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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________________ to ____________________
Commission File Number: 2-98277C
SPORTS RESORTS INTERNATIONAL, INC.
(Formerly The Colonel's International, Inc.)
(Exact name of registrant as specified in its charter)
MICHIGAN 38-3262264
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
951 AIKEN ROAD, OWOSSO, MICHIGAN 48867
(Address of principal executive offices) (Zip code)
(989) 725-8354
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 Par Value
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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Number of shares of the registrant's Common Stock, $0.01 par value, outstanding
as of July 11, 2001: 24,177,805
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
The financial statements required under Item 1 of Part I are set forth in
Appendix A to this Report on Form 10-Q and are herein incorporated by reference.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
FORWARD-LOOKING STATEMENTS
Some of the statements in this report are forward-looking statements. These
forward-looking statements include statements relating to our performance. In
addition, we may make forward-looking statements in future filings with the
Securities and Exchange Commission and in written material, press releases and
oral statements issued by us or on our behalf. Forward-looking statements
include statements regarding the intent, belief or current expectations of us or
our officers, including statements preceded by, "should," "believe," "may,"
"will," "expect," "anticipate," "estimate," "continue," "predict," "propose," or
similar expressions.
It is important to note that our actual results could differ materially from
those anticipated in our forward-looking statements depending on various "risk
factors". Such risk factors include: concentration of stock ownership,
relationship with race sanctioning bodies, competition for leisure dollars,
reliance on key personnel, potential liabilities for personal injuries, need for
additional financing, limited trading market for our stock, dependence on the
North American new truck industry, variability of raw material and labor costs,
failure to manage mergers, acquisitions, dispositions and diversification into
other lines of business, the need to effectively manage a large sports and
entertainment development project and other factors discussed under the caption
"Risk Factors".
All forward-looking statements in this report are based on information available
to us on the date of this report. We do not undertake to update any
forward-looking statements that may be made by us or on our behalf in this
report or otherwise. In addition please note that the matters discussed under
the caption "Risk Factors" constitute cautionary statements identifying
important factors with respect to the forward-looking statements, including
certain risks and uncertainties, that could cause actual results to differ
materially from those in such forward-looking statements.
BACKGROUND
We are a Michigan corporation and a holding company with two active wholly owned
subsidiaries. We have no independent operations of our own, however, we provide
various administrative functions for our operating subsidiaries. The Colonel's
Truck Accessories, Inc. ("CTA"), and The Colonel's Brainerd International
Raceway, Inc. (formerly named Brainerd International Raceway, Inc.) ("CBIR") are
our two operating subsidiaries. Our subsidiaries operate in two segments, truck
accessories and sports and entertainment.
THE COLONEL'S TRUCK ACCESSORIES, INC. CTA manufactures and sells pickup truck
bedliners and tailgate covers through a distributor network. Truck bedliners are
plastic inserts that are placed in the rear beds of pickup trucks to protect the
paint and structural integrity of the bed. CTA manufactures approximately 90
different bedliners.
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THE COLONEL'S BRAINERD INTERNATIONAL RACEWAY, INC. CBIR operates a motor sports
facility located approximately six miles northwest of Brainerd, Minnesota.
Substantially all of CBIR's revenues are obtained from motor sports racing
events at the racetrack. CBIR schedules racing and other events held at the
racetrack during weekends in May through September of each year.
NAME CHANGE/DEVELOPMENT OF SPORTS AND ENTERTAINMENT COMPLEX. Effective March 8,
2001 we began doing business under the assumed name of Sports Resorts
International, Inc. On March 12, 2001, we changed our ticker symbol on the
Nasdaq Small-Cap Market from "COLO" to "SPRI". We received written consent from
a majority of our shareholders and legally changed our name on April 16, 2001.
We changed our name to reflect the increasing prominence of the sports and
leisure segment of our business.
We are proposing the development of a new sports and entertainment complex (the
"Complex") to be located on approximately 340 acres northeast of I-75 and Mount
Morris Road in Mount Morris Township, Genesse County, Michigan. This project is
in the development stage. The Complex would include a coliseum, domed stadium,
hotel, theme restaurant, and a combined gas station, convenience and souvenir
store, and would have 130 acres of parking.
LIQUIDITY AND CAPITAL RESOURCES
Our consolidated current assets decreased from $8,472,000 at December 31, 2000
to $8,460,000 at June 30, 2001. This decrease primarily related to a $241,000
decrease in inventory and a $840,000 decrease in cash offset by a $392,000
increase in trade accounts receivable a $217,000 increase in related party
accounts receivable and a $474,000 increase in other current assets. Our
consolidated current liabilities increased from $3,938,000 at December 31, 2000
to $4,161,000 at June 30, 2001. This increase primarily relates to a $465,000
decrease in accounts payable, offset by an increase in accrued expenses of
$653,000.
Cash decreased by $840,000 from the year end 2000 to June 30, 2001 primarily due
to capital expenditures of $672,000 and debt repayments of $513,000.
Accounts receivable-trade increased by approximately $392,000 from $784,000 as
of December 31, 2000 to $1,177,000 at June 30, 2001, due to normal increased
sales activity associated with the first six months of 2001, as compared to the
fourth quarter of 2000.
