FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995 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 0-9624
International Thoroughbred Breeders, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
22-2332039
(I.R.S. Employer Identification No.)
P.O. Box 1232, Cherry Hill, New Jersey 08034
(Address of principal executive offices,Zip Code)
(609) 488-3838
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last
report.)
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 last 90 days.
Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the close of the latest practicable date.
Class Outstanding at May 5, 1995
Common Stock, $ 2.00 par value 9,551,366
<TABLE>
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1995 AND JUNE 30, 1994
ASSETS
<CAPTION>
March 31,
1995 June 30,
(UNAUDITED) 1994
CURRENT ASSETS:
<S> <C> <C> <C> <C>
Cash $ 4,071,647 $ 2,683,361
Short-Term Investments 8,530,437 13,392,730
TOTAL CASH AND CASH EQUIVALENTS 12,602,084 16,076,091
Restricted Cash and Investments 1,928,856 2,690,072
Accounts Receivable - Net 3,302,675 937,921
Prepaid Expenses 513,326 907,654
Accrued Interest Receivable 286 44,439
Other Current Assets 16,991 7,703
TOTAL CURRENT ASSETS 18,364,218 20,663,880
LAND, BUILDINGS, EQUIPMENT AND LIVESTOCK:
Land and Buildings 73,988,771 52,133,715
Equipment 3,534,692 1,800,630
Livestock 17,517 187,951
TOTAL LAND, BUILDINGS, EQUIPMENT
AND LIVESTOCK 77,540,980 54,122,296
LESS: Accumulated Depreciation 1,253,798 801,031
TOTAL LAND, BUILDINGS, EQUIPMENT
AND LIVESTOCK - NET 76,287,182 53,321,265
OTHER ASSETS:
Deposits and Other Assets 271,648 448,266
Goodwill - Net 3,293,305 0
TOTAL OTHER ASSETS 3,564,953 448,266
TOTAL ASSETS $ 98,216,353 $ 74,433,411
</TABLE>
See Notes to Financial Statements.
<TABLE>
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1995 AND JUNE 30, 1994
LIABILITIES AND SHAREHOLDERS' EQUITY
<CAPTION>
March 31, June 30,
1995 1994
(UNAUDITED)
CURRENT LIABILITIES:
<S> <C> <C> <C> <C>
Accounts Payable and Accrued Expenses $ 9,428,084 $ 3,866,043
Notes and Mortgages Payable - Current Portion 1,356,399 40,000
State Income Taxes Payable 30,000 0
TOTAL CURRENT LIABILITIES 10,814,483 3,906,043
DEFERRED INCOME 663,452 719,383
NOTES AND MORTGAGES PAYABLE - LONG TERM 15,808,197 0
COMMITMENTS AND CONTINGENCIES 0 0
SHAREHOLDERS' EQUITY:
Series A (Convertible) Preferred Stock $100.00 Par Value,
Authorized 500,000 Shares, Issued and Outstanding,
362,449 and 362,443 Shares, Respectively 36,244,875 36,244,275
Common Stock $2.00 Par Value, Authorized 25,000,000 Shares,
Issued and Outstanding, 9,551,353 and 9,551,255 Shares,
Respectively 19,102,705 19,102,509
Capital in Excess of Par 11,959,809 11,960,605
Retained Earnings (subsequent to June 30, 1993, date of quasi-
reorganization, total deficit eliminated $102,729,936) 3,622,832 2,500,596
TOTAL SHAREHOLDERS' EQUITY 70,930,221 69,807,985
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 98,216,353 $ 74,433,411
See Notes to Financial Statements.
</TABLE>
<TABLE>
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 1995 AND 1994
(UNAUDITED)
<CAPTION>
Three Months End Three Months End
March 31, March 31,
1995 1994
REVENUES:
<S> <C><C> <C> <C>
Revenue from Operations $ 21,527,590 $ 8,628,778
Investment Income Revenue 289,893 100,685
TOTAL REVENUES 21,817,483 8,729,463
EXPENSES:
Cost of Revenues 7,540,982 2,596,822
Operating Expenses 11,281,404 5,839,369
Depreciation & Amortization 329,972 133,842
General & Administrative Expenses 1,746,495 1,032,627
Interest Expense 200,870 0
TOTAL EXPENSES 21,099,723 9,602,660
INCOME(LOSS) FROM OPERATIONS
BEFORE TAXES 717,760 (873,197)
LESS: Income Tax Expense 0 0
NET INCOME(LOSS) $ 717,760 $ (873,197)
NET INCOME(LOSS) PER SHARE $ 0.08 $ (0.09)
Nine Months End Nine Months E
March 31, March 31,
1995 1994
REVENUES:
Revenue from Operations $ 39,138,418 $ 27,372,431
Investment Income Revenue 992,596 1,460,273
TOTAL REVENUES 40,131,014 28,832,704
EXPENSES:
Cost of Revenues 12,054,319 7,333,826
Operating Expenses 21,581,419 16,076,327
Depreciation & Amortization 616,458 406,767
General & Administrative Expenses 4,555,711 3,515,330
Interest Expense 200,870 0
TOTAL EXPENSES 39,008,777 27,332,250
INCOME(LOSS) FROM OPERATIONS
BEFORE TAXES 1,122,236 1,500,454
LESS: Income Tax Expense 0 0
NET INCOME(LOSS) $ 1,122,236 $ 1,500,454
NET INCOME(LOSS) PER SHARE $ 0.12 $ 0.16
</TABLE>
See Notes to Financial Statements.
