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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 2003
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OR
[ ] 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 0-1365
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SCIOTO DOWNS, INC.
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(Exact name of registrant as specified in its charter)
OHIO 31-4440550
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
6000 SOUTH HIGH STREET, COLUMBUS, OHIO 43207
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(Address of principal executive offices) (Zip Code)
(614) 491-2515
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(Registrant's telephone number, including area code)
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 and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
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Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes No X
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The number of common shares outstanding at June 16, 2003:
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595,767, par value $1.05
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SCIOTO DOWNS, INC.
INDEX
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PAGES
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at April 30, 2003, October 31, 2002 (as restated)
and April 30, 2002 1-2
Consolidated Statements of Operations for the three-month and
six-month periods ended April 30, 2003 and 2002 3
Consolidated Statements of Cash Flows for the six-month periods ended
April 30, 2003 and 2002 4
Notes to Consolidated Financial Statements 5-9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10-18
Item 3. Quantitative and Qualitative Disclosures about Market Risk 18
Item 4. Controls and Procedures 18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 2. Changes in Securities 19
Item 3. Defaults Upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURES 20
CERTIFICATIONS 21-22
INDEX TO EXHIBITS 23
SCIOTO DOWNS, INC.
CONSOLIDATED BALANCE SHEETS
AT APRIL 30, 2003, OCTOBER 31, 2002 AND APRIL 30, 2002
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
APRIL 30, OCTOBER 31, APRIL 30,
2003 2002 2002
------------ ------------ ------------
(UNAUDITED) (AS RESTATED) (UNAUDITED)
ASSETS
Current assets
Cash and cash equivalents $ 390,940 $ 319,484 $ 486,190
Restricted cash 1,062,171 31,864 785,870
Inventories 12,120 -- --
Accounts receivable, related party and other 53,125 240,452 108,286
Prepaid expenses and other 103,376 37,423 42,724
------------ ------------ ------------
Total current assets 1,621,732 629,223 1,423,070
------------ ------------ ------------
Property and equipment, at cost 20,747,207 20,731,769 20,692,899
Less accumulated depreciation (15,854,944) (15,575,042) (15,287,324)
------------ ------------ ------------
Total property and equipment, net 4,892,263 5,156,727 5,405,575
------------ ------------ ------------
Other noncurrent assets 60,421 60,421 76,803
Racing permit 755,760 755,760 755,760
------------ ------------ ------------
Total assets $ 7,330,176 $ 6,602,131 $ 7,661,208
------------ ------------ ------------
CONTINUED
-1-
SCIOTO DOWNS, INC.
CONSOLIDATED BALANCE SHEETS
AT APRIL 30, 2003, OCTOBER 31, 2002 AND APRIL 30, 2002
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APRIL 30, OCTOBER 31, APRIL 30,
2003 2002 2002
----------- ----------- -----------
(UNAUDITED) (AS RESTATED) (UNAUDITED)
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities
Accounts payable, trade $ 681,198 $ 1,160,086 $ 623,073
Current maturities, term debt 213,534 206,640 199,314
Line of credit -- 110,000 175,000
Accrued expenses 426,242 389,690 356,708
Deferred revenue 327,575 -- 456,290
Purses payable and simulcast liabilities 1,755,312 512,895 1,063,689
----------- ----------- -----------
Total current liabilities 3,403,861 2,379,311 2,874,074
----------- ----------- -----------
Minimum pension liability 378,348 378,348 335,458
Accrued pension 195,020 195,020 274,374
Term debt, net of current maturities 2,387,412 2,471,050 2,598,476
Note payable 1,000,000 -- --
Stockholders' (deficit) equity
Common stock, $1.05 par value per share,
issued and outstanding: 595,767 shares 625,555 625,555 625,555
Capital in excess of par value of stock 2,037,300 2,037,300 2,037,300
Accumulated deficit (2,318,972) (1,106,105) (748,571)
Accumulated other comprehensive loss (378,348) (378,348) (335,458)
----------- ----------- -----------
Total stockholders' (deficit) equity (34,465) 1,178,402 1,578,826
----------- ----------- -----------
Total liabilities and stockholders' (deficit) equity $ 7,330,176 $ 6,602,131 $ 7,661,208
=========== =========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
-2-
SCIOTO DOWNS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE-MONTH AND SIX-MONTH PERIODS ENDED APRIL 30, 2003 AND 2002
(UNAUDITED)
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FOR THE THREE-MONTH FOR THE SIX-MONTH
PERIODS ENDED PERIODS ENDED
APRIL 30, APRIL 30,
------------------------------- -------------------------------
2003 2002 2003 2002
----------- ----------- ----------- -----------
OPERATING REVENUES
Pari-mutuel commissions and breakage $ 2,226,244 $ 2,482,943 $ 4,264,991 $ 4,533,750
Less pari-mutuel taxes 341,957 379,556 655,645 692,674
----------- ----------- ----------- -----------
1,884,287 2,103,387 3,609,346 3,841,076
Other operating revenues 265,505 124,690 434,129 257,860
----------- ----------- ----------- -----------
2,149,792 2,228,077 4,043,475 4,098,936
----------- ----------- ----------- -----------
OPERATING EXPENSES
Purses 844,280 939,263 1,616,080 1,716,499
Salaries and wages 412,640 441,957 841,244 886,813
Simulcasting fees 321,367 366,076 602,988 672,349
Depreciation 139,984 140,011 279,902 282,395
Insurance 161,032 90,796 315,163 198,356
Other operating and general expenses 854,090 685,305 1,497,958 1,277,639
----------- ----------- ----------- -----------
2,733,393 2,663,408 5,153,335 5,034,051
----------- ----------- ----------- -----------
Loss from operations (583,601) (435,331) (1,109,860) (935,115)
Other expense -- -- -- (691)
Net interest expense (48,108) (55,060) (103,007) (113,476)
----------- ----------- ----------- -----------
Net loss before income taxes (631,709) (490,391) (1,212,867) (1,049,282)
Income taxes -- -- -- --
----------- ----------- ----------- -----------
