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, 1996
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 10, 1996
Common Stock, $ 2.00 par value 11,451,479
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1996 AND JUNE 30, 1995
ASSETS
March 31,
1996 June 30,
(UNAUDITED) 1995
CURRENT ASSETS:
Cash $ 2,638,818 $ 4,167,811
Short-Term Investments 1,332,896 7,633,483
TOTAL CASH AND CASH EQUIVALENTS 3,971,714 11,801,294
Restricted Cash and Investments 1,607,345 2,151,411
Accounts Receivable - Net 3,494,005 2,285,792
Prepaid Expenses 238,857 1,143,007
Other Current Assets 54,763 22,795
TOTAL CURRENT ASSETS 9,366,684 17,404,299
LAND, BUILDINGS, EQUIPMENT
AND LIVESTOCK:
Land and Buildings 75,590,304 74,296,090
Construction In Progress 46,405,588 0
Equipment 4,112,456 3,666,168
Livestock 17,517 17,517
TOTAL LAND, BUILDINGS, EQUIPMENT
AND LIVESTOCK 126,125,865 77,979,775
LESS: Accumulated Depreciation 2,566,928 1,570,024
TOTAL LAND, BUILDINGS, EQUIPMENT
AND LIVESTOCK - NET 123,558,937 76,409,751
OTHER ASSETS:
Deposits and Other Assets 488,501 392,531
Goodwill - Net 3,179,520 3,262,464
TOTAL OTHER ASSETS 3,668,021 3,654,995
TOTAL ASSETS $ 136,593,642 $ 97,469,045
See Notes to Financial Statements.
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1996 AND JUNE 30, 1995
LIABILITIES AND SHAREHOLDERS' EQUITY
March 31,
1996 June 30,
(UNAUDITED) 1995
CURRENT LIABILITIES:
Accounts Payable and Accrued Expenses $ 11,113,489 $ 6,656,061
Notes and Mortgages Payable -
Current Portion 16,659,638 1,341,399
State Income Taxes Payable 101,944 115,600
TOTAL CURRENT LIABILITIES 27,875,071 8,113,060
DEFERRED INCOME 1,138,123 1,550,451
NOTES AND MORTGAGES PAYABLE
Long Term Portion 30,230,382 15,599,097
COMMITMENTS AND CONTINGENCIES 0 0
SHAREHOLDERS' EQUITY:
Series A (Convertible)
Preferred Stock
$100.00 Par Value,
Authorized 500,000
Shares, Issued
and Outstanding,
362,461 and 362,450
Shares, Respectively 36,246,075 36,244,975
Common Stock $2.00 Par Value
Authorized 25,000,000 Shares,
Issued and Outstanding,
11,451,475 and 9,551,386
Shares, Respectively 22,902,949 19,102,771
Capital in Excess of Par 13,596,526 11,959,643
Retained Earnings (subsequent
to June 30, 1993, date of
quasi-reorganization, total deficit
eliminated $102,729,936) 4,604,516 4,899,048
TOTAL SHAREHOLDERS' EQUITY 77,350,066 72,206,437
TOTAL LIABILITIES &
SHAREHOLDERS' EQUITY $ 136,593,642 $ 97,469,045
See Notes to Financial Statements.
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED MARCH 31, 1996
(UNAUDITED)
Preferred
Number of
Shares Amount
BALANCE - JUNE 30, 1995 362,450 $ 36,244,975
Common Stock Shares Issued ---- ----
Shares Issued for Fractional
Exchanges With Respect to the
One-for-twenty Reverse Stock
Split effected on March 13, 1992 11 1,100
Net Loss for the Nine Months
Ended March 31, 1996 ---- ----
BALANCE - MARCH 31, 1996 362,461 $ 36,246,075
Common
Number of
Shares Amount
BALANCE - JUNE 30, 1995 9,551,386 $ 19,102,771
Common Stock Shares Issued 1,900,000 3,800,000
Shares Issued for Fractional
Exchanges With Respect to the
One-for-twenty Reverse Stock
Split effected on March 13, 1992 89 178
Net Loss for the Nine Months
Ended March 31, 1996 ---- ----
BALANCE - MARCH 31, 1996 11,451,475 $ 22,902,949
Capital
in Excess Retained
of Par Earnings
BALANCE - JUNE 30, 1995 $ 11,959,643 $ 4,899,048
Common Stock Shares Issued 1,638,161 ----
Shares Issued for Fractional
Exchanges With Respect to the
One-for-twenty Reverse Stock
Split effected on March 13, 1992 (1,278) ----
Net Loss for the Nine Months
Ended March 31, 1996 ---- (294,532)
BALANCE - MARCH 31, 1996 $ 13,596,526 $ 4,604,516
Total
BALANCE - JUNE 30, 1995 $ 72,206,437
Common Stock Shares Issued 5,438,161
Shares Issued for Fractional
Exchanges With Respect to the
One-for-twenty Reverse Stock
Split effected on March 13, 1992 ---
Net Loss for the Nine Months
Ended March 31, 1996 (294,532)
BALANCE - MARCH 31, 1996 $ 77,350,066
See Notes to Financial Statements.
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
Three Months Ended
March 31, March 31,
1996 1995
REVENUES:
Revenue from Operations $ 17,867,272 $ 21,527,590
Investment Income 115,368 289,893
TOTAL REVENUES 17,982,640 21,817,483
EXPENSES:
Cost of Revenues 6,697,856 7,540,982
Operating Expenses 9,979,873 11,281,404
Depreciation & Amortization 356,872 329,972
General & Administrative Expenses 1,803,087 1,746,495
Interest Expense 275,834 200,870
TOTAL EXPENSES 19,113,522 21,099,723
INCOME (LOSS) FROM OPERATIONS
BEFORE TAXES (1,130,882) 717,760
Income Tax Expense 20,650 0
NET INCOME (LOSS) $ (1,151,532)$ 717,760
NET INCOME (LOSS) PER SHARE $ (0.10)$ 0.08
Nine Months Ended
March 31, March 31,
1996 1995
REVENUES:
Revenue from Operations $ 52,016,059 $ 39,138,418
Investment Income 218,998 992,596
TOTAL REVENUES 52,235,057 40,131,014
EXPENSES:
Cost of Revenues 17,905,973 12,054,319
Operating Expenses 26,936,914 21,581,419
Depreciation & Amortization 1,087,128 616,458
General & Administrative Expenses 5,612,162 4,555,711
Interest Expense 844,487 200,870
TOTAL EXPENSES 52,386,664 39,008,777
INCOME (LOSS) FROM OPERATIONS
BEFORE TAXES (151,607) 1,122,237
Income Tax Expense 142,925 0
NET INCOME (LOSS) $ (294,532)$ 1,122,237
NET INCOME (LOSS) PER SHARE $ (0.03)$ 0.12
The Company's purchase of Freehold Raceway in January, 1995 materially
affects the comparability of the nine month portion reflected in the
above data.
