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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, 1998.
___ 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
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(Exact name of business issuer as specified in its charter)
Minnesota 41-1775532
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1100 Canterbury Road, Shakopee, Minnesota 55379
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(Address of principal executive offices) (Zip Code)
(612) 445-7223
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(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 3,001,848 shares of common stock, $.01 par value per share,
outstanding as of May 11, 1998.
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Canterbury Park Holding Corporation
INDEX
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PART 1. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as
of March 31, 1998 and December 31, 1997. . . . . . . . . . . . 3
Consolidated Statements of Operations for the periods ended
March 31, 1998 and 1997. . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows for the periods ended
March 31, 1998 and 1997. . . . . . . . . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . . . . . 6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS . . . . . . . . . . . . . 8
PART II. OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . .11
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
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CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998 (UNAUDITED) AND DECEMBER 31, 1997
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<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
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<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 228,284 $ 364,214
Accounts receivable, net of allowance for uncollectible accounts 162,227 185,468
Inventory 83,128 76,657
Deposits 20,000 20,000
Prepaid expenses 145,121 106,381
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Total current assets 638,760 752,720
PROPERTY AND EQUIPMENT, net of accumulated depreciation
of $3,030,172 and $2,809,738, respectively 8,871,034 9,061,205
INTANGIBLE ASSETS, net of accumulated amortization of
$16,186 and $14,875, respectively 8,183 9,494
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$ 9,517,978 $9,823,419
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 880,293 $ 715,062
Accrued wages and payroll taxes 174,962 200,942
Accrued interest 77,666 103,184
Advance from MHBPA 352,840 709,573
Advance from shareholder (Note 2) 917,443 1,651,942
Accrued property taxes 391,088 305,032
Payable to other horsepersons 54,733 14,923
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Total current liabilities 2,849,025 3,700,658
COMMITMENTS AND CONTINGENCIES (Note 3)
STOCKHOLDERS' EQUITY
Common stock, $.01 par value, 10,000,000 shares authorized,
2,998,848 shares issued and outstanding 29,989 29,989
Additional paid-in capital 8,061,875 8,061,875
Unearned compensation (22,044)
Accumulated deficit (1,422,911) (1,947,059)
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Total stockholders' equity 6,668,953 6,122,761
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$ 9,517,978 $9,823,419
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</TABLE>
See notes to consolidated financial statements.
3
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CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
PERIODS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED)
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<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 1998 MARCH 31, 1997
<S> <C> <C>
OPERATING REVENUES:
Pari-mutuel $ 2,732,019 $ 2,746,646
Concessions 413,870 401,650
Admissions and parking 54,108 59,301
Programs and racing forms 123,319 131,089
Other operating revenue 190,403 61,881
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3,513,719 3,400,567
OPERATING EXPENSES:
Pari-mutuel expenses
Statutory purses 255,719 250,467
Host track fees 457,715 457,735
Pari-mutuel taxes 21,720 11,736
Minnesota breeders' fund 143,948 142,566
Salaries and benefits 785,477 709,467
Cost of concession sales 102,863 118,127
Cost of publication sales 133,299 152,794
Depreciation and amortization 222,088 208,060
Utilities 148,894 157,893
Repairs, maintenance and supplies 104,742 98,170
Property taxes 86,056 96,631
Advertising and marketing 88,721 94,641
Other operating expenses 397,580 345,247
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2,948,822 2,843,534
NONOPERATING (EXPENSES) REVENUES:
Interest expense (40,749) (41,316)
Other, net 3
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(40,749) (41,313)
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INCOME BEFORE INCOME TAX EXPENSE 524,148 515,720
INCOME TAX EXPENSE (Note 1)
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NET INCOME $ 524,148 $ 515,720
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BASIC NET INCOME PER COMMON SHARE (Note 1) $ .17 $ .17
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DILUTED NET INCOME PER COMMON SHARE (Note 1) $ .17 $ .17
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</TABLE>
See notes to consolidated financial statements.
4
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CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
PERIODS ENDED MARCH 31, 1997 AND 1996 (UNAUDITED)
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<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 1998 MARCH 31, 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 524,148 $ 515,720
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation and amortization 222,088 208,060
Stock options issued for consulting services 22,044
Decrease (increase) in accounts receivable 23,241 (139,192)
Increase in other current assets (45,211) (27,208)
Increase in accounts payable and accrued expenses 179,061 59,908
Decrease in accrued interest (25,518) (39,183)
Increase in accrued property taxes 86,056 96,631
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Net cash provided by operations 985,909 674,736
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (31,080) (62,903)
Proceeds from sale of property and equipment, net 473 31,191
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Net cash used in investing activities (30,607) (31,712)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 10,813
(Payment on) proceeds from advance from MHBPA, net (356,733) 112,531
Payment on advance from shareholder, net (734,499) (770,683)
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Net cash used in financing activities (1,091,232) (647,339)
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NET DECREASE IN CASH (135,930) (4,315)
CASH AT BEGINNING OF PERIOD 364,214 296,671
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CASH AT END OF PERIOD $ 228,284 $ 292,356
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</TABLE>
See notes to consolidated financial statements.
