<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 1999
--------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________________ to ____________________
Commission File Number 0-1365
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SCIOTO DOWNS, INC.
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(Exact name of registrant as specified in its charter)
OHIO 31-4440550
- ------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
6000 SOUTH HIGH STREET, COLUMBUS, OHIO 43207
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(Address of principal executive offices) (Zip Code)
(614) 491-2515
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
--- ---
The number of common shares outstanding at May 30, 1999:
595,767, par value $1.05
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<TABLE>
SCIOTO DOWNS, INC.
INDEX
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<CAPTION>
PAGES
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<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets at April 30, 1999, October 31, 1998
and April 30, 1998 1-2
Statements of Operations for the three-month and six-month periods
ended April 30, 1999 and 1998 3
Statements of Cash Flows for the six-month periods ended
April 30, 1999 and 1998 4
Notes to Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 6-8
Item 3. Quantitative and Qualitative Disclosures about Market Risk 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 2. Changes in Securities 9
Item 3. Defaults Upon Senior Securities 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 5. Other Information 9
Item 6. Exhibits and Reports on Form 8-K 9
SIGNATURES 10
</TABLE>
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SCIOTO DOWNS, INC.
BALANCE SHEETS
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31, APRIL 30,
1999 1998 1998
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(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,003,062 $ 1,503,240 $ 612,625
Accounts receivable 67,626 269,352 2,324
Prepaid expenses and other 85,098 77,729 47,643
Deferred income taxes 190,000 -- 367,000
----------- ----------- -----------
Total current assets 1,345,786 1,850,321 1,029,592
----------- ----------- -----------
Investment in joint venture 97,126 97,126 95,089
Property and equipment, at cost 20,068,129 20,016,643 20,009,893
Less accumulated depreciation 13,734,561 13,386,843 13,041,364
----------- ----------- -----------
Total property and equipment, net 6,333,568 6,629,800 6,968,529
----------- ----------- -----------
Total assets $ 7,776,480 $ 8,577,247 $ 8,093,210
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</TABLE>
CONTINUED
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SCIOTO DOWNS, INC.
BALANCE SHEETS
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<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31, APRIL 30,
1999 1998 1998
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(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable, trade $ -- $ 41,123 $ 145,161
Dividends payable -- 29,789 --
Current maturities, term debt 288,829 281,237 284,206
Accrued expenses 220,811 217,911 181,970
Deferred revenue 157,673 -- 148,111
Purses payable and simulcast purse fund 796,261 495,055 521,468
---------- ---------- ----------
Total current liabilities 1,463,574 1,065,115 1,280,916
---------- ---------- ----------
Minimum pension liability 115,771 115,771 105,121
Deferred income taxes 43,342 43,342 28,994
Term debt, net of current maturities 2,804,978 2,925,113 3,068,525
Stockholders' equity:
Common stock, $1.05 par value per share, issued
and outstanding: 595,767 shares 625,555 625,555 625,555
Capital in excess of par value of stock 2,037,300 2,037,300 2,037,300
Retained earnings 754,770 1,833,861 1,006,579
Pension liability adjustment, net of taxes (68,810) (68,810) (59,780)
---------- ---------- ----------
Total stockholders' equity 3,348,815 4,427,906 3,609,654
---------- ---------- ----------
Total liabilities and stockholders' equity $7,776,480 $8,577,247 $8,093,210
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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SCIOTO DOWNS, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE-MONTH AND SIX-MONTH PERIODS ENDED APRIL 30, 1999 AND 1998
(UNAUDITED)
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<TABLE>
<CAPTION>
FOR THE THREE-MONTH FOR THE SIX-MONTH
PERIODS ENDED PERIODS ENDED
APRIL 30, APRIL 30,
------------------------ ----------------------------
1999 1998 1999 1998
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<S> <C> <C> <C> <C>
Operating revenues:
Simulcasting revenues $ 65,101 $ 61,211 $ 70,180 $ 75,856
Other operating revenues 17,780 22,511 42,547 27,769
--------- --------- ----------- -----------
82,881 83,722 112,727 103,625
Operating expenses:
Salaries and wages 132,714 120,233 266,752 240,020
Depreciation 173,859 174,978 347,718 349,958
Other operating and general expenses 407,174 362,839 658,715 601,273
--------- --------- ----------- -----------
713,747 658,050 1,273,185 1,191,251
--------- --------- ----------- -----------
Loss from operations (630,866) (574,328) (1,160,458) (1,087,626)
Interest expense (60,145) (89,814) (129,123) (162,162)
Dividend and interest income 12,918 2,397 20,490 8,877
--------- --------- ----------- -----------
Net loss before income tax benefit (678,093) (661,745) (1,269,091) (1,240,911)
Income tax benefit 101,000 196,000 190,000 367,000
--------- --------- ----------- -----------
Net loss $(577,093) $(465,745) $(1,079,091) $ (873,911)
========= ========= =========== ===========
Net loss per common share - basic and diluted $ (.97) $ (.78) $ (1.81) $ (1.47)
========= ========= =========== ===========
Weighted average common shares
outstanding--basic and diluted 595,767 595,767 595,767 595,767
========= ========= =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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SCIOTO DOWNS, INC.
