UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SEMIANNUAL REPORT ON FORM 1-SA
SEMIANNUAL REPORT PURSUANT TO REGULATION A
For the fiscal semiannual period ended:
June 30, 2021
TROPICAL RACING INC. |
(Exact name of issuer as specified in its charter) |
FLORIDA
(State or other jurisdiction of incorporation or organization)
82-1034364
(I.R.S. Employer Identification Number)
1740 Grassy Springs Road, Versailles, Kentucky, 40383
(Full mailing address of principal executive offices)
561-513-8767
(Issuer’s telephone number, including area code)
Item 1. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Semi-Annual Report on Form 1-SA (this “Semi-Annual Report”) contains forward-looking statements. All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements.
Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar matters that are not historical facts. In some cases, you can identify forward-looking statements by terms such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “should,” “will” and “would” or the negatives of these terms or other comparable terminology. You should not place undue reliance on forward looking statements. The cautionary statements set forth in this Semi-Annual Report or our Offering Circular, including in “Risk Factors” contained in our Offering Circular and elsewhere, identify important factors which you should consider in evaluating our forward-looking statements. These include, among other things, the following factors:
Risks Related to our Business and Industry
| · | We are an early-stage company with limited operating history and may never be profitable. |
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| · | Unpredictable events, such as the COVID-19 outbreak, and associated business disruptions could seriously harm our future revenues and financial condition, delay our operations, increase our costs and expenses, and impact our ability to raise capital. |
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| · | We may face litigation in the future. |
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| · | We have entered into transactions with related parties in the past and have an outstanding related-party liability with the Company’s President and Principal Executive Officer, Troy Levy, for accrued unpaid salary. |
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| · | We and our President and Principal Executive Officer entered into a Stipulation for Consent Order with the State of Colorado. |
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| · | There is substantial doubt about our ability to continue as a going concern. |
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| · | There are few businesses that have pursued a strategy or investment objective similar to the Company’s. |
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| · | Our inability to retain management and key employees could impair the future success of the Company. |
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| · | A significant growth in the number of personnel would place a strain upon the Company’s management and resources. |
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| · | There is no assurance that the Company’s insurance coverage will be sufficient to cover all claims to which the Company may become subject. |
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| · | There can be no assurances that the value of the racehorse (whether it is a Thoroughbred, Quarter Horse or Standardbred) which is owned by the Company will not decrease in the future which may have an adverse impact on the Company’s activities and financial position. |
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| · | The cost of racing is unpredictable and speculative and may negatively impact the Company’s ability to generate revenue. |
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| · | If a horse is unsuccessful in racing, becomes sick or injured, its value will be adversely affected which may have a negative impact of the Company’s valuation and revenue. |
2 |
| · | Horse racing could be subjected to restrictive regulation or banned entirely which could adversely affect the conduct of our business. |
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| · | We do not currently purchase insurance coverage for our horses which could require Company resources to be spent to cover any losses from the death or injury of a horse. |
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| · | A decrease in average attendance per racing date coupled with increasing costs could jeopardize the continued existence of certain racetracks which could negatively impact the Company’s operations. |
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| · | Industry practices and structures have developed which may not be attributable solely to profit-maximizing, economic decision-making which may have an adverse impact on our activities business. |
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| · | Investors may only own a minority interest in underlying assets and as a result may not have sufficient control regarding the training or racing of the horse(s). |
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| · | Market shortages may impact the ability of the Company to generate revenue. |
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| · | We have no current intention of making regular dividend payments, as revenues are irregular, seasonal, and unpredictable. |
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| · | We may not raise enough funds or have enough money to purchase the best blood-line champion horses to generate purses. |
The financial statements contained in this Semi-Annual Report should be read in conjunction with the audited financial statements and related notes for the fiscal year ended December 31, 2020, contained in the Company’s Financial Report on Form 1-K, filed with the Securities and Exchange Commission on April 30, 2021.
Forward-looking statements are based on our current expectations and assumptions regarding our business, potential target businesses, the economy and other future conditions. Because forward-looking statements relate to the future, by their nature, they are subject to inherent uncertainties, risks, and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated by the forward-looking statements as a result of various factors, including, without limitation, changes in local, regional, national or global political, economic, business, competitive, market (supply and demand) and regulatory conditions.
We caution you therefore that you should not rely on any of these forward-looking statements as statements of historical fact or as guarantees or assurances of future performance. All forward-looking statements speak only as of the date of this Semi-Annual Report. We undertake no obligation to update any forward-looking statements or other information contained herein.
