<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
XXX QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
- --- OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997.
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
- --- OF 1934 FOR THE TRANSITION PERIOD FROM ________ TO__________.
Commission File Number 0-24554
Canterbury Park Holding Corporation
---------------------------------------------------------------
(Exact name of business issuer as specified in its charter)
Minnesota 41-1775532
- ------------------------------- ------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1100 Canterbury Road, Shakopee, Minnesota 55379
- ----------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(612) 445-7223
-----------------------------
(Issuer's Telephone Number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such report), and (2) has been
subject to such filing requirements for the past 90 days. YES X NO
--- ---
The Company had 2,972,382 shares of common stock, $.01 par value per share,
outstanding as of May 9, 1997.
<PAGE>
Canterbury Park Holding Corporation
INDEX
Page
----
PART 1. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of
March 31, 1997 and December 31, 1996................... 3
Consolidated Statements of Operations for the periods
ended March 31, 1997 and 1996.......................... 4
Consolidated Statements of Cash Flows for the periods
ended March 31, 1997 and 1996.......................... 5
Notes to Consolidated Financial Statements............. 6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS................... 7
PART II. OTHER INFORMATION................................................ 11
Signatures....................................................... 11
Exhibit 1 EARNINGS PER SHARE SCHEDULE............................ 12
<PAGE>
CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1997 AND DECEMBER 31, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
MARCH 31, DECEMBER 31,
1997 1996
ASSETS
CURRENT ASSETS
Cash $ 292,356 $ 296,671
Accounts receivable, net of allowance for
uncollectible accounts 326,026 186,834
Inventory 78,376 72,731
Deposits 31,553 20,000
Prepaid expenses 91,377 81,367
---------- ----------
Total current assets 819,688 657,603
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $2,178,870 and $1,981,468,
respectively 8,456,540 8,631,754
INTANGIBLE ASSETS, net of accumulated amortization
of $11,059 and $9,925, respectively 11,641 12,775
---------- ----------
$9,287,869 $9,302,132
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 708,958 $ 623,930
Accrued wages and payroll taxes 135,723 161,272
Accrued interest 110,204 149,387
Advance from shareholder (Note 2) 839,071 1,609,754
Accrued property taxes 467,547 370,916
Payable to horsepersons 673,515 560,555
---------- ----------
Total current liabilities 2,935,018 3,475,814
COMMITMENTS AND CONTINGENCIES (Note 3)
STOCKHOLDERS' EQUITY
Common stock, $.01 par value, 10,000,000
shares authorized, 2,967,382 and 2,961,382,
respectively, shares issued and outstanding 29,674 29,614
Additional paid-in capital 7,890,304 7,879,551
Accumulated deficit (1,567,127) (2,082,847)
---------- ----------
Total stockholders' equity 6,352,851 5,826,318
---------- ----------
$9,287,869 $9,302,132
---------- ----------
---------- ----------
See notes to consolidated financial statements.
3
<PAGE>
CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
PERIODS ENDED MARCH 31, 1997 AND 1996 (UNAUDITED)
- -------------------------------------------------------------------------------
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 1997 MARCH 31, 1996
OPERATING REVENUES:
Pari-mutuel $ 2,746,646 $ 2,634,991
Concessions 401,650 380,568
Admissions and parking 59,301 65,639
Programs and racing forms 131,089 138,105
Other operating revenue 61,881 71,430
------------ ------------
3,400,567 3,290,733
OPERATING EXPENSES:
Pari-mutuel expenses
Statutory purses 250,467 183,402
Host track fees 457,735 459,932
Pari-mutuel taxes 11,736 158,184
Minnesota breeders' fund 142,566 140,270
Salaries and benefits 709,467 594,847
Cost of concession sales 118,127 92,526
Cost of publication sales 152,794 165,200
Depreciation and amortization 208,060 196,366
Utilities 157,893 148,569
Repairs, maintenance and supplies 98,170 52,384
Property taxes 96,631 95,985
Advertising and marketing 94,641 87,484
Other operating expenses 345,247 331,470
------------ ------------
2,843,534 2,706,619
NONOPERATING (EXPENSES) REVENUES:
Interest expense (41,316) (62,253)
Other, net 3 920
------------ ------------
(41,313) (61,333)
------------ ------------
INCOME BEFORE INCOME TAX EXPENSE 515,720 522,781
INCOME TAX EXPENSE (Note 1)
------------ ------------
NET INCOME $ 515,720 $ 522,781
------------ ------------
------------ ------------
NET INCOME PER COMMON AND
COMMON EQUIVALENT SHARE (Note 1) $ .13 $ .15
------------ ------------
------------ ------------
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING 5,076,975 4,733,796
------------ ------------
------------ ------------
See notes to consolidated financial statements.