5
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CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIODS ENDED MARCH 31, 1997 AND 1996 (UNAUDITED)
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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The summary of significant accounting policies is included in the notes to
consolidated financial statements in the 1997 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, 1998 and 1997, income tax expense
of approximately $222,000 and $220,000, 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.
NET INCOME PER SHARE - Effective December 15, 1997, the Company adopted the
provisions of Statement of Financial Accounting Standards No. 128 "Earnings
per Share". The Statement requires the Company to present its net income
per share in basic and diluted forms and to restate net income per share
from prior periods to conform with the new statement. Basic net income per
common share is based on the weighted average number of common shares
outstanding during each year. Diluted net income per common share takes
into effect the dilutive effect of potential common shares outstanding.
The Company's only potential common shares outstanding are stock options
and warrants.
UNAUDITED FINANCIAL STATEMENTS - The consolidated balance sheet as of March
31, 1998, the consolidated statements of operations for the three months
ended March 31, 1998 and 1997, the consolidated statements of cash flows
for the three months ended March 31, 1998 and 1997, 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.
RECLASSIFICATION - Certain reclassifications have been made to the 1997
consolidated financial statements to conform to the presentation adopted in
the 1998 consolidated financial statements. The reclassifications had no
effect on stockholders' equity and net income as previously reported.
2. RELATED-PARTY TRANSACTIONS
At March 31, 1998, the Company had a $3,000,000 line of credit arrangement
with the Company's majority shareholder, of which $917,443 was outstanding.
The interest rate for borrowings under the line of credit was the prime
rate. 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 1998. 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, 1999.
6
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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.
4. CURRENT ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130 "Reporting Comprehensive Income" (SFAS 130),
which establishes standards for the reporting of comprehensive income and
its components. Comprehensive income is defined as the change in equity
during the period from transactions and other events and circumstances
from non-owner sources. Implementation of SFAS 130 did not have a material
effect on the Company's financial statements.
7
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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,
1998 to March 31, 1998 and January 1, 1997 to March 31, 1997 were derived
primarily from pari-mutuel take-out on races simulcast to Canterbury Park from
racetracks throughout the country. In 1998 the Company intends to conduct
approximately 364 simulcast racing days. In addition, the Company plans to
conduct 55 days of live racing at the Racetrack from May 16, 1998 to September
7, 1998. 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.
Legislation enacted on April 11, 1996, which repealed the pari-mutuel tax
on the first $12 million of handle in a 12-month period and allowed the Company
to retain uncashed winning tickets, has favorably impacted operating results
since the third quarter of 1996. This 1996 legislation contained a sunset on
these benefits in 1999. The 1998 Omnibus tax bill, passed in the recently
completed session of the Minnesota legislature and signed into law April 21st,
contained a provision that removes the 1999 sunset and makes the 1996
legislative changes permanent.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND MARCH 31,
1997:
During the first three months of 1998 the Company conducted 90 simulcast
racing days compared to 84 days in 1997. Total wagering handle for the quarters
ended March 31, 1998 and 1997 was $13,366,505 and $13,327,955, respectively.
Total attendance for the periods ending March 31, 1998 and 1997 was 41,657 and
41,122, respectively, resulting in an average of 463 and 490 patrons per
simulcast day, respectively, and per-patron wagering of $321 and $324,
respectively.
Pari-mutuel revenue or "take-out" (gross wagering after deducting
statutorily mandated amounts from the handle to be paid to winning bettors)
for the periods ending March 31, 1998 and 1997 was $2,697,412 and $2,672,324,
respectively. Total pari-mutuel expenses including state pari-mutuel taxes,
contributions to the Minnesota Breeders' Fund, statutory purses and host fees
were $879,102 and $862,504 for the periods ending March 31, 1998 and 1997,
respectively. The Company has applied an estimated annual effective tax rate
to the pari-mutuel take-out generated from July 1, 1997 through March 31,
1998.
Other operating revenue increased 208% to approximately $190,000 for the
three months ended March 31, 1998 from approximately $62,000 for the three
months ended March 31, 1997 due primarily to rental revenues generated by
leasing unused areas of the racetrack grounds for vehicle storage. Revenues
generated from leasing the building for special events also increased during the
first quarter of 1998 compared to 1997.
