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 September 30, 2000
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-9624
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International Thoroughbred Breeders, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 22-2332039
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
P.O. Box 1232, Cherry Hill, New Jersey 08034
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(Address of principal executive offices) (Zip Code)
(856) 488-3838
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(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 November 3, 2000
------------------------------ ------------------------------------
Common Stock, $ 2.00 par value 8,980,254 Shares
<PAGE>
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
FORM 10-Q
QUARTERLY REPORT
for the Three Months ended September 30, 2000
(Unaudited)
TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets
as of September 30, 2000 and June 30, 2000.................1-2
Consolidated Statements of Operations
for the Three Months ended
September 30, 2000 and 1999..................................3
Consolidated Statement of Stockholders' Equity
for the Three Months ended September 30, 2000................4
Consolidated Statements of Cash Flows
for the Three Months ended
September 30, 2000 and 1999..................................5
Notes to Consolidated Financial Statements.........................6-12
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..........13-17
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.............................18
SIGNATURES ............................................................19
<PAGE>
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2000 AND JUNE 30, 2000
ASSETS
September 30,
2000 June 30,
(UNAUDITED) 2000
---------- ----------
CURRENT ASSETS:
Cash and Cash Equivalents $ 344,178 $ 271,119
Restricted Cash and Investments 1,671,173 1,656,743
Accounts Receivable 0 427,654
Prepaid Expenses 266,603 362,321
Other Current Assets 523,784 516,721
---------- ----------
TOTAL CURRENT ASSETS 2,805,738 3,234,558
---------- ----------
NET ASSETS OF DISCONTINUED OPERATIONS
- Long Term 30,000,000 30,000,000
---------- ----------
PROPERTY HELD FOR SALE 0 0
---------- ----------
LAND, BUILDINGS AND EQUIPMENT:
Land and Buildings 214,097 214,097
Equipment and Artwork 1,196,666 1,199,284
---------- ----------
1,410,763 1,413,381
LESS: Accumulated Depreciation
and Amortization 401,747 387,404
---------- ----------
TOTAL LAND, BUILDINGS AND
EQUIPMENT, NET 1,009,016 1,025,977
---------- ----------
OTHER ASSETS:
Notes Receivable 23,000,000 23,000,000
Deposits and Other Assets 906,204 906,204
---------- ----------
TOTAL OTHER ASSETS 23,906,204 23,906,204
---------- ----------
TOTAL ASSETS $ 57,720,958 $ 58,166,739
========== ==========
See Notes to Consolidated Financial Statements.
1
<PAGE>
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2000 AND JUNE 30, 2000
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30,
2000 June 30,
(UNAUDITED) 2000
---------- ----------
CURRENT LIABILITIES:
Accounts Payable $ 37,185 $ 62,502
Accrued Expenses 895,571 858,510
Current Maturities of Long-Term Debt 18,654,555 18,596,709
Net Liabilities of Discontinued
Operations - Current 1,462,709 1,509,577
---------- ----------
TOTAL CURRENT LIABILITIES 21,050,020 21,027,298
---------- ----------
DEFERRED INCOME 2,786,589 2,786,589
---------- ----------
LONG-TERM DEBT, Net of Current Portion 482,000 482,000
---------- ----------
COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDERS' EQUITY:
Series A Preferred Stock, $100.00
Par Value,Authorized 500,000
Shares, Issued and Outstanding,
362,486 and 362,484 Shares,
Respectively 36,248,575 36,248,375
Common Stock, $2.00 Par Value, Authorized
25,000,000 Shares,Issued, 11,884,276 and
11,884,270 Shares,and Outstanding,
8,980,266 and 8,980,254 Shares,
Respectively 23,768,551 23,768,539
Capital in Excess of Par 26,144,328 26,144,540
(Deficit) (subsequent to June 30, 1993,
date of quasi-reorganization) (45,473,648) (45,003,895)
---------- ----------
TOTAL 40,687,806 41,157,559
LESS:
Treasury Stock, 2,904,016
Shares, at Cost (7,260,040) (7,260,040)
Deferred Compensation, Net (25,417) (26,667)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 33,402,349 33,870,852
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 57,720,958 $ 58,166,739
========== ==========
See Notes to Consolidated Financial Statements.