STATEMENTS OF CASH FLOWS
FOR THE THREE-MONTH AND SIX-MONTH PERIODS ENDED APRIL 30, 1999 AND 1998
(UNAUDITED)
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<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
CASH FLOWS USED IN OPERATING ACTIVITIES:
Net loss $(1,079,091) $(873,911)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 347,718 349,958
Deferred income taxes (190,000) (367,000)
Changes in current assets and liabilities:
Accounts receivable 201,726 281,542
Prepaid expenses and other (7,369) 12,172
Accounts payable (41,123) (32,855)
Deferred revenue 157,673 148,111
Accrued expenses 2,900 567
Purses payable and simulcast purse fund 301,206 435,722
----------- ---------
Net cash used in operating activities (306,360) (45,694)
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (51,486) (93,250)
----------- ---------
Net cash used in investing activities (51,486) (93,250)
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on term debt (112,543) (142,818)
Dividends paid (29,789) (29,789)
----------- ---------
Net cash used in financing activities (142,332) (172,607)
----------- ---------
Net decrease in cash and cash equivalents (500,178) (311,551)
Cash and cash equivalents, beginning of year 1,503,240 924,176
----------- ---------
Cash and cash equivalents, end of period $ 1,003,062 $ 612,625
=========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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SCIOTO DOWNS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE-MONTH AND SIX-MONTH PERIODS ENDED APRIL 30, 1999 AND 1998
(UNAUDITED)
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1. BASIS OF PRESENTATION
The financial information furnished reflects all adjustments which are,
in the opinion of management, necessary to present a fair statement of
the results for the interim periods on a basis consistent with that of
prior periods. All such adjustments are of a normal recurring nature.
The accompanying unaudited financial statements are presented in
accordance with the requirements of Form 10-Q and, consequently, do not
include all the disclosures normally required by generally accepted
accounting principles or those normally made in Scioto Downs, Inc.'s
(the Company) annual report on Form 10-K. Reference should be made to
the Company's 1998 Form 10-K for additional disclosures, including a
summary of the Company's accounting policies.
The year-end balance sheet was derived from audited financial
statements, but does not include all disclosures required by generally
accepted accounting principles.
Certain reclassifications of prior period amounts have been made in the
financial statements to conform to the April 30, 1999 presentation.
2. NEW ACCOUNTING STANDARD
The Company adopted the provisions of Statement of Financial Accounting
Standard No. 130, Reporting Comprehensive Income, during the quarter
ended January 31, 1999. There was no effect on the financial statements
of adopting this standard as of and for the three months and six months
ended April 30, 1999.
3. INCOME TAXES
The Company's estimated annual effective tax rate differs from the
statutory rate due to the application of surtax exemptions. The Company
recognizes the tax benefit of losses incurred in interim periods
outside the racing season, in anticipation of third and fourth quarter
income. The Company recognizes allowances against deferred tax assets
when it is more likely than not the assets will not be realized.