See Notes to Financial Statements.
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
Nine Months Ended
March 31,
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash Received from Customers $ 50,390,518
Cash Paid to Suppliers and Employees (46,515,502)
Interest Received 234,267
Interest Paid (638,942)
Cash Used to Purchase Trading Securities (300,000)
Cash Received from Sale of Trading Securities 67,485
Change in Restricted Cash & Investments 544,066
NET CASH PROVIDED BY OPERATIONS 3,781,892
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Sale of Livestock 5,000
Proceeds from Sale of Equipment 0
Restructure of Freehold Debt - Net 0
Purchase of Freehold Racetrack - Net of Cash Received 0
Purchase of El Rancho Property (12,564,700)
Capital Expenditures (2,681,636)
(Increase) Decrease in Other Investment Activity (109,320)
NET CASH USED BY INVESTING ACTIVITIES (15,350,656)
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of Common Stock 5,438,162
Proceeds from issuance of Long Term Notes 6,000,000
Principal Payments on Short Term Notes (6,500,000)
Principal Payments on Long Term Notes (1,198,978)
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 3,739,184
NET DECREASE IN CASH AND CASH EQUIVALENTS (7,829,580)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 11,801,294
CASH AND CASH EQUIVALENTS AT
END OF THE PERIOD $ 3,971,714
Nine Months Ended
March 31,
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash Received from Customers $ 37,891,360
Cash Paid to Suppliers and Employees (35,914,262)
Interest Received 495,335
Interest Paid (75,870)
Cash Used to Purchase Trading Securities (1,510,000)
Cash Received from Sale of Trading Securities 997,485
Change in Restricted Cash & Investments 761,216
NET CASH PROVIDED BY OPERATIONS 2,645,264
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Sale of Livestock 178,359
Proceeds from Sale of Equipment 8,500
Restructure of Freehold Debt - Net (2,584,549)
Purchase of Freehold Racetrack - Net of Cash Received (2,679,151)
Purchase of El Rancho Property 0
Capital Expenditures (564,673)
(Increase) Decrease in Other Investment Activity (166,305)
NET CASH USED BY INVESTING ACTIVITIES (5,807,819)
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of Common Stock 0
Proceeds from issuance of Long Term Notes 0
Principal Payments on Short Term Notes 0
Principal Payments on Long Term Notes (311,451)
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (311,451)
NET DECREASE IN CASH AND CASH EQUIVALENTS (3,474,006)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 16,076,091
CASH AND CASH EQUIVALENTS AT
END OF THE PERIOD $ 12,602,085
Supplemental Schedule of Non-Cash Investing and Financing Activities
During the nine months ended March 31, 1996, Land and Improvements at a
total cost of $31,975,000 was financed through Short and Long Term
Notes.
During the nine months ended March 31, 1996, the Company recorded
an unrealized holding loss of $140,000 on trading securities.
See Notes to Financial Statements.
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) Consolidation - The accounts of all wholly owned
subsidiaries are included in the consolidated financial
statements. All material intercompany transactions have been
eliminated.
(B) Classifications - Certain prior year amounts have been
reclassified to conform with the current year's presentation.
(C) Allowance for Bad Debts - The Company recognizes bad
debts on the allowance method. Bad debt allowance at March 31,
1996 was $20,000.
(D) Construction in Progress - Construction in progress
represents development costs in conjunction with the acquisition
of the El Rancho Hotel and Casino (See Note 3) which the Company
defers such as land acquisitions, capitalized interest, legal and
consulting fees, professional fees and development costs incurred
for prospective gaming projects. Such costs totaling
$46,405,588, which includes real property acquisition costs in
the amount of $43,573,968, are included in construction in
progress in the accompanying consolidated balance sheet at March
31, 1996. It is anticipated that these costs, excluding land,
will be expensed (over the estimated benefit period) assuming the
tentatively scheduled opening of a casino on the premises.
(E) Goodwill - Goodwill is the excess of the cost of
acquired net assets (Freehold Acquisition) over their fair value.
It is being amortized over 30 years under the straight line
method. Accumulated amortization at March 31, 1996 is $418,109.
Management of the Company evaluates the periods of goodwill
amortization to determine whether later events and circumstances
warrant revised estimates of useful lives. Management also
evaluates whether the carrying value of goodwill has become
impaired. This evaluation is done by analyzing the projected
undiscounted cash flow from related operations.
(F) Revenue Recognition - The Company recognizes the
revenues associated with horse racing at Garden State Park and
Freehold Raceway as they are earned. Costs and expenses
associated with horse racing revenues are charged against income
in those periods in which the horse racing revenues are
recognized. Other costs and expenses are recognized as they
actually occur throughout the year. Deferred income primarily
consists of prepaid purse income.
(G) Deferred Income Taxes - 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.
(H) Cash Flows - The Company considers all highly liquid
debt instruments purchased with a maturity of three months or
less to be cash equivalents.
(I) Concentrations of Credit Risk - As of March 31, 1996,
financial instruments which potentially subject the Company to
concentrations of credit risk are cash and cash equivalents and
receivables arising primarily from event planning customers whose
credit is routinely evaluated. The Company places its cash
investments with high credit quality financial institutions and
currently invests primarily in U.S. government obligations that
have maturities of less than 3 months. The amount on deposit in
any one institution that exceeds federally insured limits is
subject to credit risk. The Company believes no significant
concentration of credit risk exists with respect to these cash
investments.
(2) OPINION OF MANAGEMENT
The accompanying unaudited 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 interim periods are not necessarily
indicative of the results that may be expected for a full year.
The unaudited 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, 1995.