During 2000 and the first six months of 2001, we paid certain expenses on behalf
of affiliated entities. The amount to be reimbursed at June 30, 2001 was
$1,055,000.
A Federal income tax receivable of $1,029,000 was recorded in 2000 and relates
to net operating losses eligible for carryback to 1998.
Note receivable - related party at June 30, 2001 is comprised of a note, which
is secured by a mortgage and personal guarantee from the majority shareholder
and requires monthly principal and interest payments.
Inventories decreased by approximately $241,000 between December 31, 2000 and
June 30, 2001, from $1,796,000 to $1,555,000 primarily as a result of normal
increased sales activity associated with operations associated with the first
six months of the year, as compared to sales in the fourth quarter of 2000.
Assets held for sale of $524,000 at June 30, 2001 and December 31, 2000 are
comprised of a six-unit condominium townhouse at CBIR's facility in Brainerd
Minnesota.
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Other assets-current increased $474,000, from $788,000 at December 31, 2000 to
$1,262,000 at June 30, 2001, primarily due to the advance payment of $586,000 in
sanction fees for events to be held at CBIR in the third quarter of 2001, offset
by amounts received relative to the sale of miscellaneous non-productive assets
recorded at December 31, 2000.
Net property, plant and equipment decreased by approximately $328,000 from
$12,087,000 at December 31, 2000 to $11,759,000 at June 30, 2001 due to fixed
asset additions of $672,000 offset by depreciation for the period of $994,000.
Leasehold improvements, furniture and fixtures, molds, tooling and the
construction of a twelve-unit condominium townhouse at CBIR comprised additions
during the period.
Goodwill decreased by approximately $194,000 from $1,518,000 at December 31,
2000 to $1,324,000 at June 30, 2001 as a result of normal amortization expense
over a seven-year period.
Other assets-long term increased $76,000 from $1,807,000 at December 31, 2000 to
$1,883,000 at June 30, 2001 primarily as a result of payments made for option
agreements on the purchase of land to develop the Complex.
LIABILITIES AND EQUITY
Accounts payable decreased by approximately $465,000 from $1,526,000 at December
31, 2000 to $1,061,000 at June 30, 2001 due to available cash to pay amounts
owed.
Accrued expenses increased by $653,000 from $1,217, 000 at December 31, 2000 to
$1,870,000 at June 30, 2001, primarily due to advance ticket sales of $805,000
at CBIR, offset by a decrease in other accrued expenses of $152,000.
OUTSTANDING LOANS
CBIR entered into a term loan in August 1999 in the amount of $403,000. This
loan is secured by a permanent grandstand addition and requires annual principal
payments of $100,675, plus 9% interest, through 2003. CBIR also has a term loan
of $200,000, which is secured by property. The loan requires quarterly interest
payments at 2% above the prime rate and a single principal payment of $50,000
per year through 2004.
In 1995, we leased $2,689,000 of equipment under a six-year equipment lease
agreement that includes an option to purchase the equipment for $1.00 upon
expiration of the lease term. The payment amounts under the lease represent
principal payments, with interest at rates between 7.5 and 8.75 percent. In
1996, we leased additional equipment in the amount of $3,744,000 structured in
the same manner as noted above.
We believe that we will be able to satisfy our ongoing cash requirements for the
next 12 months and thereafter with available cash, cash flows from operations
and the collection of notes receivable outstanding from the majority shareholder
and related entities, supplemented by borrowing arrangements or additional
public capital that will be necessary to fund the development of the proposed
sports and entertainment Complex.
RESULTS OF OPERATIONS
Our revenues were $4,011,000 in the three months ended June 30, 2001, compared
to $5,602,000 in the same period of 2000. The $1,591,000 decrease in 2001 was
primarily due to the sale of our retail store
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operations in 1999 and 2000. Revenue from retail store operations was $2,077,000
in the second quarter of 2000. CBIR traditionally has little revenue during the
first two quarters, as the racing season doesn't begin until May each year.
Revenues were $7,641,000 and $12,157,000 for the six month periods ending
June 30, 2001 and 2000, respectively for the same reasons. Revenue from retail
store operations was $4,735,000 for the six month period ending June 30, 2000.
Cost of sales were $3,164,000 and $5,282,000 for the quarters ended June 30,
2001 and 2000 respectively or 79% and 94% as a percentage of revenue. The
decrease in cost of sales is primarily attributable to the sale of retail store
operations and the consolidation of the bedliner manufacturing operations of our
former subsidiary, The Colonel's Rugged Liner, Inc. ("CRL") with CTA's Owosso,
Michigan facility during 2000. Cost of sales were $6,103,000 and $10,958,000 for
the six month periods ending June 30, 2001 and 2000 respectively or 80% and 90%
as a percentage of revenues for the same reasons.