Net loss $ (631,709) $ (490,391) $(1,212,867) $(1,049,282)
=========== =========== =========== ===========
Net loss per common share--basic
and diluted $ (1.06) $ (.82) $ (2.04) $ (1.76)
=========== =========== =========== ===========
Weighted average common shares
outstanding--basic and diluted 595,767 595,767 595,767 595,767
=========== =========== =========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
-3-
SCIOTO DOWNS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTH PERIODS ENDED APRIL 30, 2003 AND 2002 (UNAUDITED)
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2003 2002
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,212,867) $(1,049,282)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 279,902 282,395
Loss on disposal of assets -- 691
Changes in current assets and liabilities:
Accounts receivable 187,327 440,085
Inventories (12,120) --
Prepaid expenses and other (65,953) (22,846)
Accounts payable and purses payable and
simulcast liabilities 763,529 857,828
Deferred revenue 327,575 456,290
Accrued expenses 60,552 (21,302)
----------- -----------
Net cash provided by operating activities 327,945 943,859
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net restricted cash receipts (1,030,307) (743,177)
Purchase of equipment (15,438) (8,728)
Contribution to joint venture (24,000) --
----------- -----------
Net cash used in investing activities (1,069,745) (751,905)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt 1,000,000 --
Payments on term debt (186,744) (94,664)
Dividends paid -- (29,788)
----------- -----------
Net cash provided by (used in) financing activities 813,256 (124,452)
----------- -----------
Net increase in cash and cash equivalents 71,456 67,502
Cash and cash equivalents, beginning of period 319,484 418,688
----------- -----------
Cash and cash equivalents, end of period $ 390,940 $ 486,190
=========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
-4-
SCIOTO DOWNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE-MONTH AND SIX-MONTH PERIODS ENDED APRIL 30, 2003 AND 2002
(UNAUDITED)
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1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements are presented
in accordance with the requirements of Form 10-Q and, consequently, do not
include all the disclosures normally required by accounting principles
generally accepted in the United States of America or those normally made
in Scioto Downs' Annual Report on Form 10-K/A. The year-end consolidated
balance sheet was derived from audited consolidated financial statements,
but does not include all disclosures required by accounting principles
generally accepted in the United States of America. Reference should be
made to the Company's 2002 Form 10-K/A for additional disclosures,
including a summary of the Company's accounting policies.
The financial information furnished reflects all adjustments which are, in
the opinion of management, necessary to present a fair statement of the
results for the interim periods on a basis consistent with that of prior
periods. All such adjustments are of a normal recurring nature.
The accompanying unaudited consolidated financial statements include the
accounts of Scioto Downs, Inc. and its wholly owned subsidiary, Mid-America
Racing Association, Inc. (Mid-America), collectively referred to as Scioto
Downs or the Company. All significant intercompany accounts and
transactions have been eliminated in consolidation.
The accompanying consolidated financial statements have been prepared
assuming that Scioto Downs will continue as a going concern. The Company
has incurred recurring losses from operations and has a working capital
deficit at April 30, 2003.
Management previously implemented plans to reduce expenses and generate
revenues from additional sources in order to improve operating results.
However, these plans depended on a successful 2002 live racing season,
which did not occur, and the 2003 live racing season that commenced on May
8, 2003. As a result, management's plans have not produced the desired
results, and the Company's consolidated financial position has not
improved. The impact of the 2003 live racing season is not yet known.
On December 23, 2002, the Company entered into an agreement and plan of
merger with MTR Gaming Group, Inc. (MTR). On May 13, 2003, the Company and
MTR filed a Joint Proxy Statement - Prospectus with the Securities and
Exchange Commission, indicating their intent to proceed with the merger,
subject to the terms and conditions in the Merger Agreement. If the
transaction takes place, this will provide liquidity to the operation
subject to MTR's willingness and ability to fund operations. Failure to
consummate the transaction will make the ability to continue future
operations uncertain.
At this time, it is uncertain whether the Company will be able to continue
as a going concern. The financial statements, however, have not been
adjusted to account for the entity on other than a going concern basis.
-5-
SCIOTO DOWNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE-MONTH AND SIX-MONTH PERIODS ENDED APRIL 30, 2003 AND 2002
(UNAUDITED)
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2. INVENTORIES
On February 1, 2003, the Company terminated its food concessionaire
agreement and assumed operation of all concessions. Concession inventories
at April 30, 2003 are stated at the lower of cost (determined by the
first-in, first-out method) or market.
3. INCOME TAXES
The Company provides for income taxes in interim periods based on its
estimated annual effective tax rate. The estimated annual effective tax
rate differs from the statutory rate due to the application of surtax
exemptions. Valuation allowances are established when necessary to reduce
deferred tax assets to the amounts expected to be realized. The Company has
determined at April 30, 2003 and 2002 that it is more likely than not that
the deferred tax assets will not be realized and, therefore, has recorded a
full valuation allowance.
4. DEFERRED REVENUE
Deferred revenue represents cash received for entry fees and monies added
by others, sustaining and nominating fees, and advance ticket sales. Monies
added by others represent sponsor contributions to the purse awards. Due to
the seasonal nature of the business, these revenues are generally deferred
during the first two quarters of the fiscal year, until the commencement of
the live racing season.