<TABLE>
INTERNATIONAL THOROUGHBRED BREEDERS, INC
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED MARCH 31, 1995 AND 1994
(UNAUDITED)
<CAPTION>
Nine Nine
Months Ended Months Ended
March 31, March 31,
1995 1994
INCREASE(DECREASE) IN CASH AND CASH EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C><C> <C> <C>
Cash Received from Customers $ 37,891,360 $ 26,372,439
Cash Paid to Suppliers and Employees (36,968,192) (27,010,330)
Interest Received 495,335 301,132
Interest Paid (75,870) 0
Cash Received from Sale of Trading Securities 541,414 1,125,000
Change in Restricted Cash & Investments 761,216 854,633
NET CASH PROVIDED BY OPERATIONS 2,645,263 1,642,874
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Sale of Livestock 178,359 469,364
Proceeds from Sale of Equipment 8,500 67,000
Restructure of Freehold Debt - Net (2,584,549) 0
Purchase Freehold Racetrack - Net of Cash Receiv (2,679,151) 0
Capital Expenditures (564,673) (738,089)
(Increase)Decrease in Other Investment Activity (166,305) (11,762)
NET CASH USED BY INVESTING ACTIVITIES (5,807,819) (213,487)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal Payments on Long Term Notes (311,451) (35,418)
NET CASH USED BY FINANCING ACTIVITIES (311,451) (35,418)
NET INCREASE(DECREASE) IN CASH AND CASH EQUIVALENTS (3,474,007) 1,393,969
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 16,076,091 15,337,655
CASH AND CASH EQUIVALENTS AT
END OF THE PERIOD $ 12,602,084 $ 16,731,624
</TABLE>
See Notes to Financial Statements.
<TABLE>
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED MARCH 31, 1995
(UNAUDITED)
<CAPTION>
Common
Number of
Shares Amount
<S> <C> <C><C> <C>
BALANCE - JUNE 30, 1994 9,551,255 $ 19,102,509
Shares Issued for Fractional Exchanges With Respect to the
One-for-twenty Reverse Stock Split effected
on March 13, 1992 98 196
Net Income for the Nine Months Ended March 31, 1995 --- ---
BALANCE - MARCH 31, 1995 9,551,353 $ 19,102,705
Preferred
Number of
Shares Amount
BALANCE - JUNE 30, 1994 362,443 $ 36,244,275
Shares Issued for Fractional Exchanges With Respect to the
One-for-twenty Reverse Stock Split effected
on March 13, 1992 6 600
Net Income for the Nine Months Ended March 31, 1995 --- ---
BALANCE - MARCH 31, 1995 362,449 $ 36,244,875
Capital
in Excess Retained
of Par Earnings Total
BALANCE - JUNE 30, 1994 $ 11,960,605 $ 2,500,596 $69,807,985
Shares Issued for Fractional Exchanges With Respect to the
One-for-twenty Reverse Stock Split effected
on March 13, 1992 (796) --- ---
Net Income for the Nine Months Ended March 31, 1995 --- 1,122,236 1,122,236
BALANCE - MARCH 31, 1995 $ 11,959,809 $ 3,622,832 $70,930,221
</TABLE>
See Notes to Financial Statements.
<PAGE>
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(1) STOCK PURCHASE OF FREEHOLD RACEWAY
On February 2, 1995, ITB completed the purchase of all of the
outstanding stock of Freehold Racing Association, Inc. ("FRA") and Atlantic
City Harness, Inc., ("ACH") the operating companies of Freehold Raceway, and
CIRCA 1850, Inc., a small real estate holding company, (herein and after
collectively referred to as Freehold Raceway) from an unrelated party. FRA
and ACH will continue to hold the racing permits and conduct the racing
programs at Freehold Raceway.
The purchase price of the stock was $17.8 million with approximately
$5.3 million paid in cash (exclusive of final adjustments) and the balance
financed by an eight year, $12.5 million note at eighty percent of the
prevailing prime rate, not to exceed six percent. The note is secured by a
mortgage on the land and buildings at Freehold Raceway and other collateral
including 2,000,000 shares of ITB's Common Stock pledged by ITB's principal
stockholder. (See Note 2-A) The transaction, completed on February 2, 1995,
was effective as of January 1, 1995.
At closing, $5.2 million of debt was retired with ITB and the seller
each advancing to FRA approximately $2.6 million. The seller and ITB received
from FRA promissory notes evidencing the indebtedness secured by the same
collateral securing the above described $12.5 million note. (See Note 2-B)
Freehold Raceway, located in the western Monmouth county portion of New
Jersey, is the nation's oldest harness track. It is unique in that it
operates the only extended daytime harness pari-mutuel facility in the
country. FRA and ACH will race 208 days in 1995, as previously approved by
the New Jersey Racing Commission. The current meet, which began on January 1,
will continue through May 29 followed by the next meet which will operate from
August 17 through December 30. Additionally, the track hosts full-card
simulcast betting on thoroughbred and harness racing from numerous tracks
throughout the country.