Selling, general and administrative expenses were $1,058,000 and $1,553,000 for
the quarters ended June 30, 2001 and 2000, respectively, or as a percentage of
revenues, 26% and 28%, respectively. The overall decrease in expense is
primarily due to the sale of retail store operations. Additionally, we
consolidated most of our administrative functions into our Owosso, Michigan
facility in 2000. Selling, general and administrative expenses were $2,196,000
and $3,506,000 for the six month periods ending June 30, 2001 and 2000
respectively or as a percentage of revenues 29% for both periods for the same
reasons.
Interest expense in the second quarter of 2001 decreased by $442,000 from the
second quarter of 2000 primarily due to interest and penalties of $417,000 in
2000 associated with the late payment of the Company's 1998 Federal income taxes
and the reduction of outstanding debt. Interest expense in the six month period
ending June 30, 2001 decreased by $470,000 from the same period in 2000 for the
same reasons.
Interest income in the second quarter of 2001 increased by $5,000 from the
second quarter of 2000 primarily due to excess cash available for investment
purposes and interest earned on note receivable related party. Interest income
in the six month period ending June 30, 2001 increased by $67,000 from the same
period in 2000 for the same reasons.
We ceased leasing portions of our Tecumseh, Michigan facility due to its sale in
the second quarter of 2000. Net rental income was $37,000 and $25,000 for the
quarters ended June 30, 2001 and 2000 respectively, and $61,000 and $145,000 for
the six month periods ending June 30, 2001 and 2000 respectively.
RISK FACTORS
INTEREST RATE CHANGES
Other than the term loans described above, and the other items described in Note
6 to the consolidated financial statements included in Appendix A, we currently
have no borrowings outstanding. If we borrow money in the future, we may be
exposed to changes in interest rates. Our credit facilities are usually based on
the prime rate. If this rate changes there could be an adverse effect on the
Company's cash flow and profits.
OWNERSHIP OF OUR COMMON STOCK IS CONCENTRATED IN TWO SHAREHOLDERS, WHICH ARE
ABLE TO EXERCISE CONTROL AND MAKE DECISIONS THAT MAY NOT BE IN THE BEST INTEREST
OF ALL OF OUR SHAREHOLDERS
Donald and Patsy Williamson own approximately 97.3% of our issued and
outstanding shares of common stock. Accordingly, Donald and Patsy Williamson are
able to control the election of directors and all
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other matters which are subject to a vote of shareholders. This concentration of
ownership may have the effect of delaying or preventing a change of control of
Sports Resorts International, Inc. even if this change of control would benefit
all of the shareholders.
WE NEED TO MAINTAIN AND ENHANCE OUR WORKING RELATIONSHIP WITH THE NHRA
In order to be successful, our raceway operations need to maintain a good
relationship with the primary sanctioning body of our racing events, The
National Hot Rod Association ("NHRA"). While we believe that we have good
relationship with the NHRA, the current term of our sanctioning agreement ends
on December 31, 2002. In the event the sanctioning agreement is not extended, it
is likely that our results of operations would be adversely affected.
OUR RACEWAY OPERATIONS FACE COMPETITION FOR TICKET SALES AND MARKETING AND
ADVERTISING DOLLARS
We compete for marketing, advertising and ticket sales with other sports and
with other entertainment and recreational activities. In the event fan interest
in racing declines, it is likely that our results of operations would be
adversely affected. We compete with well-established raceway operations some of
which have greater market recognition and substantially greater financial,
technical, marketing, distribution and other resources than we have. Our ability
to compete successfully depends on a number of factors, which are primarily
outside our control including our ability to develop and maintain effective
marketing programs, the number and location of our competitors and general
market and economic conditions.
OUR FUTURE SUCCESS WILL BE DEPENDENT ON THE SKILL OF OUR KEY PERSONNEL
Our success depends upon the availability and performance of our officers and
senior management and other key personnel. We rely heavily upon the expertise of
a relatively small core of executives. We do not have employment agreements with
any of our key personnel. The loss of the services of one or more of our key
executives could have a material adverse effect on our operations.
WE MAY INCUR LIABILITY FOR PERSONAL INJURIES
Racing events can be dangerous to participants and to spectators. We maintain
insurance policies that provide coverage within limits that in our judgement are
sufficient to protect us from material financial loss due to liability for
personal injuries sustained by or death of, spectators in the ordinary course of
our business. Our insurance may not be adequate or available at all times and in
all circumstances. In the event damages for injuries sustained by our spectators
exceed our liability coverage or our insurance company denies coverage, our
financial condition, results of operations and cash flows could be adversely
affected to the extent claims and associated expenses exceed our insurance
recoveries.
WE WILL NEED ADDITIONAL FINANCING WHICH MAY OR MAY NOT BE AVAILABLE OR WHICH MAY
DILUTE THE OWNERSHIP INTEREST OF CURRENT SHAREHOLDERS
We have previously announced plans to develop a large sports and entertainment
complex in Mt. Morris, Michigan. We are currently evaluating various financing
alternatives, which may include the issuance of either debt or equity to fund
the development costs of this complex. When additional capital is needed, there
is no assurance that it can be obtained on terms acceptable to us. If we cannot
obtain sufficient capital to develop the complex we may not be able to implement
our business plan.