Overview
Tropical Racing Inc. (the “Company”) was formed on March 31, 2017 under the laws of the State of Florida, and is headquartered in Kentucky. The Company is a thoroughbred horse racing company, operating its business primarily through three functions: (i) horse ownership syndication; (ii) horse training, breeding and horse racing; and (iii) pinhooking.
As of June 30, 2021, our majority shareholder, Troy Levy, owned 84% of our capital stock. Accordingly, Mr. Levy has significant influence over us and any action requiring the approval of the holders of our shares of Class A common stock, par value $.0001 per share (the “Class A Common Stock”), including the election of directors and amendments to our organizational documents, such as increases in our authorized shares of Class A Common Stock and approval of significant corporate transactions.
3 |
Results of Operations for the Six Months Ended June 30, 2021 and June 30, 2020
Revenues
Our revenue was $133,416 for the six months ended June 30, 2021, as compared to $103,480 for the six months ended June 30, 2020. Our revenues increased slightly during this period, due to increased purse winnings and syndication fees. The ranch was established early 2019 and allowed for more training of the horses resulting in better showings at the racetracks. In addition, more horses were purchased during the period ended June 30, 2021 resulting in more syndication activities.
Net Loss
Our net loss was $1,712,772 for the six months ended June 30, 2021, as compared to $530,632 for the six months ended June 30, 2020. The increase in net loss was due to the increased investment in operations to establish the ranch. Our purchases of horses and our related expenses to train and maintain them resulted in higher overall costs compared to the revenue generated for the year.
Horse and Ranch Expenses
Our horse and ranch expenses were $767,408 for the six months ended June 30, 2021, as compared to $425,693 for six months ended June 30, 2020. The increase in expenses was mainly due to the increased training and maintenance costs including feed and transportation of the additional horses that were purchased throughout the year. Ranch and horse expenses consisted primarily of training, veterinary, transportation, ranch improvements, and barn expenses.
General and Administrative Expenses
Our general and administrative expenses were $870,547 for the six months ended June 30, 2021, as compared to $ 271,680 for six months ended June 30, 2020. General and administrative expenses consisted primarily of salaries/benefits, marketing, consulting and professional fees, vehicle, office, and travel expenses. The increase in operational activities were due to the purchase of more horses and the filing of the Form 1-A offering statement for our Regulation A, Tier 2 offering of units (the “Offering”) resulting in increased audit and legal fees.
Liquidity and Capital Resources
To date, we have generated some cash through purse winnings and syndication of horses, however the Company still has negative cash flows from operating activities. All costs in connection with horse acquisitions, operating expenses and professional fees have been funded mainly by our shareholders, including our founder, President and Chief Executive Officer Troy Levy.
Our future expenditures and capital requirements will depend on numerous factors, including the success of the Offering and the progress and ability to win races by our racehorses, pin-hooking, and syndication efforts.
Our business does generate some limited cash through purse winnings from races, syndication fees and the sale of horses. We believe that if we raise $49,980,000 (the Maximum Amount) in the Offering, we will have sufficient capital to finance our operations for at least the next five (5) years; however, if we do not raise the Maximum Amount or if our operating and development costs are higher than expected, we will need to obtain additional financing prior to that time. We do not have any track record for self-underwritten Regulation A+ offerings, and there can be no assurance we will raise the Maximum Amount. Further, even if we raise the Maximum Amount, we expect that after such five (5) year period we will be required to raise additional funds to finance our operations until such time that we can conduct revenue-generating activities. However, no assurances can be made that we will be successful obtaining additional equity or debt financing, or that ultimately, we will achieve profitable operations and positive cash flow.
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Going Concern
Our financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Our ability to continue as a going concern is contingent upon our ability to raise additional capital as required. During the period from March 2017 (inception) through June 30, 2021, we have incurred cumulative net losses of $6,689,540. Currently, we intend to finance our operations through additional equity and debt financings.
We have funded operations with capital raised from our ongoing Tier 2 offering pursuant to Regulation A and offerings pursuant to Regulation D under the Securities Act of 1933, as amended.
We continually evaluate our plan of operations to determine the manner in which we can most effectively utilize our limited cash resources. The timing of completion of any aspect of our plan of operations is highly dependent upon the availability of cash to implement that aspect of the plan and other factors beyond our control. There is no assurance that we will successfully obtain the required capital or revenues, or, if obtained, that the amounts will be sufficient to fund our ongoing operations.
These circumstances raise substantial doubt on our ability to continue as a going concern. Our financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might result from this uncertainty.
