FORM 10-KSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] Annual report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended June 30, 1999
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number 0-23823
WALLSTREET RACING STABLES, INC.
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(Exact name of registrant as specified in its charter)
Colorado 84-1313024
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
5525 Erindale Drive, Suite 201, Colorado Springs, Colorado 80918
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (719) 260-8509
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Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
Common Shares, $.001 par value
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Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B in this form, and no disclosure will be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
The Registrant's revenues for the most recent fiscal year were $145,098.
The aggregate market value of the 318,683 Common Shares held by
nonaffiliates of the Company as of September 1, 1999, was approximately
$398,353 based upon the last reported sale of the Company's Common Shares
of $ 1.25 per share.
The total number of Common Shares outstanding as of September 28, 1999 was
902,450.
DOCUMENTS INCORPORATED BY REFERENCE:
None
Transitional Small Business Disclosure Format: Yes No X
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TABLE OF CONTENTS
PART I
Page
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Items 1 and 2. Business and Properties.................... 1
Item 3. Legal Proceedings.......................... 11
Item 4. Submission of Matters to a Vote of
Security Holders .......................... 11
Item 5. Market for Registrant's Securities and
Related Shareholders Matters............... 11
Item 6. Management's Discussion and Analysis or
Plan of Operation.......................... 12
Item 7. Financial Statements and
Supplementary Data......................... 15
Item 8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure..... 15
PART II
Item 9. Directors, Executive Officers and Compliance
with Section 16(a) of the Exchange Act .... 15
Item 10. Executive Compensation..................... 17
Item 11. Security Ownership of Certain Beneficial
Owners and Management...................... 18
Item 12. Certain Relationships and
Related Transactions....................... 20
Glossary of Terms.......................... 21
PART IV
Item 13. Exhibits, Reports on Form 8-K and
And Financial Statements................... 22
Signature................................................. 24
Index to Financial Statements............................. 25
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Additional Information
Descriptions in this Report are qualified by reference to the contents
of any contract, agreement or other documents and are not necessarily
complete. Reference is made to each such contract, agreement or document
filed as an exhibit to this Report, or previously filed by the Company
pursuant to regulations of the Securities and Exchange Commission (the
"Commission"). (See "Item 13. Exhibits, Financial Statements, Schedules
and Reports on Form 8-K.")
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 and to review the additional considerations
set forth in this report under "Risk Factors". Except as otherwise
required by applicable securities statutes 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.
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ITEMS 1. AND 2. BUSINESS AND PROPERTIES
See page 21 of this Report for a glossary of terms used herein.
Background
Wallstreet Racing Stables, Inc. ("Company") is a Colorado corporation
organized on July 18, 1995. The Company completed its initial public
offering in June, 1998, following the sale of 127,850 Common Shares for
gross proceeds of $127,850. Concurrent with registration of its securities
under the Securities Act of 1933, the Company registered under Section
12(g) of the Securities Exchange Act of 1934. The Company's Common Shares
are currently traded in the over the counter market and quoted in the NASD
Bulletin Board under the symbol "WRSB." The Company presently has
approximately 100 shareholders.
Narrative Description of Business
The Company currently owns a number of Thoroughbred race horses and is
engaged in the business of racing. The Company generally owns a majority
interest in each of the Thoroughbreds and contracts training and stabling
of such horses to independent third parties. The Company owns no training
or stabling facilities of its own. The Company's horses are stabled in
various locations in the United States, primarily the mid-west and east
coast regions. Horses are entered in numerous races during the year, again
primarily in the eastern and mid-western United States.
A majority of the horses in which the Company had an interest at
fiscal year end June 30, 1999 were acquired as Yearlings at public auction.
Thoroughbred racehorses can be obtained by a number of means, including
ownership and breeding of the Broodmare, purchase through private sale or
public auction, or claiming at a racetrack. The Company's strategy to date
has been to acquire its Thoroughbreds as Yearlings at a public auction and
raise them to compete in races. Public sales and premier races of
Thoroughbreds are primarily centered in Kentucky, California, New York and
Florida. The annual September Yearling sale at Keeneland in Lexington,
Kentucky is the largest public auction of its kind in the world.
The Company's strategy since inception has been to acquire and
maintain a stable of race horses adequate to compete in the middle to upper
echelons of the Thoroughbred horse racing industry. Toward that end, as of
the date of this filing, the Company owns interests in five Thoroughbreds.
Management hopes to maintain approximately this amount of horses in the
future, working capital permitting. All of the horses owned by the Company
as of the date of this filing with the exception of the one two year old
are either actively engaged in racing or preparing or training for their
racing careers. As of the date of filing this Report, three of the horses
are trained by Kelly Ackerman of Carmi, Illinois and one is trained by
Michael Dickinson in Maryland. For a more complete description of the
Company's Thoroughbreds, see "- Description of Thoroughbreds" below.
Management continually evaluates its stable of Thoroughbreds to
investigate opportunities to add other quality horses. Such determination
is generally made prior to the Keeneland September sale of each year.
Working capital permitting, management generally attends that sale on an
annual basis to investigate and evaluate opportunities to add to its
existing stable. Management does not anticipate acquiring additional
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horses during the current fiscal year due to limited working capital.
During the year ended June 30, 1999, the Company acquired interests in two
Thoroughbreds, a Colt, named Red Phantom, and a Filly named Hello America,
and disposed of three Thoroughbreds owned by the Company.
Important factors in predicting racing success of Thoroughbreds and
utilized by the Company in selecting horses include 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 also retains the services of
outside consultants and veterinarians to assist in evaluation of
Bloodstock. Given the very large number of prospects placed into the market
in any given year, management anticipates that it may be necessary to
enlist the aid of Bloodstock agents in locating Thoroughbreds suitable to
the Company's purpose in the future.
Description of Thoroughbreds
As of the date of this filing, the Company has an interest in five
Thoroughbreds, ranging from two two-year olds to a seven-year old Gelding.