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OUR COMMON STOCK HAS A LIMITED TRADING MARKET, WHICH MAY MAKE IT DIFFICULT TO
SELL OR OBTAIN AN ADEQUATE PRICE FOR YOUR SHARES
There is a limited public market for our common stock and there is no assurance
that an active trading market will develop or be sustained. Because of this lack
of liquidity, our stock price may be highly volatile.
OUR TRUCK ACCESSORY BUSINESS IS TIED TO THE NORTH AMERICAN VEHICLE INDUSTRY,
WHICH IS HIGHLY CYCLICAL AND DEPENDENT ON CONSUMER SPENDING AND GENERAL ECONOMIC
CONDITIONS IN NORTH AMERICA
Sales of our truck accessories including bedliners is tied to the North American
vehicle industry. The truck industry is highly cyclical and dependent on
consumer spending and general economic conditions in North America. We only sell
our truck accessories in the United States and as result we are solely dependent
on the health and vitality of the U.S. economy for our success. There can be no
assurance that production of pickup trucks will not decline in the future or
that we will be able to fully utilize our manufacturing capacity. Economic
factors adversely affecting truck sales and production and consumer spending
could adversely impact our sales and operating results.
OUR TRUCK ACCESSORIES BUSINESS FACES STRONG COMPETITION WHICH COULD AFFECT OUR
SALES AND PROFIT MARGINS
We compete for sales of bedliners and other truck accessories against a number
of companies. Many of these companies are larger, have greater market
recognition and substantially greater financial, technical, marketing,
distribution and other resources than we have. While product quality is an
important factor, price is also very important to our customers. We attempt to
manufacture a high quality product which is cost competitive. We have faced and
will continue to face additional competition from new entrants into our markets.
We cannot be certain that we will be able to compete successfully with existing
or new competitors.
THE OPERATIONS OF OUR RACEWAY OPERATIONS ARE SEASONAL AND THEREFORE ADVERSE
WEATHER CAN AFFECT OUR RESULTS OF OPERATIONS
Our raceway operations primarily operate on the weekends from May through
September. In the event that adverse weather conditions curtail attendance at
any of our races, it could have a material adverse affect on our results of
operations.
OUR PROFITABILITY IS DEPENDENT ON CONTROL OF OUR COSTS, IN THE EVENT WE ARE
UNABLE TO CONTROL OUR COSTS, OUR FINANCIAL RESULTS COULD BE ADVERSELY AFFECTED
In order to manufacture our truck accessories we require plastic resin as a raw
material. The cost of plastic resin is directly dependent upon fluctuations in
petroleum prices. We do not have any long-term supply contracts and do not use
any hedging techniques to manage the costs of plastic resin. In the event
petroleum prices increase, we may be unable to pass the increased raw material
costs on to our customers which could adversely affect our results of
operations. In addition, we attempt to control our labor costs. In the event
that the cost of labor increases and we are unable to pass such increased labor
costs to our customers, our results of operations could be adversely affected.
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EFFECTS OF INFLATION
We believe that the relatively moderate inflation rate over the last decade has
not had a significant impact on our operations. We do not expect inflation to
have any near-term material effect on the sales of our products, although there
can be no assurance that such an effect will not occur in the future.
OUR FAILURE TO PROPERLY MANAGE MERGERS, ACQUISITIONS, DISPOSITIONS AND
DIVERSIFICATION INTO OTHER LINES OF BUSINESS COULD ADVERSELY AFFECT OUR BUSINESS
Recently, we announced that we have decided to expand the sports and
entertainment aspects of our business. In the future we may expand or contract
our operations through mergers, acquisitions, dispositions and diversification.
These activities expose us to a number of special risks, including diversion of
management's attention, failure to retain key personnel or customers of an
acquired business, difficulties transitioning operations to accommodate new
businesses or activities and limited experience in managing a large sports and
entertainment enterprise. There can be no assurance that we will be able to
effectively manage these special risks
NEW ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standard ("SFAS") No. 141 "Business Combinations". SFAS
No. 141 standardizes the accounting for business combinations by requiring that
all business combinations be accounted for by using the purchase method and
modifies the recognition criteria for identification of intangible assets
acquired in a business combination. This statement is effective for all business
combinations initiated after June 30, 2001.
In July 2001, the FASB also issued SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 142 addresses financial accounting and reporting for acquired
goodwill and other intangibles. SFAS No. 142 requires testing of goodwill
annually for impairment and requires that goodwill and other intangibles with
infinite lives not be amortized as required by previous guidance. The Company's
annual goodwill amortization is approximately $388,000. This statement is
required to be adopted by the Company on January 1, 2002.
Management has not assessed the impact of these accounting pronouncements on the
Company's financial position and results of operations.
SEGMENT REPORTING
For a discussion of the Company's business segments, see Note 13 to the
consolidated financial statements included in Appendix A.
DISGORGEMENT OF TRADING PROFITS
During the quarter ending June 30, 2001, the Company became aware that one of
its officers, William Singleterry, had engaged in trading in the stock of the
Company that was not in compliance with Section 16 of the Securities Exchange
Act of 1934. As a result, the Company has sought and has received the
disgorgement of any profits that Mr. Singleterry received as result of his
improper trading. During the quarter ending June 30, 2001, Mr. Singleterry paid
the Company $208,126 which was credited to paid in capital. In July 2001, Mr.
