<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 January 31, 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
-----------------
SCIOTO DOWNS, INC.
------------------------------------------------------
(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
-----------------------------------------------------
(Address of principal executive offices) (Zip Code)
(614) 491-2515
(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 March 10, 1999:
595,767, par value $1.05
------------------------
<PAGE> 2
<TABLE>
SCIOTO DOWNS, INC.
INDEX
- ------------------------------------------------------------------------------
<CAPTION>
PAGES
-----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets at January 31, 1999, October 31, 1998
and January 31, 1998 1-2
Statements of Operations for the three month periods ended
January 31, 1999 and 1998 3
Statements of Cash Flows for the three month periods ended
January 31, 1999 and 1998 4
Notes to Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 6-7
Item 3. Quantitative and Qualitative Disclosures about Market Risk 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 8
Item 2. Changes in Securities 8
Item 3. Defaults Upon Senior Securities 8
Item 4. Submission of Matters to a Vote of Security Holders 8
Item 5. Other Information 8
Item 6. Exhibits and Reports on Form 8-K 8
SIGNATURES 9
</TABLE>
<PAGE> 3
<TABLE>
SCIOTO DOWNS, INC.
BALANCE SHEETS
- --------------------------------------------------------------------------------
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<CAPTION>
JANUARY 31, OCTOBER 31, JANUARY 31,
1999 1998 1998
----------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 961,001 $ 1,503,240 $ 672,602
Accounts receivable 289,858 269,352 135,208
Prepaid expenses and other 72,436 77,729 59,815
Investment in joint venture 97,126 97,126 95,089
Deferred income taxes 89,000 -- 171,000
----------- ----------- -----------
Total current assets 1,509,421 1,947,447 1,133,714
----------- ----------- -----------
Property and equipment, at cost 20,040,185 20,016,643 20,009,893
Less accumulated depreciation 13,560,702 13,386,843 12,866,386
----------- ----------- -----------
Total property and equipment 6,479,483 6,629,800 7,143,507
----------- ----------- -----------
Total assets $ 7,988,904 $ 8,577,247 $ 8,277,221
=========== =========== ===========
</TABLE>
CONTINUED
-1-
<PAGE> 4
<TABLE>
SCIOTO DOWNS, INC.
BALANCE SHEETS
- --------------------------------------------------------------------------------------------------
<CAPTION>
JANUARY 31, OCTOBER 31, JANUARY 31,
1999 1998 1998
----------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 48,228 $ 41,123 $ 274,735
Dividends payable -- 29,789 --
Current maturities, term debt 285,047 281,237 276,924
Accrued expenses 185,601 217,911 131,981
Simulcast purse fund 539,661 495,055 234,921
---------- ---------- ----------
Total current liabilities 1,058,537 1,065,115 918,561
---------- ---------- ----------
Minimum pension liability 115,771 115,771 105,121
Net deferred income taxes 43,342 43,342 28,994
Term debt, net of current maturities 2,845,725 2,925,113 3,149,146
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 2,037,300 2,037,300 2,037,300
Retained earnings 1,331,484 1,833,861 1,472,324
Pension liability adjustment, net of taxes (68,810) (68,810) (59,780)
---------- ---------- ----------
Total stockholders' equity 3,925,529 4,427,906 4,075,399
---------- ---------- ----------
Total liabilities and stockholders' equity $7,988,904 $8,577,247 $8,277,221
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-2-
<PAGE> 5
<TABLE>
SCIOTO DOWNS, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JANUARY 31, 1999 AND 1998 (UNAUDITED)
- ------------------------------------------------------------------------------------------
<CAPTION>
1999 1998
<S> <C> <C>
Operating revenues, other $ 24,767 $ 19,903
--------- ---------
Operating expenses:
Salaries and wages 134,038 119,787
Depreciation 173,859 174,980
Other operating and general expense 251,541 238,434
--------- ---------
559,438 533,201
--------- ---------
Loss from operations (534,671) (513,298)
Net interest expense (56,706) (65,868)
--------- ---------
Net loss before income tax benefit (591,377) (579,166)
Income tax benefit 89,000 171,000
--------- ---------
Net loss $(502,377) $(408,166)
========= =========
Net loss per common share - basic and diluted $ (.84) $ (.69)
========= =========
Weighted average common shares outstanding--basic and diluted 595,767 595,767
--------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
-3-
<PAGE> 6
<TABLE>
SCIOTO DOWNS, INC.