2
<PAGE>
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000
Three Months Ended
September 30,
--------------------------
2000 1999
----------- -----------
REVENUE:
Revenue $ 76,407 $ 77,749
Interest Income 30,810 17,242
----------- -----------
TOTAL REVENUES 107,217 94,991
----------- -----------
EXPENSES:
General & Administrative Expenses 571,992 482,205
Interest and Financing Expenses 4,977 1,155,679
El Rancho Property Carrying Costs 0 376,649
----------- -----------
TOTAL EXPENSES 576,969 2,014,533
----------- -----------
NET (LOSS) $ (469,752) $(1,919,542)
=========== ===========
NET BASIC AND DILUTED (LOSS)
PER COMMON SHARE $ (0.05) $ (0.21)
=========== ===========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 8,980,244 8,980,235
=========== ===========
See Notes to Consolidated Financial Statements.
3
<PAGE>
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
<TABLE>
Preferred Common
-------------------- -------------------------
Number of Number of
Shares Amount Shares Amount
------- ------------ ---------- ------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
BALANCE - JUNE 30, 2000 362,484 $ 36,248,375 11,884,270 $ 23,768,539
Shares Issued for Fractional
Exchanges With Respect to the
One-for-twenty Reverse Stock
Split effected on March 13, 1992 2 200 6 12
Amortization of Deferred
Compensation Costs -- -- -- --
Net (Loss) for the Three Months
Ended September 30, 2000 -- -- -- --
------- ------------ ---------- ------------
BALANCE - SEPTEMBER 30, 2000 362,486 $ 36,248,575 11,884,276 $ 23,768,551
======= ============ ========== ============
</TABLE>
<TABLE>
Capital Treasury Deferred
in Excess Stock, Compen-
of Par (Deficit) At Cost sation Total
------------ ------------ ------------ --------- ------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE - JUNE 30, 2000 $ 26,144,540 $(45,003,895) $ (7,260,040) $ (26,667) $ 33,870,852
Shares Issued for Fractional
Exchanges With Respect to the
One-for-twenty Reverse Stock
Split effected on March 13, 1992 (212) -- -- -- --
Amortization of Deferred
Compensation Costs -- -- -- 1,250 1,250
Net (Loss) for the Three Months
Ended September 30, 2000 -- (469,752) -- -- (469,752)
------------ ------------ ------------ --------- ------------
BALANCE - SEPTEMBER 30, 2000 $ 26,144,328 $(45,473,648) $ (7,260,040) $ (25,417) $ 33,402,349
============ ============ ============ ========= ============
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE>
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
<TABLE>
Three Months Ended
September 30,
-------------
2000 1999
---- ----
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
(LOSS) BEFORE DISCONTINUED OPERATIONS $ (469,752) $(1,919,542)
----------- -----------
Adjustments to reconcile (loss) to net cash (used in)
operating activities:
Depreciation and Amortization 15,594 15,904
Changes in Operating Assets and Liabilities -
(Increase) in Restricted Cash & Investments (14,430) 0
Decrease in Accounts Receivable 427,654 187,889
(Increase) Decrease in Other Assets (7,063) 598
Decrease in Prepaid Expenses 95,719 104,761
Increase in Accounts Payable and Accrued Expenses 11,742 879,587
----------- -----------
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES BEFORE
DISCONTINUED OPERATIONS 59,464 (730,803)
CASH PROVIDED BY (USED IN) DISCONTINUED OPERATING ACTIVITIES 11,676 (25,935)
----------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 71,140 (756,738)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures 0 (1,210)
----------- -----------
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
BEFORE DISCONTINUED INVESTING ACTIVITIES 0 (1,210)
CASH (USED IN) DISCONTINUED INVESTING ACTIVITIES 0 (130,000)
----------- -----------
NET CASH (USED IN) INVESTING ACTIVITIES 0 (131,210)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Loan 150,000 0
Escrow Deposits Utilized 0 94,747
Deposit to Escrow Funds 0 (320,000)
(Increase) in Balances Due to/From Discontinued Subsidiaries (136,405) (28,051)
Principal Payments on Short Term Notes 0 (80,997)
----------- -----------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
BEFORE DISCONTINUED FINANCING ACTIVITIES 13,595 (334,301)
CASH PROVIDED BY DISCONTINUED FINANCING ACTIVITIES 5,475 286,652
----------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 19,070 (47,649)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 90,210 (935,597)
LESS CASH AND CASH EQUIVALENTS AT END OF THE PERIOD
FROM DISCONTINUED OPERATIONS (17,151) (130,716)
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD
BEFORE DISCONTINUED OPERATIONS 271,119 1,358,200
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $ 344,178 $ 291,887
=========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest $ 0 $ 0
Income Taxes $ 0 $ 0
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE>
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared
assuming International Thoroughbred Breeders, Inc. and subsidiaries
(collectively, the "Company") will continue as a going concern. The remaining
debt to the Company's primary lender was due June 30, 1999. On May 7, 1999, the
Company notified their primary lender, Credit Suisse First Boston Mortgage
Capital LLC ("Credit Suisse"), of its intent to extend the loan maturity date to
June 30, 2000. On January 21, 2000 after obtaining the written consent of the
holders of a majority of the outstanding shares of stock of the Company entitled
to vote thereon, the Company entered into a restructuring agreement with Credit
Suisse. Prior to this agreement, the Company had been in a maturity default with
Credit Suisse for its loan due on June 1, 1999 (the "CSFB Loan") in the
principal amount of $30,500,000 plus unpaid interest since June 1, 1999. The
restructuring agreement returned the loan to a good standing position and
extended the maturity date of the CSFB Loan to June 30, 2000. The maturity date
was further extended to November 30, 2000 as a result of the pending sale of the
Garden State Park property.