5. PLAN OF MERGER
On December 23, 2002, the Company entered into an agreement and plan of
merger (the Merger Agreement) with MTR, pursuant to which the Company will
become a wholly owned subsidiary of MTR. The Merger Agreement provides that
each stockholder of the Company may elect to receive $32 in cash for each
share of the Company's common stock owned by the stockholder.
Alternatively, each stockholder may elect to receive an amount equal to $17
per share plus 10 annual earnout payments per share subject to the
conditions set forth in the Merger Agreement. Consummation of the
transaction is subject to various conditions, including the approval by the
stockholders of the Company and the attainment of necessary regulatory
approvals. On May 13, 2003, the Company and MTR filed a Joint Proxy
Statement-Prospectus with the Securities and Exchange Commission,
indicating their intent to proceed with the merger, subject to the terms
and conditions in the Merger Agreement.
6. DEBT FINANCING ARRANGEMENTS
On December 24, 2002, the Company received a $1,000,000 payment from MTR to
be used for the business improvement purposes set forth in the Merger
Agreement. If the Merger Agreement is terminated pursuant to its terms, the
$1,000,000 amount shall be deemed a loan to be repaid by the Company to MTR
on December 23, 2005 and shall bear interest at a rate
-6-
SCIOTO DOWNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE-MONTH AND SIX-MONTH PERIODS ENDED APRIL 30, 2003 AND 2002
(UNAUDITED)
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equal to MTR's cost of borrowing as may vary from time to time. In such
case, interest will accrue from the date of termination of the Merger
Agreement. The loan will be collateralized by the Company's real and
personal property (junior only to liens of record on December 23, 2002).
The $1,000,000 is included in notes payable in the consolidated balance
sheet of the Company at April 30, 2003.
During January 2003, the Company paid the outstanding balance under the
line of credit of $110,000. Further availability under the line was
terminated by the lender.
The Company's term loan agreement contains an acceleration clause whereby
the lender has the right to declare the loan immediately due and payable
if, in the lender's judgment, an event has occurred which is likely to have
a material adverse effect on the Company.
7. ADOPTION OF ACCOUNTING PRINCIPLES AND RECENT ACCOUNTING PRONOUNCEMENT
Effective November 1, 2002, the Company adopted Statement of Financial
Accounting Standard No. 142 (SFAS 142), Goodwill and Other Intangible
Assets. SFAS 142 requires that the Company evaluate the remaining useful
lives of intangible assets not subject to amortization to determine whether
events and circumstances continue to support an indefinite useful life. The
intangible asset is required to be tested for impairment at least annually,
or more frequently if events and changes in circumstances indicate that the
asset might be impaired. The Company evaluated the useful life of the
racing permit at November 1, 2002, and determined that the license
continues to be an indefinite lived intangible asset. The Company performed
a transitional impairment test during the six months ended April 30, 2003
and determined that no impairment charge was necessary. No events or
changes in circumstances during the three or six month periods ended April
30, 2003 indicate that the racing license might be impaired.
Effective November 1, 2002, the Company adopted Statement of Financial
Accounting Standards No. 144 (SFAS 144), Accounting for the Impairment or
Disposal of Long-Lived Assets, which addresses accounting and reporting
standards for the impairment or disposal of long-lived assets. In
accordance with SFAS 144, the Company evaluates the recoverability of
long-lived assets in accordance with its existing accounting policies,
whenever events or changes in circumstances indicate that the carrying
value of the assets may not be recoverable. The adoption of SFAS 144 had no
impact on the financial position or the results of operations of the
Company for the six months ended April 30, 2003.
In January 2003, the FASB issued Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities. FIN 46 clarifies the
application of Accounting Research Bulletin No. 51, Consolidated Financial
Statements, to certain entities in which equity investors do not have the
characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. FIN 46 will
require disclosures regarding ownership interests in variable interest
entities. This Interpretation applies immediately to variable interest
entities created after January 31, 2003, and to variable interest entities
in which an enterprise obtains an interest after that date. It applies in
the first fiscal year or interim period beginning after June 15, 2003, to
variable interest entities in which an enterprise holds a variable interest
that it acquired before February 1, 2003. The Company does not anticipate
having to make additional disclosures as a result of FIN 46.
-7-
SCIOTO DOWNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE-MONTH AND SIX-MONTH PERIODS ENDED APRIL 30, 2003 AND 2002
(UNAUDITED)
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8. JOINT VENTURE
The Company had a 20% equity interest in an off-track betting parlor that
was accounted for on the equity method of accounting. During the six
months ended April 30, 2003, the Company amended the operating agreement
with the off-track betting parlor and contributed $24,000 in exchange for
its membership units and release from all other obligations pursuant to the
terms of the operating agreement.
9. ENVIRONMENTAL REMEDIATION AND COMPLIANCE
During February 2003, the Company completed Phase II environmental studies
related to potential contamination of the land. The results indicated that
a certain amount of soil contamination is present. However, further
investigation would be required in order to determine the magnitude and
depth of the contamination. No determination has been made as to whether
the Company will be subject to remedial action and environmental clean-up,
and the cost of such action, if any. Environmental remediation and
compliance expenditures are expensed or capitalized by the Company in
accordance with accounting principles generally accepted in the United
States of America. Liabilities are recorded when it is probable the
obligations have been incurred and the amounts can be reasonably estimated.
10. SUBSEQUENT EVENT
RETIREMENT PLAN
The Company and MARA Enterprises, Inc. (MARA) are parties to a multiple
employer pension plan. As a result of the proposed merger with MTR, the
Company and MARA agreed to separate the plan. The separation will be
affected pursuant to statutory requirements for the allocation of the
assets and liabilities to the Company and MARA. The effective date of this
separation was June 1, 2003.