4
<PAGE>
CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
PERIODS ENDED MARCH 31, 1997 AND 1996 (UNAUDITED)
- -------------------------------------------------------------------------------
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 1997 MARCH 31, 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 515,720 $ 522,781
Adjustments to reconcile net income to
net cash provided by operations:
Depreciation and amortization 208,060 196,366
(Increase) decrease in accounts
receivable (139,192) 108,161
(Increase) decrease in other current
assets (27,208) 15,535
Increase in accounts payable and
accrued expenses 59,479 6,410
(Decrease) increase in accrued interest (39,183) 51,960
Increase in accrued property taxes 96,631 95,985
Increase (decrease) in payable to
horsepersons 112,960 (83,845)
---------- ----------
Net cash provided by operations 787,267 913,353
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (62,903) (13,222)
Proceeds from sale of property and equipment,
net 31,191 22,500
---------- ----------
Net cash (used in) provided by
investing activities (31,712) 9,278
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 10,813
Payment on advance from shareholder, net (770,683) (828,007)
---------- ----------
Net cash used in financing
activities (759,870) (828,007)
NET INCREASE (DECREASE) IN CASH (4,315) 94,624
CASH AT BEGINNING OF PERIOD 296,671 388,571
---------- ----------
CASH AT END OF PERIOD $ 292,356 $ 483,195
---------- ----------
---------- ----------
See notes to consolidated financial statements.
5
<PAGE>
CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIODS ENDED MARCH 31, 1997 AND 1996 (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The summary of significant accounting policies is included in the notes to
consolidated financial statements in the 1996 Annual Report on Form 10-KSB.
INCOME TAXES - Income tax expense is computed by applying the estimated
annual effective tax rate to the year-to-date income. For the periods
ending March 31,1997 and 1996, income tax expense of approximately $220,000
and $224,000, respectively, is offset by a reduction in the valuation
allowance recorded on the deferred tax asset related to the Company's net
operating loss carryforward.
EARNINGS PER SHARE - Earnings per share for the three months ended March 31,
1997 and 1996 are calculated using the modified treasury stock method. In
February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 (SFAS 128) "Earnings Per Share,"
which is effective for periods ending after December 15, 1997. SFAS 128
revises the standards for computing and presenting earnings per share (EPS).
The Company will continue to apply APB Opinion No. 15 to compute the EPS
through the effective date. EPS for the first quarter of 1997 computed under
SFAS 128 would have resulted in basic and diluted earnings per share of
$0.17.
UNAUDITED FINANCIAL STATEMENTS - The consolidated balance sheet as of March
31, 1997, the consolidated statements of operations for the three months
ended March 31, 1997 and 1996, the consolidated statements of cash flows
for the three months ended March 31, 1997 and 1996, and the related
information contained in these notes have been prepared by management
without audit. In the opinion of management, all accruals (consisting of
normal recurring accruals) which are necessary for a fair presentation of
financial position and results of operations for such periods have been
made. Results for an interim period should not be considered as indicative
of results for a full year.
2. RELATED-PARTY TRANSACTIONS
At March 31, 1997, the Company had a $3,000,000 line of credit arrangement
with the Company's majority shareholder, of which $839,071 was outstanding.
The interest rate for borrowings under the line of credit was prime plus
2%. The line of credit may be canceled on 90 days notice. Management
believes that funds available under this line of credit, or any other line
of credit which replaces it, along with funds generated from simulcast
operations, will be sufficient to satisfy its liquidity and capital resource
requirements during 1997. If the line of credit is not replaced, the
Company's majority shareholder has agreed not to terminate the line of
credit prior to March 31, 1998.