Singleterry paid the Company an additional $16,926, satisfying this matter in
its entirety.
RECENT DEVELOPMENTS
On July 9, 2001, the Board of Directors of the Company declared a 2 for 1 stock
split payable to shareholders of record on August 9, 2001. In order to
effectuate the stock split, the Company has obtained the consent of the majority
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shareholders to amend the Company's articles of incorporation to increase the
number of authorized shares of common stock from 35,000,000 to 70,000,000.
Supplemental information after giving effect for the stock split is included in
the consolidated statements of operations included in Appendix A.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
See the discussion under "Market Risk Disclosure" in Item 2 above.
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
In previous filings, the Company has disclosed that as a result of the crash of
an airplane owned by the Company in August 2000, claims have been made against
the Company. Recently, a claim involving the estate of one of the pilots was
successfully settled. A second claim, filed March 12, 2001, is currently in
litigation. The claimant in the second claim is seeking $10 million in damages
against the Company. A third claim of an undisclosed amount has been made by
the estate of another crewmember and is also in litigation. In addition to the
above claims, there exists the potential of at least one or more additional
claims against the Company. In the opinion of Company management and outside
legal counsel, who have conducted a thorough review of case settlements and
verdicts in the State of Michigan, it is expected that all claims concerning
the crash cumulatively should fall within the $25 million per occurrence
coverage limits under the Company's insurance policy. However, there can be no
assurance that the Company's insurance will be adequate to satisfy all the
claims concerning the crash.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
None
(b) Reports on Form 8-K
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SPORTS RESORTS INTERNATIONAL, INC.
Dated: August 2, 2001 By: /s/ Gregory T. Strzynski
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Gregory T. Strzynski
Chief Financial Officer
(Duly Authorized Officer and Principal Financial
and Financial Officer of the Registrant)
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APPENDIX A
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SPORTS RESORTS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2001 2000
(unaudited) (audited)
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ASSETS
CURRENT ASSETS:
Cash $ 1,726,327 $ 2,566,036
Accounts receivable:
Trade (net of allowance for doubtful accounts of $297,000
at June 30, 2001 and December 31, 2000) 1,176,866 784,501
Related party (Note 2) 1,054,925 837,767
Note receivable - related party (Note 2) 131,525 146,486
Federal income taxes receivable (Note 9) 1,028,564 1,028,564
Inventories (Note 3) 1,554,950 1,796,335
Assets held for sale (Note 4) 524,259 524,259
Other 1,262,172 788,484
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Total current assets 8,459,588 8,472,432
PROPERTY, PLANT, AND EQUIPMENT - Net 11,758,912 12,086,938
(Notes 5 and 6)
OTHER ASSETS:
Note receivable - related party (Note 2) 4,808,228 4,875,301
Goodwill (Net of accumulated amortization of $1,626,000
and $1,432,000 at June 30, 2001, and
December 31, 2000, respectively) 1,324,424 1,517,937
Other 1,883,408 1,806,601
----------- -----------
Total other assets 8,016,060 8,199,839
TOTAL ASSETS $28,234,560 $28,759,209
=========== ===========
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SPORTS RESORTS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2001 2000
(unaudited) (audited)
------------- -----------
LIABILITIES & SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt (Note 6) $ 1,230,374 $ 1,194,814
Accounts payable 1,061,139 1,525,661
Accrued expenses (Note 7) 1,869,750 1,217,213
----------- -----------
Total current liabilities 4,161,263 3,937,688
LONG-TERM DEBT (Note 6) 1,329,861 1,878,785
LONG-TERM PORTION OF DEFERRED
COMPENSATION 36,400 62,400
SHAREHOLDERS' EQUITY
Common stock: 35,000,000 shares authorized
at $0.01 par value, 24,177,805 shares issued
and outstanding at June 30, 2001
and December 31, 2000 241,778 241,778
Additional paid-in-capital 5,790,465 5,582,339
Retained earnings 16,674,793 17,056,219
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Total shareholders' equity 22,707,036 22,880,336
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TOTAL LIABILITIES & SHAREHOLDERS'
EQUITY $28,234,560 $28,759,209
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SPORTS RESORTS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Six Months Ending Three Months Ending
June 30 June 30
----------------------------- -----------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
SALES $ 7,641,321 $ 12,157,130 $ 4,011,425 $ 5,602,246
COST OF SALES 6,102,745 10,958,090 3,163,529 5,282,393
------------ ------------ ------------ ------------
GROSS PROFIT 1,538,576 1,199,040 847,896 319,853
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 2,196,345 3,506,074 1,058,416 1,553,403
NET GAIN (LOSS) ON DISPOSAL
OF ASSETS 12,435 47,950 208 (1,910)
------------ ------------ ------------ ------------
LOSS FROM OPERATIONS (645,334) (2,259,084) (210,312) (1,235,460)
OTHER INCOME(EXPENSE):
Interest expense (122,001) (591,877) (58,881) (500,683)
Interest income 318,619 252,116 220,851 215,898
Net rental income 61,139 144,890 36,837 25,092