4. DEBT REFINANCING
In April 1999, the Company refinanced and consolidated its term debt on
the clubhouse enclosure and simulcasting equipment with a financial
institution. The revised term loan agreement calls for a
fourteen-and-one-half-year amortization of the principal of $3,103,000
at a fixed rate of 7.79%. Principal and interest is payable monthly in
the amount of $30,026. The term loan is collateralized by a first
mortgage on the Company's real property facilities, as well as other
personal property, and an assignment of the rents from the Company'
lease arrangements.
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SCIOTO DOWNS, INC.
OTHER INFORMATION
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PART I. FINANCIAL INFORMATION, CONT.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This Management Discussion and Analysis of Financial Condition
and Results of Operations and other parts of this report
contain forward-looking statements that involve risks and
uncertainties. The Company's actual results in 1999 and future
periods may differ significantly from the prospects discussed
in the forward-looking statements.
GENERAL
Due to the seasonal nature of the business, the Company
experiences net operating losses during the first two quarters
of the fiscal year. In addition, the Company uses this period
to perform routine repairs and maintenance and facility
improvements. During the first and second quarters of 1999,
the Company continued to service the debt on the Clubhouse and
the simulcasting equipment with funds generated during the
1998 racing season.
The racing season at Scioto Downs annually falls within the
third quarter, ending in July. The majority of rental income
from leasing the facility to Mid-America Racing Association is
earned during the fourth quarter of the year, ending in
October.
THREE MONTHS ENDED APRIL 30, 1999 COMPARED TO THE THREE MONTHS
ENDED APRIL 30, 1998
The net loss from operations before income tax benefit was
$678,093 which increased $16,348 from the three months ended
April 30, 1998. Salaries and wages increased $12,481, or
10.4%, due mainly to two additional employees and general
salary increases ranging from 3% to 7%. Other operating and
general expenses increased $44,335 due mainly to increased
repairs and maintenance on the grounds and buildings of
$6,206, increased utilities of $20,472, and increases in other
supplies of $14,689. Interest expense decreased $29,669 due to
lower principal amounts outstanding and refinancing and
consolidation of the Company's term debt at a lower interest
rate during the three months ended April 30, 1999. The
interest rate decreased from 8.15% and 8.17% to 7.79% in April
1999. The Company recorded an income tax benefit of $101,000
for the three months ended April 30, 1999 as the Company
projects it will record net income for the year ended October
31, 1999. A benefit of $196,000 was recorded for the three
months ended April 30, 1998.
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SCIOTO DOWNS, INC.
OTHER INFORMATION
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SIX MONTHS ENDED APRIL 30, 1999 COMPARED TO THE SIX MONTHS
ENDED APRIL 30, 1998
The net loss from operations before income tax benefit was
$1,269,091 which increased $28,180 from the six months ended
April 30, 1998. The increase is due mainly to increases in
salaries and wages of $26,732 and other operating and general
expenses of $57,442. Salaries and wages increased due mainly
to two additional employees and general salary increases
ranging from 3% to 7%. Other operating and general expense
increased due mainly to increased repairs and maintenance on
the grounds and buildings of $34,075 and increased utilities
of $5,321. Interest expense decreased $33,039 due to lower
principal amounts outstanding and refinancing and
consolidation of the Company's term debt at a lower interest
rate. The interest rate decreased from 8.15% and 8.17% to
7.79% in April 1999. The Company recorded an income tax
benefit of $190,000 for the six months ended April 30, 1999 as
the Company projects it will record net income for the year
ended October 31, 1999. A benefit of $367,000 was recorded for
the six months ended April 30, 1998.
YEAR 2000
The Year 2000 problem exists because many computer programs
use only the last two digits to refer to a year. Accordingly,
such computer programs do not distinguish a year that begins
with "20" from a year that begins with "19". If not corrected,
these computer programs could fail or create erroneous
results.
The Company is in the process of developing and implementing a
plan for the identification and remediation of Year 2000
issues that could affect its business. The identification and
remediation plan has five categories: (1) mission critical
software, (2) other software, (3) information technology
hardware, (4) non-information technology systems, and (5)
third party related issues.