(3) PURCHASE OF EL RANCHO LAS VEGAS PROPERTY
On January 24, 1996, the Company purchased the El Rancho
Hotel and Casino property from an unrelated party, Las Vegas
Entertainment Network, Inc. ("LVEN"). The Company plans to
develop the site through Orion Casino Corporation, a newly formed
wholly owned Nevada subsidiary of International Thoroughbred
Gaming Development Corporation ("ITG"), a wholly owned subsidiary
of the Company. The acquisition of the twenty-one acre El Rancho
property, which is located on the Las Vegas strip, was for $43.5
million in cash and notes, plus contingent consideration of up to
$160 million (but not as a part of the purchase price), which is
dependent on future "adjusted cash flows" as contractually
defined. The El Rancho property is currently not in operation,
therefore, there are no results of operations included in the
income statement for the current periods.
The purchase price of $43,500,000 consisted of approximately
$12.5 million paid in cash (exclusive of final adjustments) with
the balance financed by: 1) a $6.5 million unsecured mortgage
note due and paid during the quarter at an 8% interest rate; 2)
assumption of a $14 million first mortgage note, which is due
December 20, 1996, secured by the land and building at a 13%
interest rate (the Company and LVEN are each responsible for one-half of the
13% interest payment due on July 25, 1996 and
December 20, 1996); and 3) a $10.5 million second mortgage note
at an 8% interest rate which is payable only to the extent that
certain contingent events occur.
(4) NOTES AND MORTGAGES PAYABLE
The following table summarizes the outstanding notes and
mortgages payable.
<TABLE>
March 31, 1996
Interest % Current Long-Term
<CAPTION>
<S> <C> <C> <C>
ITB:
(See Note 3)
Mortgage 6.5% $ 14,000,000 $ 0
Mortgage 8% 0 10,500,000
Mortgage Note** 10% 0 3,000,000
Note** 10% 0 3,000,000
FREEHOLD RACEWAY:
Mortgage 80% of Prime 625,000 11,250,000
(not to exceed 6%)
Mortgage 80% of Prime 225,000 2,097,049
Note 8% 191,667 383,333
Note Prime 1,565,000 0
Various Notes Various 52,971 0
Totals $16,659,638 $ 30,230,382
</TABLE>
** During the third quarter of the fiscal year, the Company
received long term financing of $6,000,000 which was used in
part, to pay the $6.5 million unsecured mortgage note due during
the quarter (See Note 3).
On July 21, 1995, Freehold Raceway completed the purchase of
a 4.659 acre section of land, previously leased for parking
space, from an unrelated party. The purchase price was $975,000
with $400,000 plus accrued interest due and paid in cash on
January 2, 1996 and the balance financed by a three year $575,000
note at an eight percent per annum rate. The note, secured by a
purchase money mortgage on the land, is payable in three yearly
principal installments of $191,666 plus accrued interest
commencing July 31, 1996. At March 31, 1996, $191,667 of the
principal balance was classified as short term and $383,333 was
classified as long term.
(5) 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.
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 a quasi-reorganization of the
Company's assets effective June 30, 1993, will be excluded from
the results of operations and credited to paid in capital.
Freehold Raceway incurred a state income tax liability for
the nine months ended March 31, 1996 and does not have the
benefit of any state income tax loss carryforwards to offset this
liability. A provision of $142,925 was made for the nine month
period for this liability.
A reconciliation of income tax expense at the Federal
statutory rate to income tax expense at the Company's effective
rate is as follows:
<TABLE>
Nine Months ended March 31,
1996 1995
<CAPTION>
<S> <C> <C>
Income Taxes (Benefit) at the
Federal Statutory Rate $ (51,460) $ 381,560
Utilization of Tax Depreciation 0 (381,560)
Losses For Which There Is No 51,460 0
Tax Benefit
State Income Tax - Net of
Federal Tax Benefit 142,925 -0-
Provisions for Income Taxes $ 142,925 $ -0-
</TABLE>
At June 30, 1993, the Company went through a quasi-reorganization in
accordance with generally accepted accounting
principles. The effect of the quasi-reorganization was to
decrease asset values for financial reporting, but not for
Federal income tax purposes. Accordingly, depreciation expense
for Federal income tax purposes continues to be based on amounts
that do not reflect the accounting quasi-reorganization.
The Company has a net operating loss carryforward of
approximately $165,000,000 at March 31, 1996, 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.
(6) COMMITMENTS AND CONTINGENCIES
The Company's wholly owned subsidiary, ITG, is responsible
for implementing the development of casino gaming business
opportunities. In January 1996, the Company purchased the El
Rancho Hotel and Casino property from an unrelated party, LVEN.
The Company plans to develop the site through Orion Casino
Corporation, a newly formed wholly owned Nevada subsidiary of
ITG. The acquisition of the twenty-one acre El Rancho property,
which is located on the Las Vegas strip, was for $43.5 million in
cash and notes, plus contingent consideration of up to $160
million (but not as a part of the purchase price), which is
dependent on future "adjusted cash flows" as contractually
defined, to LVEN from the development of the property by Orion.
The purchase price of $43,500,000 consisted of approximately
$12.5 million paid in cash (exclusive of final adjustments) with
the balance financed by: 1) a $6.5 million unsecured mortgage
note due and paid during the quarter at an 8% interest rate; 2)
assumption of a $14 million first mortgage note, which is due
December 20, 1996, secured by the land and building at a 13%
interest rate (the Company and LVEN are each responsible for one-half of
the 13% interest payments due on July 25, 1996 and
December 20, 1996); and 3) a $10.5 million, at an 8% interest
rate, second mortgage note which is payable only to the extent
that certain contingent events occur (See Note 3). In addition
to the funds capitalized during the nine month period of this
fiscal year of approximately $2,560,000, the Company is committed
to approximately $4,400,000 in carrying costs of the El Rancho
property and in development costs until June, 1996. Subseqent to
June 30, 1996, the carrying costs of the El Rancho property will
be approximately $3,200,000 per year for capitalized interest,
real estate taxes, security, maintenance and other related costs.
Development costs for legal, professional and consulting costs
incurred for a prospective gaming project on the El Rancho
property are estimated to be approximately $6,600,000 during the
fiscal year ended June 30, 1997. These costs could increase
substantially if the Company is successful in obtaining the
partners it is seeking in order to complete the project. The
Company made a non-refundable deposit of $235,000 in April, 1996
for a parcel of land associated with the gaming development
project and is committed to an additional $2,115,000 in periodic
non-refundable deposit payments during the course of evaluating
the purchase (See Note 12A). The Company's financial commitment
could increase if circumstances warrant.
On November 2, 1995, Robert E. Brennan resigned as Chairman
of the Board and Chief Executive Officer of the Company. Mr.