3. CONTINGENCIES
In accordance with an Earn Out Note, given to the prior owner of the
racetrack as part of the consideration paid by the Company to acquire the
racetrack, if (i) off-track betting becomes legally permissible in the
State of Minnesota and (ii) the Company begins to conduct off-track betting
with respect to or in connection with its operations, the Company will be
required to pay to the IMR Fund, L.P. the greater of $700,000 per operating
year, as defined, or 20% of the net pretax profit, as defined, for each of
five operating years. At the date (if any) that these two conditions are
met, the five minimum payments will be discounted back to their present
value and the sum of those discounted payments will be recorded as an
increase to the purchase price. The purchase price will be further
increased if payments become due under the 20% of Net Pre-Tax Profit
calculation. The first payment is to be made 90 days after the end of the
third operating year in which off-track betting is conducted by the
Company. Remaining payments would be made within 90 days of the end of
each of the next four operating years.
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
GENERAL
Canterbury Park Holding Corporation (the "Company") owns and operates
Canterbury Park (the "Racetrack"), the only pari-mutuel horse racing facility
in the State of Minnesota. The Company's revenues for the period from
January 1, 1997 to March 31, 1997 and January 1, 1996 to March 31, 1996 were
derived primarily from pari-mutuel take-out on races simulcast to Canterbury
Park from racetracks throughout the country. In 1997 the Company intends to
conduct approximately 324 simulcast racing days. In addition, the Company
plans to conduct 56 days of live racing at the Racetrack from May 17, 1997 to
September 1, 1997. During live race meets, the Company earns pari-mutuel
take-out on live Thoroughbred, Quarter Horse and Harness races at the
Racetrack. The Company earns additional pari-mutuel revenue from
broadcasting its live races to out-of-state racetracks around the country.
In addition to pari-mutuel revenues, the Company generates revenues from
admissions, parking, publication sales, concessions, advertising, special
events and other sources.
On April 11, 1996, legislation became effective in Minnesota which,
beginning July 1, 1996, exempted the first $12 million of pari-mutuel
take-out from the 6% pari-mutuel tax. The legislation is effective until
July 1, 1999 and benefits the horsepersons' purse fund as well as the Company
during a statutorily mandated twelve-month period beginning July 1 and ending
the following June 30. Effective July 1, 1996, pari-mutuel taxes have been
estimated for the 12-month period from July 1, 1996 through June 30, 1997 and
an estimated annual effective tax rate has been applied to pari-mutuel
take-out generated since July 1, 1996.
The legislation referred to above also provides that winning pari-mutuel
tickets which are not cashed within one year of the end of the respective
race meet will become the property of the Company. The legislation is
effective through December 31, 1999 after which uncashed winning tickets will
again be remitted to the State of Minnesota. The Company is recording
revenue associated with the uncashed winning tickets at the time, based on
historical experience, that management can reasonably estimate the amount of
additional winning tickets from a race meet that will be presented for
payment.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND MARCH 31,
1996:
During the first three months of 1997 the Company conducted 84 simulcast
racing days compared to 77 days in 1996. Total wagering handle for the
quarters ended March 31, 1997 and 1996 was $13,327,955 and $13,290,549,
respectively. Total attendance for the periods ending March 31, 1997 and 1996
was 41,122 and 40,069, respectively, resulting in an average of 490 and 520
patrons per simulcast day, respectively, and per-patron wagering of $324 and
$331, respectively.
During February and March of 1997, the Company conducted simulcast racing
on seven days per week, compared to six days per week during the first
quarter of 1996. This change was in response to patron requests to provide
simulcast racing on Tuesdays. While attendance on Tuesdays met management's
expectations, average attendance on these Tuesdays was lower than the average
attendance on all other days, thus lowering the average per-day attendance
and handle while total attendance and handle increased.
7
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Pari-mutuel revenue (gross wagering after deducting statutorily mandated
amounts from the handle to be paid to winning bettors or "take-out") for the
periods ending March 31, 1997 and 1996 was $2,672,324 and $2,634,991,
respectively. Total pari-mutuel expenses including state pari-mutuel taxes,
contributions to the Minnesota Breeders' Fund, statutory purses and host fees
were $862,504 and $941,788 for the periods ending March 31, 1997 and 1996,
respectively. Pari-mutuel tax expense for the quarter was $11,726, or 93%
lower during the three months ended March 31, 1997 compared to the three
months ended March 31, 1996 due primarily to the legislation described above.
The Company has applied an estimated annual effective tax rate to the
pari-mutuel take-out generated from July 1, 1996 through March 31, 1997.
Statutory purse expense increased $67,065, or 36.6%, compared to 1996.