On January 25, 2000, the Company entered into agreements with unrelated
third parties for the sale of the Garden State Park and El Rancho properties. On
May 22, 2000 the Company closed on the sale of the El Rancho property and
reduced the debt to Credit Suisse to $14,668,022. Unless the scheduled closing
of the Garden State Park property prior to December 1, 2000 is consummated, the
Company will be in default with respect to the Credit Suisse loan due on
November 30, 2000. The Company does not have any committed source of working
capital and there are no assurances that the Company would be successful in
obtaining working capital from other sources. There can be no assurances that
the sale of the Garden State Park property will be consummated or to the timing
thereof.
The Company has sustained losses of approximately $33 million during the
last three fiscal years and a loss of $469,752 for the three months ended
September 30, 2000, all of which raise substantial doubt about its ability to
continue as a going concern. The Company believes its projected cash flows from
its current operations will be sufficient until November 30, 2000 and there can
be no assurances beyond that date.
The Company currently estimates that approximately $150,000 per month is
needed to cover operating expenses of International Thoroughbred Breeders.
Should the closing of the Garden state Park property be delayed beyond November
30, 2000, the Company will need to seek additional short term loans or
additional advances from the buyer to fund its operations
The Company's Board is continuing to consider all of the Company's
strategic options to maximize stockholder value and alternatives for the
Company's future.
The financial statements do not include any adjustments that might result
from the outcome of these uncertainties.
(2) CLASSIFICATIONS
Certain prior years' amounts have been reclassified to conform with the
current years' presentation.
6
<PAGE>
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(3) DISCONTINUED OPERATIONS
On January 28, 1999, the Company completed the sale of the real property
and certain related assets at Freehold Raceway and a ten-acre parcel of land at
the Garden State Park facility, and the lease of the real property and certain
related assets of Garden State Park for a seven-year period.
The net assets of the operations to be disposed of included in the accompanying
consolidated balance sheets as of September 30, 2000 consist of the following:
Classified As:
Current Assets $ 545,929
Current Liabilities (1,070,221)
-----------
Deferred Income (938,417)
Net Liabilities of Discontinued Operations - Current (1,462,709)
Property Assets of Garden State Park 30,000,000
-----------
Net Assets of Discontinued Operations $ 28,537,291
===========
On January 25, 2000, the Company entered into an Agreement of sale pursuant
to which it has agreed to sell the real property known as Garden State Park to
Turnberry/Cherry Hill LLC. Under the Agreement of Sale, as amended, the purchase
price for the Garden State Park real property is $30 million, plus assumption of
certain monetary obligations of the Company with respect to the property sold
which aggregate approximately $500,000 (the "Assumed Liability"). The buyer also
agreed to pay up to $200,000 per month of the Company's out-of-pocket carrying
costs of the Garden State Park property after April 15, 2000 (including interest
on the Company's Mortgage debt). At closing, $20 million of the purchase price
will be payable in cash (of which the Company has already received deposits of
$1,000,000), and the buyer will deliver its promissory note in the face amount
of $10 million (the "Note"). Under the Note, once the buyer has made
distributions to its equity investors equal to the amount of their invested
capital contributions plus an agreed upon return thereon, the next $10 million
of the buyer's distributable cash would be paid under the Note to the Company,
and the Company thereafter would receive payments under the Note equal to
one-third of the distributable cash of the buyer, including (without limitation)
distributable cash generated by development, sale or leasing of the Garden State
Park property. The agreed upon rate of return to be paid to buyer's owner on its
invested capital contributions, before payments under the Note will be made,
will be 15% per year, except that the rate of return on capital invested by
buyer's owner to cover certain costs, in excess of $1,000,000, which buyer may
incur in respect of the Assumed Liability, environmental investigation and
remediation, and various other specified items (including the September
extension fee of $146,680 paid to the Company's primary lender, CSFB), may be as
high as 33 1/3% per annum. Closing is scheduled to occur prior to December 1,
2000. The parties continue to negotiate certain issues and there can be no
assurance that the transaction will be consummated.
