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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark one)
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2004
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(D)
OF THE EXCHANGE ACT
For the transition period from __________ to __________
Commission file number 333-112603
CATSKILL LITIGATION TRUST
-------------------------
(Exact Name of Small Business Issuer as Specified in Its Declaration of Trust)
DELAWARE 16-6547621
- ------------------------------------ ------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
C/O CHRISTIANA BANK & TRUST COMPANY
1314 King Street
Wilmington, Delaware 19801
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices)
(302) 888-7400
- --------------------------------------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
- --------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
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 reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes /X/ No / /
As of May 14, 2004, 22,702,896 Units of beneficial interest were outstanding.
Transitional Small Business Disclosure Format (check one): Yes /X/ No / /
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CATSKILL LITIGATION TRUST
FORM 10-QSB
INDEX
PART I - FINANCIAL INFORMATION Page
ITEM 1. CONDENSED FINANCIAL STATEMENTS
Condensed Balance Sheet as of March 31, 2004 (unaudited) 3
Condensed Statement of Operations for the period January 12,2004
(Date of Inception) to March 31, 2004 (unaudited) 4
Condensed Statement of Cash Flows for the period January 12,
2004 (Date of Inception) to March 31, 2004 (unaudited) 5
Notes to Condensed Financial Statements 6-8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION 9-10
ITEM 3. CONTROLS AND PROCEDURES 11
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 12
ITEM 2. CHANGES IN SECURITIES AND SMALL BUSINESS
ISSUER PURCHASES OF EQUITY SECURITIES 12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 12-13
SIGNATURES 13
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CATSKILL LITIGATION TRUST
BALANCE SHEET
March 31, 2004
(Unaudited)
ASSETS $ -
LIABILITIES AND TRUST DEFICIENCY
Current Liabilities:
Accrued legal and administrative expenses $127,507
--------
Total Current Liabilities 127,507
--------
Trust Deficiency:
Units of Beneficial Interest authorized
22,702,896; issued and outstanding 22,702,896 -
Accumulated deficit (127,507)
--------
Total Trust Deficiency (127,507)
--------
TOTAL LIABILITIES AND TRUST DEFICIENCY $ -
========
The accompanying notes are an integral part of these financial statements.
3
CATSKILL LITIGATION TRUST
STATEMENT OF OPERATIONS
For the period January 12, 2004 (Date of Inception)
to March 31, 2004
(Unaudited)
General and Administrative Expenses:
Litigation Trustee Fees $ 26,130
Administrative Trustee Fees 6,000
Consulting Fees 6,000
Legal Fees 71,204
Accounting Fees 17,183
Other 990
-----------
Total General and Administrative Expenses 127,507
-----------
Net Loss $(127,507)
===========
Loss per unit outstanding ($0.01)
==========
Weighted average units outstanding 22,702,896
==========
The accompanying notes are an integral part of these financial statements.
4
CATSKILL LITIGATION TRUST
STATEMENT OF CASH FLOWS
For the period January 12, 2004 (Date of Inception)
to March 31, 2004
(Unaudited)
OPERATING ACTIVITIES:
Net Loss ($127,507)
Adjustments to reconcile net loss
to net cash provided by operations:
Increase in accrued legal and administrative expenses 127,507
--------
Net cash provided by operating activities -
--------
Cash flow from investing activities -
--------
Cash flow from financing activities -
--------
Cash-beginning of period -
--------
Cash-end of period $ -
========
The accompanying notes are an integral part of these financial statements.
5
CATSKILL LITIGATION TRUST
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1 - THE TRUST
The Catskill Litigation Trust is a Delaware statutory trust (the
"Litigation Trust") formed by Empire Resorts, Inc. ("Empire Resorts"),
Monticello Raceway Management, Inc. ("Monticello Raceway Management"),
Monticello Casino Management, LLC ("Monticello Casino Management"),
Monticello Raceway Development Company, LLC ("Monticello Raceway
Development") and Mohawk Management, LLC ("Mohawk Management"). On
January 12, 2004, 22,702,896 units of beneficial interest were issued
to the members and stockholders of those entities. At that time, Empire
Resorts, Catskill Development, L.L.C. ("Catskill Development"),
Monticello Raceway Management, Mohawk Management, Joseph E. Bernstein,
Paul A. deBary (Messrs. Bernstein and deBary are hereinafter referred
to as the "Litigation Trustees") and Christiana Bank and Trust Company
(the "Administrative Trustee") entered into the Declaration of Trust of
Catskill Litigation Trust (the "Declaration of Trust").