Credit Facilities
We do not have any credit facilities for ongoing capital expenditures at this time. The Company does have small business loans and loans payable for vehicle and equipment purchases.
Capital Expenditures
We do not have any contractual obligations for ongoing capital expenditures at this time.
Contractual Obligations, Commitments and Contingencies
The Company does have the first option to purchase the Circle 8 Ranch in March 2022 and intends to do so.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements.
Item 2. Other Information
None.
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Item 3. Financial Statements
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Condensed Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020 (unaudited) |
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Notes to Condensed Consolidated Financial Statements (unaudited) |
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F-1 |
Table of Contents |
TROPICAL RACING, INC.
AND SUBSIDIARIES
Consolidated Financial Statements (unaudited)
For the Six Months Ended June 30, 2021 and 2020
F-2 |
Table of Contents |
TABLE OF CONTENTS
TROPICAL RACING, INC. AND SUBSIDIARIES
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| F-4 |
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F-3 |
Table of Contents |
TROPICAL RACING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2021 AND DECEMBER 31, 2020
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| June 2021 |
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| December 2020 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
| $ | 803,808 |
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| $ | 166,914 |
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Accounts receivable |
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| 85,007 |
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| 16,209 |
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Prepaid expenses |
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| - |
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| 15,000 |
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Total current assets |
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| 888,815 |
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| 198,123 |
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Property and equipment |
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| 181,147 |
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| 206,483 |
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Racehorses |
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| 438,030 |
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| 388,562 |
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Investment in stallion shares |
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| 85,000 |
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| 85,000 |
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Finance lease right-of-use assets |
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| 2,879,232 |
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| 2,895,570 |
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Total assets |
| $ | 4,472,224 |
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| $ | 3,773,738 |
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LIABILITIES AND SHAREHOLDERS' EQUITY |
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Current Liabilities: |
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Accounts payable and accrued liabilities |
| $ | 125,420 |
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| 307,269 |
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Current portion of notes payable |
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| 71,945 |
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| 74,816 |
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Current portion of finance lease liability |
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| 2,642,197 |
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| 94,996 |
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Total current liabilities |
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| 2,839,562 |
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| 477,081 |
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Notes payable |
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| 176,512 |
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| 193,334 |
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Finance lease liability |
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| 2,644,056 |
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Due to shareholder |
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| 427,343 |
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| 358,070 |
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Total liabilities |
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| 3,443,417 |
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| 3,672,541 |
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Shareholders' Equity |
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Common stock and paid-in capital |
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| 7,718,347 |
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| 5,077,965 |
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Retained deficit |
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| (6,689,540 | ) |
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| (4,976,768 | ) |
Total shareholders' equity |
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| 1,028,807 |
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| 101,197 |
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Total liabilities and shareholders' equity |
| $ | 4,472,224 |
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| $ | 3,773,738 |
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F-4 |
Table of Contents |
TROPICAL RACING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2021 AND 2020
(unaudited)
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| June 2021 |
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| June 2020 |
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REVENUES |
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Purse winnings |
| $ | 56,259 |
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| $ | 42,320 |
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Syndication fees |
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| 77,157 |
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| 61,160 |
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Total revenues |
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| 133,416 |
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| 103,480 |
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EXPENSES |
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Racehorses |
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| 657,451 |
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| 355,266 |
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Professional fees |
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| 440,431 |
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| 120,121 |
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Salaries and benefits |
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| 82,228 |
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| 78,340 |
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Ranch |
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| 109,957 |
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| 70,427 |
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Marketing and promotions |
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| 248,242 |
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| 32,543 |
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Depreciation |
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| 130,722 |
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| 65,679 |
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Interest |
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| 61,022 |
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| 1,129 |
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Travel and entertainment |
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| 34,570 |
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| 13,600 |
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General and administrative |
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| 61,412 |
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| 22,404 |
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Amortization of ROU asset - finance lease |
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| 16,338 |
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| 56,035 |
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Vehicles |
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| 3,764 |
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| 4,672 |
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Total expenses |
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| 1,846,137 |
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| 820,216 |
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Operating loss |
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| (1,712,721 | ) |
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| (716,736 | ) |
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Gain (loss) on sale of racehorses |
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| (9,112 | ) |
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| 179,424 |
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Other income (loss) |
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| 9,061 |
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| 6,680 |
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Loss before income taxes |
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| (1,712,772 | ) |
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| (530,632 | ) |
Income taxes |
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| - |
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| - |
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Net loss attributable to Tropical Racing, Inc. |
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| (1,712,772 | ) |
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| (530,632 | ) |
F-5 |
Table of Contents |
TROPICAL RACING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2021 AND June 30, 2020
(unaudited)
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| Additional |
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| Total |
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| Common Stock Outstanding |
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| Paid |
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| Accumulated |
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| Shareholders' |