Two of the Thoroughbreds were acquired during 1996, a three-year old was
acquired in September, 1997 and two Thoroughbreds were acquired in
September, 1998. The following table summarizes certain information with
regard to the Company's Thoroughbreds as of June 30, 1999
Name of Horse Characterization Date Acquired % of Ownership
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Da Hoss 7 year old Gelding January 1, 1996 15%
Burnt Timber 4 year old Colt September 12, 1996 90%
Afternoon Stroll 3 year old Colt September 11, 1997 90%
Red Phantom 2 year old Colt September 15, 1998 50%
Hello America 2 year old Filly September 16, 1998 80%
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
is managed by Prestonwood Farms, owner of a majority interest. In 20 races
since beginning his career as a two-year old, Da Hoss has won 12 times,
placed second in 5 and placed third in 2. He is the winner of
approximately $1,931,000 in his career. In his most recent outing at the
Breeder's Cup Mile in November 1998, Da Hoss took the winner's share of the
$1,000,000 purse for the second time. 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.
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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 resumed training in anticipation of
continuing his racing career in 1998. After the Breeder's Cup win Da Hoss
returned to Michael Dickinson's Tapeta Farm in Maryland and continues to
train as of the date of this filing. It is anticipated that his first race
will be in October 1999, with the ultimate goal to race in the next
Breeders Cup in November, 1999. However, there is no assurance he can
successfully return to racing as a seven year old at that level.
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.
Burnt Timber
Burnt Timber, a 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). 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.
Burnt Timber is being trained by Kelly Ackerman in Carmi, Illinois.
Burnt Timber has started sixteen races through August, 1999. His race
record is three wins, two seconds and two thirds out of the sixteen
starts.. His total earning are approximately $35,300.
Afternoon Stroll
The Company acquired a 90% interest in this dark bay or brown Colt at
the 1997 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 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 Dam of Afternoon Stroll, Sippewisset, was sired by Damascus and a
winner of $9,150 at age 2. Sippewisset also foaled Money Run, the winner
of three races ages two to six and stakes placed in the Stanford Stakes
(Grade III). Afternoon Stroll is currently training in Carmi, Illinois
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with Kelly Ackerman. He has started six times and has won once and ran
third once. His current earnings to September 1999 are approximately
$8,500.
Red Phantom
The Company acquired a 50% interest in Red Phantom, a Colt, at the
Keeneland September Sale in 1998 for $3,500. His Sire, Red Ransom, stands
at stud in 1999 for $50,000 live Foal and his Yearlings last year averaged
over $74,000 in sales price. Red Ransom has sired 26 stakeswinners. Red
Ransom's Sire is Roberto who won seven Stakes races and was a champion 2
year old Colt in Ireland. Roberto has sired 86 stakes winners and has many
successful sons at stud. Red Phantom's Dam is Sunshine Linda, who is the
Dam of eight other registered Foals, including Wild Linda, a Filly by Wild
Again with earnings of $161,347. When Red Phantom begins training in
November of 1999, Kelly Ackerman of Carmi, Illinois will be his trainer.
Hello America
The Company also acquired 80% in Hello America, a Filly, at the 1998
Keeneland September Sale. She is out of Kerygma, a graded stakes placed
Mare with earnings of approximately $548,216. The Quiet American Filly is
sired by Quiet American, a grade one winner of $754,529 who has already
sired many stakes winners including last years Kentucky Derby winner, Real
Quiet. His stud fee is $35,000. Quiet American won the NYRA Mile at
Aqueduct in 1990 in 1.32 4/5 which was North America's fastest mile on
dirt. Sales prices for Yearling fillies averaged $72,821 last year. Hello
America has raced two times through September 9, 1999 and has won one race
for $7,564 earnings to date.
The Company has an interest in two less horses at June 30, 1999 than
it did at June 30, 1998. One of the horses, El Gato Grande, was claimed for
$5,000 in May of 1999. The other horse, Ipanema Paradise, was injured and
subsequently euthanized due to the injury in August of 1998.
Boarding of Company Thoroughbreds
As the Company does not own or operate any of its own boarding
facilities, it contracts with unrelated third parties to provide boarding
services. When Thoroughbred horses are not actively engaged in training or
racing, they are boarded at facilities especially designed for that
purpose. 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 Tapeta Farm,
Maryland. The Company is currently charged a prorata share of $65 per day
for training plus its share of necessary expenses, including veterinarian
and Farrier costs. The remaining Thoroughbreds owned by the Company are
actually training for upcoming races, and stabled with their trainer.
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Training
The Company retains the services of different individuals for training
as the needs of its Thoroughbreds dictate. Hello America, Burnt Timber,
Afternoon Stroll and Red Phantom are currently trained by Kelly Ackerman at
Carmi, Illinois, located near Ellis Park Race Track. The Company is
charged $20 per day per horse for this arrangement. Management
continuously evaluates training arrangements in view of the needs and
progress of 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
During the fiscal year ended June 30, 1999, each of the Company's
Thoroughbreds which was physically qualified participated in racing on the
Company's behalf. Such races occurred at various times and locations
throughout the United States. Races are selected by trainers engaged by
the Company in consultation with management. Evaluation of racing venues
depends primarily on recommendations of trainers retained by the Company
and the condition, training and breeding of Company racing prospects.
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 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.
Management seeks to run the Company's Thoroughbreds 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
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management in conjunction with the trainer and other experts retained for
that purpose.
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, California and
Illinois.
The Jockey Club
The Jockey Club, 380 Madison Avenue, New York, New York, 10017, is the
organization which registers bloodlines of Thoroughbred horses in the
United States. In order to race a Thoroughbred at sanctioned Thoroughbred
races, a Thoroughbred must be named and registered with The Jockey Club.
All of the Company's Thoroughbreds are registered with the Jockey Club.