Goodwill is the excess of the cost of acquired net assets over their
fair value. It is being amortizes over 30 years under the straight line
method. Accumulated amortization at March 31, 1995 is $25,824.
The following unaudited pro forma combined results of operations account
for the acquisition as if it had occurred on July 1, 1993. The pro forma
results give effect to depreciation of fixed assets purchased, amortization of
goodwill, and interest expense.
<TABLE>
COMPARATIVE KEY LINE AMOUNTS FOR 1995 AND 1994 ARE AS FOLLOWS:
Pro Forma Combined Results of Operations For The Nine Months Ended March 31,
1995 1994
<CAPTION>
<S> <C> <C>
Total Revenues $55,572,041 $58,972,838
Net Earnings (Loss) 2,738,983 3,201,939
Net Earnings (Loss)
Per Common Share $0.29 $0.34
Weighted Average Number of
Shares Outstanding 9,551,325 9,509,401
</TABLE>
These pro forma amounts may not be indicative of results that actually
would have occurred if the combination had been in effect on the dates
indicated or which may be obtained in the future.
(2) NOTES AND MORTGAGES PAYABLE
( A ) On February 2, 1995, the Company entered into an agreement whereby
the $12.5 million balance of the purchase price of the Freehold Raceway (See
Note 1) was financed by an eight year promissory note at 80% of the prevailing
prime rate, adjusted on each anniversary date, not to exceed 6%. Yearly
principal and interest payments during the first five (5) years commencing
January 31, 1996 shall be paid based upon a twenty (20) year principal
amortization schedule. During each of the next three (3) years, commencing
January 21, 2001, yearly principal and interest payments shall be based upon a
ten (10) year amortization schedule. On December 31, 2003, the entire unpaid
principal balance, together with any accrued interest, becomes due and
payable. At January 31, 1995, the prime rate was 8.5%, therefore interest due
on the note for the first year shall be calculated at 6%. The note is secured
by a mortgage on the land and buildings at Freehold Raceway and other
collateral. At March 31, 1995, $625,000 of the principal balance was
classified as short term and $11,875,000 was classified as long term.
( B ) On February 2, 1995, the Company and the seller of FRA each
advanced to FRA $2,584,549 to retire the $5.2 million existing debt on FRA.
The seller and ITB received from FRA promissory notes evidencing the
indebtedness secured by mortgages on the racetrack property and other
collateral. Equal monthly principal installments of $18,750 beginning on
March 1, 1995 shall be paid to the seller together with accrued interest.
Interest shall be calculated at 80% of the prime rate at January 31 of each
year. The first year interest payments shall be calculated at 6.8%. At March
31, 1995, $225,000 of the principal balance was classified as short term and
$2,322,049 was classified as long term.
( C ) On August 24, 1994, FRA renewed a two (2) year note payable to
Marine Midland Bank in the amount of $2,345,000. Twenty three principal
payments of $40,000 are to be paid monthly together with interest calculated
at the prime rate computed on the basis of a 360 day year for the actual
number of days elapsed. On August 20, 1996, the entire unpaid principal
balance, together with any accrued interest, becomes due and payable. At
March 31, 1995, $480,000 of the principal balance was classified as short term
and $1,565,000 was classified as long term.
Notes and Mortgages Payable are summarized below:
<TABLE>
March 31, 1995
Interest % Current Long-Term
<CAPTION>
<S> <C> <C> <C>
Freehold Raceway:
Mortgage (A) 80% of Prime $625,000 $11,875,000
(Not to exceed 6%)
Mortgage (B) 80% of Prime 225,000 2,322,049
Note ( C ) Prime 480,000 1,565,000
Notes-Other Various 11,399 46,148
Garden State Park:
Note N/A 15,000 0
Totals $1,356,399 $15,808,197
</TABLE>
(3) INTEREST EXPENSE
Garden State Park Racetrack, Inc. and Freehold Raceway are wholly owned
subsidiaries of the parent company, International Thoroughbred Breeders, Inc.
All interest expense of the subsidiaries is considered expense of the parent
company. The parent company is due interest on funds it has advanced to
Garden State Park for the purchase, construction and equipping of the
racetrack and funding its operations as needed. As of March 31, 1995, such
advances totaled $8,206,432 to Freehold Raceway and $144,338,901 to Garden
State Park, the latter being in addition to initial capitalization of
$86,130,000 provided by the net proceeds of the Company's preferred stock
offering in July, 1983. The interest owed to the parent company for the three
and nine months ended March 31, 1995 by Garden State Park and Freehold Raceway
on a combined basis was $3,320,473 and $8,831,290, respectively. The interest
on these advances is computed at an average prime lending rate between 7.25%
and 9.00% during the periods.
(4) INCOME TAX EXPENSE
Effective July 1, 1993, the Company adopted the provisions of Statement
of Financial Standards (SFAS) No. 109, Accounting for Income Taxes. This
Statement requires that deferred income taxes reflect the tax consequences on
future years of differences between the tax bases of assets and liabilities
and their financial reporting amounts. The effect of adoption of this
Statement on current and prior financial statements is immaterial. No
provision for income taxes has been made for the nine month period ended March
31, 1995, as the Company is in a net operating loss carryforward position for
tax purposes.