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| Shares |
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| Amount |
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| in Capital |
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| Deficit |
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| Equity |
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Balance at December 31, 2020 |
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| 48,195,443 |
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| $ | 5,073,146 |
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| $ | 4,819 |
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| $ | (4,976,768 | ) |
| $ | 101,197 |
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Issuance of common stock under Regulation A offering, net of issuance costs |
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| 563,969 |
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| $ | 1,973,893 |
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| $ | 56.40 |
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| $ | - |
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| $ | 1,973,949 |
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Issuance of common stock under Regulation CF offering, net of issuance costs |
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| 62,856 |
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| $ | 141,426 |
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| $ | 6.29 |
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| $ | - |
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| $ | 141,432 |
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Issuance of common stock under Regulation D |
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| - |
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| $ | 525,000 |
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| $ | - |
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| $ | - |
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| $ | 525,000 |
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Net Loss |
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| - |
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| $ | - |
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| $ | - |
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| $ | (1,712,772 | ) |
| $ | (1,712,772 | ) |
Balance at June 30, 2021 |
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| 48,822,268 |
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| $ | 7,713,465 |
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| $ | 4,882 |
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| $ | (6,689,540 | ) |
| $ | 1,028,807 |
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| Common Stock Outstanding |
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| Additional Paid |
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| Accumulated |
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| Total Shareholders' |
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| Shares |
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| Amount |
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| in Capital |
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| Deficit |
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| Equity |
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Balance at December 31, 2019 |
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| 43,298,793 |
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| $ | 3,397,407 |
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| $ | 4,330 |
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| $ | (3,098,528 | ) |
| $ | 303,209 |
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Issuance of common stock under Regulation A offering, net of issuance costs |
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| - |
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| $ | - |
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| $ | - |
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| $ | - |
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| $ | - |
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Issuance of common stock under Regulation CF offering, net of issuance costs |
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| - |
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| $ | - |
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| $ | - |
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| $ | - |
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| $ | - |
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Issuance of common stock under Regulation D |
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| 333,985 |
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| $ | 327,995 |
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| $ | 33 |
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| $ | - |
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| $ | 328,028 |
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Net Loss |
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| - |
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| $ | - |
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| $ | - |
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| $ | (530,632 | ) |
| $ | (530,632 | ) |
Balance at June 30, 2020 |
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| 43,632,778 |
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| $ | 3,725,402 |
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| $ | 4,363 |
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| $ | (3,629,160 | ) |
| $ | 100,605 |
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F-6 |
Table of Contents |
TROPICAL RACING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2021 AND 2020
(unaudited)
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| June 2021 |
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| June 2020 |
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OPERATING ACTIVITIES |
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Net loss |
| $ | (1,712,772 | ) |
| $ | (530,632 | ) |
Adjustments to reconcile net loss to net cash used in operations: |
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Depreciation and amortization |
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| 147,060 |
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| 121,714 |
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Loss (Gain) on disposal |
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| 9,112 |
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| (179,424 | ) |
Changes in operating assets and liabilities: |
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Accounts receivable |
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| 68,798 |
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| (21,464 | ) |
Prepaid expenses |
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| (15,000 | ) |
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| - |
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Accounts payable and accrued liabilities |
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| (181,849 | ) |
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| (14,948 | ) |
Net cash used in operations |
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| (1,684,651 | ) |
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| (624,754 | ) |
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FINANCING ACTIVITIES |
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Proceeds from issuance of debt |
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| - |
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| 157,253 |
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Payments of principal of notes payable |
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| (19,693 | ) |
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| - |
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Proceeds from shareholder loans |
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| 69,273 |
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| 97,210 |
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Payments of principal on finance lease liability |
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| (151,000 | ) |
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| (158,500 | ) |
Issuance of shares |
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| 2,640,382 |
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| 328,028 |
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Net cash provided by financing activities |
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| 2,538,962 |
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| 423,991 |
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INVESTING ACTIVITIES |
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Purchases of property and equipment |
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| (150,648 | ) |
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| (118,698 | ) |
Purchases of racehorses |
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| (176,792 | ) |
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| (95,031 | ) |
Proceeds from sales of racehorses |
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| 110,023 |
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| 450,488 |
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Net cash used in investing activities |
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| (217,417 | ) |
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| 236,759 |
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Net increase in cash and cash equivalents |
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| 636,894 |
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| 35,996 |
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Cash and cash equivalents, beginning of year |
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| 166,914 |
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| 94,901 |
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Cash and cash equivalents, end of year |
| $ | 803,808 |
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| $ | 130,897 |
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F-7 |
Table of Contents |
TROPICAL RACING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2021 AND 2020
NOTE 1 - NATURE OF OPERATIONS
Description of Organization and Business Operations
Tropical Racing, Inc. (the “Company”) was incorporated on March 31, 2017 in the State of Florida. The Company was authorized to do business in Kentucky on February 19, 2019. The Company is a horseracing‑based group ownership business that breeds and syndicates thoroughbred racehorses. The Company has one subsidiary:
Circle 8 Ranch Corp. (“Circle 8”) – Circle 8 is a corporation organized under the State of Florida on February 28, 2019. Circle 8 was formed to manage racing activities of the Company’s horses. The entity is wholly owned by the Company.