MANAGEMENT AGREEMENT
On May 5, 2003, the Company and MTR entered into a Management Agreement
pursuant to which the Company engaged MTR as the exclusive manager, subject
to certain limitations and terms set forth in the Management Agreement, of
the racing business, simulcast business, food service business, any future
gaming business and all other businesses of the Company presently conducted
or which may be conducted in the future at or with respect to the Company's
facilities (the Managed Businesses). MTR's term as the manager under the
Management Agreement is for a five-year period (subject to certain early
termination provisions) commencing on May 5, 2003.
-8-
SCIOTO DOWNS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE-MONTH AND SIX-MONTH PERIODS ENDED APRIL 30, 2003 AND 2002
(UNAUDITED)
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During the term of the Management Agreement, the Company will pay MTR a
management fee consisting of (a) 3% of all the revenues derived from the
Managed Businesses, and (b) 8% of the EBITDA derived from the Managed
Businesses. The management fee will accrue and will not be payable until
May 5, 2004.
DEBT FINANCING ARRANGEMENTS
On May 5, 2003, MTR agreed to lend the Company up to an additional
$1,000,000 subject to the terms and conditions of the Management Agreement
(and a Promissory Note, Loan Agreement and Mortgage also dated May 5,
2003). Unless accelerated on an earlier date, the entire balance of
principal loaned, and all interest owed on that Loan, shall become due and
payable on December 31, 2003. Interest payable by the Company shall accrue
at the rate equal to the rate of interest that would be paid by MTR
pursuant to its credit agreement with its lenders. During May and June
2003, the Company borrowed $602,000 under this Agreement.
CONTINGENT FEE
On May 5, 2003, the Company entered into an Amendment to the Merger
Agreement. In accordance with the Amendment, the Company agrees to pay MTR
a Break Up Fee of $1,900,000 within two business days of the termination of
the agreement if (a) MTR terminates the acquisition pursuant to certain
terms of the Merger Agreement, or (b) prior to the time of the shareholder
meeting, (i) a proposal by a third party relating to an acquisition
transaction had been publicly proposed or publicly announced, and (ii) on
or prior to the one-year anniversary of the termination of the Merger
Agreement, the Company or any of its subsidiaries or affiliates enters into
an agreement or letter of intent (or resolves or announces an intention to
do so) with respect to an acquisition transaction involving a person,
entity or group if such person, entity or group (including any of its
members or affiliates) made a proposal with respect to an acquisition
transaction on or after May 5, 2003 and prior to the shareholder meeting,
and (iii) such acquisition transaction is consummated.
OPTION TO PURCHASE ADJACENT LAND
On March 11, 2003, MTR and MARA entered into a letter agreement pursuant to
which MARA agreed (a) to grant the Company a right of refusal with respect
to the sale or transfer of an approximately 32 acre parcel of land owned by
MARA (the Property) adjacent to the Company's property in Ohio, and (b) to
grant the Company the right to purchase the Property at its fair market
value with payments to be made at the time the option is exercised. MARA is
owned and controlled by five individuals who are also shareholders of the
Company, including LaVerne Hill, who owns approximately 71% of the issued
and outstanding shares of MARA. MARA owns 63,240 shares (10.65%) of the
Company's common stock. The Option Agreement provides that the option to
purchase the Property will expire on the earlier of (a) five years from the
date the merger is consummated, (b) six months following the death of Ms.
Hill, or (c) December 31, 2008.
-9-
SCIOTO DOWNS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE-MONTH AND SIX-MONTH PERIODS ENDED APRIL 30, 2003 AND 2002
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PART I. FINANCIAL INFORMATION, CONT.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's discussion and analysis is concerned with material
changes in financial condition and results of operations of the
Company based on its consolidated balance sheets at April 30,
2003 and October 31, 2002, and the consolidated statements of
operations for the three and six month periods ended April 30,
2003 and 2002.
This discussion and analysis should be read together with
management's discussion and analysis included in the Company's
Annual Report on Form 10-K/A, for the fiscal year ended October
31, 2002.
This report may contain various "forward-looking statements"
within the meaning of applicable securities law. The use of
forward-looking words such as "believe", "expect", "anticipate",
"project", "estimate", "intend", "hope" and similar words
identify "forward-looking statements" which speak only as of the
date the statement was made. Such forward-looking statements are
subject to risk, uncertainties and other factors, which could
cause actual results to materially differ from those made,
projected or implied. Such risks and uncertainties would include
such matters as the national and local general economic business
and other conditions, the availability of financing, the impact
of federal and state legislation and of governmental regulation,
the impact of competition and other risks and uncertainties that
are described in our Securities and Exchange Commission filings.
The Company disclaims any obligation to update any
forward-looking statement.
The racing industry in Ohio in 2002 experienced an overall
decline in business and this decline continued into our first and
second quarters of 2003. Attendance was down, and the amount
wagered on racing in Ohio was down approximately 10% from the
previous year. Purses paid to winning horses were also down
approximately 24%. Several developments in the racing industry
have contributed to this result.
One factor is the rapid growth of what is known as account
wagering. This system allows an individual to place a wager on a
horserace while at home, by telephone or over the Internet, using
an account established with the telephone or Internet entity.
Commissions received by the racetrack from account wagering are
significantly less than if the person places a wager at the
racetrack, thus, causing a decline in the racetrack's revenue.