When the Company incurs income taxes in the future, any future income
tax benefits resulting from the utilization of net operating losses and other
carryforwards existing at June 30, 1993 to the extent resulting from the
quasi-reorganization, will be excluded from the results of operations and
credited to paid in capital.
The Company has a net operating loss carryforward of approximately
$160,000,000 at March 31, 1995, expiring in the years after June 30, 2001
through June 30, 2009. SFAS No. 109 requires the establishment of a deferred
tax asset for all deductible temporary differences and operating loss
carryforwards. Because of the uncertainty that the Company will generate
income in the future sufficient to fully or partially utilize these
carryforwards, however, any deferred tax asset is offset by an allowance of
the same amount pursuant to SFAS No. 109. Accordingly, no deferred tax asset
is reflected in these financial statements.
(5) COMMITMENTS AND CONTINGENCIES
The Company announced on March 22, 1994, an offer to purchase The
Meadowlands Sports Complex and Monmouth Park for $1 Billion from the New
Jersey Sports and Exposition Authority ("NJSEA"). An alternative offer also
was made to purchase Monmouth Park and The Meadowlands Race Track improvements
for $125 million and to enter into a long-term lease for the Meadowlands Race
Track for $50 million per year. The offer is subject, among other conditions,
to adoption by the voters of the State of New Jersey of an appropriate
constitutional amendment authorizing the casino gaming at the Meadowlands and
Garden State Park racetracks. ITB acquired options to purchase Atlantic City
Race Course and Freehold Raceway. The option on the Atlantic City Race Course
was allowed to expire on March 18, 1995 and there are no plans presently
contemplated with regard to renegotiating the option. The option to purchase
Freehold Raceway was exercised on December 13, 1994 (See Note 1). Assuming
acceptance of the Company's offer by the NJSEA, and the adoption of the said
constitutional amendment, the Company proposes to construct interactive gaming
complexes that combine racing, casino gaming and entertainment on land
presently used to stable and train horses at The Meadowlands and Garden State
Park. The ITB offer proposes that up to 12 casinos be constructed and
operated in the current stable area of each racetrack. The existing
operating, licensed casino owners/operators in Atlantic City, New Jersey would
be offered the opportunity to own and operate all of those casinos with the
Company paid rent by the casino operators. The plan does provide that tracks
can operate casinos within racetrack structures. Monmouth Park would serve as
the backstretch and training centers for The Meadowlands and Garden State
Park.
The Company formed a wholly owned subsidiary, International Thoroughbred
Gaming Development Corporation (ITG), which is responsible for implementing
the above project and developing other casino gaming business opportunities.
In addition to the funds expended during the last fiscal year the Company is
committed to approximately $1,000,000 in expenses, of which $760,000 has been
recognized during the first nine months of the 1995 fiscal year, related to
the development of the above described project and other casino gaming
business opportunities. The Company's financial commitment could increase if
circumstances warrant.
No assurances can be given that the Company's offer will be accepted or
that the constitutional amendment will be placed on the ballot or adopted.
Furthermore, even assuming such acceptance and adoption, no assurance can be
given that the Company will be able to obtain the required financing.
On August 16, 1986, a putative "class action" was filed against the
Company, its Garden State Race Track, Inc. subsidiary, First Jersey
Securities, Inc. ("First Jersey"), two other broker-dealers, Robert E.
Brennan, the Company's Chairman of the Board and principal stockholder, and
ten other present and former directors of the Company alleging various
violations of federal securities laws and other statutes. On July 8, 1987,
another putative "class action" was filed against the Company, First Jersey,
another broker-dealer, Robert E. Brennan, and six other present and former
directors of the Company alleging various violations of federal securities
laws and other statutes. During fiscal 1988, based upon a change of venue
motion which had been filed by the Company, the U.S. District Court
transferred both cases from the Southern District of New York to the District
of New Jersey. On June 7, 1988 a consolidated amended complaint was filed by
the plaintiffs in the two putative "class action" suits described above in
federal court in Trenton. This complaint was substantially similar to the
original suits filed separately except to name eleven current and former
directors as defendants. On July 27, 1989, based upon motions which had been
filed by the Company, the United States District Court, District of New Jersey
dismissed several, but not all, of the claims and allegations contained in the
consolidated amended complaint. On October 20, 1993, the United States
District Court for the District of New Jersey signed an order granting
preliminary approval to a proposed partial settlement of the claims. Although
the Company believes this lawsuit is totally without merit, it has incurred
approximately $1,150,000 in legal expense in defending against the lawsuit and
would have been required to expend significant additional amounts to continue
the defense through trial. In order to avoid further expense, inconvenience
and delay and to dispose of this expensive, burdensome and protracted
litigation, the Company executed a proposed partial Settlement Agreement. The
proposed partial settlement required the Company to make a $250,000
settlement payment and an additional payment of up to $150,000 contingent upon
receipt of future amounts by the Company from its sale of the Philadelphia
Park mortgage note. The settlement would dispose of all class claims made
against the Company, its officers and directors and all derivative claims made
on behalf of the Company against all parties in the litigation. As part of
the proposed settlement, the Company's directors and officers' liability
insurance carrier will pay $3,125,000 plus an additional $4,125,000 which
latter amount is subject to reduction on a dollar for dollar basis in the
event of collections from certain non-settling defendants or in the event of
collection of any of the above described $150,000 contingency payment (See
paragraph below). On April 12, 1994, an order was entered approving the
settlement agreement and entering a final judgement of dismissal of the
plaintiffs claims against the Company and the Director defendants in their
capacity as officers and directors of the Company. Certain non-settling
defendants appealed the order approving the settlement. On March 27, 1995,
the United States Court of Appeals for the Third Circuit affirmed the district
court's approval of the settlement.