In the Declaration of Trust, Catskill Development, Monticello Raceway
Development and Mohawk Management assigned to the Litigation Trust all
of their claims under or related to the alienation and frustration of
their agreements and business relations with the St. Regis Mohawk Tribe
and their rights to any judgment or settlement that may arise from any
litigation relating to two litigations entitled Catskill Development,
L.L.C., Mohawk Management L.L.C. and Monticello Raceway Development
Company L.L.C., Plaintiffs v. Park Place Entertainment Corporation,
Defendant and Catskill Development, L.L.C., Mohawk Management, L.L.C.,
Monticello Raceway Development Company, L.L.C., Plaintiffs v. Gary
Melius, Ivan Kaufman, Walter Horn, President R.C. - St. Regis
Management Company, et al, Defendants (hereinafter referred to as the
"Litigation"). If at any time the Litigation Trustees determine, in
their absolute discretion, that the assets of the Litigation Trust are
not sufficient to justify its continuance, the Litigation Trustees are
authorized to terminate the Litigation Trust. In addition, the
Litigation Trust is to terminate on the date that all litigation has
been fully prosecuted to final judgment or dismissal, including all
appeals, and all Litigation Trust assets have been distributed to the
Litigation Trust's beneficiaries.
NOTE 2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
These condensed financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of
America for interim financial statements and with Form 10-QSB and Item
310 of Regulation SB of the Securities and Exchange Commission.
Accordingly, they do not contain all the information and footnotes
required by accounting principles generally accepted in the United
States of America for annual financial statements. In the opinion of
the Litigation Trustees, the accompanying condensed financial
statements contain all the adjustments necessary (consisting only of
normal recurring accruals) to make the financial position of the
Litigation Trust at March 31,2004 and the results of its operations and
its cash flows for the period January 12, 2004 (date of inception) to
March 31, 2004 not misleading.
Operating results for the period January 12, 2004 (date of inception)
to March 31, 2004 are not necessarily indicative of the results that
would be expected for the period January 12, 2004 (date of inception)
to December 31, 2004. For further information, refer to the financial
6
statement as of January 12, 2004 and the footnotes related thereto
contained in the Litigation Trust's Form S-1 filed on April 22, 2004
with the Securities and Exchange Commission.
Use of Estimates in the Financial Statements
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
the Litigation Trustees to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Income Taxes
For federal income tax purposes, the Litigation Trust is treated as a
grantor trust. Under the grantor trust rules, each holder of a unit of
beneficial interest is treated as the owner of his or her share of the
Litigation Trust's assets.
NOTE 3 - LINE OF CREDIT
Empire Resorts, a related party, has provided the Litigation Trust with
a line of credit of up to $2,500,000. The line of credit can be used to
pay all expenses of the Litigation Trust permitted under the
Declaration of Trust, including but not limited to professional fees
and the fees and expenses of the Litigation and Administrative
Trustees. The line of credit is non-interest bearing and is to be
repaid from any amounts received from litigation settlements or awards.
The line of credit expires upon the termination of the Litigation
Trust.
As of March 31, 2004, no amounts were drawn from the line of credit. On
April 1, 2004, $250,000 was drawn against the line of credit and
deposited into a money market account.
NOTE 4 - DISTRIBUTIONS
The distribution of any net proceeds from litigation settlements or
awards, after amounts are applied to cover all current or expected
expenses of the Litigation Trust, is to be made at the sole discretion
of the Litigation Trustees and will be distributed as follows:
First: To pay the Litigation Trustees their fees arising from
litigation settlements or awards. (See Note 6)
Second: To reimburse $7,500,000 to Empire Resorts for expenses incurred
in connection with the Litigation prior to the formation of the
Litigation Trust and, in addition, to repay Empire any amounts
outstanding under the line of credit.
Third: If any amount remains after the above requirements are met, such
amount remaining is to be divided among the beneficiaries of the
Litigation Trust in proportion to their ownership of Units as of the
date the distribution is made.