Brennan resigned these positions at the urging of the Company's
Board of Directors based on actions taken by New Jersey
regulatory authorities which oversee the casino and horse racing
industries in the state. The New Jersey Division of Gaming
Enforcement ("Division") filed a complaint with the New Jersey
Casino Control Commission ("Commission") seeking to prohibit the
Company's two racetracks, Garden State Park ("Garden State") and
Freehold Raceway ("Freehold") from conducting industry business
with any casino licensees. Garden State and Freehold currently
receive revenues from parimutuel wagering on races, including
their own, simulcast to certain of the Atlantic City casinos.
The Division based its complaint on the fact that Mr. Brennan,
who is also a principal shareholder of the Company, had been
found in a June 1995 decision by Judge Richard Owen of the United
States District Court for the Southern District of New York to be
"liable for violating federal securities laws in the years 1982
to 1985." None of the alleged securities law violations involved
the Company, its securities, or its operations. The Division
claims that Mr. Brennan's participation in the Company's
racetrack subsidiaries "would be inimical to the policies of the
Casino Control Act" and according to the Division, this would
disqualify him and the Company's two New Jersey racetracks from
continued licensure with the Commission. Mr. Brennan has denied
committing any violations of the federal securities laws and is
currently appealing Judge Owen's decision.
The Division subsequently indicated a willingness to seek to
resolve the complaint provided that Mr. Brennan
resign as Chairman of the Board and a director of the Company and
provided further that Mr. Brennan enter into an agreement which
would place his approximately 2,900,000 shares of the Company's
common stock into an irrevocable dispositive trust, which would
provide for the liquidation of all his shares. At the signing,
stock certificates representing all of Mr. Brennan's shares will
be delivered, together with duly executed stock powers, to a
liquidating trustee with the approval of the New Jersey Casino
Control Commission and the bankruptcy court overseeing Mr.
Brennan's personnal Chapter 11 bankruptcy proceeding. The
liquidating trustee will hold the shares in escrow and will
vote the shares in the same proportion as the other stockholders
of the Company. The agreement will require that the liquidating
trustee dispose of the shares no later than October 19, 1997 in
the absence of the occurrence of certain events. The Company and
Mr. Brennan continue to engage in settlement discussions with the
Division and the Commission regarding this matter.
The Company was also advised by the New Jersey Racing
Commission, which annually grants permits for the conduct of
parimutuel racing at Garden State and Freehold, that the Racing
Commission is considering the issuance of a Notice of Intention
to suspend or revoke the permits held by Garden State and
Freehold based on Judge Owen's decision. At a subsequent
meeting, a representative of the Racing Commission indicated that
the previously described proposed resolution by the Division
regarding Mr. Brennan would be presented to the Racing Commission
for its consideration. The Racing Commission is currently
engaged in discussions with the Company and with Mr. Brennan
seeking to resolve this matter.
The Company's Board of Directors has approved the purchase of an
option to acquire the remaining 2,904,016 shares of the Company's
Common Stock owned by its former chairman, Robert E. Brennan.
The proposed purchase price for the option is 70 cents per share, or
$2,032,811, which will be credited toward the exercise price of
those shares purchased under the option. The option would be
exercisable at a price of $7 per share, plus a portion of any
appreciation in the value of a share above $7, based on an agreed
formula. The option is subject to the approval of the liquidating
trustee, the United States Bankruptcy Court for the District of New Jersey,
as well as the New Jersey Casino Control Commission and the New Jersey
Racing Commission. No assurances can be given that the option will be
finalized or in the event that it is finalized, that it will be approved.
(See Note 12A)
On March 20, 1996, the Company and Foothill Capital
Corporation of Los Angeles, California, signed a Letter of Intent
for a proposed borrowing of $30,000,000. The financing
arrangement, secured by among other things, a mortgage on Garden
State Park and a second mortgage on Freehold Raceway will be for
a $16,000,000 revolving credit line and a $14,000,000 Time Loan
Mortgage secured by El Rancho property, which will be used to pay
off the note due on December 20, 1996 (See Note 3). Final terms
are currently being negotiated and closing is expected before May
31, 1996. No assurances can be given that the financing will be
completed or that the borrowing will be approved for the amount
intended.
George E. Norcross III and Roger Bodman were elected to the
Company's Board of Directors filling the vacancies created by the
resignation of Mr. Brennan and an earlier unrelated resignation
of another board member. Robert J. Quigley was elected to serve
the balance of Mr. Brennan's term as Chairman of the Board (See
Note 12A). On February 6, 1996, the Company announced that Robert
J. Quigley was named President of the Company effective February
12, 1996. He has been a director of ITB since its inception in
1980 and previously served as President of ITB from March, 1988
to June, 1992.
In December 1995, Garden State Race Track, Inc. entered into
an agreement with an unaffiliated party, The Four B's of
Vineland, New Jersey, to sell a 56 acre parking lot tract at the
Garden State Park which is presently unused
for racing purposes. This property has previously been the
subject of a development agreement between the Company and Gale
and Wentworth of Florham Park, New Jersey. The contract calls for
a purchase price of $11 million for the property, subject to
normal closing adjustments. The agreement (which expires
December 15, 1996 and is renewable for a six month period) is
subject to standard real estate contingencies including the
receipt of all necessary governmental approvals to construct a
retail shopping center of approximately 300,000 square feet on
the site, also provided the purchaser a period of time to
evaluate the feasibility of the project. No assurances can be
given that the purchaser will proceed with the contract after the
currently negotiated period of time.
(7) INVESTMENT INCOME
Investment income consists of interest income and realized
and unrealized gains on trading securities. In computing the
realized gain, cost was determined under the specific
identification method.
Management determines the appropriate classification of its
investments in debt and equity securities at the time of purchase
and reevaluates such determination at each balance sheet date.
Trading securities are securities bought and held principally for
the purpose of selling them in the near term and are reported at
fair value, with unrealized gains and losses included in
operations for the current year.
Investment income for the three months ended March 31, 1996
includes an unrealized holding gain of $40,000 on trading
securities. Investment income for the nine months ended March
31, 1996 includes a net unrealized holding loss of $140,000 which
consists of an unrealized holding loss of $230,000 on trading
securities recognized during the second quarter of the fiscal
year offset by unrealized holding gains of $50,000 and $40,000
recognized during the first and third respective quarters of the
fiscal year. For the three and nine months ended March 31, 1995,
there were no unrealized holding gains or losses. Interest
income for the three and nine months ended March 31, 1996 was
$75,368 and $358,998, respectively, and $289,893 and $992,596 for
the respective three and nine month periods in fiscal 1995.