Going Concern
The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has not generated profits since its inception and has sustained a net loss of $ 1,712,772 and $ 530,632 for the six months ended June 30, 2021 and 2020, respectively.
The Company has financed its business activities through capital contributions from investors since inception and expects to continue to have access to ample capital financing going forward, however, no assurances can be made regarding the Company’s ability to do so.
The financial statements do not include any adjustments that might be necessary if the Company is not able to continue as a going concern.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements.
Basis of Presentation
These financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP"). In the opinion of management, all adjustments considered necessary for the fair presentation of the financial statements for the periods presented have been included.
F-8 |
Table of Contents |
Basis of Consolidation
The consolidated financial statements reflect the Company’s activities along with its subsidiaries outlined in Note 1. The Company eliminates all material intercompany transactions and balances from its financial statements.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash deposits held with banks, and other highly liquid short-term interest-bearing securities with maturities at the date of purchase of three months or less. From time to time, the Company maintains balances with financial institutions in excess of federally insured limits.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and amortization. Significant expenditures, which extend the useful lives of assets, are capitalized. The residual values and useful lives of property and equipment are reviewed by management, and adjusted as appropriate, at each balance sheet date.
The Company reviews the carrying value of thoroughbred assets for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. The factors considered by management in performing this assessment include current operating results, trends and prospects, the use of the property, and the effects of health, demand, competition, and other economic factors.
The estimated useful lives of the class of assets for the current and comparative periods are as follows:
Classification |
| Useful live |
Vehicles |
| 5 years |
Equipment |
| 7 years |
Racehorses
Racehorses are recorded at cost. The cost of the thoroughbred racehorses includes the purchase price, sourcing fees and brokerage fees. Thoroughbred racehorse assets are depreciated using the straight-line method over 36 months with no estimated salvage value. A racehorse is treated as placed in service upon its acquisition by the Company.
Revenue Recognition
The Company adopted Topic 606 on January 1, 2018. Topic 606 requires an entity to perform a five‐step assessment for each contract with customers which includes identifying the contract, identifying the performance obligations, determining the transaction price, allocating the transaction price, and recognizing revenue when the performance obligations are satisfied. Purse winnings represent revenues earned from winning thoroughbred races, and syndication fees represent revenues earned for monthly maintenance fees of syndicated horses.
Advertising
Advertising costs are expensed as they are incurred. These expenses totaled $ 248,242 and $ 32,543 for the six months ended June 2021 and 2020, respectively.
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Use of Estimates
The preparation of financial statements in conformity with GAAP requires management 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.
Making estimates requires management to exercise significant judgment. It is a t least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from Company estimates.
Risks and Uncertainties
Operational risk – The ability of the Company to generate net earnings and become profitable is based, in part, on its ability to win races. Failure to execute on its strategy to hire experienced trainers and purchase quality horses could have a material adverse effect on the financial condition of the Company.
Concentration risk – The Company’s main sources of income are purse winnings and syndication fees. If the market for horse racing declines, the Company may be unable to return positive results or attract additional sources of capital to continue its operations.
COVID 19 risk – The ongoing COVID-19 pandemic has caused a broad impact globally. While the potential economic impact brought by, and the duration of, COVID-19 may be difficult to access or predict, the pandemic and any resulting recession or economic slowdown could reduce the Company’s ability to generate net income.
Recent Accounting Pronouncements
The Financial Accounting Standards Board (“FASB”) issues updates to amend the authoritative literature in ASC. There have been several updates to date that amend the original text of ASC. Management believes that those issued to date either (i) provide supplemental guidance, (ii) are technical corrections, (iii) are not applicable or (iv) are not expected to have a significant impact on the financial statements, except those disclosed below.