On January 25, 1995 the Company agreed to modify certain terms of: 1)
the asset purchase agreement dated October 12, 1990 relating to the sale of
its Philadelphia Park subsidiary; and 2) the agreement whereby the Company
assigned its rights under the purchase money mortgage and note it held on
Philadelphia Park. Under the terms of this modification, the Company is
released from all liability for environmental clean-up at Philadelphia Park to
the extent that such clean-up costs exceed $370,500 (previously the Company
had been responsible for up to $3.35 million in clean-up costs). In
consideration for this release, the Company has waived its right to: 1)
certain fees that it was entitled to receive under the asset purchase
agreement based upon a percentage of Philadelphia Park's handle when operating
in competition with Garden State Park; and 2) all future contingent payments
due the Company in connection with its sale of the Philadelphia Park mortgage
note based upon possible future profitable operations of Philadelphia Park.
The Company retained the right to receive an accounting from the assignee of
the Philadelphia Park mortgage note so that the Company may determine to what
extent, if any, an amount equal to the 1994 and 1995 contingent fees are
payable under the terms of the proposed partial settlement of the putative
"class action". The assignee of the Philadelphia Park mortgage note has
provided said accountings and no contingent fees would have been due for 1994
and 1995. Consequently, no additional payments will be made in settlement of
the above-described legal action.
(6) INVESTMENT INCOME REVENUE
Investment income revenue consists primarily of gains realized on
trading securities and interest on short term cash equivalent investments.
(7) NET INCOME (LOSS) PER SHARE
Income (loss) per share for the three and nine month periods ended March
31,1995 and 1994 is computed on the weighted average number of shares
outstanding. The Convertible Preferred Stock has not been included in the
computations because the conversion period has expired. The number of shares
used in the computations were 9,551,349 and 9,551,220 for the three months
ended March 31, 1995 and 1994, respectively and for the respective nine month
periods were 9,551,325 and 9,509,401.
(8) OPINION OF MANAGEMENT
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10Q and
Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the three month
and nine month periods ended March 31, 1995 are not necessarily indicative of
the results that may be expected for the year ended June 30, 1995. The
unaudited condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and footnotes thereto
included in the Company's Form 10-K for the year ended June 30, 1994.
(9) NEW AUTHORITATIVE PRONOUNCEMENTS
Statement of Financial Accounting Standards (SFAS ) No. 114, "Accounting
by Creditors for Impairment of a Loan" is effective for fiscal years beginning
after December 15, 1994 and has been amended by SFAS No. 118, "Accounting by
Creditors for Impairment of a Loan - Income Recognition and Disclosure. The
Company does not have any loans that are subject to an impairment assessment
as defined by SFAS No. 114.
In October of 1994, the Financial Accounting Standards Board (FASB)
issued SFAS No. 119, "Disclosure about Derivative Financial Instruments and
Fair Value of Financial Instruments." While SFAS No. 119 primarily creates
new disclosure requirements for derivative financial instruments, which the
Company does not trade in at this time, the technical disclosure amendments to
SFAS No. 107 created by SFAS No. 119 will be implemented when SFAS No. 107 is
implemented.
In March of 1995, the FASB issued SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
This statement requires that long-lived assets and certain identifiable
intangible assets should be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable using estimated undiscounted cash flow techniques.
The adoption of these new accounting standards is not expected to have a
material impact on the Company's financial position or results of operations.
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
REVIEW BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
FOR THE NINE MONTHS ENDED MARCH 31, 1995 AND 1994
An independent accountant has reviewed the financial information herein
in accordance with standards established by the American Institute of
Certified Public Accountants. All adjustments and additional disclosures
proposed by said independent accountants have been reflected in the data
presented.
<PAGE>
REVIEW REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholders
International Thoroughbred Breeders, Inc.
and Subsidiaries
We have reviewed the accompanying condensed consolidated balance sheet
of International Thoroughbred Breeders, Inc., and subsidiaries as of March 31,
1995, and the related condensed consolidated statement of shareholders' equity
for the nine month period then ended, the condensed consolidated statements of
operations for the three and nine month periods ended March 31, 1995 and 1994,
and the condensed consolidated statement of cash flows for the nine month
periods ended March 31, 1995 and 1994. These financial statements are the
responsibility of the company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications
that should be made to the condensed consolidated financial statements
referred to above for them to be in conformity with generally accepted
accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet as of June 30, 1994, and
the related consolidated statements of operations, shareholders' equity, and
cash flows for the year then ended (not presented herein); and in our report
dated August 9, 1994, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth
in the accompanying condensed consolidated balance sheet as of June 30, 1994,
is fairly stated, in all material respects, in relation to the consolidated
balance sheet from which it has been derived.
MORTENSON AND ASSOCIATES, P.C.