(8) REGULATION S STOCK OFFERING
In December 1995, the Company completed a Regulation S
"Offshore" private offering to four foreign investors for 1.9
million shares of Common Stock at a price per share of $3.00.
The proceeds of approximately $5,440,000, net of expenses, were
used by the Company for the purchase of the El Rancho property
(See Note 3).
(9) NET INCOME PER SHARE
Income (loss) per share for the three and nine month periods
ended March 31, 1996 and 1995 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 11,451,462 and 9,551,349 for the three months
ended March 31, 1996 and 1995, respectively and for the
respective nine month periods were 10,214,702 and 9,551,325.
(10) PRO FORMA INFORMATION
Effective January 1, 1995, the Company completed the
purchase of all of the outstanding stock of Freehold Raceway and
on January 24, 1996, the Company completed the purchase of the El
Rancho Hotel and Casino property which is currently not in
operation.
The following unaudited pro forma combined results of
operations for the nine months ended March 31, 1996 account for
the acquisitions as if they had occurred on July 1, 1994. The
pro forma results give effect to depreciation of fixed assets
purchased, amortization of goodwill, and interest expense.
<TABLE>
Pro Forma Combined Results of Operations
For The Nine Months Ended March 31,
1996 1995
<CAPTION>
<S> <C> <C>
Total Revenues $ 51,855,890 $55,084,541
Net Income(Loss) (673,699) 2,251,483
Net Income (Loss) Per Share $ (0.07) $ 0.24
</TABLE>
These pro forma amounts may not be indicative of results
that actually would have occurred if the combinations had been in
effect on the dates indicated or which may be obtained in the
future.
(11) NEW AUTHORITATIVE PRONOUNCEMENTS
SFAS No. 121, "Accounting For the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of" is effective
for fiscal years beginning after December 15, 1995. The Company
will adopt SFAS 121 on July 1, 1996. The adoption of SFAS No.
121 will not have a material effect on the financial statements.
In October 1995, the Financial Accounting Standards Board
issued SFAS 123, "Accounting for Stock Based Compensation," which
is effective for 1996. Under SFAS 123, companies can elect, but
are not required, to recognize compensation expense for all
stock-based awards, using a fair value methodology. The Company
expects to implement in 1996 the disclosure only provisions, as
permitted by SFAS 123.
(12) SUBSEQUENT EVENTS
(A) The following events occurred on April 25, 1996:
The Company's Board of Directors has approved the purchase of an
option to acquire the remaining 2,904,016 shares of the Company's
Common Stock owned by its former chairman, Robert E. Brennan.
The proposed purchase price for the option is 70 cents per share, or
$2,032,811, which would be credited toward the exercise price of
those shares purchased under the option. The option would be
exercisable at a price of $7 per share, plus a portion of any
appreciation in the value of a share above $7, based on an agreed
formula. The option is subject to the approval of the liquidating
trustee, the United States Bankruptcy Court for the District of
New Jersey, as well as the New Jersey Casino Control Commission
and the New Jersey Racing Commission. No assurances can be given that the
option will be finalized or in the event that it is finalized, that it will
be approved.
The Company announced the resignation of three directors;
Joseph K. Fisher, Louis P. Guida, and George E. Norcross.
The Company executed an agreement to purchase 15 acres of
unimproved land from a subsidiary of ITT Corporation. The land
is located directly behind and contiguous to the site of the
Company's recently purchased El Rancho Hotel and Casino property
which is being developed through Orion Casino Corporation. The
purchase of the property allows expanded frontage and room for
future expansion and increased parking.
(B) On May 14, 1996 Robert J. Quigley resigned as Chairman
of the Company. Mr. Quigley will continue to serve as a director
and President of International Thoroughbred Breeders, Inc. Mr.
Joel H. Sterns was elected to serve as a director and to serve
the balance of Mr. Quigley's term as Chairman. Mr. Clifford A.
Goldman and Mr. Robert Peloquin were elected to the Company's
Board of Directors, filling the vacancies created by the
resignations.
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
REVIEW BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
FOR THE NINE MONTHS ENDED MARCH 31, 1996 AND 1995
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.
REVIEW REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholders
International Thoroughbred Breeders, Inc.
and Subsidiaries
We have reviewed the accompanying consolidated balance
sheet of International Thoroughbred Breeders, Inc., and
subsidiaries as of March 31, 1996, and the related consolidated
statement of shareholders' equity for the nine month period then
ended, the consolidated statements of operations for the three
and nine month periods ended March 31, 1996 and 1995, and the
consolidated statement of cash flows for the nine month periods
ended March 31, 1996 and 1995. 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 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 accompanying consolidated
balance sheet as of June 30, 1995, presented herein for
comparative purposes, 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
September 25, 1995, we expressed an unqualified opinion on those
consolidated financial statements.
MORTENSON AND ASSOCIATES, P.C.
Certified Public Accountants
Cranford, NJ
May 3, 1996
<PAGE>
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
MANAGEMENT'S ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS
FOR THE QUARTER ENDED MARCH 31, 1996
AND FOR THE NINE MONTHS ENDED MARCH 31, 1996
OPERATIONS
Total revenues for the three months ended March 31, 1996 and
1995 were $17,982,640 and $21,817,483 respectively. Total
revenues for the nine months ended March 31, 1996 and 1995 were
$52,235,057 and $40,131,014 respectively. The 18% decrease in
revenues for the third quarter of the fiscal year are primarily
the result of severe weather conditions which negatively impacted
live racing and simulcasting by forcing the cancellation of 10
scheduled days at Garden State Park and 6 scheduled days at
Freehold Raceway, which significantly reduced racetrack operating
revenues. The approximate 30% increase in revenues during the
nine month period is primarily the net result of the purchase of
Freehold Raceway in January, 1995, which significantly increased
racetrack revenues during the comparable periods partially offset
by the significantly reduced racetrack revenues during the third
quarter as discussed above. Total expenses for the three month
period decreased $1,986,201 or 9% primarily as a result of the
decrease in the number of race days during the comparable
periods. Total expenses increased $13,377,887 for the nine month
period primarily as a net result of the purchase of Freehold
Raceway, which significantly increased racetrack operating
expenses during the comparable period, partially offset by the
decrease in expenses during the third quarter as discussed above.