Stable Name and Racing Colors
The Company's Thoroughbreds race under the stable name of Wallstreet
Racing Stables. Its silks are green and white.
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. The Company currently maintains
mortality and surgical insurance on its interest in three of its horses,
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. Insurance was not
obtained for Ipanema Paradise, the Thoroughbred that was injured and
euthanized in September, 1998.
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. As of September 1, 1999 the Company maintained the following
mortality insurance on its Thoroughbreds: Burnt Timber, $9,500; Afternoon
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Stroll, $18,000; and Hello America, $16,000. The amount of coverage on any
particular horse is generally a function of its perceived value;
accordingly, the Company obtains appraisals from brokers or insurance
experts in order to determine the appropriate level of insurance.
The cost of surgical insurance is not material to the Company's
business.
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 complies 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, Illinois, Indiana, Iowa 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
faces 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.
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The Company will also face stiff competition for acquisition of
trainers to prepare and manage its Bloodstock for racing as well as other
owners and trainers 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 Dickinson 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")
Risk Factors
Investors should also be aware of the following considerations in
connection with the business and operation of the Company:
Lack of Diversification. The assets of the Company consist primarily
of an interest in five racehorses as of the date of this Report. The
Company is therefore dependent on revenues from a limited number of
prospects to generate cash from operations. Of the five horses in which
the Company had an interest, Da Hoss is currently preparing to race in the
Breeder's Cup scheduled for November, 1999, although there is no assurance
he will participate. The Breeder's Cup is a prestigious stakes race with
substantial purses available to owners and trainers. With that exception,
the balance of the races in which the Company's horses may compete are
relatively small. As a result, the Company is dependent on the results of
a relatively small number of horses in less attractive races to generate
cash for operations. Expansion of the Company's stable beyond its existing
size is limited, due to the limited working capital. At June 30, 1999, the
Company had negative working capital of $27,877, consisting of current
assets of $10,478 and current liabilities of $38,355. Continuation of the
Company as a going concern is therefore dependent on receipt of additional
capital from outside sources, as well as improving results of its horses.
(See "Item 6. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS")
Competition from Legalized Gambling. Horse racing as an industry
has experienced intense competition in recent years with the advent of
other forms of legalized gambling. Limited stakes gambling adopted
recently in many states, such as Colorado, Minnesota, Iowa, Mississippi and
Louisiana, together with casino activities operated by Native Americans,
has supplemented traditional gambling in states such as Nevada and New
Jersey. This proliferation has contributed to make other forms of
legalized gambling more accessible to U.S. residents. As a result,
attendance at thoroughbred race tracks, especially in the lower echelons,
has decreased substantially in recent years. Top stakes races, such as the
Breeder's Cup, Kentucky Derby, Belmont and Preakness, continue to enjoy
substantial public interest and economic success. However, many race
tracks have closed in recent years as a result of the proliferation of
other forms of gambling. Accordingly, owners and trainers of Thoroughbreds
must find new ways to attract spectators to maintain an interest in the
sport.
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Economic Sensibility. It is management's opinion that horse
racing is subject to fluctuation based upon domestic and worldwide economic
conditions. Due to the fact that horse racing is a hobby to many owners,
management believes that the demand for Thoroughbreds is susceptible to
adverse economic conditions in the United States and various locations
abroad. This fact was documented in the decade of the 1980's, when,
coupled with new tax legislation, adverse economic conditions caused many
investors to experience a substantial decline in the demand for
Thoroughbreds. Such decrease, in turn, resulted in lower prices being paid
for horses, with a ripple effect throughout the thoroughbred industry.
While management knows of no existing factors which would adversely effect
economic conditions in the immediate future, such events are often cyclical
and sometimes difficult to predict. Any material, adverse change in
economic conditions may adversely affect the thoroughbred market, and sales
prices for horses.
Conflicts of Interest. Neither officers or employees of the
Company nor trainers retained to train and race Thoroughbreds serve the
Company on a full time basis. Accordingly, each is subject to a conflict
of interest with regard to time, effort and corporate opportunity on the
Company's behalf. Employees of the Company are engaged in a number of
activities outside the Company, both within and outside the thoroughbred
industry. While the officers are aware of the fiduciary duties owed to the
Company, they will not serve on a full-time basis. Further, thoroughbred
trainers typically train horses for a number of different owners, and may
be responsible for many different horses. This situation results in
competing demands for the time, effort and perceived opportunity of the
trainer. Management continually monitors the progress of the trainers
retained by the Company to ensure satisfactory service to the Company.
However, until such time as the Company obtains additional working capital,
it is not expected that it will retain either employees or trainers on a
full time basis.
Limited Market for the Company's Stock. Although there presently
exists a public market for the Company's Common Stock, there is no
assurance that such market can be sustained. Trading in the Company's
Common Stock is extremely limited. The Company's Common Stock is
characterized as "Penny Stocks" under rules and regulations of the
Securities and Exchange Commission. Penny Stocks are equity securities
with a price of less than $5.00 and which are not traded on a national
securities exchange or quoted in the NASDAQ system. Penny stock rules
require a securities broker- dealer, prior to effecting a transaction in a
penny stock not otherwise exempt, to deliver a risk disclosure document and
evaluate the suitability of the transaction for its customer. Disclosure
requirements may have the effect of curtailing the level of trading
activity in the secondary market for the Company's Common Stock. While the
Company hopes to one day achieve listing in NASDAQ to overcome this
limitation, it is unlikely such a listing will be obtained in the near
future, based on the Company's existing financial condition.
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 Stock 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 Stock, generally greater than 5 or 10% of the
outstanding equity in a corporation, must be approved by the racing
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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 Stock subject to this provision is based on the prevailing market
price of the stock 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 the
market.
Company Facilities
The Company maintains its administrative offices, its only facilities,
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 during the year ended June 30, 1999. 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.
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.
