U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
XXX QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
- - ---- OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996.
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
- - ---- OF 1934 FOR THE TRANSITION PERIOD FROM ________ TO__________.
Commission File Number 0-24554
Canterbury Park Holding Corporation
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(Exact name of business issuer as specified in its charter)
Minnesota 41-1775532
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1100 Canterbury Road, Shakopee, Minnesota 55379
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(Address of principal executive offices) (Zip Code)
(612) 445-7223
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(Issuer's Telephone Number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such report),
and (2) has been subject to such filing requirements for the past 90 days.
YES X NO
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The Company had 2,954,371 shares of common stock, $.01 par value per share,
outstanding as of August 9, 1996.
Canterbury Park Holding Corporation
INDEX
PAGE
----
PART 1. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of
June 30, 1996 and December 31, 1995..........................3
Consolidated Statement of Operations for the periods
ended June 30, 1996 and 1995.................................4
Consolidated Statement of Cash Flows for the periods
ended June 30, 1996 and 1995.................................5
Notes to Consolidated Financial Statements...................6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.. .......................7
PART II. OTHER INFORMATION...................................................12
Signatures..........................................................12
CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND DECEMBER 31, 1995 (UNAUDITED)
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JUNE 30, DECEMBER 31,
1996 1995
ASSETS
CURRENT ASSETS
Cash $ 706,566 $ 388,571
Accounts receivable, net of allowance for uncollectible accounts 329,360 237,928
Inventory 100,884 88,806
Deposits 20,000 20,250
Prepaid expenses 162,965 89,198
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Total current assets 1,319,775 824,753
PROPERTY AND EQUIPMENT, net of accumulated depreciation
of $1,566,232 and $1,186,073, respectively 9,003,678 9,143,662
INTANGIBLE ASSETS, net of accumulated amortization of
$7,649 and $5,378, respectively 15,051 17,322
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$ 10,338,504 $ 9,985,737
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,276,735 $ 672,800
Accrued wages and payroll taxes 368,595 144,052
Accrued interest 123,204 109,340
Advance from shareholder (Note 2) 1,770,108 2,427,309
Accrued property taxes 385,578 386,124
Payable to horsepersons 761,338 533,711
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Total current liabilities 4,685,558 4,273,336
COMMITMENTS AND CONTINGENCIES (Note 3)
SHAREHOLDERS' EQUITY
Common stock, $.01 par value, 10,000,000 shares authorized,
2,949,371 shares issued and outstanding 29,494 29,393
Additional paid-in capital 7,856,141 7,837,004
Accumulated deficit (2,232,689) (2,153,996)
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Total shareholders' equity 5,652,946 5,712,401
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$ 10,338,504 $ 9,985,737
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See notes to consolidated financial statements.
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CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARY
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CONSOLIDATED STATEMENT OF OPERATIONS
PERIODS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED)
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, 1996 JUNE 30, 1995 JUNE 30, 1996 JUNE 30,1995
OPERATING REVENUES:
Pari-mutuel $ 4,077,679 $ 4,114,040 $ 6,712,670 $ 6,625,479
Concessions 721,607 797,703 1,102,175 1,076,183
Admissions and parking 234,805 321,729 300,444 398,755
Programs and racing forms 278,508 297,559 416,613 444,957
Other operating revenue 83,663 118,116 155,093 210,726
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5,396,262 5,649,147 8,686,995 8,756,100
OPERATING EXPENSES:
Pari-mutuel expenses
Statutory purses 1,233,586 1,241,982 1,416,988 1,439,152
Host track fees 488,853 474,467 948,785 904,865
Pari-mutuel taxes 236,112 244,932 394,296 396,048
Minnesota breeders' fund 202,897 208,812 343,167 342,440
Salaries and benefits 1,379,089 1,625,631 1,973,936 2,289,161
Cost of concession sales 226,458 245,484 318,984 323,273
Cost of publication sales 305,639 315,815 470,839 475,577
Depreciation and amortization 199,078 185,831 395,444 352,826
Utilities 174,390 165,744 322,959 310,349
Repairs, maintenance and supplies 173,416 337,819 225,800 452,346
Property taxes 95,985 101,609 191,970 203,217
Advertising and marketing 562,660 635,453 650,144 718,736
Other operating expenses 671,724 780,950 1,003,194 1,266,849
-------------- ------------- ------------ -------------
5,949,887 6,564,529 8,656,506 9,474,839