For the third quarter of fiscal 1996, the Company realized a
loss before taxes of $1,130,882 as compared to income before
taxes of $717,760 for the comparable quarter in fiscal 1995. The
change of $1,848,642 from net income to net loss for the three
month period primarily resulted from: 1) a decrease in net
income generated by Freehold Raceway during comparable quarters;
2) an increase in net losses realized by Garden State Park as
compared to the prior fiscal year; and 3) a decrease in
investment revenue for the three month period. For the nine
month period ended March 31, 1996, the Company realized a loss
before taxes of $151,607 as compared to income of $1,122,237 for
the prior fiscal period. The change of $1,273,844 from net
income to net loss for the nine month period primarily resulted
from the net effect of: 1) the losses generated by Garden State
Park during the period and the decrease in net income generated
by Freehold Raceway during the third quarter; 2) increased
interest expense of $643,617 primarily associated with the
mortgages on Freehold Raceway for the comparable periods; and 3)
a decrease in investment revenue for the nine month period;
partially offset by 4) the net increased income generated by the
purchase of Freehold Raceway during the nine month period.
Depreciation expense for the three and nine months ended
March 31, 1996 was $356,872 and $1,087,128 as compared to
$329,972 and $616,458 for the comparable periods during fiscal
1995. The $470,670 nine month increase was primarily associated
with the purchase of Freehold Raceway.
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
last year are as follows:
<TABLE>
Net Income (Loss) Net Increase
Fiscal 1996 Fiscal 1995 (Decrease)
<CAPTION>
<S> <C> <C> <C>
1st Quarter $ 66,313 $ 295,903 $ (229,590)
2nd Quarter 187,723 557,014 (369,291)
3rd Quarter (1,567,751) (178,785) (1,388,966)
Year to Date $ (1,313,715) $ 674,132 $ (1,987,847)
</TABLE>
During the fiscal quarter ended March 31, 1996, Garden
State's revenue decreased $2,109,435 or 21% from $9,903,491 for
the third quarter of fiscal 1995 to $7,794,056 for the comparable
quarter in fiscal 1996, primarily reflecting the effect of severe
weather conditions which negatively impacted live racing and
simulcasting by forcing the cancellation of 10 scheduled days at
Garden State Park which resulted in significantly reduced
operating revenues. Total expenses for the third quarter of
fiscal 1996 decreased $720,469 or 7% from $10,082,276 for the
third quarter of fiscal 1995 to $9,361,807 for the comparable
quarter in fiscal 1996 primarily as a result of the decrease in
the number of live racing dates. The net effect of decreased
revenues and expenses primarily accounted for the track's net
loss of $1,567,751 for the three months ended March 31, 1996, an
increased loss of $1,388,966 from a loss of $178,785 during the
three months ended March 31, 1995.
During the nine months ended March 31, 1996 Garden State's
revenue decreased $3,124,152 or 11% when compared to the same
period last year, primarily reflecting; 1) a general decrease
in revenues generated by simulcasting to and from the other New
Jersey racetracks partially offset by increased revenues
generated by out-of-state simulcasting; 2) decreased revenues
generated by live on-track racing; in addition to 3) the
significant decrease in revenues during the third quarter as a
result of the severe weather conditions as discussed above.
Expenses decreased $1,136,305 or 4% for the nine months ending
March 31, 1996 when compared to the same period last year
primarily as a result of the decrease in the number of live
racing dates. Garden State Park realized a loss, before interest
due to the parent, of $1,313,715 for the nine month period ended
March 31, 1996 as compared to income of $674,132 for the nine
months ended March 31, 1995.
On-track wagering during the 1996 Thoroughbred Meet, through
March 31, 1996, averaged $163,000 over 33 dates of live racing.
During the 1995 Thoroughbred Meet, through March 31, 1995,
on-track wagering averaged $210,573 over 42 dates of live racing.
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
MANAGEMENT'S ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS
FOR THE QUARTER ENDED MARCH 31, 1996
AND FOR THE NINE MONTHS ENDED MARCH 31, 1996
The following summarizes the average handle associated with
the simulcast activity at Garden State Park during the nine
months of both fiscal 1996 and 1995.
July 1 thru March 31,
FISCAL 1996
Number Average
of Days Handle
SIMULCAST OF GARDEN STATE
PARK RACES TO:
In-State Tracks (T) 33 $ 269,913
Out-Of-State Tracks (T) 33 923,388
Casinos (T) 33 29,276
In-State Tracks (S) 53 391,232
Out-Of-State Tracks (S) 53 929,190
Casinos (S) 53 36,553
SIMULCAST OF RACES TO GARDEN
STATE PARK FROM:
Monmouth Park (T) 48 $ 70,985
Atlantic City Racetrack (T) 38 46,048
The Meadowlands (T) 66 76,023
Freehold Racetrack (S) 160 27,628
The Meadowlands (S) 103 71,769
Out-Of-State Tracks (T,S) 269 241,856
T=Thoroughbred Races S=Standardbred (Harness) Races
July 1 thru March 31,
FISCAL 1995
Number Average
of Days Handle
SIMULCAST OF GARDEN STATE
PARK RACES TO:
In-State Tracks (T) 42 $ 323,678
Out-Of-State Tracks (T) 42 784,245
Casinos (T) 42 44,153
In-State Tracks (S) 55 456,522
Out-Of-State Tracks (S) 55 658,699
Casinos (S) 55 35,578
SIMULCAST OF RACES TO GARDEN
STATE PARK FROM:
Monmouth Park (T) 49 $ 86,378
Atlantic City Racetrack (T) 40 69,464
The Meadowlands (T) 69 106,952
Freehold Racetrack (S) 174 33,307
The Meadowlands (S) 109 92,009
Out-Of-State Tracks (T,S) 273 229,308
T=Thoroughbred Races S=Standardbred (Harness) Races
Garden State Park's 1995 Thoroughbred Meet began on January
12, 1996 and is scheduled to run through May 24, 1996. During
the third quarter, severe inclement weather, which has affected
the northeastern portion of the United States, caused the Company
to cancel 10 nights of scheduled Thoroughbred racing and nine
nights of simulcast receiving. Attendance and handles on many of
the completed live racing programs were also adversely affected
by weather conditions. This severe weather, which also caused
most other racetracks in the northeastern United States to limit
their live racing programs, has had an adverse impact on earnings
from live racing programs during the quarter. At this time it is
uncertain whether all or a portion of the lost live racing days
will be rescheduled. 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 74 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 53 night harness meet from September 6
through December 7, 1996.