10
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
No material legal proceedings to which the Company (or any of its
officers or directors in their capacities as such) is a party or to which
the property of the Company is subject is pending and no such legal
proceeding is known by management of the Company to be contemplated.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held no shareholder's meeting during the fourth fiscal
quarter covered by this Report.
ITEM 5. MARKET FOR REGISTRANT'S SECURITIES AND RELATED SHAREHOLDER
MATTERS
The Company's Common Shares are traded in the over-the-counter market
and are quoted on the NASD 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 Shares of the Company. 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.
FISCAL YEAR 1998 High Low
------------------------------------------------
First Quarter
(July 1 through Sept. 30) $1.00 $0.875
Second Quarter 2.00 0.875
(Oct. 1 through Dec. 31)
Third Quarter 2.00 2.00
(Jan. 1 through March 31)
Fourth Quarter 1.56 1.56
(April 1 through June 30)
FISCAL YEAR 1999
----------------
First Quarter 1.5625 1.03125
(July 1 through Sept. 30)
Second Quarter 1.75 1.03125
(Oct. 1 through December 31)
11
<PAGE>
Third Quarter
(Jan. 1 through March 31) 2.000 1.25
Fourth Quarter 1.375 1.25
(Apr. 1 through June 30)
The number of record holders of the Common Shares as of June 30, 1999
was approximately 100, including nominees of beneficial owners. The
Company estimates that there are approximately 100 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.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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 iv of this filing).
Results of Operations
Substantially all of the Company's revenues are obtained from purses
offered by races in which its Thoroughbreds participate. As the Company
matures, it may receive revenues from the sale or syndication of its
Thoroughbreds during or following completion of their racing career. The
Company received $9,500 from the sale or syndication of the Thoroughbreds
during the year ended June 30, 1999. Expenses incurred by the Company
include operating expenses associated with training and racing its
Thoroughbreds, as well as administrative expenses.
Year Ended June 30, 1999
------------------------
For the year ended June 30, 1999, the Company realized a net loss of
$100,789, or $.11 per share, on total revenues of $145,098. Substantially
all of the revenues represent purses obtained by Thoroughbreds
participating in races. Da Hoss accounted for slightly greater than fifty
percent of the revenue for his win in the Breeders' Cup. Management
expects the Company will continue to incur losses until such time, if ever,
the Company obtains an interest in sufficient Thoroughbreds to generate
revenues sufficient to cover its operating and overhead expenses. That, in
turn, is dependent on the Company obtaining additional working capital.
12
<PAGE>
Primary expenses experienced by the Company during the year ended June
30, 1999 include boarding and training, depreciation, salaries, travel and
entertainment. Boarding and training decreased $2,875 from the year ended
June 30, 1998 to the year ended June 30, 1999, primarily due to the smaller
number of Thoroughbreds in which the Company had an interest during fiscal
1999. Race expense increased from fiscal 1998 to 1999, from $5,380 for the
year ended June 30, 1998 to $23,061 for the year ended June 30, 1999. This
expense is directly related to the number of Thoroughbreds owned by the
Company and the locations of the various races.
During fiscal 1999 the officers accrued $48,000 worth of salary, of
which $20,000 was accrued and remains payable by the Company and $28,000
was paid in cash. Travel and entertainment increased from fiscal 1998 to
1999, from $13,009 for fiscal 1998 to $21,403 for fiscal 1999. This
increase results from more activity associated with efforts to investigate
and acquire additional Thoroughbreds. Legal and accounting also increased
significantly from 1998, primarily due to public reporting obligations and
expenses associated with a proposed merger, which was terminated prior to
completion.
Year Ended June 30, 1998
------------------------
For the year ended June 30, 1998, the Company realized a loss from
operations of $142,259 on revenues of $16,154. Including other income or
expense, the net loss was $141,278 or $(.19) per share. This compares to a
net loss of $225,714, or $(.36) per share for the period from inception
through June 30, 1997. Revenues for the year ended June 30, 1998 represents
the Company's share of racing purses.
Other significant expenses include boarding and training ($33,445),
legal and accounting ($7,128) primarily related to the Company's status as
a publicly traded company and the accompanying legal and audit fees,
officers' salaries of $44,000 and travel and entertainment of approximately
$13,009.
Liquidity and Capital Resources
June 30, 1999
- -------------
As of June 30, 1999, the Company's only commitment for working capital
was expenses associated with boarding, training and racing of the Company's
Thoroughbreds, together with general and administrative expenses. The
Company does not anticipate acquiring additional horses in the current
fiscal year due to limited operating capital. Boarding and training
expenses are charged at a per diem rate ranging from $10 to $65, depending
upon the trainer. Racing expenses are variable. General and administrative
expenses include officers' salary, legal and accounting, office and
insurance. Based on the Company's working capital at June 30, 1999,
management anticipates the Company will need additional resources to
complete the fiscal year ended June 30, 2000.
At June 30, 1999, the Company had negative working capital of
($27,877), consisting of current assets of $10,478 and current liabilities
of $38,355. Assuming the Company's expenses for fiscal 2000 are similar to
13
<PAGE>
those experienced during fiscal 1999, such working capital will be
insufficient to fund operations for the coming year. Management is of the
opinion that the Company is dependent upon obtaining additional capital and
achieving profitable operations to continue as a going concern. Management
will fund its working capital requirements through additional private
placement funding or through the sale of Company horses.
Historically, the Company has relied on the proceeds of sale of equity
securities, together with operating revenues, to provide working capital to
fund operations. The Company's operation continued to use, rather than
provide, cash. During the year ended June 30, 1999, the Company's
operations used $53,569. This compares to funds used during fiscal 1998 of
$62,717. Management anticipates the Company's operations will continue to
use, rather than provide funds until such time the Company obtains an
interest in additional Thoroughbreds.
In addition to a loss from operations of $98,555, the Company's cash
flows during fiscal 1999 were utilized to acquire additional Thoroughbreds.