NOTE 5 - ACCRUED LEGAL AND ADMINISTRATIVE EXPENSES
March 31, 2004
Legal fees related to litigation $65,489
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Legal fees related to administration 5,715
Litigation Trustee Fees 26,130
Accounting Fees 17,183
Consulting Fees 6,000
Administrative Trustee Fees 6,000
Other fees and expenses 990
--------
$127,507
========
NOTE 6 - COMMITMENTS AND CONTINGENCIES
Compensation of Litigation Trustees
Each of the two Litigation Trustees is entitled to annual compensation
of $60,000 plus reimbursement of expenses incurred carrying out the
purpose of the Litigation Trust. In addition, one Litigation Trustee is
entitled to 4%, and the other 1%, of any litigation settlements or
awards.
Compensation of the Administrative Trustee
The Administrative Trustee is entitled to a $5,000 acceptance fee
(which includes the first month administrative fee) and a monthly
administrative fee of $500. In addition, the Administrative Trustee is
entitled to a custody fee on certain cash balances and marketable
securities of .5% per annum on the first $10,000,000 of fair value and
3% on the excess and reimbursement for certain fees and expenses.
Expenses Paid Prior to the Formation of the Litigation Trust
As discussed in Note 4, the Litigation Trust is obligated to pay to
Empire Resorts up to $7,500,000. This amount represents expenses
incurred prior to the formation of the Litigation Trust. The amount is
payable solely from the proceeds of litigation settlements or awards.
Repayments of Amounts Drawn Under the Line of Credit
As discussed in Note 3, the expenses of the Litigation Trust are
expected to be paid from draws under the line of credit. Amounts drawn
under the line of credit are to be repaid from any amounts received
from litigation settlements or awards.
NOTE 7 - CERTAIN RELATIONSHIPS
The Litigation Trustees are both currently members of the Empire
Resorts Board of Directors.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Forward-Looking Statements
This Report on Form 10-QSB contains "forward-looking statements" within
the meaning of Section 27A of the Securities Act and Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). All statements
other than statements of historical facts included in this Report, including
without limitation, the statements under "General," and "Liquidity and Capital
Resources," are forward-looking statements. All subsequent written and oral
forward-looking statements attributable to the Company or persons acting on its
behalf are expressly qualified in their entirety by the Cautionary Statements.
You should read the following discussions in conjunction with our
financial statements and the related notes thereto and other financial
information appearing elsewhere in this report. The following discussion
contains forward-looking statements that involve risks and uncertainties. Our
actual results could differ materially from those anticipated in the
forward-looking statements as a result of various factors, including those
discussed elsewhere in this report.
General
We are a statutory trust created under Delaware law. Our formation was
a condition to the consolidation of Empire Resorts, Inc. ("Empire Resorts") with
Monticello Raceway Management, Inc. ("Monticello Raceway Management"),
Monticello Casino Management, LLC ("Monticello Casino Management"), Monticello
Raceway Development Company, LLC ("Monticello Raceway Development") and Mohawk
Management, LLC (`Mohawk Management"). Also as a condition to that
consolidation, each of Catskill Development, L.L.C. ("Catskill Development"),
Monticello Raceway Development and Mohawk Management, agreed to assign to us all
of their claims under or related to the alienation and frustration of their
agreements and business relations with the St. Regis Mohawk Tribe. That
assignment included rights to any proceeds from any settlement or award that may
arise from any litigation relating to that claim. Our litigation claims arise
from the efforts of each of Catskill Development, Monticello Raceway Development
and Mohawk Management to develop with the St. Regis Mohawk Tribe a gaming casino
in Monticello, New York. We spent several years and substantial funds to develop
and obtain required approvals for the casino. Subsequently, Park Place
Entertainment Corporation, the world's largest gaming corporation and Atlantic
City's largest casino operator, entered into an agreement providing for the St.