Certified Public Accountants
Cranford, NJ
May 8, 1995
<PAGE>
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
MANAGEMENT'S ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS
FOR THE QUARTER ENDED MARCH 31, 1995
AND FOR THE NINE MONTHS ENDED MARCH 31, 1995
OPERATIONS
Total revenues for the three and nine month periods ended March 31, 1995
increased $13,088,020 and $11,298,310 respectively in comparison to the same
periods last fiscal year. These increases are primarily the result of: (1) the
purchase of Freehold Raceway, which significantly increased the racetrack
segment revenues for the comparable periods; (2) a $1,336,306 or 15% increase
in revenues generated by Garden State Park during the third quarter primarily
as a result of an increase of 14 days of live on-track racing during the 1995
fiscal quarter as compared to the comparable quarter in fiscal 1994 when
severe weather conditions caused the cancellation of 17 of the scheduled 45
race days; and (3) a decrease in activity of $549,491 associated with the
sale of trading securities which resulted in a decrease in investment income.
Total expenses for the three and nine month periods increased $11,497,065 and
$11,676,527 primarily as a result of: (1) significant additional operating
expenses during the third quarter of fiscal 1995 as a result of the purchase
of Freehold Raceway; (2) increased expenses associated with the increase in
the number of days of live on track racing at Garden State Park during the
third quarter of fiscal 1995 as compared to the comparable quarter in fiscal
1994; and (3) increased corporate expenses during comparable periods of
approximately $760,000 associated with the development of casino gaming within
racetrack structures and associated with the development of other potential
casino gaming operations, via the Company's newly established wholly owned
subsidiary, International Thoroughbred Gaming Development Corporation ("ITG").
For the third quarter of fiscal 1995, the Company realized net income
before taxes of $717,760 as compared to a net loss before taxes of $873,197
for the comparable quarter in fiscal 1994. The change of $1,590,957 from net
loss to net income for the period primarily resulted from: 1) operating income
realized by the racetrack segment as a result of the purchase of Freehold
Raceway; 2) a significant decrease in net loss for the quarter by Garden State
Park; and 3) increased costs associated with the development of casino gaming
as discussed above. For the nine month period, net income before taxes
decreased $378,218 or 25% primarily as a result of: 1) the net increased
income by the racetrack segment; reduced by 2) the increased costs associated
with casino gaming development; and 3) a decrease in investment revenue by
approximately $470,000.
Depreciation expense for the nine and three months ended March 31, 1995
was $616,458 and $329,972 as compared to $406,767 and $133,842 for the
comparable periods in the last fiscal year. The respective $209,691 and
$196,130 increases were primarily due to increased depreciation expenses
associated with the purchse of Freehold Raceway.
Management believes that the breeding operation has become insignificant
to the overall operation of the Company. The breeding operation recognized a
loss before taxes of $18,982 for the current quarter of fiscal 1995 as
compared to income of $46,129 for the comparable quarter in fiscal 1994.
Income before taxes for the breeding operation for the nine month period ended
March 31, 1995 was $14,572 as compared to $252,375 for the comparable period
in fiscal 1994.
Racetrack Operations
During the three months ended March 31, 1995, the racetrack segment
realized income of $1,329,758 before taxes; Garden State Park had a pre-tax
loss of $178,785 and for the first operating quarter during the fiscal year
under the ownership of ITB, Freehold Raceway had pre-tax income of $1,508,543.
For the nine months ended March 31, 1995, the racetrack segment realized
pre-tax income of $2,182,675 which includes Garden State Park's nine month
pre-tax income of $674,132 in addition to Freehold's first operating quarter
earnings. For purposes of segment discussion, interest expense of $200,870
for the current three month period, associated primarily with the mortgages
on Freehold Raceway, is recognized as a corporate expense, not that of the
racetrack segment.
Garden State Park:
Quarterly and year-to-date net operating income and losses at Garden
State Park for the current fiscal year as compared to the net losses for last
year are as follows:
<TABLE>
Net Income (Loss) Net Increase
Fiscal 1995 Fiscal 1994 (Decrease)
<CAPTION>
<S> <C> <C> <C>
1st Quarter $295,903 $728,745 $(432,842)
2nd Quarter 557,014 774,393 (217,379)
3rd Quarter (178,785) (820,388) 641,603
Year-to-Date $674,132 $682,731 $(8,618)
</TABLE>
During the fiscal quarter ended March 31, 1995, Garden State's revenue
increased $1,295,287 or 15% from $8,608,204 for the third quarter of fiscal
1994 to $9,903,491 for the comparable quarter in fiscal 1995, primarily
reflecting an increase of 14 live on-track race days and the simulcasting out
of those races to other racetracks during the quarter when compared to last
year's fiscal quarter when severe weather conditions forced the cancellation
of one-third of the scheduled race days. Total expenses for the third quarter
of fiscal 1995 increased $653,684 or 7% from $9,428,592 to $10,082,276
primarily as a result of the increase in the number of live racing dates. The
net effect of increased revenues and expenses primarily accounted for the
track's net loss of $178,785 for the three months ended March 31, 1995, a
decreased loss of $641,603 from a loss of $820,388 during the three months
ended March 31, 1994.