During the year ended June 30, 1999, the Company purchased two Yearlings
for $21,600. Partially offsetting that purchase were the sale of two
Thoroughbreds for cash. The Company sold a four-year-old Gelding in May,
1999. The Company also sold a Gelding in November, 1998. The Company's
share of the proceeds of those sales was $9,500.
June 30, 1998
- -------------
At June 30, 1998, the Company had working capital of $58,361,
consisting of current assets of $70,249 and current liabilities of $11,888.
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, 1998, the Company's operations utilized $61,461
of cash. The Company financed all of its operations through June 30, 1998
from the Company's share of purses won by one or more of its Thoroughbreds
during the year. During the year ended June 30, 1998, the Company obtained
net cash flow from financing of $121,941. The Company offered up to 500,000
Common Shares on a best efforts basis for a period of 120 days, culminating
in the sale of 127,850 shares. During the year ended June 30, 1997, the
Company received $58,500 of its operating funds from the sale of common
stock.
A portion of the funds utilized by the Company during fiscal 1998
included loans made by principal shareholders. The Company borrowed up to
$46,000 during fiscal 1998 to defer ongoing expenses pending receipt of
proceeds from the public offering completed in June. Those notes were paid
in full from the proceeds of the public offering and by issuance of common
stock to the lenders.
During the year ended June 30, 1998, the Company spent an aggregate of
$16,200 on the acquisition of horses. Additional expenses, including
boarding and training, sales commissions to Bloodstock agents and general
and administrative expenses totaled $158,413 for the year ended June 30,
1998.
14
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the Index to Financial Statements following Part
IV of this Report for a listing of the Company's financial statements and
notes thereto.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
During the two most recent fiscal years, there have been no changes in
the Company's certified public accountants of the nature requiring
disclosure pursuant to this item.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS AND COMPLIANCE WITH SECTION 16(a)
OF THE EXCHANGE ACT.
The following table sets forth the names and ages of the members of
the Company's Board of Directors and its executive officers:
Name Age Position
---- --- --------
Raymond E. McElhaney 43 President, Chief Executive
Officer, Chief Financial Officer and
Chairman of the Board of Directors
Bill M. Conrad 43 Vice-President, Secretary, Treasurer
and Director
Ronald R. McGinnis 65 Vice President - Corporate Development
and Director
Clifford C. Thygesen 64 Director
Wayne Bamford 62 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
15
<PAGE>
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 June 1997 to the
present, Mr. McElhaney has served as a Director for Full Tilt Sports,
Inc., a publicly traded consumer apparel company with securities traded on
the NASD over-the-counter bulletin board.
BILL M. CONRAD. Mr. Conrad has served as Vice-President, Secretary,
Treasurer and a Director of the Company also since inception. From June
1997 to the present, he has served as a Director for Full Tilt Sports, 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
currently spends most of his time as a private investor. 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 quoted 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 interests 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,
16
<PAGE>
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.
Compliance with Section 16(a) of the Securities Act of 1934.
Based solely upon a review of Forms 3, 4 and 5 received by the Company
pursuant to Rule 16(a)-3 of the 1934 Act, none of the officers, directors
or beneficial owners of more than ten percent of any class of equity
securities of the Company registered pursuant to Section 12 of the 1934 Act
have failed to file on a timely basis, Forms 3, 4 or 5 as required by
Section 16(a) during the most recent fiscal year or prior fiscal year.
ITEM 10. EXECUTIVE COMPENSATION
The following table summarizes the total compensation of the Chief
Executive Officer, and other executive officers whose compensation from the
Company exceeded $100,000 during that period (the "Named Officers"):
SUMMARY COMPENSATION
--------------------
<TABLE>
<CAPTION>
Long Term Compensation
----------------------
Securities
Annual Compensation Underlying
------------------- Stock
Name Period Salary Options
- ---- ------ ------ -------
<S> <C> <C> <C>
Raymond E. McElhaney, Year ended June 30, 1997 $ 12,000 -0-
President, Chief Executive
Officer, Chief Financial Year ended June 30, 1998 $ 22,000(1) -0-
Officer and Chairman of
the Board of Directors. Year ended June 30, 1999 $ 24,000(2) -0-
- -----------------------
(1) Mr. McElhaney donated $2,000 worth of services and received the
remaining compensation in Common Stock valued at $1.00 per share.
(2) Of this amount, $14,000 was paid in cash and 10,000 was accrued.
</TABLE>
Effective September 1, 1997, Messrs. McElhaney and Conrad entered
into Executive Employment Agreements (the "Employment Agreements") with the
Company. The Employment Agreements were effective for a period of eighteen
months and were 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. Messrs. McElhaney and Conrad's Executive Employment Agreements
were automatically renewed for a period of one year beginning March 1, 1999.
17
<PAGE>
The Employment Agreements provide for payment of monthly compensation
in the amount of $2,000. Both individuals 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.
The Company does not pay compensation to its members of the Board of
Directors. A director may receive compensation as an officer or employee
for those duties exclusively.
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 June
30, 1999, no options have been granted pursuant to the Plan.
The Plan is administered by the Board of Directors, who selects
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 considers, 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.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of the date of the end of the fiscal year, June 30, 1999, there
were a total of 902,450 shares of Common Stock of the Company outstanding.
The following tabulates holdings of Common Shares of the Company by each
person who 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 up to 1,000,000 shares of Common Stock
issuable under the Company's Incentive Stock Option Plan. The shareholders
listed below have sole voting and investment power, except as otherwise
noted.
