, Inc.
Notes to Financial Statements
For the Year Ended June 30, 1997
In May 1996, the Company closed out a private offering in which it sold
25,250 units and raised $50,500 less $6,309 in deferred offering costs, each
unit consisting of two shares of common stock and one warrant exercisable
within twelve months from the date of the purchase of the unit to buy one share
of common stock for $2.00.
The Company raised an additional $58,500 from the sale of a second private
placement which closed in February 1997. It sold 29,250 units, each unit
consisting of two shares of common stock and one warrant which can be exercised
for $2.00 per share within twelve months of the purchase of the unit.
Note 3 - Income Taxes
The Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," (SFAS 109) effective January 1, 1993. The
statement requires that deferred income taxes reflect the tax consequences on
future years of differences between the tax basis of assets and liabilities and
their basis for financial reporting purposes. In addition, SFAS 109 requires
the recognition of future tax benefits, such as net operating loss carry
forwards (NOLs), to the extent that realization of such benefits are more
likely than not. There was no cumulative effect of this accounting change at
the time of adoption.
The Company has a tax NOL of approximately $146,711 at June 30, 1997. This
carry forward will expire in 2010 and 2011.
The components of the net deferred tax asset recognized in the
accompanying balance sheet are as follows:
Deferred tax asset $29,342
Valuation allowance 29,342
-------
$ -0-
=======
The types of temporary differences between the tax basis of assets and their
financial reporting amounts that give rise to a significant portion of the
deferred tax asset are as follows:
Temporary Tax
Difference Effect
---------- ------
Net operating loss carry forward $146,711 $29,342
======== =======
-8-
Wallstreet Racing Stables, Inc.
Notes to Financial Statements
For the Year Ended June 30, 1997
Note 4 - Related Party Events
The Company leases office space and secretarial services from a company owned
by the officers of the Company for $500 per month on a month to month basis.
The facilities are located at 5525 Erindale Drive, Suite 201, Colorado Springs,
Colorado 80918.
The Company has purchased race horses from an entity owned by its officers
and directors for $15,000 in cash and 128,000 shares of common stock. The
common stock that was issued as part of the transaction went to various
individuals in the related entity.
The race horses purchased from the related entity during the fiscal year ended
June 30, 1996 were booked at the predecessors cost in accordance with APB 16,
interpretation #39.
Note 5 - Officer Compensation
During the year ended June 30, 1997 Company management contributed $24,000 in
services and $12,000 in services for the period July 18, 1995 through June 30,
1996 which have been recorded as a contribution of equity.
Note 6 - Subsequent Events
The Company plans to file a form SB-2 with the Securities and Exchange
Commission and raise up to $500,000 by selling 500,000 shares of $.001 par
value common stock for $1.00 on a best efforts basis.
Note 7 - Unaudited Financial Information
The information furnished herein was taken from the books and records of the
Company without audit. The Company believes, however, that it has made all
adjustments necessary to reflect properly the results of operations for the
three month interim period ended September 30, 1997. The adjustments consist
only of normal reoccurring accruals. The results of operations for the three
month interim period ended September 30, 1997, are not necessarily indicative
of the results to be expected for the year ended June 30, 1998.
Asset Acquisitions
In September 1997 the Company purchased another race horse.
Advances From Related Parties
Subsequent to September 30, 1997, shareholders advanced an additional $31,233
in cash to the Company in the form of Debt. The balance payable to the
shareholders at December 31, 1997 was $46,233.
-9-