Regis Mohawk Tribe to commit their future casino development efforts exclusively
to Park Place Entertainment Corporation. That agreement conflicted with the
Mohawk Tribe's agreements with Catskill Development, Monticello Raceway
Development and Mohawk Management. There are two lawsuits presently pending. The
first lawsuit is Catskill Development, L.L.C., Mohawk Management, L.L.C., and
Monticello Raceway Development Company, L.L.C., Plaintiffs. v. Park Place
Entertainment Corporation, Defendant. (Civil Action No. 00CIV8660 (CM) (GAY))
(United States District Court Southern District of New York). This lawsuit had
initially been dismissed on a motion for summary judgment. However, those
rulings have been appealed. In addition, the trial court vacated the earlier
decision granting summary judgment to Park Place Entertainment Corporation, in
order to allow additional discovery proceedings. The second lawsuit is Catskill
Development, L.L.C., Mohawk Management, L.L.C., and Monticello Raceway
Development Company, L.L.C., Plaintiffs. against Gary Melius, Ivan Kaufman,
Walter Horn, President R.C. - St. Regis Management Company, et al, Defendants.
(Index No. 891/03) (Supreme Court of the State of New York County of Sullivan).
This lawsuit is in its preliminary stages. Our purposes are the prosecution of
our litigation claims through the recovery of any settlement or final judgments
and the distribution of the net amount of any such recoveries to our
beneficiaries.
9
The administration of the Litigation Trust will involve the
authentication and payment of fees and expenses for legal and related services
in connection with our litigation claims, reporting and regulatory compliance
and the maintenance of litigation, financial and unitholder records.
Administrative expenses are currently estimated to be approximately $200,000 per
year, including the fees of the Litigation Trustees, the Administrative Trustee,
auditors and accountants and other support services. Legal fees and other
expenses involved in our litigation claims are impossible to predict with any
degree of accuracy. No assurance can be given that the amounts available to us
for the payment of such expenses under our line of credit will be sufficient to
carry our litigation claims through to a successful conclusion or that
alternative funds will be available for such purpose.
Our unit holders will only be entitled to the net proceeds from any
settlement or award, if any, of our litigation claims after the payment of our
expenses, the fees of the Litigation Trustees, any amounts outstanding under our
line of credit and $7,500,000 to Empire Resorts for reimbursement of prior
expenses incurred in connection with our litigation claims.
RESULTS OF OPERATIONS
For the period January 12, 2004 (date of inception) through March 31,
2004, we reported a net loss of $127,506. Included in this net loss are, legal
fees related to litigation of $65,489 and administrative expenses of $62,018,
but no proceeds from any litigation.
LIQUIDITY AND CAPITAL RESOURCES
Empire Resorts has provided us with an irrevocable line of credit of up
to $2,500,000 to provide funds to pay any and all of our expenses permitted
under the Declaration of Trust. No interest is payable on amounts advanced under
our line of credit. Amounts outstanding under our line of credit are to be
repaid by us from proceeds received from any settlement or award in connection
with our litigation claims after payment of an amount necessary to pay the
Litigation Trustees the fees for their services as set forth in the Declaration
of Trust. Repayments of amounts outstanding under our line of credit may be made
as a whole or in part from time to time at any time without notice. We may
re-borrow any amounts so repaid. Our line of credit will remain in full force
and effect until our termination.
Empire Resorts is a holding company, owning all the capital stock or
membership interests of certain other entities. Empire Resorts is therefore
dependent on these other entities to pay dividends or make distributions in
order to generate internal cash flow and to satisfy its obligations, including
its obligations under our line of credit. There can be no assurance, however,
that these other entities will generate enough revenue to pay cash dividends or
make cash distributions. In addition, these entities may enter into contracts
that limit or prohibit their ability to pay dividends or make distributions.
Empire Resorts had no net operating revenue during the fiscal year
ended December 31, 2003 and sustained a net operating loss of approximately $8.0
million during such period. Therefore, there can be no assurance that Empire
Resorts will have the ability to meet its obligations under our line of credit.
ITEM 3. CONTROLS AND PROCEDURES
(a) The Litigation Trust carried out an evaluation, under the
supervision and with the participation of the Litigation Trust's management,
including Joseph E. Bernstein (acting Chief Executive Officer) and Paul A.
Debary (acting Chief Financial Officer), the Litigation Trust's Litigation
Trustees, of the effectiveness of the design and operation of the Litigation
Trust's "disclosure controls and procedures", as such term is defined in
Exchange Act Rule 15d-15e, as of the end of the period covered by this report.
Based upon that evaluation, Messrs. Bernstein and deBary have concluded that the
Litigation Trust's disclosure controls and procedures were effective as of the
10
end of the period covered by this report to provide reasonable assurance that
information required to be disclosed by the Litigation Trust in reports that it
files or submits under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in SEC rules and forms.