NOTE 3 – REVENUE RECOGNITION
Disaggregation of Revenues
In the following table, revenues are disaggregated by timing of satisfaction of performance obligations for the periods ended June 30, 2021 and 2020:
|
| 2021 |
|
| 2020 |
| ||
Performance obligations satisfied at a point in time |
| $ | 111,946 |
|
| $ | 103,480 |
|
Performance obligations satisfied over time |
|
| - |
|
|
| - |
|
Total Revenues |
| $ | 111,946 |
|
| $ | 103,480 |
|
Revenues from performance obligations satisfied at a point in time consist of purse winnings and syndication fees. The Company does not have revenues from performance obligations satisfied over time.
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Contract Balances
As of June 30, 2021 and 2020, there were no contract assets or liabilities related to the timing of revenue transactions.
Performance Obligations
For purse winnings, the Company determined that there is one performance obligation, and revenues are recognized at the point in time when the service has been delivered and the performance obligation has been met which is generally determined at the completion of each race.
NOTE 4 – INCOME TAXES
The Company complies with FASB ASC 740 for accounting for uncertainty in income taxes recognized in a company’s financial statements, which prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. FASB ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. Based on the Company’s evaluation, it has been concluded that there are no significant uncertain tax positions requiring recognition in the Company’s financial statements. The Company believes that its income tax positions would be sustained on audit and does not anticipate any adjustments that would result in a material change to its financial position.
Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in future taxable or deductible amounts, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income.
In assessing its ability to realize its deferred tax assets, management considers whether it is more likely than not that some portion or all the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled projected future taxable income and tax planning strategies in making this assessment. Based upon this analysis, management determined that a full valuation allowance was required at each year-end.
Major components of deferred tax assets and liabilities consist of the following at June 30, 2021 and June 30, 2020:
|
| 2021 |
|
| 2020 |
| ||
Unused net operating loss carryforward |
| $ | 1,156,000 |
|
| $ | 1,156,000 |
|
Less: valuation allowance |
|
| (1,156,000 | ) |
|
| (1,156,000 | ) |
Deferred tax asset, net |
| $ | - |
|
| $ | - |
|
For the six months ended June 30, 2021 and 2020, the Company has no current income tax expense or benefit.
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NOTE 5 – RELATED PARTY TRANSACTIONS
The Company engages Michelle Nihei Racing Stables LLC (“Nihei Stables”) to provide training services. Ms. Nihei is the spouse of the Company’s President.
The Company incurred the following expenses for the years ended June 30, 2021 and June 30, 2020:
|
| 2021 |
|
| 2020 |
| ||
Nihei Stables – training |
| $ | 208,500 |
|
| $ | 91,200 |
|
As of June 30, 2021, and 2020, the Company has no amounts payable to or receivable from any related party, except as discussed in Note 10.
NOTE 6 – LONG‑TERM ASSETS
Long-term assets consist of the following at June 30, 2021 and December 31,2020 as follows:
|
| 2021 |
|
| 2020 |
| ||
Racehorses: |
|
|
|
|
|
| ||
Acquisition cost |
| $ | 632,190 |
|
| $ | 563,350 |
|
Accumulated depreciation |
|
| (194,160 | ) |
|
| (174,788 | ) |
Net book value |
| $ | 438,030 |
|
| $ | 388,562 |
|
|
|
|
|
|
|
|
|
|
Property and Equipment: |
|
|
|
|
|
|
|
|
Acquisition cost |
| $ | 249,472 |
|
| $ | 249,472 |
|
Accumulated depreciation |
|
| (68,325 | ) |
|
| (42,989 | ) |
Net book value |
| $ | 181,147 |
|
| $ | 206,483 |
|
Depreciation expense totaled $ 130,722 and $ 65,679 for the six months ended June 30, 2021 and June 30, 2020, respectively.
NOTE 7 – INVESTMENT IN STALLION SHARES
In November 2020, the Company invested $ 85,000 for a fractional interest for the stallion, Global Campaign. The amount was funded by an initial cash payment of $ 42,500 and the remaining was financed with a note due in November 2021. As a fractional owner, the Company is obligated to pay its proportionate share of expenses to maintain the stallion. Additionally, the Company is entitled to a proportionate share of profits.
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NOTE 8 – LEASES
The Company maintained an operating lease for corporate offices and maintains a finance lease for use of their ranch. The Company is the lessee in a lease contract when it obtains the right to control the asset. Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease, both of which are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. Leases with a lease term of 12 months or less at inception are not recorded on the consolidated balance sheets and are expensed on a straight-line basis over the lease term in the consolidated statements of operations.