7
<PAGE>
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(4) NOTES AND MORTGAGES PAYABLE
Notes and Mortgages Payable are summarized below:
September 30, 2000
---------------------------
Interest % Per Annum Current Long-
Term
--------------------- -------------- --------
International Thoroughbred
Breeders Inc.:
Credit Suisse First Boston (A) LIBOR Rate plus 7% $ 14,668,022 $ -0-
(9/30/00 rate 13.62%)
REB Bankruptcy Trustee (B) Prime Rate 3,652,226 -0-
(9/30/00 rate 9.50%)
Robert E. Brennan Jr. (C) -0- 482,000
Other Various 334,307 -0-
Garden State Park:
Service America Corporation (D) 6% 320,000 -0-
Other (E) Various 137,982 -0-
------------ ----------
Totals $ 19,112,537 $ -0-
Less Amounts Reclassified to:
Net Liabilities of Discontinued
Operations - Current (457,982) -0-
------------ ----------
Totals $ 18,654,555 $ 482,000
============ ==========
The effective LIBOR Rate and the Prime Rate at September 30, 2000 was 6.62% and
9.5%, respectively.
(A) On May 23, 1997, the Company entered into a two-year $55 million credit
facility with Credit Suisse First Boston Mortgage Capital LLC, ("Credit Suisse")
secured by a pledge of certain of the personal and real property of the Company
and its subsidiaries (the "Credit Suisse Credit Facility"). Proceeds of this
facility were used to repay in full the Company's $30 million existing credit
facility and to provide funds for working capital and other general corporate
purposes, including, but not limited to, preliminary development of the El
Rancho Property. Of the remaining facility borrowings, approximately $16.8
million was placed in escrow accounts, financing and closing fees of $4.3
million were incurred by the Company and $3.9 million was used by the Company
for general corporate purposes and repayment of certain other financial
obligations. Interest under the Credit Suisse Credit Facility is payable monthly
in arrears at 7% over the London interbank offered rate ("LIBOR").
On January 21, 2000, after obtaining the written consent of the holders of
a majority of the outstanding shares of stock of the Company entitled to vote
thereon, the Company entered into a restructuring agreement (the "Restructure
Agreement") with Credit Suisse. Prior to this agreement, the Company had been in
a maturity default with Credit Suisse for its loan due on June 1, 1999 (the
"CSFB Loan") in the principal amount of $30,500,000 plus unpaid interest since
June 1, 1999. On November 17, 1999, the Company and Credit Suisse signed a term
sheet outlining the terms and conditions of the Restructure Agreement. At that
time, accrued interest in the amount of $1,762,891 was added to the principal
balance of the note.
8
<PAGE>
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The Restructure Agreement returned the loan to a good standing position and
extended the maturity date of the CSFB Loan to June 30, 2000. As part of the
Restructure Agreement, the Company agreed that as of January 21, 2000, the
restructured principal balance due on the CSFB Loan was $33,103,189, which
consisted of: (i) the principal amount of $30,500,000 remaining on the CSFB
Loan; (ii) accrued interest advanced by Credit Suisse from June 1, 1999 to
January 21, 2000 in the amount of $2,523,189; and (iii) an advance of a portion
of Credit Suisse's legal fees incurred in connection with the Restructure
Agreement in the amount of $80,000. Credit Suisse agreed, pursuant to the
Restructure Agreement, to advance the monthly interest payments due by the
Company under the CSFB Loan until April 15, 2000. Such interest amounts shall,
to the extent not paid when due by the Company, become part of the outstanding
principal balance of the CSFB Loan on the date such interest becomes due.