18
<PAGE>
Number Percent
Name and Address of Shares of Voting Securities
- ---------------- --------- --------------------
Raymond E. McElhaney(1,2)
5525 Erindale Drive, Suite 201
Colorado Springs, CO 80918 207,834 23.22%
Bill Conrad(1,2)
5525 Erindale Drive, Suite 201
Colorado Springs, CO 80918 186,934 21.00%
Ronald R. McGinnis(1,3)
5525 Erindale Drive, Suite 201
Colorado Springs, CO 80918 71,333 7.97%
Clifford C. Thygesen(1)
4893 Idylwild Trail
Boulder, CO 80301 61,333 6.85%
Wayne Bamford(1)
5948 East King Court
Parker, CO 80134 46,333 5.18%
Dewey L. Williams
4611 Langland Road, #104
Dallas, Texas 75244 77,333 8.64%
All Officers and Directors
as a Group (5 persons) 583,767 65.23%
- -----------------------------
(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) Includes 25,000 Common Shares held by the McGinnis Family Limited
Partnership of which Mr. McGinnis is the general partner.
- -----------------------------
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, certain of the officers
and directors could become eligible for stock option grants under the
Company stock option plan in the future.
19
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED 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. Messrs. McElhaney and Conrad are officers, directors
and principal shareholders of the Company and are also officers, directors
and principal shareholders of MCM.
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 June,
1998, bearing interest at 9%. Of that amount, Mr. McElhaney advanced
$32,132.75, Mr. Conrad $9,100 and Mr. Thygesen $5,000. The Company issued
an aggregate of 29,100 Common Shares as a conversion of this debt due in
June, 1998. The shares were valued at $1.00 per share and 9,100 Common
Shares were issued to Mr. Conrad, 15,000 Common Shares were issued to Mr.
McElhaney and 5,000 Common Shares were issued to Mr. Thygesen. The
remaining portion of Mr. McElhaney's note was paid in cash. The Board of
Directors is of the opinion that the shares were acquired under terms and
conditions no more favorable than those offered to any other shareholder.
The McGinnis Family Limited Partnership, of which Mr. McGinnis is the
general partner, purchased 25,000 Common Shares in the June, 1998 public
offering of the Company's stock, at the price of $1.00 per share. Mr.
McGinnis is an officer and director of the Company. The shares were
purchased on the same terms and conditions as other third-party investors.
Messrs. Conrad and McElhaney each obtained 20,000 Common Shares as
compensation for services rendered to the Company through June 30, 1998.
The shares were valued at $1.00 per share and the accrued compensation, due
to each Messrs. Conrad and McElhaney, was valued at $20,000 each. The
Board of Directors is of the opinion that the shares were obtained under
terms and conditions that were no more favorable than those offered to any
other shareholder.
20
<PAGE>
GLOSSARY OF TERMS
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.
Dam means a female parent of a horse, as used in regard to a specific
horse.
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 filing, 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.
21
<PAGE>
PART IV
ITEM 13. EXHIBITS, REPORTS ON FORM 8-K AND FINANCIAL STATEMENTS
(a) Exhibits.
Except as otherwise indicated, each of the following documents
were included as exhibits to the Company's Registration Statement
on Form SB-2 filed under the Securities Act of 1933, File No. 333-
29859 as amended and are incorporated herein by this reference.
Exhibit No.
-----------
2 Not applicable.
3.1 Articles of Incorporation of the Company as filed July
18, 1995 with the Secretary of State of the State of
Colorado.
3.2 Articles of Amendment to the Articles of Incorporation
of the Company as filed September 13, 1995 with the
Secretary of State of the State of Colorado.
3.3 Bylaws of the Company.
3.4 Amendment to the Bylaws of the Company.
4.1 Form of Certificate for Common Shares, $.0001 par value
per share.
9 Not applicable.
10.1 Non-Qualifying Stock Option and Stock Grant Plan, dated
August 1, 1995.
10.2 Employment Agreement, dated June 1, 1997, by and
between the Company and Raymond E. McElhaney.
10.3 Employment Agreement, dated June 1, 1997, by and
between the Company and William M. Conrad.
10.4 Purchase and Sale Agreement by and between Wallstreet
Racing Stables, Inc. And Wallstreet Racing Stables III,
dated January 1, 1996.
11 Not applicable.
13 Not applicable.
22
<PAGE>
16 Not applicable.
18 Not applicable.
21 Not applicable.
22 Not applicable.
23 Not applicable.
24 Not applicable.
27 Financial Data Schedule
99 Not applicable.
(b) Reports on Form 8-K
Not applicable.
(c) Financial Statements and Schedules.
The Financial Statements filed herein are described in the Index
to Financial Statements following Part IV of this Report.
23
<PAGE>
SIGNATURE
---------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be
signed on its behalf by the undersigned thereunto duly authorized in
Colorado Springs, Colorado on the 1st day of October, 1999.
WALLSTREET RACING STABLES, INC.
By: /s/ Raymond E. McElhaney
----------------------------------------
Raymond E. McElhaney, President, Chief
Executive Officer, Chief Financial
Officer and Chairman of the Board
Pursuant to the requirements of the Security Exchange Act of 1934, as
amended, this Report has been signed by the following persons in the
capacities and on the dates indicated.
Signatures Title Date
- ---------- ----- ----
/s/ Raymond E. McElhaney President, Chief Executive Officer, 10/01/99
- --------------------------- Chief Financial Officer and Chairman --------
Raymond E. McElhaney of the Board of Directors
/s/ Bill M. Conrad Vice President, Secretary, Treasurer 10/01/99
- --------------------------- and Director --------
Bill M. Conrad
/s/ Ronald R. McGinnis Vice President - Corporate 10/01/99
- --------------------------- Development and Director --------
Ronald R. McGinnis
/s/ Clifford C. Thygesen Director 10/01/99
- --------------------------- --------
Clifford C. Thygesen
/s/ Wayne Bamford Director 10/01/99
- --------------------------- --------
Wayne Bamford
24
<PAGE>
WALLSTREET RACING STABLES, INC.