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.
During the fiscal quarter ended March 31, 1996, Freehold
Raceway's revenue decreased $1,629,749 or 14% from $11,666,608
for the third quarter of fiscal 1995 to $10,036,859 for the
comparable quarter in fiscal 1996, primarily reflecting the
effect of severe weather conditions which negatively impacted
live racing and simulcasting by forcing the cancellation of 6
scheduled racing days which resulted in significantly reduced
operating revenues. Total expenses for the third quarter of
fiscal 1996 decreased $1,229,140 or 12% from $10,158,065 to
$8,928,925 primarily as a result of the decrease in the number of
live racing dates. The net effect of decreased revenues and
expenses primarily accounted for the track's decrease in
operating income of $400,609, from income before taxes of
$1,508,543 for the three months ended March 31, 1995 to income
before taxes of $1,107,934 for the three months ended March 31,
1996.
Revenues and expenses of Freehold Raceway for the nine month
period were $27,690,313 and $24,051,463 respectively. During the
nine months ended March 31, 1996, Freehold Raceway realized
income of $3,638,850 before income tax and interest due the
parent company.
During 1996, Freehold Raceway will race 207 days under two
separate identities. ACH's meet, which began on January 1, will
continue through May 27 and FRA will operate from August 15 thru
December 31. During the third quarter, severe inclement
weather, which has affected the northeastern portion of the
United States, caused the Company to cancel 6 days of scheduled
racing and three days of simulcast receiving. Attendance and
handles on many of the completed live racing programs were also
adversely affected by weather conditions. This severe weather,
which also caused most other racetracks in the northeastern
United States to limit their live racing programs, has had an
adverse impact on earnings from live racing programs during the
quarter. At this time it is uncertain whether all or a portion
of the lost live racing days will be rescheduled.
The following table summarizes the average live on-track
handle for the three and nine month fiscal periods.
<TABLE>
FISCAL 1996 FISCAL 1995
Number of Days Average Handle Number of Days Average Handle
<CAPTION>
<S> <C> <C> <C> <C>
ACH - Jan. 1 thru
March 31(3 Months) 61 $ 241,099 65 $ 286,472
FRA - July 1 thru
Dec. 31 (6 Months) 99 283,361 109 323,099
TOTAL (9 Months) 160 $ 267,249 174 $ 304,776
</TABLE>
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
MANAGEMENT'S ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS
FOR THE QUARTER ENDED MARCH 31, 1996
AND FOR THE NINE MONTHS ENDED MARCH 31, 1996
The following summarizes the average handle associated with
the simulcast activity at Freehold Raceway during the nine months
ended March 31, 1996 and 1995.
July 1 thru March 31,
FISCAL 1996
Number Average
of Days Handle
SIMULCAST OF FREEHOLD RACEWAY
RACES TO:
In-State Tracks (ACH) (S) 61 $ 175,620
Out-Of-State Tracks (ACH) (S) 61 383,131
Casinos (ACH) (S) 61 22,430
In-State Tracks (FRA) (S) 99 170,226
Out-Of-State Tracks (FRA) (S) 99 392,704
Casinos (FRA) (S) 99 23,937
SIMULCAST OF RACES TO
FREEHOLD RACEWAY FROM:
Garden State Park (T) 33 $ 24,664
Garden State Park (S) 53 80,887
The Meadowlands (S) 103 123,087
The Meadowlands (T) 66 51,717
Atlantic City Race Course (T) 38 37,932
Out-Of-State Tracks (T,S) 257 219,724
T=Thoroughbred Races S=Standardbred (Harness) Races
July 1 thru March 31,
FISCAL 1995
Number Average
of Days Handle
SIMULCAST OF FREEHOLD RACEWAY
RACES TO:
In-State Tracks (ACH) (S) 66 $ 181,766
Out-Of-State Tracks (ACH) (S) 66 320,110
Casinos (ACH) (S) 66 24,547
In-State Tracks (FRA) (S) 109 187,372
Out-Of-State Tracks (FRA) (S) 109 292,914
Casinos (FRA) (S) 109 25,304
SIMULCAST OF RACES TO
FREEHOLD RACEWAY FROM:
Garden State Park (T) 43 $ 33,015
Garden State Park (S) 55 83,228
The Meadowlands (S) 106 128,505
The Meadowlands (T) 69 63,736
Atlantic City Race Course (T) 38 54,072
Out-Of-State Tracks (T,S) 260 179,998
T=Thoroughbred Races S=Standardbred (Harness) Races
LIQUIDITY AND FINANCIAL RESOURCES
Consolidated and Racetracks
The Company's working capital as of March 31,1996 was a
negative $18,508,387 which represents a decrease of $26,058,122
from March 31, 1995. The decrease is primarily the net result
of: 1) the utilization of approximately $12,600,000 in cash
associated with the purchase of the El Rancho Hotel and Casino
property in addition to the use of approximately $2,600,000
associated with the development of the proposed gaming project
(See Note 3); 2) the $500,000 net effect of increased long term
financing of $6,000,000 to pay off $6,500,000 in short term debt
related to the El Rancho acquisition; 3) the effect of
classifying a $14,000,000 mortgage associated with the purchase
of the El Rancho Hotel and Casino property and a $1,325,000 note
associated with Freehold Raceway as current liabilities; 4)
capital improvements of approximately $2,000,000 at the two
racetracks; 5) a net increase in cash of approximately $5,440,000
as a result of a Regulation S "Offshore" private offering (See
Note 8); and 6) increased cash flows from operations.
It is currently estimated that the Company is committed to a
minimum of $4,400,000 in carrying costs of the El Rancho
property and in development costs until June, 1996. Subsequent
to June 30, 1996, carrying costs of the El Rancho property will
be approximately $3,200,000 per year for capitalized interest,
real estate taxes, security, maintenance and other related costs.
Development costs for legal, professional and consulting costs
incurred for a prospective gaming project on the El Rancho
property are estimated to be approximately $6,600,000 during the
fiscal year ended June 30, 1997. A promissory note associated
with the purchase of the El Rancho Hotel and Casino in Las
Vegas, Nevada in the amount of $6,500,000 together with accrued
interest at a rate of 8% was due and paid during the quarter.
