EXHIBIT 99.1
INDEPENDENT AUDITORS' REPORT
To the Officers and Directors
Memphis International Motorsports Park, Inc.
Memphis, Tennessee
We have audited the accompanying balance sheet of Memphis International
Motorsports Park, Inc. as of December 31, 1995, and the related statements of
income (loss), changes in stockholders' equity (deficit), and cash flows for
the years ended December 31, 1994 and 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Memphis International
Motorsports Park, Inc. as of December 31, 1995, and the results of its
operations and its cash flows for the years ended December 31, 1994 and 1995,
in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 6 to the
financial statements, the Company has suffered recurring losses from
operations which has raised substantial doubt about its ability to continue as
a going concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
LAMON, ALSOBROOK & ASSOCIATES,
Certified Public Accountants
February 22, 1996
F-18
MEMPHIS INTERNATIONAL MOTORSPORTS PARK, INC.
BALANCE SHEETS
DECEMBER 31, 1995 AND MARCH 31, 1996
DECEMBER MARCH 31,
31, 1995 1996
----------- -----------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash............................................... $ 22,264 $ 30,662
Cash--restricted................................... -- 137,471
Accounts receivable--trade......................... 2,308 85,780
--employees................................ 3,962 15,005
Merchandise inventory.............................. 15,303 15,136
Prepaid expenses................................... 11,941 14,662
----------- -----------
Total current assets............................. 55,778 298,716
Property and equipment:
Land............................................... 981,993 981,993
Racing facilities and equipment.................... 5,661,172 5,661,172
Furniture and fixtures............................. 47,210 47,210
----------- -----------
6,690,375 6,690,375
Less: accumulated depreciation..................... 2,756,529 2,833,777
----------- -----------
Total property and equipment..................... 3,933,846 3,856,598
Other assets:
Deposits........................................... 1,786 1,786
----------- -----------
Total assets................................... $ 3,991,410 $ 4,157,100
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current portion of long-term debt.................. $ 664,644 $ 841,267
Accounts payable................................... 15,680 6,495
Accrued interest................................... 36,124 37,588
Accrued taxes...................................... 30,650 17,201
Commissions payable................................ -- 6,995
Deferred income.................................... 5,885 309,635
----------- -----------
Total current liabilities........................ 752,983 1,219,181
Long-term debt, less current portion................. 3,255,002 3,206,859
----------- -----------
Total liabilities.............................. 4,007,985 4,426,040
----------- -----------
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, $1.00 par value; 5,000,000 shares
authorized; 1,743,302 issued and outstanding...... 1,743,302 1,743,302
Additional paid-in capital......................... 3,889,068 3,889,068
Retained earnings (deficit)........................ (5,648,945) (5,901,310)
----------- -----------
Total stockholders' equity (deficit)........... (16,575) (268,940)
----------- -----------
Total liabilities and stockholders' deficit.... $ 3,991,410 $ 4,157,100
=========== ===========
See accountants' report and notes to financial statements.
F-19
MEMPHIS INTERNATIONAL MOTORSPORTS PARK, INC.