8
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Operating expenses (excluding pari-mutuel expenses) increased by
approximately $89,000, or 4.50%, compared to 1997. The increase is attributable
primarily to higher salary and benefit expenses related to the hiring of
additional customer service staff as the Company continues to focus on
enhancements in this department, and to upgrade facility maintenance programs to
the levels required to minimize long term costs to the Company.
Net income was $524,148 for the three months ended March 31, 1998 compared
to $515,720 in 1997. There is no estimated income tax expense for the three
months ended March 31, 1998 because management does not anticipate taxable
income for the year ended December 31, 1998 to exceed the net operating loss
carryforward of $1,185,000 available at December 31, 1997. 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 or third quarters of fiscal year 1998.
LIQUIDITY AND CAPITAL RESOURCES:
During the period January 1, 1998 through March 31, 1998, cash provided by
operating activities was $985,909, which resulted principally from net income of
$524,148, depreciation and amortization of $222,088, an increase in accounts
payable and accrued expenses of $179,061 and an increase in accrued property
taxes of $86,056. Cash provided by operating activities for the three months
ended March 31, 1997 of $674,736 resulted primarily from net income of $515,720
and depreciation and amortization of $208,060.
Cash used in financing activities during the first three months of 1998
consists of payments totaling $734,499, reducing the Company's line of credit
with Mr. Curtis Sampson, the Company's Chairman of the Board. In addition, the
advance to the Minnesota Horsemens Benevolent and Protective Association
("MHBPA") was reduced by $356,733. Cash used in financing activities for the
three months ended March 31, 1997 primarily consisted of payments on the advance
from shareholder of $770,683, partially offset by an increase in the advance to
MHBPA of $112,531.
Net cash used in investing activities for the first quarter of 1998 results
primarily from acquisitions of equipment of $31,080, compared to investments in
building improvements of $62,903 during the first quarter of 1997. The 1997
investments were 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, 1998 and 1997, the Company has transferred
into a trust account or paid directly to the MHBPA approximately $600,000 and
$200,000 respectively. At March 31, 1998, the Company had an additional
liability to MHBPA of $352,840. This liability will be paid in 1998 including
interest earned at the prime lending rate, 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
9
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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 has agreed in principal to a loan agreement with an institutional
lender to replace the line of credit with Mr. Sampson. The loan arrangement
is expected to be finalized during the second quarter of 1998. Mr. Sampson
has advised the Company that he will keep his line of credit in place until
March 31, 1999 or until completion of the lending arrangement with the
lender. As of May 11, 1998, borrowings under the line of credit were
approximately $906,000.
OPERATING PLAN:
The Company plans a live race meet in 1998 which will consist of a 24-day
mixed meet of Thoroughbred and Quarter Horse racing, a 28-day Thoroughbred-only
meet, and three days of live harness racing over the Labor Day weekend.
The Company's ability to operate profitably in 1998 will largely depend on
its ability to maintain levels of attendance and wagering handle for live and
simulcast racing at levels similar to 1997. The Company will also need to
maintain operating expenses at levels similar to 1997. In addition, the Company
continues to emphasize the expansion of special events in order to maximize the
potential of the facility year-round.
As previously mentioned, the legislative changes enacted in 1996 have
been made permanent effective April 21, 1998. The permanent extension of
these tax law changes provides Management with the foundation upon which to
make long-term plans for 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
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PART II
OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
As previously reported on Form SR, the Company conducted an initial
public offering of units on August 18, 1994 which consisted of
1,437,500 shares of common stock and 1,437,500 redeemable warrants.
Each redeemable warrant entitles the holder thereof to purchase one
share of common stock at $4.875 per share for a period of four years
from the date of issuance. Substantially all of the warrants remain
outstanding as of the date of this filing.
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
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 11, 1998 /s/ Randall D. Sampson
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Randall D. Sampson,
President, Chief Executive Officer and Treasurer
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 228,284
<SECURITIES> 0
<RECEIVABLES> 162,227
<ALLOWANCES> 0
<INVENTORY> 83,128
<CURRENT-ASSETS> 638,760
<PP&E> 11,901,206
<DEPRECIATION> 3,030,172
<TOTAL-ASSETS> 9,517,978
<CURRENT-LIABILITIES> 2,849,025
<BONDS> 0
0
0
<COMMON> 29,989
<OTHER-SE> 6,638,964
<TOTAL-LIABILITY-AND-EQUITY> 9,517,978
<SALES> 537,189
<TOTAL-REVENUES> 3,513,719
<CGS> 236,162
<TOTAL-COSTS> 2,948,822
<OTHER-EXPENSES> 40,749
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 40,749
<INCOME-PRETAX> 524,148
<INCOME-TAX> 0
<INCOME-CONTINUING> 524,148
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 524,148
<EPS-PRIMARY> .17
<EPS-DILUTED> .17
</TABLE>