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JANUARY 31, 1999 AND 1998 (UNAUDITED)
- ---------------------------------------------------------------------------------------
<CAPTION>
1999 1998
<S> <C> <C>
CASH FLOWS USED IN OPERATING ACTIVITIES:
Net loss $ (502,377) $(408,166)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation 173,859 174,980
Deferred income taxes (89,000) (171,000)
Change in accounts receivable (20,506) 148,658
Change in prepaid expenses and other 5,293
Change in accounts payable 7,105 96,719
Change in accrued expenses and simulcast purse fund 12,296 99,753
---------- ---------
Net cash used in operating activities (413,330) (59,056)
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (23,542) (93,250)
---------- ---------
Net cash used in investing activities (23,542) (93,250)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (29,789) (29,789)
Payments on term debt (75,578) (69,479)
---------- ---------
Net cash used in financing activities (105,367) (99,268)
---------- ---------
Net decrease in cash and cash equivalents (542,239) (251,574)
Cash and cash equivalents, beginning of period 1,503,240 924,176
---------- ---------
Cash and cash equivalents, end of period $ 961,001 $ 672,602
========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE> 7
SCIOTO DOWNS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JANUARY 31, 1999 AND 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
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.
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 ended January
31, 1999.
3. INCOME TAXES
The Company's estimated annual effective tax rate differs from the
statutory rate due to the application of surtax exemptions.
-5-
<PAGE> 8
SCIOTO DOWNS, INC.
MANAGEMENT'S DISCUSSION
FOR THE THREE MONTHS ENDED JANUARY 31, 1999 AND 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
PART I. FINANCIAL INFORMATION, CONT.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This Management's 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 quarter 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 JANUARY 31, 1999 COMPARED TO THREE MONTHS
ENDED JANUARY 31, 1998
Salaries and wages increased by $14,251 to $134,038 for the
three months ended January 31, 1999 from $119,787 for the
three months ended January 31, 1998. The increase was due
primarily to the addition of an office employee and annual
increases for all employees. Operating expense increased by
$13,107 due mainly to increases in utilities and professional
fees, offset by a decrease in publicity expense.
The income tax benefit decreased to $89,000 from $171,000 for
the three months ended January 31, 1999 and 1998,
respectively, as a result of the reduction in the effective
tax rate to 15% from 29.5% based upon the anticipated income
for the year ending October 31, 1999.
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
-6-
<PAGE> 9
SCIOTO DOWNS, INC.
MANAGEMENT'S DISCUSSION
FOR THE THREE MONTHS ENDED JANUARY 31, 1999 AND 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
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 has
represented it is Year 2000 compliant. The installation of the
Accpac software was begun in January 1999. The training for
Accpac also started in January 1999 and will continue through
April 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 this software also started in January
1999, with training on the software to be completed before May
1999, the first day of racing.
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 currently
being trained on its use. 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 will be 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. QUANTITIAVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
-7-
<PAGE> 10
SCIOTO DOWNS, INC.
OTHER INFORMATION
- --------------------------------------------------------------------------------
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 January 31, 1999.
-8-
<PAGE> 11
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: 3/17/99 BY: /s/ Robert S. Steele
------------------ --------------------------------
Robert S. Steele, President
DATE: 3/17/99 BY: /s/ Robert E. Suchy
------------------ --------------------------------
Robert E. Suchy, Controller
and Principal Accounting Officer
-9-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> JAN-31-1998
<CASH> 961,001
<SECURITIES> 0
<RECEIVABLES> 289,858
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,509,421
<PP&E> 20,040,185
<DEPRECIATION> 13,560,702
<TOTAL-ASSETS> 7,988,904
<CURRENT-LIABILITIES> 1,058,537
<BONDS> 0
0
0
<COMMON> 625,555
<OTHER-SE> 3,299,974
<TOTAL-LIABILITY-AND-EQUITY> 7,988,904
<SALES> 0
<TOTAL-REVENUES> 24,767
<CGS> 0
<TOTAL-COSTS> 559,438
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 56,706
<INCOME-PRETAX> (591,377)
<INCOME-TAX> (89,000)
<INCOME-CONTINUING> (502,317)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (502,377)
<EPS-PRIMARY> (.84)
<EPS-DILUTED> (.84)
</TABLE>