STATEMENTS OF INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
YEAR ENDED DECEMBER THREE MONTHS ENDED
31, MARCH 31,
--------------------- --------------------
1994 1995 1995 1996
--------- ---------- --------- ---------
(UNAUDITED)
Revenues:
Major event revenues
Admissions..................... $ 970,112 $1,198,377 $ 5,902 $ --
Sponsorships................... 83,500 84,500 18,125 17,500
Ancillary...................... 1,163,989 1,213,039 34,009 --
--------- ---------- --------- ---------
Total major event revenues... 2,217,601 2,495,916 58,036 17,500
Other operating revenues........ 256,249 355,825 73,050 50,791
--------- ---------- --------- ---------
Total revenues............... 2,473,850 2,851,741 131,086 68,291
--------- ---------- --------- ---------
Expenses:
Major event expenses........... 1,565,683 1,831,718 31,166 9,769
Other operating expenses....... 62,841 87,138 9,409 9,103
General and administrative
expenses...................... 507,260 621,516 137,309 143,282
Depreciation and amortization.. 303,731 309,451 76,662 77,248
--------- ---------- --------- ---------
2,439,515 2,849,823 254,546 239,402
--------- ---------- --------- ---------
Income (loss) from operations.... 34,335 1,918 (123,460) (171,111)
--------- ---------- --------- ---------
Other income (expense):
Interest expense............... (321,555) (319,164) (81,598) (79,337)
Gain (loss) on sale of
equipment..................... -- (1,336) -- --
Gain (loss) on destruction of
fixed assets.................. (38,464) -- -- --
Other, net..................... 36,717 17,196 296 453
--------- ---------- --------- ---------
Total other income
(expense)................... (323,302) (303,304) (81,302) (78,884)
--------- ---------- --------- ---------
Income (loss) before provision
for income taxes................ (288,967) (301,386) (204,762) (249,995)
(Provision) benefit for income
taxes........................... (9,708) (9,170) (2,250) (2,370)
--------- ---------- --------- ---------
Net income (loss)................ $(298,675) $ (310,556) $(207,012) $(252,365)
========= ========== ========= =========
Income (loss) per share:
Continuing operations.......... $ (.22) $ (.20) $ (.13) $ (.14)
========= ========== ========= =========
Weighted average number of common
and common equivalent shares
outstanding..................... 1,388,367 1,586,002 1,571,702 1,743,302
========= ========== ========= =========
See accountants' report and notes to financial statements.
F-20
MEMPHIS INTERNATIONAL MOTORSPORTS PARK, INC.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1996
COMMON STOCK ADDITIONAL RETAINED
-------------------- PAID-IN EARNINGS
SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
--------- ---------- ---------- ----------- ---------
BALANCE, December 31,
1993................... 1,371,700 $1,371,700 $3,889,068 $(5,039,714) $ 221,054
Shares purchased........ 200,002 200,002 -- -- 200,002
Net loss................ -- -- -- (298,675) (298,675)
--------- ---------- ---------- ----------- ---------
BALANCE, December 31,
1994................... 1,571,702 1,571,702 3,889,068 (5,338,389) 122,381
Shares purchased........ 171,600 171,600 -- -- 171,600
Net loss................ -- -- -- (310,556) (310,556)
--------- ---------- ---------- ----------- ---------
BALANCE, December 31,
1995................... 1,743,302 1,743,302 3,889,068 (5,648,945) (16,575)
Net loss for the three
months ended March 31,
1996................... -- -- -- (252,365) (252,365)
--------- ---------- ---------- ----------- ---------
BALANCE, March 31, 1996
(unaudited)............ 1,743,302 $1,743,302 $3,889,068 $(5,901,310) $(268,940)
========= ========== ========== =========== =========
See accountants' report and notes to financial statements.
F-21
MEMPHIS INTERNATIONAL MOTORSPORTS PARK, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
YEAR ENDED DECEMBER THREE MONTHS ENDED
31, MARCH 31,
-------------------- --------------------
1994 1995 1995 1996
--------- --------- --------- ---------
(UNAUDITED)
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss)................. $(298,675) $(310,556) $(207,012) $(252,365)
Adjustments to reconcile net
income (loss) to cash provided by
(used in) operating activities:
Depreciation and amortization... 303,731 309,451 76,662 77,248
Loss on sale of equipment....... -- 1,336 -- --
Loss on destruction of fixed
assets......................... 38,464 -- -- --
Changes in assets and
liabilities:
Cash -- restricted............ -- -- (49,800) (137,471)
Accounts receivable........... 7,371 2,181 (107,868) (83,472)
Accounts receivable --
employees................... (4,506) 3,025 (2,167) (11,043)
Inventory..................... (8,209) 8,038 (4,915) 167
Prepaid expenses.............. 2,411 (3,517) -- (2,721)
Deferred costs................ -- -- (27,498) --
Accounts payable.............. (4,019) 14,755 57,216 (9,185)
Accrued interest.............. 14,012 22,112 304 1,464
Accrued taxes................. (8,104) (16,082) (36,481) (13,449)
Accrued salaries.............. 11,220 (11,220) (11,220) --
Commissions payable........... -- -- -- 6,995
Deferred income............... 9,180 (3,295) 369,762 303,750
--------- --------- --------- ---------
Net cash provided by (used in)
operating activities........... 62,876 16,228 56,983 (120,082)
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures............ (197,509) (77,136) (49,239) --
--------- --------- --------- ---------
Net cash used in investing
activities................... (197,509) (77,136) (49,239) --
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from long-term debt.... 96,500 187,000 -- 170,000
Repayment of long-term debt..... (136,935) (308,489) (40,805) (41,520)
Proceeds from sale of stock..... 200,002 171,600 -- --
--------- --------- --------- ---------
Net cash provided by (used in)
financing activities......... 159,567 50,111 (40,805) 128,480
--------- --------- --------- ---------
Net increase (decrease) in cash... 24,934 (10,797) (33,061) 8,398
Cash at beginning of year......... 8,127 33,061 33,061 22,264
--------- --------- --------- ---------
Cash at end of year............... $ 33,061 $ 22,264 $ 0 $ 30,662
========= ========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the year for:
Interest...................... $ 307,543 $ 297,049 $ 81,401 $ 77,876
Income taxes.................. $ 9,944 $ 9,708 $ 9,708 $ 9,148
Cash received during the year
for:
Interest...................... $ 877 $ 1,587 $ 708 $ 1,288
See accountants' report and notes to financial statements.