During the nine months ended March 31, 1995 Garden State's revenue
increased $446,140 or 2% when compared to the same period last year, primarily
reflecting; (1) a significant net decrease in revenues generated during the
period from the simulcasting into Garden State Park from other New Jersey
racetracks; (2) a decrease in revenues generated by the simulcasting out of
Garden State Park's live races to the New Jersey racetracks; offset by (3) the
increase in revenues generated by the increased number of live race dates
during the third quarter as described above; and (4) significant increases
during the period in total revenues generated by the simulcasting out of
Garden State Park's races to out-of-state racetracks. Expenses increased
$454,758 or 2% for the nine months ending March 31, 1995 when compared to the
same period last year primarily as a result of the increased costs associated
with the increased number of live on-track racing dates during the third
quarter. Garden State Park realized income before interest due to the parent
of $674,132 for the nine month period ended March 31, 1995 as compared to
income of $682,750 for the nine months ended March 31, 1994.
On-track wagering during the 1995 Thoroughbred Meet, through March 31,
1995, averaged $210,573 over 42 dates of live racing. During the 1994
Thoroughbred Meet, through March 31, 1994, on-track wagering averaged $238,866
over 28 dates of live racing.
<TABLE>
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
MANAGEMENT'S ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS
FOR THE QUARTER ENDED MARCH 31, 1995
AND FOR THE NINE MONTHS ENDED MARCH 31 , 1995
The following summarizes the average handle associated with the simulca
simulcast activity at Garden State Park during the first nine months
of both fiscal 1995 and 1994.
July 1 thru March 31,
<CAPTION>
FISCAL 1995 FISCAL 1994
Number Average Number Average
of Days Handle of Days Handle
SIMULCAST OF
GARDEN STATE PARK RACES TO:
<S> <C> <C> <C> <C> <C>
In- State Tracks (T) 42 367,832 28 442,464
Out-Of-State Tracks (T) 42 784,245 28 579,536
In- State Tracks (S) 55 492,100 55 583,285
Out-Of-State Tracks (S) 55 658,699 55 367,498
SIMULCAST OF RACES TO
GARDEN STATE PARK FROM:
Monmouth Park (T) 49 86,378 49 110,920
Atlantic City Racetrack (T) 40 69,464 48 117,337
The Meadowlands (T) 69 106,952 68 132,925
Freehold Racetrack (S) 174 33,307 168 40,261
The Meadowlands (S) 109 92,009 101 124,638
Out-Of-State Tracks (T,S) 273 229,308 271 227,509
T=Thoroughbred Races S=Standardbred (Harness) Races
</TABLE>
Garden State Park's 1995 Thoroughbred Meet began on January 13, 1995 and
is scheduled to run through May 27, 1995. Racing was conducted on a three
night a week basis during January and is scheduled for four nights a week
during the remainder of the meet, for a total of 75 racing dates. Racing will
be conducted at night on all dates included in the schedule.
The Company has received approval from the New Jersey Racing Commission
to run a 49 night harness meet from September 8 through December 3, 1995.
Freehold Raceway:
The Company completed the outstanding stock acquisition of Freehold
Racing Association, Inc. ("FRA") and Atlantic City Harness, Inc., ("ACH") the
operating companies of Freehold Raceway, and CIRCA 1850, Inc., a small real
estate holding company to be effective for operations as of January 1, 1995.
(See Note 1 of the accompanying notes to the financial statements) Revenues
and expenses of Freehold Raceway for the three month period were $11,666,608
and $10,158,065 respectively. Freehold Raceway realized net income of
$1,508,543 for the three months ended March 31, 1995.
The following tables compare the results of operations of Freehold
Raceway for the periods under appropriate ownership. No assurances can be
given that the prior results of operations are indicative of the results which
actually would have occurred had the acquisition been made on July 1, 1993 or
subsequent to that date.
<TABLE>
Three Months Ended March 31,
1995 1994
Freehold under Freehold Under
ITB Ownership Prior Ownership
<CAPTION>
<S> <C> <C>
Revenues $11,666,608 $9,534,091
Expenses 10,158,065 8,773,053
Net Income Before
Taxes and Interest $1,508,543 $761,038
</TABLE>
<TABLE>
Nine Months Ended March 31,
1995 1994
Freehold Under
ITB Ownership (3 Mos.)
Under Prior Ownership Freehold Under
(6 Mos.) Prior Ownership
<CAPTION>
<S> <C> <C>
Revenues $34,391,242 $30,140,134
Expenses 30,314,330 28,135,113
Net Income Before
Taxes and Interest $4,076,712 $1,995,021
</TABLE>
Revenues have increased primarily as a result of an increase in the
number and popularity of the simulcast signals received from out-of-state
racetracks and a 10 day increase in the number of race days this year as
compared to last primarily as a result of the cancellation of race days and
simulcasting during the previous year due to severe weather conditions.
Expenses have increased primarily as a result of the increased costs
associated with the increased number of the simulcast signals received and the
increase in the number of live race days. Net income has increased primarily
as a result of the net effect of increased revenues and expenses.
<TABLE>
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSUDIARIES
MANAGEMENT'S ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS
FOR THE QUARTER ENDED MARCH 31, 1995
AND FOR THE NINE MONTHS ENDED MARCH 31, 1995
During 1995, Freehold Raceway will race 208 days under two seperate
indenties. ACH's meet, which began on January 1, will continue
through May 29 and FRA will operate from August 17 thru December 30.