Other 6.151 35,848 3,744 2,825
------------ ------------ ------------ ------------
Other income (expense) net 263,908 (159,023) 202,551 (256,868)
LOSS BEFORE INCOME
TAX BENEFIT (381,426) (2,418,107) (7,761) (1,492,328)
INCOME TAX BENEFIT (Note 9) -- 771,437 -- 512,219
------------ ------------ ------------ ------------
NET LOSS $ (381,426) $ (1,646,670) $ (7,761) $ (980,109)
============ ============ ============ ============
BASIC AND DILUTED
LOSS PER SHARE (Note 11) $ (0.02) $ (0.07) $ (0.00) $ (0.04)
============ ============ ============ ============
WEIGHTED AVERAGE
COMMON SHARES 24,177,805 24,462,196 24,177,805 24,406,066
============ ============ ============ ============
SUPPLEMENTAL INFORMATION AFTER
GIVING EFFECT FOR
STOCK SPLIT (Note 11):
BASIC AND DILUTED
LOSS PER SHARE $ (0.01) $ (0.03) $ (0.00) $ (0.02)
============ ============ ============ ============
WEIGHTED AVERAGE
COMMON SHARES 48,355,610 48,924,392 48,355,610 48,812,132
============ ============ ============ ============
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16
SPORTS RESORTS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ending
June 30
-------------------------------
2001 2000
-------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (381,426) $(1,646,670)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,188,188 1,386,870
Deferred tax provision -- (680,816)
Gain on sale of property and equipment (12,435) (47,950)
Changes in assets and liabilities that (used) provided cash:
Accounts receivable (609,523) 226,499
Inventories 241,385 1,992,270
Other (576,495) (297,355)
Accounts payable (464,522) (1,459,620)
Accrued expenses 652,537 1,056,324
Income taxes payable -- (2,826,019)
----------- -----------
Net cash provided by (used in) operating activities 37,709 (2,269,467)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures and construction of assets held for sale (671,705) (961,690)
Proceeds from disposal of property and equipment 17,491 464,940
Proceeds from sale of business, net of cash sold -- 994,264
Proceeds from sale of Rugged Liner assets -- 361,700
Payments received on notes receivable-related party 82,034 1,458,185
----------- -----------
Net cash (used in) provided by investing activities (572,180) 2,317,399
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (6,375) (15,854)
Principal payments on obligations under capital leases (506,989) (465,170)
Disgorgement of trading profits (Note 8) 208,126 --
----------- -----------
Net cash (used in) financing activities (305,238) (481,024)
----------- -----------
NET (DECREASE) IN CASH (839,709) (460,092)
----------- -----------
CASH, BEGINNING OF PERIOD 2,566,036 1,069,338
----------- -----------
CASH, END OF PERIOD $ 1,726,327 $ 609,246
=========== ===========
Continued
A-5
17
SPORTS RESORTS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ending
June 30
-------------------------------
2001 2000
------------- -------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for interest $ 105,964 $ 166,738
============= =============
Cash paid during the period for taxes $ -- $ 2,750,000
============= =============
SUPPLEMENTAL SCHEDULE OF NONCASH
FINANCING ACTIVITIES:
Sale of Rugged Liner assets, net of cash received (Note 10)
Property, plant and equipment $ 459,399
Accrued expenses (392,621)
Goodwill 586,218
Inventory 1,257,590
Trade accounts receivable 167,813
Deferred tax assets 568,052
Common stock redeemed (3,405)
Paid in capital (2,325,997)
Other 44,651
-------------
Net cash proceeds from sale $ 361,700
=============
(concluded)
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18
SPORTS RESORTS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1 BASIS OF PRESENTATION
Effective March 8, 2001 The Colonel's International, Inc. began
doing business under the assumed name of Sports Resorts
International, Inc. The Company received the written consent of its
majority shareholders to amend its articles of incorporation and
legally changed its name on April 16, 2001. The Company changed its
name to reflect the increasing prominence of the sports and leisure
segment of its business.
The financial information included herein is unaudited; however
such information reflects all adjustments (consisting solely of
normal recurring adjustments) that are, in the opinion of
management, necessary for a fair presentation of the results of
operations, financial position and cash flows for the periods
presented.
Interim results of operations are not necessarily indicative of the
results expected for the full year.
NEW ACCOUNTING PRONOUNCEMENTS - In July 2001, the Financial
Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standard ("SFAS") No. 141 "Business Combinations". SFAS
No. 141 standardizes the accounting for business combinations by
requiring that all business combinations be accounted for by using
the purchase method and modifies the recognition criteria for
identification of intangible assets acquired in a business
combination. This statement is effective for all business
combinations initiated after June 30, 2001.
In July 2001, the FASB also issued SFAS No. 142, "Goodwill and
Other Intangible Assets." SFAS No. 142 addresses financial
accounting and reporting for acquired goodwill and other
intangibles. SFAS No. 142 requires testing of goodwill annually for
impairment and requires that goodwill and other intangibles with
infinite lives not be amortized as required by previous
guidance. The Company's annual goodwill amortization is
approximately $388,000. This statement is required to be adopted by
the Company on January 1, 2002.