NONOPERATING (EXPENSES) REVENUES:
Interest expense (52,904) (39,510) (115,157) (73,185)
Other, net 5,055 5,443 5,975 13,719
-------------- ------------- ------------ -------------
(47,849) (34,067) (109,182) (59,466)
-------------- ------------- ------------ -------------
LOSS BEFORE INCOME TAX BENEFIT (601,474) (949,449) (78,693) (778,205)
INCOME TAX BENEFIT (23,896)
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NET LOSS $ (601,474) $ (925,553) $ (78,693) $ (778,205)
-------------- ------------- ------------ -------------
-------------- ------------- ------------ -------------
NET LOSS PER COMMON &
COMMON EQUIVALENT SHARE $ (.20) $ (.31) $ (.03) $ (.26)
-------------- ------------- ------------ -------------
-------------- ------------- ------------ -------------
WEIGHTED AVERAGE NUMBER OF COMMON & COMMON EQUIVALENT
SHARES OUTSTANDING 2,943,468 2,939,271 2,941,369 2,939,271
-------------- ------------- ------------ -------------
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See notes to consolidated financial statements.
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CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
PERIODS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED)
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SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1996 JUNE 30, 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (78,693) $ (778,205)
Adjustments to reconcile net income to net
cash provided by operations:
Depreciation and amortization 395,444 352,826
Increase in accounts receivable (91,432) (154,241)
Increase in other current assets (85,595) (203,156)
Increase in accounts payable and accrued expenses 828,478 990,794
Increase in accrued interest 13,864 13,850
Decrease in accrued property taxes (546) (273,499)
Increase in payable to horsepersons 227,627 378,836
------------ --------------
Net cash provided by operations 1,209,147 327,205
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (320,689) (813,540)
Proceeds from sale of property and equipment, net 67,500
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Net cash used in investing activities (253,189) (813,540)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds (payments) on advance from shareholder, net (657,201) 681,465
Proceeds on exercise of options 19,238
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Net cash (used in) provided by financing activities (637,963) 681,465
NET INCREASE IN CASH 317,995 195,130
CASH AT BEGINNING OF PERIOD 388,571 323,259
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CASH AT END OF PERIOD $ 706,566 $ 518,389
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See notes to consolidated financial statements.
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CANTERBURY PARK HOLDING CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIODS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED)
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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The summary of significant accounting policies is included in the notes to
consolidated financial statements in the 1995 Annual Report on form 10-KSB.
UNCASHED WINNING TICKETS- On April 11, 1996, legislation became effective in
Minnesota whereby winning pari-mutuel tickets which are not cashed within
one year of the end of the respective race meet will become the property of
the Company. The legislation is effective through December 31, 1999 after
which uncashed winning tickets will again be remitted to the State of
Minnesota. The Company will record revenue associated with the uncashed
winning tickets at the time that management estimates, based on historical
experience, that management can reasonably estimate the amount of additional
winning tickets from a race meet that will be presented for payment. For
the six months ended June 30, 1996, approximately $17,000 has been recorded
in pari-mutuel revenue related to uncashed tickets.
PARI-MUTUEL TAXES- The legislation referred to above also provided that,
beginning July 1, 1996, the first $12 million of pari-mutuel revenue would
be exempt from the 6% pari-mutuel tax. The legislation is effective until
July 1, 1999 and will benefit the horsepersons' purse fund as well as the
Company. Effective July 1, 1996, pari-mutuel taxes will be estimated for
each 12 month period from July 1 through June 30, and an estimated annual
effective rate will be applied to all pari-mutuel revenues.
UNAUDITED FINANCIAL STATEMENTS - The consolidated balance sheet as of June
30, 1996, the consolidated statement of operations for the three and six
months ended June 30, 1996 and 1995, the consolidated statement of cash
flows for the six months ended June 30, 1996 and 1995, and the related
information contained in these notes have been prepared by management
without audit. In the opinion of management, all accruals (consisting of
normal recurring accruals) which are necessary for a fair presentation of
financial position and results of operations for such periods have been
made. Results for an interim period should not be considered as indicative
of results for a full year.