F-22
MEMPHIS INTERNATIONAL MOTORSPORTS PARK, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
(INFORMATION AT MARCH 31, 1996 AND FOR THE THREE
MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BUSINESS ACTIVITY
Memphis International Motorsports Park, Inc. ("Memphis") was organized under
the laws of the State of Tennessee on July 25, 1985 for the purpose of owning
and operating a motorsports complex. Prior to 1987 it had been in the
development stage and its activities consisted primarily of acquiring land and
constructing racing facilities.
CASH
Memphis considers all highly liquid investments with a maturity of three
months or less, when purchased, to be "cash equivalents". Memphis held no
"cash equivalents" at December 31, 1995.
ACCOUNTS RECEIVABLE
Bad debt expense totaled $6,350 for the year ended December 31, 1995. In the
opinion of management, there are no other significant accounts considered to
be uncollectable at year end.
DEPRECIATION
Property and equipment is stated at cost for financial reporting purposes.
Depreciation is provided on the straight line method using useful lives
assigned to the asset.
METHOD OF ACCOUNTING
Memphis utilizes the accrual method of accounting whereby revenue is
recognized when earned and expenses are recognized when incurred.
INVENTORIES
Merchandise inventory is priced at cost including freight.
INCOME TAXES
Memphis has elected to be taxed under the provisions of Subchapter S of the
Internal Revenue Code. Under these provisions, Memphis' taxable income or loss
is passed through to the individual shareholders and they include their
respective shares of these amounts in their personal tax return. Therefore, no
provision for Federal income taxes is includable in the financial statements.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures.
UNAUDITED INFORMATION AS OF MARCH 31, 1996 AND 1995
The accompanying unaudited financial statements as of March 31, 1996 and
1995 reflect all adjustments which are, in the opinion of management,
necessary for a fair presentation of the financial statements of such interim
periods. Such adjustments consist only of normal recurring items. Interim
results are not necessarily indicative of results for a full year.
F-23
MEMPHIS INTERNATIONAL MOTORSPORTS PARK, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
(INFORMATION AT MARCH 31, 1996 AND FOR THE THREE
MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
NOTE 2 -- PROPERTY AND EQUIPMENT:
Major classifications of property and equipment and their respective
depreciable lives are summarized below.
ORIGINAL DEPRECIABLE
COST LIVES
----------- -----------
Land................................................... $ 981,993
Land improvements...................................... 750,901 15 years
Buildings.............................................. 1,715,185 31.5 years
Track and grandstand................................... 2,336,830 15 years
Equipment.............................................. 858,256 7-15 years
Furniture and fixtures................................. 47,210 7 years
-----------
6,690,375
Accumulated depreciation............................... (2,756,529)
-----------
Total property and equipment......................... $ 3,933,846
===========
Depreciation expense amounted to $309,451 for 1995.