Another factor adversely affecting horseracing in Ohio is
increased gambling competition from surrounding states. West
Virginia, for example, has authorized electronic gaming machines
at its racetracks. Indiana has riverboat gambling. Casino
gambling is now in operation in Michigan. These out-of-state
gambling facilities patronized by Ohio residents take business
away from the Ohio racetracks and also provide the racetracks in
those states which have these other forms of gambling with
additional funds to pay higher purses and, thus, attract the more
popular horses.
-10-
SCIOTO DOWNS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE-MONTH AND SIX-MONTH PERIODS ENDED APRIL 30, 2003 AND 2002
- --------------------------------------------------------------------------------
Generally, the customers at Ohio tracks do not wager as much on a
less popular class of horses, so this situation also causes the
handle to decline. At the present time, it is extremely difficult
for the Ohio racetracks to compete with racetracks in other
states that have alternate forms of gambling. As a result, the
racing industry in Ohio is in decline which has adversely
affected the Company's operations.
Management has reviewed all operating costs and has taken steps
to reduce expenses through cost containment, reductions in
expenses and renegotiation of agreements with vendors. Also,
management has been looking into ways to utilize its facilities
to earn additional revenue from sources other than racing.
Several agreements have been reached regarding facility use fees
with participating customers.
Management's plans to improve operating results also depended on
a successful live 2002 racing season, which did not occur and
the 2003 live racing season that commenced on May 8, 2003. As a
result, management's plans have not produced the desired results
and the Company's consolidated financial position has not
improved. The impact of the 2003 live racing season is not yet
known.
On December 23, 2002, the Company entered into an agreement and
plan of merger (the Merger Agreement) with MTR Gaming Group, Inc.
(MTR), pursuant to which the Company will become a wholly owned
subsidiary of MTR. The Merger Agreement provides that each
stockholder of the Company may elect to receive $32 in cash for
each share of the Company's common stock owned by the
stockholder. Alternatively, each stockholder may elect to receive
an amount equal to $17 per share plus 10 annual earnout payments
subject to the conditions set forth in the Merger Agreement.
Consummation of the transaction is subject to the approval by the
stockholders of the Company and the attainment of necessary
regulatory approvals. Pursuant to terms of the Merger Agreement,
MTR completed its due diligence review of the Company. On May 13,
2003, the Company and MTR filed a Joint Proxy
Statement-Prospectus with the Securities and Exchange Commission,
indicating their intent to proceed with the merger, subject to
the terms and conditions in the Merger Agreement.
If the transaction takes place this will provide liquidity to the
operations subject to MTR's willingness and ability to fund
operations. However, failure to consummate the transaction will
make the ability to continue future operations uncertain.
At this time, it is uncertain that the Company will be able to
continue as a going concern. The financial statements, however,
have not been adjusted to account for the entity on other than a
going concern basis.
GENERAL
Due to the seasonal nature of the business, the Company
experiences net operating losses during the first two quarters of
the fiscal year. In addition, the Company uses this period to
perform routine repairs and maintenance and facility
improvements. During the first two quarters of 2003, the Company
continued to service the debt on the clubhouse and the
simulcasting equipment with funds generated during the 2002
racing season, the 2003 simulcasting season, and the loan from
MTR.
-11-
SCIOTO DOWNS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE-MONTH AND SIX-MONTH PERIODS ENDED APRIL 30, 2003 AND 2002
- --------------------------------------------------------------------------------
The live racing season at Scioto Downs annually falls within the
third and fourth quarters, ending in September. The Company also
conducts year-round simulcasing.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Scioto Downs' discussion and analysis of its financial condition
and results of operations are based upon Scioto Downs'
consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial
statements requires Scioto Downs to make estimates and judgments
that affect the reported amounts of assets, liabilities, revenues
and expenses, and related disclosure of contingent assets and
liabilities. On an ongoing basis, Scioto Downs evaluates its
estimates, including those related to unclaimed purses, unclaimed
winning tickets, bad debts, intangible assets, income taxes,
pensions and other postretirement benefits, and contingencies and
litigation. Scioto Downs bases its estimates on historical
experience and on various other assumptions that are believed to
be reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying values of
assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates under
different assumptions or conditions.
Scioto Downs believes the following critical accounting policies
affect its more significant judgments and estimates used in the
preparation of its consolidated financial statements. Scioto
Downs records a valuation allowance to reduce its deferred tax
assets to the amount that is more likely than not to be realized.
While Scioto Downs has considered future taxable income and
ongoing prudent and feasible tax planning strategies in assessing
the need for the valuation allowance, in the event that the
Company were to determine that it would be able to realize its
deferred tax assets in the future in excess of its net recorded
amount, an adjustment to the deferred tax asset would increase
income in the period such determination was made.
The Company sponsors a defined benefit plan. Accounting for this
plan requires the Company to make certain assumptions regarding
the discount rate, expected rate of return on plan assets, and
mortality. Actual rates could differ from those estimated by
management and have a material effect on financial statements.
The Company evaluates the recoverability of long-lived assets
whenever events or changes in circumstances indicate that the
carrying value of the assets may not be recoverable. The assets
are reduced to net realizable value based on several factors
including management's plans for future operations, recent
operating results and projected cash flows. These projected cash
flows include assumptions related to future results of operations
and market conditions, and could be materially affected by
changes in assumptions and conditions.
-12-
SCIOTO DOWNS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE-MONTH AND SIX-MONTH PERIODS ENDED APRIL 30, 2003 AND 2002
- --------------------------------------------------------------------------------
THREE MONTHS ENDED APRIL 30, 2003 COMPARED TO THREE MONTHS ENDED
APRIL 30, 2002
Year-round simulcasting for the quarter ended April 30, 2003
resulted in a decrease of $256,699 in pari-mutuel commissions and
breakage as compared to 2002 due to the decrease in wagering
dollars of $861,052 or 7.5%. We believe this decrease was
attributable to the continued general decline in pari-mutuel
wagering across the state of Ohio, the current economy and the
weather in the month of February.