On January 28, 1999, a portion of the proceeds from the Greenwood
Transaction and $2,500,000 held in escrow was used to reduce the principal
balance on the Credit Suisse Note to $30.5 million and to pay a 2% prepayment
fee of $500,000, recorded as financing expenses, to Credit Suisse. On May 22,
2000, the proceeds from the sale of the El Rancho property were principally used
by the Company to reduce the outstanding balance on the CSFB Loan to
$14,668,022. The Company has entered into an Agreement of sale pursuant to which
it has agreed to sell the real property known as Garden State Park to
Turnberry/Cherry Hill LLC. CSFB has agreed to extend the maturity date of the
Company's mortgage indebtedness to November 30, 2000 in order to permit this
sale to the buyer, subject to payment of interest monthly in advance and payment
of monthly extension fees for September, October and November, 2000, in the
amount of $146,680 per month. The buyer has been paying the interest accruing to
CSFB since April 15, 2000 and has paid the extension fee for September in the
amount of $146,680. Extension fees paid by the buyer for October and November,
2000 will be credited towards the purchase price at closing. If the transaction
fails to close by November 30, 2000, CSFB may declare a default and proceed to
sell the Garden State Park property.
The Credit Suisse Credit Facility is evidenced by a convertible promissory
note (the "Credit Suisse Note") pursuant to which $10 million of the aggregate
principal amount of the CSFB Note can be converted in certain circumstances,
including on the maturity date of the CSFB Note, upon the prepayment of at least
$10 million in an aggregate principal amount of the CSFB Note or upon
acceleration of the CSFB Note, at the option of Credit Suisse, into shares of
the Company's Common Stock at a conversion price of $8.75 per share (subject to
adjustment in certain events). In addition, Credit Suisse was granted warrants
to purchase 1,044,000 shares (valued at $1,269,579) at an exercise price of
$4.375 per share (subject to adjustment in certain events). The warrants to
purchase 546,847 shares are immediately exercisable, have been valued at
approximately $1.6 million and have been recorded as original issue discount.
The warrants to purchase 497,153 shares became exercisable January 28, 1999,
following the consummation of the Delaware Settlement and were recorded as
financing expenses in the amount of $1,242,883 during the third quarter of
Fiscal 1999.
Credit Suisse also received 232,652 shares of the Company's Common Stock
upon the prior conversion of a $10.5 million promissory note issued by the
Company to LVEN in consideration for Credit Suisse's consent and advisory
services in connection with this transaction. The Company has granted Credit
Suisse certain registration rights with respect to the above described warrants
and shares.
The Credit Suisse Credit Facility also provides for both affirmative and
negative covenants, including financial covenants such as tangible net worth, as
defined in the Credit Suisse Credit Facility.
(B) On January 28, 1999, the Company executed a note (the "Trustee Note")
in the principal amount of $3,558,032 to the Chapter 11 Bankruptcy Trustee for
the estate of Robert E. Brennan (the "Trustee") in order to purchase 2,904,016
shares of the Company's Common Stock from NPD, a company owned by the Company's
former Chief Executive Officer. The Trustee received: (a) a pay down on the NPD
Note from the original principal balance of $5,808,032 to $3,558,032; (b) a
promissory note from ITB in the amount of $3,558,032 (the "ITB Note"), on
substantially the same terms as the NPD Note, except that the ITB Note becomes
due and payable on the earlier to occur of (i) January 15, 2001, or (ii) the
closing
9
<PAGE>
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
of either the sale of the Company's non-operating El Rancho hotel and casino
property in Las Vegas, Nevada (the "El Rancho Property"), or the sale of Garden
State Park (the "Garden State Property"); (c) a security interest in the NPD
Shares; (d) the payment of the costs and expenses incurred by the Bankruptcy
Trustee in connection with the Delaware Settlement and the Trustee Settlement;
(e) subordinate interests in both the El Rancho Property and the Garden State
Property; and (f) an escrow of the July 15, 1999 interest payment due on the ITB
Note. Proceeds from the sale of the El Rancho property were used to reduce the
CSFB debt due to this note being subordinate to the CSFB debt. (See below)
In connection with the January 21, 2000 Restructure Agreement with Credit
Suisse, the Trustee entered into an agreement with the Company wherein: (i) the
amounts due under the Trustee Note are due at the earlier of (a) June 1, 2000 or
(b) the date on which the latter of the Garden State Park or El Rancho property
is sold, provided that the sale of the latter will satisfy the remaining balance
on the CSFB Loan and the Trustee Note; (ii) all interest due under the Trustee
Note will be accrued and deferred until the maturity date of the Note; and (iii)
the Company shall reimburse the Trustee for legal and accounting fees up to
$20,000, which amount will be advanced by the Trustee and added to the
outstanding principal balance of the Trustee Note. Pursuant to the Restructure
Agreement, the Trustee Note is subordinate to the CSFB Loan, thereby principal
and interest payments on the Trustee Note will be made only if and when the CSFB
Loan is paid in full.