The Company determines the lease term by assuming the exercise of renewal options that are reasonably certain. As most of the Company’s leases do not provide an implicit interest rate, the Company uses local incremental borrowing rates based on the information available at the commencement date in determining the present value of future payments. When the Company’s contracts contain lease and non‑lease components, it accounts for both components as a single lease component.
The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use assets, other current liabilities, and operating lease liabilities in the Company’s consolidated balance sheets. Finance leases are included in property and equipment, and other long-term liabilities in its consolidated balance sheets.
Components and supplemental information for the six months ended June 30, 2021 and December 31, 2020 are as follows:
|
| 2021 |
|
| 2020 |
| ||
Components of lease expense: |
|
|
|
|
|
| ||
Operating lease cost |
| $ | - |
|
| $ | - |
|
|
|
|
|
|
|
|
|
|
Finance lease cost |
|
|
|
|
|
|
|
|
Amortization of right-of-use assets |
| $ | 16,338 |
|
| $ | 32,676 |
|
Interest on lease liabilities |
| $ | 54,145 |
|
| $ | 110,273 |
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information relating to leases: |
|
|
|
|
| |||
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|
|
|
Operating cash flows from operating leases |
| $ | - |
|
| $ | - |
|
Operating cash flows from finance leases |
| $ | 54,145 |
|
| $ | 110,273 |
|
Financing cash flows from finance leases |
| $ | 96,855 |
|
| $ | 98,927 |
|
Right-of-use assets obtained in exchange for lease obligations: |
|
|
|
|
|
|
|
|
Operating leases |
| $ | - |
|
| $ | - |
|
Finance leases |
| $ | 2,960,922 |
|
| $ | 2,960,922 |
|
Remaining lease terms: |
|
|
|
|
|
|
|
|
Finance leases |
| 9 months |
|
| 15 months |
| ||
Weighted average discount rate: |
|
|
|
|
|
|
|
|
Finance leases |
|
| 4 | % |
|
| 4 | % |
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Maturities of liabilities: |
|
|
|
| ||||
For the six months ending June 30, |
| Finance Leases |
|
| Operating Leases |
| ||
2021 |
|
| 51,000 |
|
|
| - |
|
2022 |
|
| 2,670,500 |
|
|
| - |
|
Total lease payments |
|
| 2,701,500 |
|
|
| - |
|
Less imputed interest |
|
| (59,303 | ) |
|
| - |
|
Total |
| $ | 2,642,197 |
|
| $ | - |
|
NOTE 9 – NOTES PAYABLE
|
| 2021 |
|
| 2020 |
| ||
Note payable to Kubota Credit Corp secured by a vehicle due in monthly installments of $231 interest free |
| $ | 5,066 |
|
| $ | 6,447 |
|
|
|
|
|
|
|
|
|
|
Note payable to Kubota Credit Corp secured by a vehicle due in monthly installments of $333 interest free |
|
| 13,965 |
|
|
| 15,961 |
|
|
|
|
|
|
|
|
|
|
Note payable to Marlin Bank secured by equipment due in monthly installments of $ 69 including interest of 18.32% |
|
| 1,090 |
|
|
| 1,486 |
|
|
|
|
|
|
|
|
|
|
Note payable to U.S. Small Business Administration secured by substantially all of the assets of the Company due 12 months from the date of promissory note in monthly installments of $ 500 including interest of 3.75%. |
|
| 102,300 |
|
|
| 102,300 |
|
|
|
|
|
|
|
|
|
|
Note payable to U.S. Small Business Administration s Paycheck Protection Program. Any portion not forgiven includes interest of 1.0% |
|
| - |
|
|
| 6,951 |
|
|
|
|
|
|
|
|
|
|
Note payable to Winstar Farm LLC due in one installment of $ 42,500 on or before November 1, 2021 including interest of 4.0%, secured by the investment in stallion shares and personally guaranteed by the Company s President |
|
| 42,500 |
|
|
| 42,500 |
|
|
|
|
|
|
|
|
|
|
Note payable to Huntington National Bank secured by a vehicle due in monthly installments of $882 including interest of 5.3%, personally guaranteed by the Company s President |
|
| 47,674 |
|
|
| 51,635 |
|
|
|
|
|
|
|
|
|
|
Note payable to SE Toyota secured by a vehicle due in monthly installments of $918 including interest of 5.5%, personally guaranteed by the Company s President |
|
| 35,862 |
|
|
| 40,870 |
|
|
|
| 248,457 |
|
|
| 268,150 |
|
|
|
|
|
|
|
|
|
|
Less current maturities: |
|
| 71,945 |
|
|
| 74,816 |
|
Total long-term maturities |
| $ | 176,512 |
|
| $ | 193,334 |
|
Principal payments on notes payables are as follows:
2021 |
| $ | 55,123 |
|
2022 |
|
| 27,323 |
|
2023 |
|
| 26,131 |
|
2024 |
|
| 26,076 |
|
2025 and beyond |
|
| 113,804 |
|
|
| $ | 248,457 |
|
Interest expense related to notes payable for the years ended June 30, 2021 and 2020 amounted to $ 6,977 and $ 1,129, respectively.