2. RELATED-PARTY TRANSACTIONS
At June 30, 1996, the Company had a $3,000,000 unsecured line of credit
arrangement with the Company's majority shareholder, of which $1,770,108 was
outstanding. The interest rate for borrowings under the line of credit is
prime plus 2%. Management believes that funds available under this line of
credit, or any other line of credit which replaces it, along with funds
generated from simulcast operations, will be sufficient to satisfy its
liquidity and capital resource requirements during 1996. If the line of
credit is not replaced, the Company's majority shareholder has agreed not to
terminate this line of credit prior to March 31, 1997.
3. CONTINGENCIES
In accordance with an Earn Out Note, given to the prior owner of the
racetrack as part of the purchase price, if (i) off-track betting becomes
legally permissible in the State of Minnesota and (ii) the Company begins to
conduct off-track betting with respect to or in connection with its
operations, the Company will be required to pay to the IMR Fund, L.P. the
greater of $700,000 per operating year, as defined, or 20% of the net pretax
profit, as defined, for each of five operating years. At the date (if any)
that these two conditions are met, the five minimum payments will be
discounted back to their present value and the sum of those discounted
payments will be recorded as an increase to the purchase price. The purchase
price will be further increased if payments become due under the 20% of Net
Pre-Tax Profit calculation. The first payment is to be made 90 days after
the end of the third operating year in which off-track betting is conducted
by the Company. Remaining payments would be made within 90 days of the end
of each of the next four operating years.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Canterbury Park Holding Corporation (the "Company") owns and operates
Canterbury Park (the "Racetrack"), the only pari-mutuel horse racing facility
in the State of Minnesota. The Company's revenues for the period from
January 1, 1996 to June 30, 1996 were derived primarily from pari-mutuel
take-out on races simulcast to Canterbury Park from racetracks throughout the
country during 155 days of simulcast racing and from 23 days of live racing
conducted at Canterbury Park. In 1996 the Company intends to conduct over
300 simulcast racing days and 51 days of live racing featuring thoroughbred
and quarter horse racing at Canterbury Park as the Company conducts its live
racing meet from May 25, 1996 to August 18, 1996. In addition to pari-mutuel
revenues, the Company generates revenues from admissions, advertising,
parking, publication sales, concessions, special events and other sources of
revenue.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND JUNE 30, 1995:
While revenues for the six months ended June 30, 1996 were flat compared
to the same period in 1995, the net loss for the 1996 period was $78,693
compared to a loss of $778,205 for the same period of 1995. The significant
improvement in operating results for the first six months of 1996 compared to
the first six months of 1995 is due primarily to an 8.6% decrease in
operating expenses. At June 30, 1996, the Company was in the midst of
hosting its second live meet. Experience gained during the 1995 live meet
has enabled the Company to reduce expenses, particularly labor costs, in 1996.
In addition to labor costs, repairs and maintenance expense for the 1996
period was substantially lower than the prior year due to the significant
repairs and maintenance necessary to return live racing to the facility in
1995 for the first time in almost three years.
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SUMMARY OF OPERATING DATA:
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1996 JUNE 30, 1995
RACING DAYS
Simulcast only days 132 134
Live and simulcast days 23 24
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Total Racing Days 155 158
ATTENDANCE
Simulcast only days 73,162 74,656
Live and simulcast days 85,645 99,653
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Total Attendance 158,807 174,309
ON-TRACK HANDLE
Simulcast only days $ 22,732,000 $ 21,318,000
Live and simulcast days 10,286,000 11,716,000
Out-of-state live handle 4,389,000 1,172,000
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Total Handle $ 37,407,000 $ 34,206,000
AVERAGE DAILY ATTENDANCE 1,025 1,103
ON-TRACK PER CAPITA WAGERING $ 208 $ 190
ON-TRACK AVERAGE DAILY HANDLE $ 213,019 $ 209,076
As illustrated in the above table, attendance on simulcast only days for
the six months ended June 30, 1996 was approximately the same as the first
six months of 1995. However, average daily handle on simulcast days
increased by 8.2% due to an increase in per capita wagering from $285 in 1995
to $311 in 1996.