(C) On February 24, 2000, the Company sold several pieces of artwork to
Robert E. Brennan Jr., son of the Company's former Chairman and Chief Executive
Officer. The $218,000 sales price of the artwork was in excess of the original
cost of $186,600. The Company recorded a $31,400 gain on the sale in Fiscal
2000. In addition, the Company purchased two large bronze sculptures located on
the Garden State Park property that were previously on loan to the Company from
Mr. Brennan Jr. The purchase price of the sculptures was $700,000. In connection
with the transaction, the Company signed a $482,000 promissory note with Mr.
Brennan Jr. which represented the purchase price of the sculptures less the
sales price of the artwork sold to Mr. Brennan Jr. The note is due on January
31, 2002 without interest if the principal is paid on or before January 31,
2002. Any amounts not paid prior to January 31, 2002 will accrue interest at 8%
On July 27, 2000 the Company received a notice from the Chapter 11 Trustee for
the bankruptcy estate of Robert E. Brennan asserting certain ownership rights in
a number of items on loan to the Company, including the sculptures mentioned
above.
(D) In connection with the January 28, 1999 lease transactions for the
Garden State Park facility, the Company purchased the undepreciated balance of
equipment located at Garden State Park and a liquor license owned by an
unaffiliated third party, Service America Corporation, for $500,000 ($100,000 of
which will be paid by the lessee when title is transferred to Pennwood, which
event has not occurred as of September 30, 2000) financed by a five (5) year
promissory note at a 6% interest rate. The Company paid $100,000 on June 1,
1999, a principal and interest payment of $99,200 on December 28, 1999 and is
scheduled to make principal payments of $80,000 plus interest on December 28th
for the next three years.
(E) In connection with the January 28, 1999 lease transactions for the
Garden State Park facility, a note associated with certain equipment at the
Garden State Park facility will be paid by Greenwood as part of the lease
agreement.
(5) COMMITMENTS AND CONTINGENCIES
A state has asserted a tax claim for the period June 30, 1988 to June 30,
1991 (during which the Company maintained an accounting office in the state) for
a Foreign Corporate Franchise Tax in the approximate amount of $400,000 (which
amount was accrued in Fiscal 1998), not taking into consideration any interest
or penalties that may be assessed. At this time, the Company cannot predict the
final amount which may be due. It is likely that litigation will have to
commence in the courts to pursue a compromise of the amount due. It is unknown
at this time whether the Company will be successful in abating all or part of
the tax due.
10
<PAGE>
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Commencing in the third quarter of Fiscal 1999, the Company and certain of
its officers and directors and former officers and directors received subpoenas
from the Securities and Exchange Commission (the "SEC") relating to certain
transactions and reports. The Company has fully cooperated with the SEC's
investigation.
The Company is responsible for remediation costs associated with an
environmental site on the Freehold Raceway property. The Company has accrued
what it believes to be the total cost of remediation. At June 30, 1999 and 1998,
the Company had accrued $300,000 and $100,000, respectively, for remediation
costs.
In connection with the environmental evaluation on the Garden State Park
property by the prospective buyer, the Company has been made aware of certain
environmental issues that may have to be addressed with respect to the sale of
the property. At this time, the Company cannot make a determination as to any
costs that would be necessary to correct the situation or the extent of any
violations. In addition, the State of New Jersey has fined the Company $75,000
for alleged violations with respect to required environmental reports not being
filed with the state following the property's lease to Pennwood. The Company is
negotiating with Pennwood to recover the cost in accordance with the terms of
the lease.
In connection with the January 28, 1999 lease transactions for the Garden
State Park facility, a note associated with certain equipment at the Garden
State Park facility is being paid by Greenwood as part of the lease agreement.
In the event that the Company or Pennwood terminates its lease agreement prior
to July 2001 when the note is fully paid, the Company will be responsible for
the monthly note payments of approximately $17,000. The Company may be required
to reimburse approximately $240,000 to Pennwood for all the payments made on the
note from the inception of the lease should the Company sell the property to a
third party. The Company is currently negotiating with Turnberry for these
reimbursement costs to be included as a cost of purchasing the property.