Other operating revenues increased by $140,815 or 112.9%. The
increase was partly due to the track being open for winter
training, which provided rental income of $50,280 for the quarter
ended April 30, 2003. On February 1, 2003, the Company took over
the operation of food concessions. The operation of concessions
resulted in revenue of $104,566. Expenses from the operation of
concessions totaled $118,671 and are included in other operating
and general expenses. Income from ATM machines increased by
$10,820. These increases were offset by a loss of other rental
income of $24,851.
Salaries and wages decreased by $29,317 to $412,640 for the three
months ended April 30, 2003 from $441,957 for the three months
ended April 30, 2002. The decrease was due primarily to a
reduction in mutuel clerk hours and reduction in headcount.
Insurance expense increased $70,236 for the three months ended
April 30, 2003 due to the increase in general insurance rates
over the prior year. Operating and general expenses increased by
$168,785 due mainly to the operation of food concessions of
$118,671, increases in utility costs, legal fees and winter
training expenses. There were reductions in advertising and tote
rental fees as the Company continued to implement expense
reduction strategies. Interest expense for the period declined as
a result of lower average borrowings during the second quarter of
2003.
Simulcasting fees decreased $44,709 to $321,367 for the three
months ended April 30, 2003 from $366,076 for the three months
ended April 30, 2002. This reduction was due to lower handle.
Purse expense during the three months ended April 30, 2003 and
2002 represents payments to the simulcast purse fund as required
by the Ohio Racing Commission. Payments are based upon simulcast
handle on dark days and are lower as a result of decreased
handle.
-13-
SCIOTO DOWNS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE-MONTH AND SIX-MONTH PERIODS ENDED APRIL 30, 2003 AND 2002
- --------------------------------------------------------------------------------
SIX MONTHS ENDED APRIL 30, 2003 COMPARED TO SIX MONTHS ENDED
APRIL 30, 2002
Year-round simulcasting for the six months ended April 30, 2003
resulted in a decrease of $268,759 in pari-mutuel commissions and
breakage as compared to the same period in 2002 due to a decrease
in wagering dollars of $1,501,495 or 7.2%. We believe this
decrease is due to the current economy, the continued decline in
pari-mutuel wagering in Ohio and the harsh weather in December,
January and February.
Other operating revenues increased by $176,269 or 68.3%. The
increase is due primarily to the operation of food concessions by
the Company from February 1, 2003, which resulted in revenue of
$104,566 for the six months ended April 30, 2003. The increase
was also attributable to the track being open for winter
training, which provided rental income of $91,592 and an increase
in ATM fee income of $13,200. These increases were offset by a
loss of other rental income of $33,089.
Salaries and wages decreased by $45,569 to $841,244 for the six
months ended April 30, 2003. This decrease was due to a decrease
in mutuel clerk hours and a decrease in headcount. Insurance
expense increased by $116,807 for the six months ended April 30,
2003 due to an increase in general insurance rates. Operating and
general expenses increased by $220,319 due to the operation of
food concessions of $118,671 and increases in utility costs,
legal fees and winter training expenses. There were reductions in
advertising and tote rental fees as the Company continued to
implement expense reduction strategies. Interest expense for the
period declined as a result of the line of credit being paid off
and a reduction in interest bearing debt.
Simulcasting fees decreased $69,361 to $602,988 for the six
months ended April 30, 2003. This reduction was due to lower
handle. Purse expense for the six months ended April 30, 2003
declined by $100,419 due to lower handle. This purse expense
represents payments made to the state simulcast purse fund as
required by the Ohio Racing Commission. Payments are based upon
simulcast handle on dark days.
LIQUIDITY AND CAPITAL RESOURCES
Scioto Downs' cash and cash equivalents increased to $390,940 as
of April 30, 2003 as compared to $319,484 as of October 31, 2002.
Net cash of $327,945 provided by operating activities consisted
of a net loss of $1,212,867, offset by noncash items of $279,902
and $1,260,910 provided by working capital and other activities.
Net cash provided by working capital and other activities
resulted primarily from a decrease in accounts receivable,
primarily from the dark day fund, an increase in accounts
payable, purses payable and simulcast liabilities, and an
increase in deferred revenue.
Net cash used in investing activities was $1,069,745 for the six
months ended April 30, 2003, resulting primarily from the net
receipt of restricted cash of $1,030,307 from the dark day fund,
and a $24,000 payment to Mifflin Meadows Off-Track Betting Parlor
that released the Company from its obligation related to this
investment.
-14-
SCIOTO DOWNS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE-MONTH AND SIX-MONTH PERIODS ENDED APRIL 30, 2003 AND 2002
- --------------------------------------------------------------------------------
Net cash provided by financing activities of $813,256 consisted
primarily of proceeds from the MTR borrowing of $1,000,000 in
accordance with the terms of the proposed merger agreement,
off-set by payments on term debt.
During January 2003, the Company paid the outstanding balance
under the line of credit of $110,000. Further availability under
the line was terminated by the lender.
Management reviewed all operating costs and took steps to reduce
expenses through cost containment, reductions in expenditures and
renegotiation of agreements with vendors. Management also
explored ways in which to utilize its facilities to earn
additional revenue from sources other than harness horseracing.
Even after management's initiatives, business has continued to
decline, resulting in operating losses during the fiscal year
2002 live racing season which continued into our first and second
quarters of 2003. As a result, management has been considering
alternative options for liquidity and is pursuing a potential
disposition of the business.