On 23 live racing days during the six months ended June 30, 1996,
average daily attendance declined by 10.3% and average on-track live and
simulcast handle decreased by 8.4% compared to the 24 live racing days
conducted during the six months ended June 30, 1995. The reduction is due
primarily to differences in the racing schedule which featured an earlier
start and an additional week-end of live racing during the 1995 period.
These changes in the racing schedule resulted in four day weeks in 1996 while
the 1995 live meet commenced with several three day weeks highlighted by
large opening weekend crowds.
While on-track handle during the live meet showed a decline for the 1996
period compared to 1995, total average daily handle, which includes amounts
wagered on Canterbury Park live races transmitted to out-of-state simulcast
sites, increased by over 18% from $537,000 to $638,000. The 274% increase in
out-of-state handle for the 1996 period is due to a change to night racing on
Thursday, Friday and Saturday as well as greater interest in the Canterbury
Park racing program by simulcast sites throughout the country. While the
gains in out-of-state handle represent a positive trend, the Company's profit
margin on wagers placed on Canterbury Park live races at out-of-state
locations is substantially less than the margin on wagers placed at
Canterbury Park.
One of the Company's largest single expense items is horsepersons
purses, which Minnesota law requires to be set aside from pari-mutuel
revenues. The minimum percentage required by law to be set aside for purses
varies substantially depending on the time of the year the simulcasting is
conducted. For a 25 week period beginning in early May, which is the
statutorily-established "Racing Season," 50% of the net retainage is
allocated to a fund for the
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payment of purses during the live meet. For the remaining 27 weeks of the
year, November through April, funds accumulate for purses at the rate of 25%
of retainage after deducting an 8% expense factor. Therefore, during the
first four months and last two months of any calendar year, the Company
benefits from the lower "non-racing season" purse rate.
On April 11, 1996, legislation became effective in Minnesota whereby
winning pari-mutuel tickets which are not cashed within one year of the end
of the respective race meet will become the property of the Company. The
legislation is effective through December 31, 1999 after which uncashed
winning tickets will again be remitted to the State of Minnesota. The
Company will record revenue associated with the uncashed winning tickets at
the time that management estimates, based on historical experience, that
management can reasonably estimate the amount of additional winning tickets
from a race meet that will be presented for payment. For the six months
ended June 30, 1996, approximately $17,000 has been recorded in pari-mutuel
revenue related to uncashed tickets.
The legislation referred to above also provided that, beginning July 1,
1996, the first $12 million of pari-mutuel revenue would be exempt from the
6% pari-mutuel tax. The legislation is effective until July 1, 1999 and will
benefit the horsepersons' purse fund as well as the Company. Effective July
1, 1996, pari-mutuel taxes will be estimated for each 12 month period from
July 1 through June 30, and an estimated annual effective rate will be
applied to all pari-mutuel revenues.
During the first six months of 1996, Canterbury Park hosted two major
competitive snowmobile races and a three-day arts and crafts fair, drawing an
average of more than 15,000 spectators per event. During the comparable
period in 1995, Canterbury Park hosted one snowmobile race and an arts and
crafts fair. The snowmobile race in 1995, although gaining Canterbury Park a
reputation as one of the premier snowmobile racing venues in the world, was
not profitable. The Company hosted a series of three snowmobiling events at
the facility during the 1995-1996 winter season. This allowed the Company to
allocate the cost of preparing the racing surface to three events compared to
only the single event in February of 1995. In addition, the Company did not
directly promote the events in 1996, but rather leased the facility to the
promoters. This reduced the Company's risk and eliminated approximately
$75,000 of other operating expenses related to the 1995 race. These expenses
are not reflected in the 1996 financial statements as the costs were paid
directly or reimbursed by the promoters.
Admissions and parking, programs and racing forms, and other operating
revenues were lower for the six months ended June 30, 1996 compared to the
same period in 1995, due primarily to lower total attendance.