Mission Critical Software: The Company has identified five
mission critical software systems: horseman purse systems,
stock transfer systems, general ledger, bank services, and
accounts payable systems. In the first quarter of fiscal year
1999, the Company purchased the Accpac for Windows Corporate
Series Accounting System. The Accpac Corporate Series, which
includes the general ledger, bank services, and accounts
payable systems, is represented as Year 2000 compliant. The
horseman purse and stock transfer systems have been updated
and AccLink, Ltd., has represented these systems are Year 2000
compliant. As of May 1, 1999, the Accpac System has been
installed and is fully functional. The initial training for
the system has been completed. Cross training among the
accounting staff will be completed during the third quarter of
fiscal year 1999.
Other Software: The Company maintains and periodically updates
all other software utilized by it, such as word processing and
spreadsheet management. Along with the purchase of the Accpac
software, Year 2000 compliant word processing and spreadsheet
software was purchased in the first quarter of fiscal year
1999. Installation of Year 2000 compliant software has been
completed and is now operational.
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<PAGE> 10
SCIOTO DOWNS, INC.
OTHER INFORMATION
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Information Technology Hardware: The Company purchased from
ADC Information Technology Services, a Gateway ALR 7200 NT
network fileserver in December 1998. Five Pentium II--266
Windows personal computers were also purchased in December
1998. Installation is now complete and the staff is fully
trained on its use. Cross training among the staff is
currently under way. The NT 4.0 Network System is represented
as being Year 2000 compliant.
Non-Information Technology Systems: The Company has begun an
inventory of all non-information technology systems that may
have a material impact on the Company's ability to conduct
business in a usual manner. The General Manager of the Company
was informed of the need of this requirement, as was the Board
of Directors. The Company is performing internal testing and
is gathering third party representations as to the system's
Year 2000 compliance. This process and required corrections
are to be completed by October 31, 1999.
Third Party Related Issues: The Company has identified those
vendors whose services have a material impact on the Company's
ability to conduct normal business operations. The Company's
largest and most necessary vendor, American Totalisator, has
been contacted and has responded that its systems are Year
2000 compliant. Other vendors' compliance certifications have
been received as well. The Company will continue to request
for confirmation from other major vendors.
Costs to Address the Year 2000 Issue: The Company has
committed to spend approximately $65,000 on its Year 2000
compliance through fiscal year 1999. The Company does not
anticipate spending additional amounts after 1999 but will
make necessary expenditures as required.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
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SCIOTO DOWNS, INC.
OTHER INFORMATION
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PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings - None
ITEM 2. Changes in Securities - None
ITEM 3. Defaults Upon Senior Securities - None
ITEM 4. Submission of Matters to a Vote of Security Holders - None
ITEM 5. Other Information - None
ITEM 6. Exhibits and Reports on Form 8-K:
(a) Exhibits - None
(b) Reports on Form 8-K - No reports on Form 8-K were
filed during the quarter ended April 30, 1999.
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SIGNATURES
Pursuant to the requirements 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.
SCIOTO DOWNS, INC.
------------------------------------
Registrant
DATE: BY:
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Robert S. Steele, President
DATE: BY:
------------- --------------------------------
Robert E. Suchy, Controller
and Principal Accounting Officer
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<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> APR-30-1999
<EXCHANGE-RATE> 1
<CASH> 1,003,062
<SECURITIES> 0
<RECEIVABLES> 67,626
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,345,786
<PP&E> 20,068,130
<DEPRECIATION> 13,734,561
<TOTAL-ASSETS> 7,776,480
<CURRENT-LIABILITIES> 1,463,574
<BONDS> 0
0
0
<COMMON> 625,555
<OTHER-SE> 2,723,260
<TOTAL-LIABILITY-AND-EQUITY> 7,776,480
<SALES> 0
<TOTAL-REVENUES> 112,727
<CGS> 0
<TOTAL-COSTS> 1,273,185
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 129,123
<INCOME-PRETAX> (1,269,091)
<INCOME-TAX> (190,000)
<INCOME-CONTINUING> (1,079,091)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,079,091)
<EPS-BASIC> (1.81)
<EPS-DILUTED> (1.81)
</TABLE>