Management has not assessed the impact of these accounting
pronouncements on the Company's financial position and results of
operations.
RECLASSIFICATIONS - Certain 2000 amounts have been reclassified to
conform to the 2001 presentation.
Note 2 RELATED PARTY TRANSACTIONS
Note Receivable
During the first quarter of 1999, a note receivable from South
Saginaw LLC, a company owned by Donald J. Williamson, the Company's
Chief Executive Officer and majority shareholder, of $5,200,000 was
established. The note requires monthly payments of $43,496,
including interest at 8.0%, through February 2005, at which time
the unpaid balance is due. The note is current at June 30, 2001 and
is secured by a mortgage and personal guarantee.
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19
Accounts Receivable
During 2000 and the first and second quarters of 2001, the Company
paid certain expenses on behalf of affiliated entities. The amount
outstanding at June 30, 2001 was approximately $1,055,000.
Note 3 INVENTORIES
Inventories are summarized as follows: June 30, December 31,
2001 2000
(unaudited) (audited)
--------------- -----------------
Finished products $ 1,060,782 $ 1,109,251
Raw materials 494,168 687,084
--------------- -----------------
Total inventories $ 1,554,950 $ 1,796,335
=============== =================
Note 4 ASSETS HELD FOR SALE
During 2000, the Company built a six-unit condominium townhouse at
its CBIR facility in Brainerd, Minnesota. These units are fully
furnished and are included in assets held for sale with a
carrying value of approximately $524,000.
Note 5 PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is summarized by major classification
as follows:
June 30, December 31,
2001 2000
(unaudited) (audited)
--------------- ---------------
Land and improvements $ 2,665,597 $ 2,611,658
Track 1,903,123 1,903,123
Buildings 1,824,484 1,842,043
Leasehold improvements 292,066 86,325
Bleachers & fencing 1,661,631 1,661,631
Equipment (including equipment under capital lease) 6,664,161 6,737,659
Transportation equipment 1,237,565 1,221,086
Furniture & fixtures 706,018 698,132
Tooling 3,241,539 3,169,235
Construction in progress 1,782,119 1,394,965
--------------- ---------------
Total 21,978,303 21,325,857
Less accumulated depreciation (10,219,391) (9,238,919)
--------------- ---------------
Net property, plant and equipment $ 11,758,912 $ 12,086,938
=============== ===============
Construction in progress consists of a twelve-unit condominium
townhouse with room for retail space at CBIR.
In October 2000, the Company made a non-refundable deposit of
$25,000 and entered into an agreement to purchase land in Mount
Morris Township, Michigan in connection with a
A-8
20
proposed plan to develop a sports and entertainment complex. The
agreement requires closure by October 2001. In January and February
2001 the Company made a total of $80,000 in non-refundable deposits
and entered into various agreements with four to six month terms to
purchase adjacent real estate. In June and July 2001 the various
agreements were extended for additional periods of four to six
months for an additional $80,000. The payments to extend the
agreements are also non-refundable.
Note 6 LONG TERM DEBT
Long-term obligations consist of the following:
June 30, December 31,
2001 2000
(unaudited) (audited)
------------ -------------
Term loan, annual installments of $100,675 plus interest at
9% through August 2003; secured by related assets $ 302,025 $ 302,025
Mortgage payable to a bank, interest at the bank's prime
rate plus 2% (effective rate of 9.0% and 11.5% at June 30, 2001
and December 31, 2000 respectively)
annual principal payments of $50,000 plus interest due quarterly,
through September 2004; secured by underlying property 200,000 200,000
Capital lease obligations through December 2002;
monthly installments include interest at rates between
7.5% and 8.75%, collateralized by the related machinery
and equipment (Note 5) 2,054,974 2,561,963
Other 3,236 9,611
----------- -----------
Total 2,560,235 3,073,599
Less current portion (1,230,374) (1,194,814)
----------- -----------
Long-term $ 1,329,861 $ 1,878,785
=========== ===========
Note 7 ACCRUED EXPENSES
Accrued expenses consist of the following:
June 30, December 31,
2001 2000
(unaudited) (audited)
-------------- --------------
Accrued settlements $ 453,376 $ 454,500
Accrued interest 88,996 72,959
Advance ticket sales 804,751 --
Other 522,627 689,754
-------------- --------------
Total $ 1,869,750 $ 1,217,213
============== ==============
Note 8 DISGORGEMENT OF TRADING PROFITS
During the quarter ending June 30, 2001, the Company became aware
that one of its officers had engaged in trading in the stock of the
Company that was not in compliance with Section 16 of the
Securities Exchange Act of 1934. As a result, the Company has
sought and has received the
A-9
21
disgorgement of any profits received as a result of this improper
trading. During the quarter ending June 30, 2001, the Company
received $208,126 which was credited to paid in capital. In July
2001, the Company received an additional $16,926, satisfying this
matter in its entirety.
Note 9 INCOME TAXES
A Federal income tax receivable of $1,028,564 was recorded in 2000
related to net operating losses eligible for carryback to 1998.