Salaries and benefits are lower for the 1996 period than in 1995 due to
a later start for live racing in 1996, and to operating efficiencies gained
primarily in the concessions and mutuels areas. In addition, after the 1995
live meet, certain reductions and consolidations of full-time staff were
enacted to reduce wage expenses for the Company.
Depreciation and amortization have increased from the 1995 period due to
the acquisition of significant amounts of video equipment in the second
quarter of 1995 and other acquisitions since that time.
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Repairs, maintenance and supplies expenditures decreased 50% from the
comparable period last year. This is due primarily to the extensive repairs
and improvements necessary in 1995 to prepare the facility for the inaugural
1995 live race meet.
Other operating expense levels were lower for the 1996 period due to
stabilization of operations and increased focus on expense control in 1996.
Net interest expense has increased 57% from the six-month period ending
June 30, 1995 due to increases in amounts payable to horsepersons and in
advances on a line of credit with Mr. Curtis Sampson, the Company's Chairman.
The average daily balance of advances on the line of credit was approximately
$1.8 million for the first half of 1996, compared to $1.3 million for the
first half of 1995. The average interest rate on the line of credit was
10.39% in 1996 compared to 10.91% for the 1995 period. The average daily
balance of amounts payable to Horsepersons was approximately $475,000 for the
six months ended June 30, 1996 compared to approximately $385,000 for the six
months ended June 30, 1995. In addition, the interest rate paid on amounts
due to Horsepersons has increased from 6.0% during the first six months of
1995 to an average of 8.25% for the same period in 1996.
LIQUIDITY AND CAPITAL RESOURCES
During the period January 1, 1996 through June 30, 1996, cash provided
by operating activities was $1,209,147, which resulted principally from an
increase in accounts payable and accrued expenses of $828,478. Other items
providing cash from operations included depreciation and amortization
(noncash expenses) of $395,444, an increase in the payable to horsepersons of
$227,627 and an increase in accrued interest of $13,864. These items are
partially offset by the net loss from operations of $78,693 and an increase
in accounts receivable and other current assets of $177,027.
During the period January 1, 1996 through June 30, 1996, cash used in
financing activities was $637,963, which was primarily the result of payments
reducing the Company's line of credit with the Company's Chaiman of the
Board. During the 1995 period, the $681,465 provided by financing activities
represented net proceeds from advances on the line of credit.
Net cash used in investing activities for the six months ended June 30,
1996 was $253,189, which reflected the net result of additions to property
and equipment of $320,689 and the proceeds of the sale of excess video
equipment of $67,500. For the comparable 1995 period net cash used in
investing activities was $813,540 which resulted from additions to property
and equipment, primarily video production equipment, necessary for live
racing.
Under its agreement with the horsepersons' associations the Company is
required to segregate purse funds received from simulcasting for future
payment as purses for live racing or for other uses of the horsepersons.
Pursuant to this agreement, during the six months ended June 30, 1996, the
Company has transferred into a trust account to paid directly to the
horsepersons approximately $1,225,000. At June 30, 1996, the Company had an
additional $761,338 liability to the horsepersons which will be paid with
interest in 1996 in accordance with the agreement.
The Company believes that the funds to be generated from operations
together with funds available under its $3,000,000 line of credit with Mr.
Sampson will be sufficient to satisfy
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its liquidity and capital resource requirements for the next twelve months.
The Company anticipates that it may pay down a portion of the borrowings
under the line of credit with funds generated from operations and borrow
additional amounts under the line of credit as funds are needed for working
capital purposes. The Company is also attempting to obtain a credit facility
from a traditional lender to replace the line of credit with Mr. Sampson.
Mr. Sampson has advised the Company that if it is unable to obtain a credit
facility from a traditional lender, then he will keep his line of credit in
place until at least March 31, 1997. As of August 5, 1996, borrowings under
the line of credit were $1,960,201.
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PART II
OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None
Item 2. CHANGES IN SECURITIES
None
Item 3. DEFAULTS UPON SENIOR SECURITIES
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Item 5. OTHER INFORMATION
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly cause this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Canterbury Park Holding Corporation
Dated: August 9, 1996 /s/ Randall D. Sampson
-------------------------------------------------
Randall D. Sampson,
President, Chief Executive Officer and Treasurer
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