INDEX TO FINANCIAL STATEMENTS
Page
----
Independent Auditors Report.................................... F-1
Balance Sheet at June 30, 1999................................. F-2
Statement of Operations for the Fiscal Year Ended June 30, 1998
and the Fiscal Year Ended June 30, 1999........................ F-3
Cash Flow Statement for the Fiscal Year Ended June 30, 1998
and the Fiscal Year Ended June 30, 1999........................ F-4
Statement of Shareholders Equity............................... F-5
Notes to Financial Statements.................................. F-6
25
<PAGE>
WALLSTREET RACING STABLES, INC.
FINANCIAL STATEMENTS
With Independent Auditors' Report
For the Fiscal Year Ended June 30, 1999 and 1998
<PAGE>
Independent Auditors' Report
----------------------------
We have audited the accompanying balance sheet of Wallstreet Racing
Stables, Inc., as of June 30, 1999, and the related statements of income,
shareholders' equity and cash flows for the fiscal years ended June 30,
1999 and 1998. 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, 1999 and the results of its operations and its
cash flows for the fiscal years ended June 30, 1999 and 1998 in conformity
with generally accepted accounting principles.
Kish, Leake & Associates, P.C.
Certified Public Accountants
Englewood, Colorado
August 30, 1999
F - 1
<PAGE>
Wallstreet Racing Stables, Inc.
Balance Sheet
June 30, 1999
- -------------------------------------------------------------------
ASSETS
- ------
Current Assets:
Cash $3,267
Accounts Receivable 6,784
Prepaid Expenses 427
---
Total Current Assets 10,478
------
Property And Equipment
Racehorses 41,950
------
Total 41,950
Accumulated Depreciation (14,123)
------
Net Property And Equipment 27,827
------
TOTAL ASSETS $38,305
=======
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Accounts Payable - Trade 18,355
Accrued Salaries 20,000
Total Current Liabilities 38,355
------
Long-Term Liabilities 0
-
TOTAL LIABILITIES 38,355
------
SHAREHOLDERS' EQUITY
Preferred Stock - $.01 Par Value, 5,000,000 Shares
Authorized; -0- Shares Issued And Outstanding 0
Common Stock - $.001 Par Value, 15,000,000 Shares
Authorized; 902,450 Shares Issued and Outstanding 902
Capital Paid In Excess Of Par Value 466,829
Retained (Deficit) (467,781)
-------
TOTAL SHAREHOLDERS' EQUITY (50)
--
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $38,305
=======
The Accompanying Notes Are An Integral Part Of These Financial Statements
F - 2
<PAGE>
Wallstreet Racing Stables, Inc.
Statements Of Operations
- -------------------------------------------------------------------
For The For The
Year Ended Year Ended
June June
30, 1999 30, 1998
-------- --------
Revenue
Purses $125,098 $15,289
Miscellaneous Income 20,000 865
------ ---
Total Revenue 145,098 16,154
------- ------
Operating Expenses:
Advertising 0 60
Auction Sales Expenses 0 2,722
Boarding And Training 30,570 33,445
Commissions 0 1,800
Consulting 10,000 0
Depreciation 13,229 12,400
Filing And Recording Fees 6,494 1,076
Horseshoeing Expense 1,648 1,334
Horse Transportation 2,019 1,779
Impairment of Asset 2,777 0
Insurance 1,667 5,625
Jockey Fees 12,365 1,786
Legal And Accounting 29,547 7,128
Office 14,268 9,618
Payroll Taxes 2,708 0
Race Expenses 23,061 5,380
Rent 6,000 6,000
Salaries 48,000 44,000
Telephone 3,439 2,573
Travel And Entertainment 21,403 13,009
Vet Expenses 14,458 8,678
------ -----
Total Operating Expenses 243,653 158,413
------- -------
(Loss) From Operations (98,555) (142,259)
------ -------
Other Income (Expense):
Interest Income 938 182
Interest (Expense) (27) (3,098)
Loss On Sale Of Horse (3,145) 3,897
----- -----
Total Other Income (Expense) (2,234) 981
----- ---
(Loss) Before Taxes (100,789) (141,278)
------- -------
Income Tax Expense 0 0
Net (Loss) ($100,789) ($141,278)
======== ========
Weighted Average Common Shares Outstanding 899,325 750,604
Basic (Loss) Per Share (0.11) (0.19)
==== ====
The Accompanying Notes Are An Integral Part Of These Financial Statements
F - 3
<PAGE>
Wallstreet Racing Stables, Inc.
Cash Flow Statements
- ---------------------------------------------------------------------
For The For The
Year Ended Year Ended
June June
30, 1999 30, 1998
-------- --------
Net (Loss) ($100,789) ($141,278)
Items Not Affecting Cash Flow:
Depreciation 13,229 12,400
Conversion of Salary to Stock 0 40,000
Contributed Services 0 4,000
Loss on Sale of Horse 3,367 0
Gain on Sale of Horse (222) (5,153)
Impairment of Asset 2,777 0
Issuance of Stock for Services 7,500 0
Conversion of Debt to Stock 0 29,100
(Increase) Decrease In Receivable (6,119) (521)
(Increase) Decrease In Prepaid Expenses 121 4,420
(Increase) Decrease In Deposits 100 (100)
Increase (Decrease) In Accounts Payable 6,467 (5,585)
Increase (Decrease) In Accrued Salaries 20,000 0
------ -
Net Cash Flows Provided From (Used By) Operations (53,569) (62,717)
------ ------
Cash Flows From Investing Activities:
Sale of Horses 9,500 13,825
Purchase Of Horses (21,600) (16,200)
------ ------
Net Cash Flows Provided From (Used By) Investing (12,100) (2,375)
------ -----
Cash Flows Provided From Financing Activities:
Advances Received From Related Party 0 17,133
Repayment Of Advances From Related Party 0 (17,133)
Sale Of Common Stock 0 127,850
Deferred Offering Costs 0 (6,909)
Warrants Exercised 0 1,000
- -----
Net Cash Flows Provided From (Used By) Financing 0 121,941
- -------
Net Increase (Decrease) In Cash (65,669) 56,849
Cash At Beginning Of Period 68,936 12,087
------ ------
Cash At End Of Period $3,267 $68,936
====== =======
Summary Of Non-Cash Investing And Financing Activities:
Stock Issued For Salaries 0 40,000
Contributed Services 0 4,000
Stock Issued For Debt 0 29,100
Stock Issued For Services 7,500 0
The Accompanying Notes Are An Integral Part Of These Financial Statements
F - 4
<PAGE>
<TABLE>
Wallstreet Racing Stables, Inc.