During the third quarter of this fiscal year, the Company
obtained long term financing repayable in March, 1998 of
$6,000,000 at a 10% interest rate which was used to make the
payment due in March, 1996. One half or $3,000,000 of the
liability is secured by a promissory note on the 56 acre parcel
of land currently under agreement of sale (See Note 6). An
assumed $14,000,000 first mortgage note at a 13% interest rate is
due December 20, 1996 (the Company and LVEN are each responsible
for one-half of the 13% interest payments due on July 25, 1996
and December 20, 1996) and a $10..5 million, at an 8% interest
rate, second mortgage note which is payable only to the extent
that certain contingent events occur (See Note 3). The Company
made a non-refundable deposit of $235,000 in April, 1996 for a
parcel of land associated with the gaming development project and
is committed to an additional $2,115,000 in periodic non-refundable deposit
payments during the course of evaluating the
purchase (See Note 12A). A purchase money mortgage note
previously executed by Freehold Raceway has a balloon payment of
$1,405,000 due on August 20, 1996.
On March 20, 1996, the Company and Foothill Capital
Corporation of Los Angeles, California, signed a Letter of Intent
for a proposed borrowing of $30,000,000. The financing
arrangement, secured by Garden State Park and a second mortgage
on Freehold Raceway will be for a $16,000,000 revolving credit
line and a $14,000,000 Time Loan Mortgage secured by the El
Rancho property, which will be used to pay off the note due on
December 20, 1996 (See Note 3). Final terms are currently being
negotiated and closing is expected before May 31, 1996. No
assurances can be given that the financing will be completed or
that the borrowing will be approved for the amount intended.
The Company's Board of Directors has approved the purchase of an
option to acquire the remaining 2,904,016 shares of the Company's
Common Stock owned by its former chairman, Robert E. Brennan.
The proposed purchase price for the option is 70 cents per share, or
$2,032,811, which will be credited toward the exercise price of
those shares purchased under the option. The option will be
exercisable at a price of $7 per share, plus a portion of any
appreciation in the value of a share above $7, based on an agreed
formula. The transaction is subject to the approval of the liquidating
trustee, the United States Bankruptcy Court for the District
of New Jersey, as well as the New Jersey Casino Control
Commission and the New Jersey Racing Commission. No assurances can be
given that the option will be finalized or in the event that it is
finalized, that it will be approved (See Note 12A).
It is anticipated that the Company's needs will be funded
through any or several of the following sources; funds generated
by operations, the issuance of debt (See Note 12A), sale of stock
and or sale of excess land at Garden State Park (See Note 6).
Presently, the property at Garden State Park is unencumbered with
debt or mortgage. The property at Freehold Raceway and the El
Rancho Hotel and Casino are encumbered with mortgages.
SEASONALITY AND EFFECT OF INCLEMENT WEATHER
Horse racing is conducted outdoors, therefore a number of
variables contribute to the seasonality of the business, most
importantly weather. Weather conditions, particularly during the
winter months, sometimes cause cancellation of races or severely
curtail attendance, which reduces wagering and live racing and
simulcast signals. Attendance and wagering also have been
adversely affected by major winter storms which have affected the
entire Northeast part of the country during the 1995-96 winter
season.
In addition a disproportionate amount of ITB's revenue is
received during the period September through May of each year
because Garden State Park and Freehold Raceway only conduct
simulcasting during the summer months. As a result, the
company's revenue and net income have been greatest in the second
and third quarters of the year.
INFLATION
To date, inflation has not had a material effect on the
Company's operations.
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
PART II
OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Registrant's Annual Meeting of Stockholders was
held on Wednesday, February 21, 1996.
(b) At said meeting, the following eight individuals were
elected by the following vote to serve as directors until the
next annual meeting of stockholders and until their successors
are elected and qualified.
<TABLE>
FOR AGAINST
<CAPTION>
<S> <C> <C>
Roger Bodman 7,712,161 27,662
Charles R. Dees, Jr. 7,711,338 28,486
Joseph K. Fisher 7,711,173 28,641
Louis P. Guida 7,712,013 27,811
Francis W. Murray 7,711,590 28,233
George E. Norcross III 7,711,032 28,642
Robert J. Quigley 7,696,213 43,611
Arthur Winkler 7,711,205 28,618
</TABLE>
(c) (1) At said meeting, 395,991 shares of Common Stock
were voted in favor of and 6,144,270 shares were voted against a
shareholder proposal to require the Registrant's officers and
directors to apply 10% of their salary and other compensation to
buy shares of the Registrant's Common Stock, so that the proposal
was not adopted.
(2) At the meeting, 368,750 shares of Common Stock were
voted in favor of and 6,136,261 shares were voted against a
shareholder proposal to discontinue use of all options, rights,
SARs, etc. after termination of existing agreements with
management and directors, so that the proposal was not adopted.
Item 6. Reports on Form 8-K
During the quarter ended March 31, 1996 the registrant filed
a current report on Form 8-K dated February 8, 1996 reporting the
following:
Item 2 - Acquisition of Assets
The purchase of the El Rancho Hotel and
Casino property in Las Vegas, Nevada.
Item 7 - Financial Statements, Pro Forma FinancialInformation
and Exhibits
Unaudited pro forma combined condensed
balance sheet as of December 31, 1995 and the
unaudited pro forma combined condensed
statements of operation for the six months
ended December 31, 1995 and the year ended
June 30, 1995. <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 10, 1996 /s/Robert J. Quigley
Robert J. Quigley
Chairman and President
May 10, 1996 /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-30-1996
<PERIOD-END> MAR-31-1996
<CASH> 3,971,714
<SECURITIES> 100,000
<RECEIVABLES> 3,474,005
<ALLOWANCES> (20,000)
<INVENTORY> 0
<CURRENT-ASSETS> 9,366,684
<PP&E> 126,125,865
<DEPRECIATION> 2,566,928
<TOTAL-ASSETS> 136,593,642
<CURRENT-LIABILITIES> 27,875,071
<BONDS> 0
0
36,246,075
<COMMON> 22,902,949
<OTHER-SE> 18,201,042
<TOTAL-LIABILITY-AND-EQUITY> 136,593,642
<SALES> 52,016,059
<TOTAL-REVENUES> 52,235,057
<CGS> 17,905,973
<TOTAL-COSTS> 44,842,887
<OTHER-EXPENSES> 7,543,777
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 844,487
<INCOME-PRETAX> (151,607)
<INCOME-TAX> 142,925
<INCOME-CONTINUING> (294,532)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (294,532)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