At this time, it is uncertain that the Company will be able to
continue as a going concern. The financial statements, however,
have not been adjusted to account for the entity on other than a
going concern basis.
On December 23, 2002, the Company entered into an agreement and
plan of merger (the Merger Agreement) with MTR Gaming Group, Inc.
(MTR), pursuant to which the Company will become a wholly owned
subsidiary of MTR. The Merger Agreement provides that each
stockholder of the Company may elect to receive $32 in cash for
each share of the Company's common stock owned by the
stockholder. Alternatively, each stockholder may elect to receive
an amount equal to $17 per share plus 10 annual earnout payments
subject to the conditions set forth in the Merger Agreement.
Consummation of the transaction is subject to the approval by the
stockholders of the Company and the attainment of necessary
regulatory approvals. Pursuant to the terms of the Merger
Agreement, MTR completed its due diligence review of the Company.
On May 13, 2003, the Company and MTR filed a Joint Proxy
Statement - Prospectus with the Securities and Exchange
Commission, indicating their intent to proceed with the merger,
subject to the terms and conditions in the Merger Agreement.
On December 24, 2002, the Company received a $1,000,000 payment
from MTR to be used for the business improvement purposes set
forth in the Merger Agreement. If the Merger Agreement is
terminated pursuant to its terms, the $1,000,000 amount shall be
deemed a loan to be repaid by the Company to MTR on December 23,
2005 and shall bear interest at a rate equal to MTR's cost of
borrowing as may vary from time to time. In such case, interest
will accrue from the date of termination of the Merger Agrement.
The loan will be collateralized by the Company's real and
personal property (junior only to liens of record on December 23,
2002). The $1,000,000 is included in notes payable in the
consolidated balance sheet of the Company at April 30, 2003.
-15-
SCIOTO DOWNS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE-MONTH AND SIX-MONTH PERIODS ENDED APRIL 30, 2003 AND 2002
- --------------------------------------------------------------------------------
On May 5, 2003, the Company and MTR entered into a Management
Agreement pursuant to which the Company engaged MTR as the
exclusive manager, subject to certain limitations and terms set
forth in the Management Agreement, of the racing business,
simulcast business, food service business, any future gaming
business and all other businesses of the Company presently
conducted or which may be conducted in the future at or with
respect to the Company's facilities (the Managed Businesses).
MTR's term as the manager under the Management Agreement is for a
five-year period (subject to certain early termination
provisions) commencing on May 5, 2003. During the term of the
Management Agreement, the Company will pay MTR a management fee
consisting of (a) 3% of all the revenues derived from the Managed
Businesses, and (b) 8% of the EBITDA derived from the Managed
Businesses. The management fee will accrue and will not be
payable until May 5, 2004.
On May 5, 2003, MTR agreed to lend the Company up to an
additional $1,000,000 subject to the terms and conditions of the
Management Agreement (and a Promissory Note, Loan Agreement and
Mortgage also dated May 5, 2003). Unless accelerated on an
earlier date, the entire balance of principal loaned, and all
interest owed on that Loan, shall become due and payable on
December 31, 2003. Interest payable by the Company shall accrue
at the rate equal to the rate of interest that would be paid by
MTR pursuant to its credit agreement with its lenders. During May
and June 2003, the Company borrowed $602,000 under this
Agreement.
If the transaction takes place this will provide liquidity to the
operations subject to MTR's willingness and ability to continue
to fund operations. However, failure to consummate the
transaction will make the ability to repay the loans and to
continue future operations uncertain.
On May 5, 2003, the Company entered into an Amendment to the
Merger Agreement. In accordance with the Amendment, the Company
agrees to pay MTR a Break Up Fee of $1,900,000 within two
business days of the termination of the agreement if (a) MTR
terminates the acquisition pursuant to certain terms of the
merger Agreement, or (b) prior to the time of the shareholder
meeting, (i) a proposal by a third party relating to an
acquisition transaction had been publicly proposed or publicly
announced, and (ii) on or prior to the one-year anniversary of
the termination of the Merger Agreement, the Company or any of
its subsidiaries or affiliates enters into an agreement or letter
of intent (or resolves or announces an intention to do so) with
respect to an acquisition transaction involving a person, entity
or group if such person, entity or group (including any of its
members or affiliates) made a proposal with respect to an
acquisition transaction on or after May 5, 2003 and prior to the
shareholder meeting, and (iii) such acquisition transaction is
consummated.
Management's plan in 2003 is to continue with year-round
simulcasting. On January 1, 2002, an agreement with Beulah Park
went into effect that reduces the number of hours both tracks
compete against each other for simulcasting revenues. This
agreement has been renewed for 2003. The desired result is a
reduction in overhead and an increase in revenue.
-16-
SCIOTO DOWNS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE-MONTH AND SIX-MONTH PERIODS ENDED APRIL 30, 2003 AND 2002
- --------------------------------------------------------------------------------
The Company and MARA participate in a multiple-employer pension
plan. As a result of the proposed merger with MTR, the Company
and MARA agreed to separate the plan. The separation will be
affected pursuant to statutory requirements for the allocation of
the assets and liabilities to the Company and MARA. The effective
date of this separation was June 1, 2003.
The Company has off balance sheet financing in the form of lease
obligations expiring through December 2005. The following
represents the minimum future operating lease payments for these
commitments, as well as the aggregate maturities for all of the
Company's debt as of April 30, 2003.