The following table summarizes the average live on-track handle for
the three and nine month fiscal periods.
<CAPTION>
FISCAL 1995 FISCAL 1994
Number Average Number Average
of Days Handle of Days Handle
<S> <C> <C> <C> <C>
ACH-Jan 1 thru March 31 65 286,472 55 278,489
FRA-July 1 thru Dec 31 (3 mos) 109 323,099 114 327,881
TOTAL(9 months) 174 304,776 169 303,185
</TABLE>
<TABLE>
The following summarizes the average handle associated with the simulc
simulcast activity at Freehold Raceway during the three months ended
March 31, 1995 and 1994.
<CAPTION>
January 1 thru March 31
FISCAL 1995 FISCAL 1994
Number Average Number Average
of Days Handle of Days Handle
SIMULCAST OF
FREEHOLD RACEWAY TO:
<S> <C> <C> <C> <C> <C>
In-State Tracks (S) 65 209,488 55 221,244
Out-Of-State Tracks (S) 65 325,035 55 353,515
SIMULCAST OF RACES TO
FREEHOLD RACEWAY FROM:
Garden State Park (T) 42 32,689 29 29,658
The Meadowlands (S) 72 116,886 62 123,852
Out-Of-State Tracks (T,S) 90 200,675 76 170,757
</TABLE>
T = Thoroughbred RaceS = Standardbred (Harness) Races
<TABLE>
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSUDIARIES
MANAGEMENT'S ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS
FOR THE QUARTER ENDED MARCH 31, 1995
AND FOR THE NINE MONTHS ENDED MARCH 31, 1995
<CAPTION>
The following summarizes the average handle associated with the simulcast
activity at Freehold Raceway during the nine months ended March 31, 1995
and 1994.
July 1 thru March 31,
FISCAL 1995 FISCAL 1994
Number Average Number Average
of Days Handle of Days Handle
SIMULCAST OF
FREEHOLD RACEWAY RACES TO:
<S> <C> <C> <C> <C> <C>
In-State Tracks (S) 174 211,485 169 212,480
Out-Of-State Tracks (S) 174 304,913 169 297,788
SIMULCAST OF RACES TO
FREEHOLD RACEWAY FROM:
Atlantic City Race Course (T) 39 54,053 48 58,602
Garden State Park (T) 42 32,689 28 30,718
The Meadowlands (T) 69 63,736 67 51,655
Garden State Park (S) 55 83,228 55 83,757
The Meadowlands (S) 107 127,821 100 130,608
Out-Of-State Tracks (T,S) 260 179,998 227 138,930
</TABLE>
T = Thoroughbred Races S = Standardbred (Harness) Races
LIQUIDITY AND FINANCIAL RESOURCES
Consolidated and Racetrack Segment
The Company's working capital as of March 31, 1995 was $7,549,735 which
represents a decrease of $8,381,774 from the nine month comparable period of
fiscal 1994. This decrease is primarily the result of the net effect of: 1)
the utilization of approximately $5,300,000 in cash for the purchase of
Freehold racetrack (See Note 1); 2) an increase in current liabilities
primarily associated with the operation of Freehold Raceway; and 3) increased
cash flow from operations.
INFLATION
To date, inflation has not had a material effect on the Company's
operations.
<PAGE>
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
PART II
OTHER INFORMATION
Item 6. Reports on Form 8-K
During the quarter ended March 31, 1995 the registrant filed a current
report on Form 8-K dated February 2, 1995 reporting the following:
Item 2 - Acquisition of Assets
The purchase of all of the outstanding capital stock of Freehold Racing
Association, Inc. ("FRA"), Atlantic City Harness, Inc. ("ACH") and Circa 1850,
Inc. ("Circa"), the three corporations which own and operate Freehold Raceway.
Item 7 - Financial Statements, Pro Forma Financial Information and
Exhibits
Unaudited pro forma combined condensed balance sheet as of September 30,
1994 and the unaudited pro forma combined condensed statements of operation
for the three months ended September 30, 1994 and the year ended June 30,
1994. <PAGE>
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
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.
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
May 9, 1995
/s/Arthur Winkler
Arthur Winkler
President and Director
May 9, 1995
/s/William H. Warner
William H. Warner
Treasurer, Principal Financial and
Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> MAR-31-1995
<CASH> 12,602,084
<SECURITIES> 660,000
<RECEIVABLES> 3,322,675
<ALLOWANCES> 20,000
<INVENTORY> 0
<CURRENT-ASSETS> 18,364,218
<PP&E> 77,540,980
<DEPRECIATION> 1,253,798
<TOTAL-ASSETS> 98,216,353
<CURRENT-LIABILITIES> 10,814,483
<BONDS> 0
<COMMON> 19,102,705
0
36,244,875
<OTHER-SE> 15,582,641
<TOTAL-LIABILITY-AND-EQUITY> 98,216,353
<SALES> 39,138,418
<TOTAL-REVENUES> 40,131,014
<CGS> 12,054,319
<TOTAL-COSTS> 33,635,738
<OTHER-EXPENSES> 5,172,169
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 200,870
<INCOME-PRETAX> 1,122,236
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,122,236
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,122,236
<EPS-PRIMARY> 0.12
<EPS-DILUTED> 0.12
</TABLE>