F-24
MEMPHIS INTERNATIONAL MOTORSPORTS PARK, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
(INFORMATION AT MARCH 31, 1996 AND FOR THE THREE
MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
NOTE 3 -- LONG-TERM DEBT:
Long-term debt at March 31, 1996 and December 31, 1995 consists of the
following:
DECEMBER 31, MARCH 31,
1995 1996
------------ -----------
(UNAUDITED)
Note payable to First Commercial Bank, due October 2,
1996, bearing interest at prime, currently 8.75%,
unsecured but guaranteed by certain shareholders.... $ 425,619 $ 425,619
Mortgage note payable to Boatmen's Bank due in
monthly installments of $33,500, including interest
at 7.75% to December 15, 1998 with the remaining
principal balance together with accrued interest
payable on February 15, 1999. Note is secured by a
deed of trust on real property owned by the
corporation and limited guarantees of certain
shareholders........................................ 3,371,908 3,337,129
Note payable to John Deere Credit in monthly
installments of $426, including interest at 11.4% to
April 10, 1999. Secured by equipment................ 15,375 14,450
Note payable to Xerox Corporation in monthly
installments of $314, including interest at 8.9% to
April 10, 1997. Secured by copier................... 4,725 3,884
Note payable to First Tennessee Bank in monthly
installments of $1,728, including interest at 8.5%
to May 10, 1999. Secured by certain track facilities
and guaranteed by certain shareholders.............. 61,142 57,245
Note payable to Tennessee Bank & Trust in monthly
installments of $405, including interest at 10.25%
to December 6, 1997. Secured by equipment........... 8,877 7,799
Note payable to Tennessee Bank & Trust under a line
of credit arrangement. Interest payable monthly at
9.25%. Due December 31, 1996. Unsecured............. -- 170,000
Note payable to Linda Gatlin, spouse of a corporate
shareholder, due upon demand. Interest payable at
9.5% semiannually on the last day of June and
December. Unsecured................................. 32,000 32,000
---------- ----------
3,919,646 4,048,126
Less: current portion................................ 664,644 841,267
---------- ----------
Long-Term Debt................................... $3,255,002 $3,206,859
---------- ----------
DECEMBER 31, MARCH 31,
DEBT MATURITIES ARE AS FOLLOWS: 1995 1996
- ------------------------------- ------------ -----------
(UNAUDITED)
1996................................................... $ 664,644 $ --
1997................................................... 196,183 841,267
1998................................................... 205,385 197,739
1999................................................... 2,853,434 3,006,481
2000................................................... -- 2,639
---------- ----------
Total................................................ $3,919,646 $4,048,126
========== ==========
F-25
MEMPHIS INTERNATIONAL MOTORSPORTS PARK, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
(INFORMATION AT MARCH 31, 1996 AND FOR THE THREE
MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
NOTE 4 -- DEFERRED INCOME:
Deferred income consists of the following:
DECEMBER 31, MARCH 31,
1995 1996
------------ -----------
(UNAUDITED)
Sponsorships........................................ $ -- $ 52,500
Billboard and suite rentals......................... -- 108,965
Track rentals....................................... -- 11,073
Advance ticket sales -- 1996 NHRA Mid-South
Nationals.......................................... 5,885 137,097
------ --------
$5,885 $309,635
====== ========
Deferred income from sponsorships and season rentals of suites and
billboards are recognized as revenue monthly during the calendar year on a
straight line basis. All other sources of deferred income are recognized as
revenue as the applicable event is held. Funds received from advance ticket
sales for the NHRA Mid-South Nationals are deposited in a separate bank
account at Tennessee Bank and Trust. As of March 31, 1996, $137,471 was held
in this account, and is designated on the balance sheet as Cash -- restricted.
The NHRA Mid-South Nationals are scheduled to be held in June of 1996.
NOTE 5 -- SEASONAL FLUCTUATIONS:
Memphis' primary business is the operation of a motorsports complex from
April 1 to October 31 each year. Memphis generally derives its revenue during
this period. The financial statements for the three months ended March 31,
1996 and 1995, therefore, reflect results of operations during part of
Memphis' off-season, during which it incurs expenses in preparation for its
operating season.
NOTE 6 -- GOING CONCERN:
Memphis has incurred continuing net operating losses resulting in a
significant accumulated deficit and negative working capital which create
substantial uncertainty concerning Memphis' ability to continue as a going
concern. The ability of Memphis to continue as a going concern and realize its
assets and discharge its liabilities in the normal course of business is
dependent upon obtaining profitable operations, a continuation of present
financing, and the provision of additional capital by shareholders as
required.
F-26