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NOTE 10 – DUE TO SHAREHOLDER
The amounts due to shareholder are owed to the Company’s President. These represent unpaid salary and non-interest-bearing loans. The loans are considered long‑term and classified accordingly. The balances at June 30, 2021 and December 31, 2020 were $ 427,343 and $ 358,070, respectively.
NOTE 11 – SHARES OF STOCK
The Company is authorized to issue 250,000,000 shares (par value of $ 0.0001) which consists of 200,000,000 Class A common shares, 25,000,000 Class B common shares and 25,000,000 shares of preferred stock. The shares are issued to both accredited investors under Regulation D and sophisticated investors with access to information through a subscription agreement.
The balances at June 30, 2021 and December 31, 2020 as follows:
Class A common shares:
|
| 2021 |
|
| 2020 |
| ||
Balance, beginning of year |
|
| 48,195,443 |
|
|
| 43,298,793 |
|
Issued |
|
| 626,825 |
|
|
| 4,896,650 |
|
Repurchased |
|
| - |
|
|
| - |
|
Balance, end of period |
|
| 48,822,268 |
|
|
| 48,195,443 |
|
Average shares outstanding |
|
| 48,508,856 |
|
|
| 45,747,118 |
|
Earnings (loss) per share |
| $ | (0.04 | ) |
| $ | (0.04 | ) |
The Company raised an additional $ 525,000 under Regulation D however has not issued any shares for this amount to date.
The Company has raised $ 141,433 at a share price of $2.25 through Crowdfunding efforts pursuant to Regulation CF, promulgated under the Securities Act of 1933, as amended.
The Company raised $ 1,973,950 at a unit price of $ 3.50 under Regulation A Tier 2 offering qualified by the Securities and Exchange Commission on March 10, 2021
There were 10,000,000 Class B common shares issued to the Company's President and no preferred shares issued and outstanding as at June 30, 2021 and December 31, 2020
NOTE 12 – COMMITMENTS AND CONTINGENCIES
Legal Matters - Company is not currently involved with and does not know of any pending or threatening litigation against the Company or its management.
NOTE 13 – CORONAVIRUS
In March 2020, the World Health Organization declared the coronavirus disease (COVID‐19) a global pandemic. This highly contagious disease has spread worldwide affecting workforces, customers, economies, and financial markets globally, potentially leading to an economic downturn. It has also disrupted the normal operations of many businesses. As governments and private sectors respond to this evolving threat, their actions, and restrictions they have or may impose, could further adversely impact business operations.
NOTE 14 - SUBSEQUENT EVENTS
Management has evaluated subsequent events through September 24, 2021, the date the financial statements were available for issuance. Based on this evaluation, other than the disclosure below, no additional material events were identified which require adjustment or disclosure in the financial statements.
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Item 4. Exhibits
___________
† Filed herewith.
# Previously filed with the Securities and Exchange Commission as part of the Company’s Form 1-A offering statement initially filed on February 5, 2021 and as amended on March 1, 2021.
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SIGNATURES
Pursuant to the requirements of Regulation A, the issuer had duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| By: | /s/ Troy Levy |
|
| Name: | Troy Levy |
|
| Title: | Chief Executive Officer and President |
|
Pursuant to the requirements of Regulation A, this report has been signed below by the following persons on behalf of the issuer and in the capacities and on the dates indicated.
| /s/ Troy Levy |
| Date: September 28, 2021 |
Name: | Troy Levy |
|
|
Title: | Chief Executive Officer and President (Principal Executive Officer) |
|
|
|
|
|
|
| /s/ Sunny Sharma |
| Date: September 28, 2021 |
Name: | Sunny Sharma |
|
|
Title: | Interim Chief Financial Officer (Principal Financial Officer) |
|
|
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