PARI-MUTUEL
TERM NOTE OPERATING EQUIPMENT
DEBT PAYABLE LEASES LEASE TOTAL
---------- ---------- --------- ----------- ----------
2003 $ 213,534 $ -- $ 40,336 $ 57,000 $ 310,870
2004 170,662 -- 14,424 57,000 242,086
2005 184,284 1,000,000 14,424 57,000 1,255,708
2006 200,853 -- 2,404 57,000 260,257
2007 217,190 -- -- -- 217,190
Thereafter 1,614,423 -- -- -- 1,614,423
---------- ---------- -------- ---------- ----------
$2,600,946 $1,000,000 $ 71,588 $ 228,000 $3,900,534
---------- ---------- -------- ---------- ----------
The Company's payments for the lease of pari-mutuel equipment is
based on a fixed rental fee for various equipment, a variable fee
per live racing and simulcast program events, and a variable fee
based on program wagers. The table above reflects the Company's
minimum obligation for the lease of pari-mutuel equipment, based
on the number of live racing days approved by the Ohio Racing
Commission.
RECENT ACCOUNTING PRONOUNCEMENT
In January 2003, the FASB issued FASB Interpretation No. 46 (FIN
46), Consolidation of Variable Interest Entities. FIN 46
clarifies the application of Accounting Research Bulletin No. 51,
Consolidated Financial Statements, to certain entities in which
equity investors do not have the characteristics of a controlling
financial interest or do not have sufficient equity at risk for
the entity to finance its activities without additional
subordinated financial support from other parties. FIN 46 will
require disclosures regarding ownership interests in variable
interest entities. This interpretation applies immediately to
variable interest entities created after January 31, 2003, and to
variable interest entities in which an enterprise obtains an
interest after that date. It applies in the first fiscal year or
interim period beginning after June 15, 2003, to variable
interest entities in which an enterprise holds a variable
interest that it acquired before February 1, 2003. The Company
does not anticipate having to make additional disclosures as a
result of FIN 46.
-17-
SCIOTO DOWNS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE-MONTH AND SIX-MONTH PERIODS ENDED APRIL 30, 2003 AND 2002
- --------------------------------------------------------------------------------
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
In order to ensure that the information that must be disclosed in
filings with the Securities and Exchange Commission is recorded,
processed, summarized and reported in a timely manner, the
Company does have disclosure controls and procedures in place.
The Chief Executive Officer and Chief Financial Officer have
reviewed and evaluated disclosure controls and procedures within
90 days of the filing of this Form 10-Q, and have concluded that
such controls and procedures are appropriate, and that no changes
are needed. There have been no significant changes in internal
controls, the business, or other factors that could adversely
affect internal controls since the date of the evaluation.
-18-
SCIOTO DOWNS, INC.
OTHER INFORMATION
- --------------------------------------------------------------------------------
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) Exhibits: See attached index (following the signature page)
(b) Reports on Form 8-K--No reports on Form 8-K were filed
during the quarter ended April 30, 2003
-19-
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.
SCIOTO DOWNS, INC.
------------------------------------
Registrant
DATE: June 16, 2003 BY: /s/ Edward T. Ryan
------------------------- ---------------------------------
Edward T. Ryan, President
DATE: June 16, 2003 BY: /s/ Richard J. Fiore
------------------------- ---------------------------------
Richard J. Fiore
Chief Financial Officer
-20-
CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Edward T. Ryan, President of Scioto Downs, Inc., certify that:
1. I have reviewed this report on Form 10-Q of Scioto Downs, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report.
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls (as defined in Exchange Act
Rules 13a - 14 and 15d -14) and procedures for the issuer and have:
(i) Designed such disclosure controls and procedures to ensure that material
information relating to the issuer, including its consolidated subsidiaries, is
made known to them by others within those entities, particularly during the
period in which the periodic reports are being prepared;
(ii) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of the report
(the Evaluation Date); and
(iii) Presented in the report our conclusions about the effectiveness of the
disclosure controls and procedures based on our evaluation as of the Evaluation
Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
the registrant's board of directors (or persons fulfilling the equivalent
function):
(i) All significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
(ii) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this report
whether or not there were significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: June 16, 2003
/s/ Edward T. Ryan
--------------
President
-21-
CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Richard J. Fiore, Chief Financial Officer of Scioto Downs, Inc., certify
that:
1. I have reviewed this report on Form 10-Q of Scioto Downs, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report.
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls (as defined in Exchange Act
Rules 13a - 14 and 15d -14) and procedures for the issuer and have:
(i) Designed such disclosure controls and procedures to ensure that material
information relating to the issuer, including its consolidated subsidiaries, is
made known to them by others within those entities, particularly during the
period in which the periodic reports are being prepared;
(ii) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of the report
(the Evaluation Date); and
(iii) Presented in the report our conclusions about the effectiveness of the
disclosure controls and procedures based on our evaluation as of the Evaluation
Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
the registrant's board of directors (or persons fulfilling the equivalent
function):
(i) All significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
(ii) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
(6) The registrant's other certifying officer and I have indicated in this
report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: June 16, 2003
/s/ Richard J. Fiore
-----------------------
Chief Financial Officer
-22-
INDEX TO EXHIBITS
Exhibit No. Description Location
- ----------- ----------- --------
2.1 Amendment No. 1 to Agreement and Plan of Merger Filed herewith
2.2 Amendment No. 2 to Agreement and Plan of Merger Filed herewith
10.1 Management Agreement Filed herewith
10.2 Exclusive Option to Purchase Real Estate Agreement Filed herewith
10.3 Open end Mortgage, Security Agreement and Financing Filed herewith
Statement
10.4 Loan Agreement Filed herewith
10.5 Promissory Note Filed herewith
99.1 Sarbanes Oxley Certification of Chief Executive Filed herewith
Officer and Chief Financial Officer
-23-