Statement Of Shareholders Equity
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
Number Of Number Of Capital Paid
Common Preferred Common In Excess Of Accumulated
Shares Shares Stock Par Value (Deficit) Total
------ ------ ----- --------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance At June 30, 1996 638,500 0 $639 $182,052 ($172,644) $10,047
November 1996 Private Offering
For Cash @ $1 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
Exercise of Warrants 1,000 1 999 1,000
June 1998 Offering for Cash
@ $1 Per Share 127,850 128 127,722 127,850
Deferred Offering Costs (6,910) (6,910)
June 1998 Issue of Stock for Salary
@ $1 Per Share 40,000 40 39,960 40,000
June 1998 Issue of Stock for Promissory
Notes @ $1 Per Share 29,100 29 29,071 29,100
Net (Loss) June 30, 1998 (141,278) (141,278)
Balance at June 30, 1998 894,950 0 895 459,336 (366,992) 93,239
November 1998 Issue Stock for Services
@ $1 Per Share 7,500 7 7,493 7,500
Net (Loss) June 30, 1999 (100,789) (100,789)
Balance at June 30, 1999 902,450 0 $902 $466,829 ($467,781) ($50)
======= = ==== ======== ======== ===
</TABLE>
The Accompanying Notes Are An Integral Part Of These Financial Statements
F - 5
<PAGE>
Wallstreet Racing Stables, Inc.
Notes to Financial Statements
For the Year Ended June 30, 1999 and 1998
- -----------------------------------------
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. 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. Broodmares are stated at cost and are depreciated over their
estimated economic lives ranging from 3 to 7 years depending on their age
when purchased.
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, 1999 and 1998 was $27
and $3,098, respectively. Cash paid for income taxes for the year ended
June 30, 1999 and 1998 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, 1999 was $ -0-.
F - 6
<PAGE>
Wallstreet Racing Stables, Inc.
Notes to Financial Statements
For the Year Ended June 30, 1999 and 1998
- -----------------------------------------
Net Income (Loss) Per Share of 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, 1999 and 1998.
Revenue Recognition
Revenue is recognized when a purse from a race is earned.
Note 2 - Equity
- ---------------
In March 1998 1,000 shares of common stock were issued for exercised
warrants at $1.00 per share, or $1,000. An offering which closed in June
1998 sold 127,850 shares of common stock for cash at $1.00 per share, or
$127,850 less $6,910 in deferred offering costs. In June 1998 common stock
was issued to officer/directors at $1.00 per share, or $40,000, and for
promissory notes for $1.00 per share or $29,100. In November 1998 common
stock was issued for legal services at $1.00 per share, or $7,500.
The Company has adopted a Non-Qualified Stock Option and Stock Grant 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 this plan. As of June 30, 1999, no options
have been granted pursuant to this plan.
Note 3 - Income Taxes
- ---------------------
The Company follows Financial Accounting Standards Board Statement No. 109,
"Accounting for Income Taxes" (SFAS #109), which requires, among other
things, an asset and liability approach to calculating deferred income
taxes. The components of the net deferred tax asset recognized in the
accompanying balance sheet are as follows:
Deferred tax asset $80,858
Valuation allowance (80,858)
--------
$ -0-
========
F - 7
<PAGE>
Wall Street Racing Stables, Inc.
Notes to Financial Statements
For the Year Ended June 30, 1999 and 1998
- -----------------------------------------
Note 3 - Income Taxes - continued
- ---------------------------------
The net change in the valuation allowance for the year ended June 30, 1999
is $20,341.
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
---------- ------
Deferred Assets:
Net operating loss carry forward $ 409,423 $81,855
========= =======
Deferred Liabilities:
Depreciation timing differences $ 5,135 $ 1,027
========= =======
The Company's NOL carryforward of approximately $409,423 at June 30, 1999,
which management expects will be fully utilized, will expire in various
amounts between 2010 and 2013.
Note 4 - Related Party Events
- -----------------------------
The Company leases office space and secretarial services from a company
owned by certain 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.
Certain officers of the Company loan money to the Company at various times
during the year when cash is needed.
Note 5 - Deferred Offering Costs
- --------------------------------
In connection with the offering of its common shares, the Company incurred
offering costs consisting of legal, printing, and audit fees totaling
$6,910. 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 are charged to
expense. Therefore, the offering expense for the successful June 1998
offering reduced the offering proceeds.
F - 8
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE 6/30/1999 FORM
10-KSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-KSB.
</LEGEND>
<CIK> 0001040751
<NAME> WALLSTREET RACING STABLES, INC.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 3,267
<SECURITIES> 0
<RECEIVABLES> 6,784
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,478
<PP&E> 41,950
<DEPRECIATION> 14,123
<TOTAL-ASSETS> 38,305
<CURRENT-LIABILITIES> 38,355
<BONDS> 0
0
0
<COMMON> 902
<OTHER-SE> (952)
<TOTAL-LIABILITY-AND-EQUITY> 38,305
<SALES> 0
<TOTAL-REVENUES> 145,098
<CGS> 0
<TOTAL-COSTS> 243,653
<OTHER-EXPENSES> 3,145
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27
<INCOME-PRETAX> (100,789)
<INCOME-TAX> 0
<INCOME-CONTINUING> (100,789)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (100,789)
<EPS-BASIC> (.11)
<EPS-DILUTED> (.11)
</TABLE>