(b) There have been no significant changes in the Litigation Trust's
internal controls or in other factors that could significantly affect the
Litigation Trust's internal controls subsequent to the date the Litigation Trust
carried out this evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
A control system, no matter how well conceived and operated, can
provide only reasonable, not absolute assurance that the objectives of the
control system are met. Because of the inherent limitations in all control
systems, no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within a company have been
detected.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are a statutory trust created under Delaware law. Our formation was
a condition to the consolidation of Empire Resorts with Monticello Raceway
Management, Monticello Casino Management, Monticello Raceway Development, and
Mohawk Management. Also as a condition to that consolidation, each of Catskill
Development, Monticello Raceway Development and Mohawk Management, agreed to
assign to us all of their claims under or related to the alienation and
frustration of their agreements and business relations with the St. Regis Mohawk
Tribe. That assignment included rights to any proceeds from any settlement or
award that may arise from any litigation relating to that claim. Our litigation
claims arise from the efforts of each of Catskill Development, Monticello
Raceway Development and Mohawk Management to develop with the St. Regis Mohawk
Tribe a gaming casino in Monticello, New York. We spent several years and
substantial funds to develop and obtain required approvals for the casino.
Subsequently, Park Place Entertainment Corporation, the world's largest gaming
corporation and Atlantic City's largest casino operator, entered into an
agreement providing for the St. Regis Mohawk Tribe to commit their future casino
development efforts exclusively to Park Place Entertainment Corporation. That
agreement conflicted with the Mohawk Tribe's agreements with Catskill
Development, Monticello Raceway Development and Mohawk Management. There are two
lawsuits presently pending. The first lawsuit is Catskill Development, L.L.C.,
Mohawk Management, L.L.C., and Monticello Raceway Development Company, L.L.C.,
Plaintiffs. v. Park Place Entertainment Corporation, Defendant. (Civil Action
No. 00CIV8660 (CM)(GAY)) (United States District Court Southern District of New
York). This lawsuit had initially been dismissed on a motion for summary
judgment. However, those rulings have been appealed. In addition, the trial
court vacated the earlier decision granting summary judgment to Park Place
Entertainment Corporation, in order to allow additional discovery proceedings.
The second lawsuit is Catskill Development, L.L.C., Mohawk Management, L.L.C.,
and Monticello Raceway Development Company, L.L.C., Plaintiffs. against Gary
Melius, Ivan Kaufman, Walter Horn, President R.C. - St. Regis Management
Company, et al, Defendants. (Index No. 891/03) (Supreme Court of the State of
New York County of Sullivan). This lawsuit is in its preliminary stages and
prosecution of the suit may be deferred pending the resolution of certain issues
related to the first lawsuit. Our purposes are the prosecution of our claims now
through the recovery of any settlement or final judgments and the distribution
of the net amount of any such recoveries to our beneficiaries.
ITEM 2. Changes in Securities and Small Business Issuer Purchases
of Equity Securities
In connection with the formation of the Litigation Trust and the
completion of the consolidation of Empire Resorts with Monticello Raceway
Management, Monticello Casino Management, Monticello Raceway Development and
Mohawk Management, the Litigation Trust issued on January 12, 2004, in a single
transaction, 22,702,896 units of the Litigation Trust (the "Units"),
representing all of its currently outstanding Units, pursuant to Section 4(2) of
the Securities Act of 1933, as amended.
Item 6. Exhibits and Reports on 8-K
a. Exhibits
*31.1 Certification of Acting Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
12
*31.2 Certification of Acting Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
*32.1 Certification of the Acting Chief Executive Officer pursuant to 18
U.S.C. Section 1350 adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
*32.2 Certification of the Chief Financial Officer pursuant to 18 U.S.C.
Section 1350 adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
*Filed herewith
b. Reports on Form 8-K
None.
13
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CATSKILL LITIGATION TRUST
(Registrant)
DATE: May 17, 2004 By: /s/ Joseph E. Bernstein
-------------------------------------------
Joseph E. Bernstein
Litigation Trustee
DATE: May 17, 2004 By: /s/ Paul A. deBary
-------------------------------------------
Paul A. deBary
Litigation Trustee
14