In connection with the January 28, 1999 lease transactions for the Garden
State Park facility, the Company purchased a liquor license owned by an
unaffiliated third party, Service America Corporation, for $500,000 ($100,000 of
which will be paid by the lessee when title is transferred to Pennwood, which
event has not occurred as of September 30, 2000) financed by a five (5) year
promissory note at a 6% interest rate. The Company paid $100,000 on June 1,
1999, $99,200 on December 28, 1999 and is scheduled to make principal payments
of $80,000 plus interest on December 28th for the next three years. In the event
Pennwood is awarded a license to own and operate an off-track betting facility
prior to January 28, 2002, the Company will be required to release the liquor
license to Pennwood in consideration of the $100,000 payment to be made by
Pennwood for the transfer of the title to the liquor license.
The Chapter 11 Bankruptcy Trustee (the "Trustee") for the estate of Robert
E. Brennan has asserted certain claims challenging the ownership of
approximately 2,300,000 shares of the Company's Common Stock (the "Shares") held
by certain individuals. In order to preserve the Company's net operating loss
carryforwards from being lost due to the shares being transferred, the Company
and the Trustee have entered into an agreement whereby the Trustee has agreed to
accept a letter of credit for $1,150,000, which will be secured by an amount of
$1,150,000 held in escrow, that will be used to purchase his interest in the
Shares in the event that he is awarded a judgement granting him an ownership
interest in the Shares.
The Company's debt with CSFB is due on November 30, 2000. Unless the sale
of the Garden State Park property is consummated prior to that date, the Company
will be in default in connection with the CSFB loan agreement. Additionally, the
cash proceeds from the sale must be in an amount sufficient to satisfy the loan
due on the trustee note together with accrued interest. The total amount due on
November 30, 2000 to satisfy the CSFB loan together with accrued interest and
fees and the trustee note together with accrued interest is approximately
$18,600,000. The proceeds from the sale of the Garden State Park property are
expected to be sufficient to meet this obligation.
11
<PAGE>
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
LEGAL PROCEEDINGS
The Company is a defendant in a wrongful death action arising out of a
motor vehicle/pedestrian accident at Freehold Raceway. The case is in the
initial stages of discovery. The Company believes that it has adequate insurance
coverage for the claim, however, because of the uncertainties, the Company is
unable to determine at this time the potential liability, if any. Any claim for
punitive damages would not be covered by insurance.
The Company is a defendant in various other lawsuits incidental to the
ordinary course of business. It is not possible to determine with any precision
the probable outcome or the amount of liability, if any, under these lawsuits;
however, in the opinion of the Company and its counsel, the disposition of these
lawsuits will not have material adverse effect on the Company's financial
position, results of operations, or cash flows.
(6) FAIR VALUE OF FINANCIAL INSTRUMENTS
As of June 30, 2000, in assessing the fair value of financial instruments,
the Company has used a variety of methods and assumptions, which were based on
estimates of market conditions and loan risks existing at that time. For certain
instruments, including cash and cash equivalents, investments, non-trade
accounts receivable and loans, and short-term debt, it was estimated that the
carrying amount approximated fair value for the majority of these instruments
because of their short-term maturity. The carrying amounts of long term debt
approximate fair value since the Company's interest rates approximate current
interest rates.
(7) STOCK OPTIONS AND WARRANTS
(A) EMPLOYEE AND NON-EMPLOYEE OPTIONS
At September 30, 2000, total employee options outstanding were 1,055,000
and total non-employee options outstanding were 300,000.
(B) WARRANTS
At September 30, 2000, total warrants outstanding were 2,604,000. All
warrants are exercisable at September 30, 2000.
(8) RELATED PARTY TRANSACTIONS
On September 18, 2000, the Company borrowed $150,000 from the Company's
acting Chief Executive Officer, Mr. Francis Murray, in order to finance its
current operations until November 30, 2000. The Company expects to repay the
note with a portion of the Garden State Park sale proceeds.
For additional information regarding related party transactions see
Footnote 15 in the consolidated financial statements included in the Company's
Form 10-K for the fiscal year ended June 30, 2000.