This increase is primarily attributable to the legislation exempting the
first $12 million of take-out from the State of Minnesota pari-mutuel tax.
The effect of this legislation during the first three months of 1997 was to
increase the Racetrack's net pari-mutuel revenue, thereby increasing the
amounts paid to the horsepersons for purses during these non-racing season
months.
Concession revenues were approximately $21,000, or 5.5%, higher than the
comparable period in 1996 due partly to higher attendance during the first
quarter of 1997 compared to 1996, and partly to the increasing popularity of
special events hosted by the facility. During the first three months of 1997
Canterbury Park hosted two major competitive snowmobile races, the All Canada
show, the Minnesota Resort and Camping Show, a trade show and private
parties. Comparatively, the first quarter of 1996 included two major
snowmobile races but also a three-day arts and crafts fair held on March
29-31, 1996. In 1997, this extremely popular and well-attended arts and
crafts fair was held on April 4-7 and the rental and concessions revenues
will consequently be reflected in the second quarter financial results.
Operating expense levels (excluding pari-mutuel expenses) increased by
approximately $216,000, or 12.25%, compared to 1996. During the first
quarter of 1996, prior to the enactment of the legislation described
previously, the Company had just ended its second straight fiscal year with
cumulative losses of $2,153,996. During the first quarter of 1996, the
Company mandated extremely tight expense controls with spending occurring for
only the most necessary of services, repairs, maintenance and supplies. In
addition, after the 1995 live meet, certain reductions and consolidations of
full-time staff were enacted to reduce wage expenses for the Company.
Subsequent to those reductions, hiring was kept to a minimum.
With the enactment of the legislation described above, and in view of the
support of the State of Minnesota and the general public, the Company was
able to refocus its goals from short-term to long-term. This emphasis on
long-range planning necessitated a comprehensive review of major systems
throughout the facility and of personnel levels, to ascertain that the
Company's long-term goals could be met. Long-term goals of the Company
include maximizing the potential of the facility with special events,
increasing public awareness and support for horse racing, hosting annual live
race meets, and providing high quality services and information to patrons.
This change in emphasis is reflected primarily in increases in salaries and
benefits, repairs, maintenance and supplies, marketing and advertising for
Tele-racing and other expense categories.
Net income was $515,720 for the three months ended March 31, 1997
compared to $522,781 in 1996. There is no estimated income tax expense for
the three months ended
8
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March 31, 1997 because management does not anticipate net income for the year
ended December 31, 1997 to exceed the net operating loss carryforwards of
$1,649,000 available at December 31, 1996. In addition, due to the
seasonality of purse expense and to the additional expenses that will be
incurred in connection with live racing, the Company does not expect to
generate operating profits during the second and third quarters of fiscal
year 1997.
LIQUIDITY AND CAPITAL RESOURCES:
During the period January 1, 1997 through March 31, 1997, cash provided
by operating activities was $787,267, which resulted principally from net
income of $515,720 and depreciation and amortization of $208,060.
Cash used in financing activities during the first three months of 1997
consists primarily of payments totaling $770,683 reducing the Company's line
of credit with Mr. Sampson.
Net cash used in investing activities for the first quarter of 1997
results primarily from improvements to the facility of approximately $62,903,
partially offset by proceeds received upon the sale of excess video equipment
of $31,191.
The Company is required by statute to segregate a portion of funds
received from wagering on simulcast and live horse races for future payment
as purses for live horse races at the Racetrack or other uses of Minnesota's
horsepersons' association. Pursuant to an agreement with the MHBPA, during
the three months ended March 31, 1997 and 1996, the Company has transferred
into a trust account or paid directly to the MHBPA approximately $200,000 and
$250,000 respectively. At March 31, 1997, the Company had an additional
liability to MHBPA of approximately $664,000. This liability will be paid
with interest in 1997 in accordance with the agreement.
The Company believes that the funds to be generated from operations
together with funds available under its $3,000,000 line of credit with Mr.
Sampson will be sufficient to satisfy its liquidity and capital resource
requirements for the next twelve months. The Company anticipates that it may
pay down a portion of the borrowings under the line of credit with funds
generated from operations and borrow additional amounts under the line of
credit as funds are needed for working capital purposes. The Company is also
attempting to obtain a credit facility from a traditional lender to replace
the line of credit with Mr. Sampson. Mr. Sampson has advised the Company
that if it is unable to obtain a credit facility from a traditional lender,
then he will keep his line of credit in place until March 31, 1998. As of
May 9, 1997, borrowings under the line of credit were $517,762.