The Company provides for deferred income taxes under the asset and
liability method, whereby deferred income taxes result from
temporary differences between the tax bases of assets and
liabilities and their reported amounts in the financial statements
that will result in taxable or deductible amounts in the future.
Such deferred income tax asset and liability computations are based
on enacted tax laws and rates applicable to periods in which the
differences are expected to affect taxable income. A valuation
allowance is established to reduce deferred income tax assets to
the amount expected to be realized.
Note 10 COMMON STOCK REDEEMED/SALE OF CRL ASSETS TO INTERNATIONAL
LINER
On June 22, 2000, but effective as of May 1, 2000, the Company sold
certain inventory, property, plant and equipment, and accounts
receivable to International Liner, a corporation controlled by Mark
German, the Company's former President. In exchange for these
assets, International Liner paid the Company $361,700 in cash and
Mr. German and the other former shareholders of the Rugged Liner
Companies surrendered 340,521 shares of the Company's Common Stock.
The Company wrote-off goodwill of approximately $586,000 associated
with assets sold. In accordance with accounting principles
generally accepted in the United States of America, no gain or loss
was recorded as a result of this transaction.
Note 11 LOSS PER SHARE/STOCK SPLIT
Basic loss per share was based upon the weighted average number of
shares outstanding. Diluted loss per share assumes the exercise of
common stock options when dilutive. Therefore, basic and diluted
loss per share are the same.
On July 9, 2001, the Board of Directors of the Company declared a 2
for 1 stock split payable to shareholders of record on August 9,
2001. In order to effectuate the stock split, the Company has
obtained the consent of the majority shareholders to amend the
Company's articles of incorporation to increase the number of
authorized shares of common stock from 35,000,000 to 70,000,000.
Supplemental information after giving effect for the stock split is
included in the consolidated statements of operations.
Note 12 CONTINGENCIES
On December 17, 1998 the Company sold substantially all of the
assets used in its former bumper production operations. The sale
consisted of substantially all inventory, machinery and equipment,
accounts receivable and prepaid items. The purchaser also assumed
certain liabilities such as accounts payable and purchase
commitments. On June 13, 2000, the Company received notice of an
indemnity claim by the purchaser for approximately $866,000, net of
deductibles and offsetting amounts owed to the Company. Management
is investigating the claim and contesting its merit.
In May 2000, the landlord of a facility formerly occupied by the
Company filed suit in the Superior Court for Riverside County,
California against the Company, claiming that the Company breached
its lease by failing to notify the landlord of its intent to
sublease the facility. The landlord has been awarded possession of
the property and is seeking damages of an undisclosed amount. The
Company is vigorously defending this matter.
As a result of the crash of an airplane owned by the Company in
August 2000, claims have been made against the Company. One claim
involving the estate of one of the pilots has been successfully
settled. A second claim, filed March 12, 2001, is currently in
litigation. The claimant in the second claim is seeking $10 million
in damages against the Company. A third claim of an undisclosed
amount has been made by the estate of another crewmember and is
also in litigation. In addition to the above claims, there exists
the potential of least one or more additional claims against the
Company. In the opinion of Company management and outside legal
counsel, who have conducted a thorough review of case settlements
and verdicts in the State of Michigan, it is expected that all
claims concerning the crash cumulatively should fall within the $25
million per occurrence coverage limits under the Company's
insurance policy. However, there can be no assurance that the
Company's insurance will be adequate to satisfy all the claims
concerning the crash.
A-10
22
Note 13 SEGMENTS OF BUSINESS
The Company's reportable segments are strategic business units that
offer different products and services. The business units have been
divided into two reportable segments: the manufacturing and sale of
bedliners and other truck accessories ("Truck Accessories"), and
operation of a multi-purpose motor sports facility in Brainerd,
Minnesota ("Raceway").
Operating segments are defined as components of an enterprise about
which separate financial information is available that is evaluated
regularly by the chief operating decision-maker, or decision making
group, in deciding how to allocate resources and assessing
performance. The Company's chief operating decision-maker is its
Chief Executive Officer.
The Company evaluates performance based on stand-alone product
segment operating income. Intersegment sales and transfers,
interest income and expenses are not significant.
Financial information segregated by reportable product segment is
as follows:
Six Months Ending Three Months Ending
June 30 June 30
(unaudited) (unaudited)
-------------------------------- -------------------------------
2001 2000 2001 2000
------------- ------------- ------------- -------------
Sales:
Truck
Accessories $ 7,245,224 $ 11,840,557 $ 3,658,884 $ 5,324,225
Raceway 396,097 316,573 352,541 278,021
------------- ------------- ------------- -------------
Total $ 7,641,321 $ 12,157,130 $ 4,011,425 $ 5,602,246
============= ============= ============= =============
Loss From
Operations:
Truck
Accessories $ (100,890) $ (1,472,029) $ 39,425 $ (874,694)
Raceway (544,444) (787,055) (249,737) (360,766)
------------- ------------- ------------- -------------
Total $ (645,334) $ (2,259,084) $ (210,312) $ (1,235,460)
============= ============= ============= =============
A-11