OPERATING PLAN:
The Company plans a live race meet in 1997 which will consist of a 26-day
mixed meet of Thoroughbred and Quarter Horse racing, a 27-day
Thoroughbred-only meet, and three days of live harness racing over Labor Day
weekend.
The Company's ability to operate profitably in 1997 will largely depend
on its ability to maintain levels of attendance and wagering handle for live
and simulcast racing at levels similar to 1996. The Company will also need
to maintain operating expenses at levels similar to 1996. In addition, the
Company is emphasizing the expansion of special events in order to maximize
9
<PAGE>
the potential of the facility year-round. Legislation which became effective
in 1996 relating to the pari-mutuel tax and uncashed winning tickets will
supplement cash flows in 1997, the first full fiscal year that the
legislation will be in effect.
Legislation was recently introduced at the 1997 Minnesota Legislative
Session which would permit the Minnesota State Lottery to operate up to 1,500
video lottery terminals at the Canterbury Park Racetrack. The proposal is
primarily structured to provide a source of financing for a new outdoor
baseball stadium for the Minnesota Twins. Recent public polling has shown
that public support is strong but the legislative session is nearing its
conclusion and the issue is not likely to be resolved until the 1998
legislative session. No assurance can be given that the proposed legislation
will be enacted and, if enacted, the Company is unable to provide any
estimates as to the financial impact this legislation would have on the
Company.
FACTORS AFFECTING FUTURE PERFORMANCE:
From time to time, in reports filed with the Securities and Exchange
Commission, in press releases, and in other communications to shareholders or
the investing public, the Company may comment on anticipated future financial
performance. Such forward-looking statements, including statements contained
in this Report on Form 10-QSB, are subject to risks and uncertainties which
may adversely affect future financial performance, including, but not limited
to, fluctuations in attendance at the Racetrack, changes in the level of
wagering by patrons, legislative and regulatory changes, the impact of
wagering products introduced by competitors, higher than expected expenses,
and other risks applicable to the horse racing industry generally.
10
<PAGE>
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
Exhibit 1 EARNINGS PER SHARE SCHEDULE
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly cause this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Canterbury Park Holding Corporation
Dated: May 9, 1997 /s/ Randall D. Sampson
-----------------------------------------------
Randall D. Sampson,
President, Chief Executive Officer and Treasurer
11
<PAGE>
EXHIBIT 1. EARNINGS PER SHARE SCHEDULE
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
1997 1996
Calculation of net income under the modified
treasury stock method:
Primary
Net Income $515,720 $522,781
Assumed interest expense reduction 41,316 62,253
Assumed interest income increase 92,899 101,785
----------- -----------
$649,935 $686,819
----------- -----------
----------- -----------
Calculation of weighted average number of
common and common equivalent shares
outstanding under the modified treasury
stock method:
Weighted average shares outstanding 2,962,526 2,939,271
Common stock equivalents 2,114,449 1,794,525
----------- -----------
5,076,975 4,733,796
----------- -----------
----------- -----------
Net income per common and common
equivalent share $ 0.13 $ 0.15
----------- -----------
----------- -----------
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 292,356
<SECURITIES> 0
<RECEIVABLES> 340,628
<ALLOWANCES> 14,602
<INVENTORY> 78,376
<CURRENT-ASSETS> 819,688
<PP&E> 10,635,410
<DEPRECIATION> 2,178,870
<TOTAL-ASSETS> 9,278,869
<CURRENT-LIABILITIES> 2,935,018
<BONDS> 0
0
0
<COMMON> 29,674
<OTHER-SE> 6,323,177
<TOTAL-LIABILITY-AND-EQUITY> 9,287,869
<SALES> 532,739
<TOTAL-REVENUES> 3,400,567
<CGS> 270,921
<TOTAL-COSTS> 2,843,534
<OTHER-EXPENSES> 41,313
<LOSS-PROVISION> 7,500
<INTEREST-EXPENSE> 41,316
<INCOME-PRETAX> 515,720
<INCOME-TAX> 0
<INCOME-CONTINUING> 515,720
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 515,720
<EPS-PRIMARY> .13
<EPS-DILUTED> 0
</TABLE>