12
<PAGE>
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
MANAGEMENT'S ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS FOR THE THREE MONTHS
ENDED SEPTEMBER 30, 2000
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Company's working capital, as of September 30, 2000, was a deficit of
($18,244,282) which represents a decrease in the deficit of approximately
$16,534,668 from the September 30, 1999 working capital deficit of
($34,778,950). The decrease in the deficit was primarily caused by: (i) the
funds received from the sale of the El Rancho property that were; (a) in excess
of the carrying value of the property; (b) were used to retire $17.9 million of
the debt to the Company's primary lender, Credit Suisse First Boston Mortgage
Capital LLC, ("Credit Suisse"); and (c) were used to purchase a $23,000,000
promissory note from the buyer; ii) a $1,985,456 decrease in net assets of
Discontinued Racetrack Operations primarily the result of: (a) cash used by the
Company to fund corporate activities; and (b) non-refundable deposits of
$1,000,000 on the sale of the Garden State Park property classified as deferred
income at September 30, 2000.
The net loss for the three months ended September 30, 2000 was ($469,752).
Cash flows provided by operating activities amounted to approximately $71,140
during the three months ended September 30, 2000.
Cash provided by financing activities was $19,070 during the three months
ended September 30, 2000, consisting principally of a $150,000 loan from the
Company's acting Chief Executive Officer partially offset by cash used by the
Company in the form of advances to the subsidiaries. (See Notes 4 and 8)
On May 23, 1997, the Company obtained a credit facility from Credit Suisse.
This two-year $55 million facility was secured by a pledge of certain of the
personal and real property of the Company and its subsidiaries. Interest under
the Credit Suisse Credit Facility is payable monthly in arrears at 7% over the
LIBOR rate. On January 28, 1999, the credit facility was reduced to $30.5
million in connection with the sale of certain assets of Freehold Raceway and
the sale of a ten-acre parcel of land at the Garden State Park facility. On
January 21, 2000 after obtaining the written consent of the holders of a
majority of the outstanding shares of stock of the Company entitled to vote
thereon, the Company entered into a restructuring agreement (the "Restructure
Agreement") with Credit Suisse. Prior to this agreement, the Company had been in
a maturity default with Credit Suisse for its loan due on June 1, 1999 (the
"CSFB Loan") in the principal amount of $30,500,000 plus unpaid interest since
June 1, 1999. The Restructure Agreement returned the loan to a good standing
position and extended the maturity date of the CSFB Loan to June 30, 2000. As
part of the Restructure Agreement, the Company agreed that as of January 21,
2000, the restructured principal balance due on the CSFB Loan was $33,103,189,
which consisted of: (i) the principal amount of $30,500,000 remaining on the
CSFB Loan; (ii) accrued interest advanced by Credit Suisse from June 1, 1999 to
January 21, 2000 in the amount of $2,523,189; and (iii) an advance of a portion
of Credit Suisse's legal fees incurred in connection with the Restructure
Agreement in the amount of $80,000. Credit Suisse agreed, pursuant to the
Restructure Agreement, to advance the monthly interest payments due by the
Company under the CSFB Loan until April 15, 2000. Such interest amounts shall,
to the extent not paid when due by the Company, become part of the outstanding
principal balance of the CSFB Loan on the date such interest becomes due. On May
22, 2000, the proceeds from the sale of the El Rancho property were principally
used by the Company to reduce the outstanding balance on the CSFB Loan to
$14,668,022. The Company has entered into an Agreement of sale pursuant to which
it has agreed to sell the real property known as Garden State Park to
Turnberry/Cherry Hill LLC. CSFB has agreed to extend the maturity date of the
Company's mortgage indebtedness to November 30, 2000 in order to permit this
sale to the buyer, subject to payment of interest monthly in advance and payment
of monthly extension fees for September, October and November, 2000, in the
amount of $146,680 per month. The buyer has been paying the interest accruing to
CSFB since April 15, 2000 and has paid the extension fee for September in the
amount of $146,680. Extension fees paid by the buyer for October and November,
2000 will be credited towards the purchase price at closing. If the transaction
fails to close by November 30, 2000,
13
<PAGE>
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
MANAGEMENT'S ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS FOR THE THREE MONTHS
ENDED SEPTEMBER 30, 2000
CSFB may declare a default and proceed to sell the Garden State Park property.
At September 30, 2000, the interest rate on the Credit Suisse Credit Facility
was 13.62%.(See Notes 4 and 6)
In connection with the Restructure Agreement, the Chapter 11 Bankruptcy
Trustee (the "Trustee") for the estate of Robert E. Brennan, to whom the Company
and its subsidiaries Garden State Race Track, Inc. and Orion Casino Corporation
are indebted to in the remaining principal amount of $3,363,032, as evidenced by
a note dated January 28, 1999 (the "Trustee Note"), entered into an agreement
with the Company wherein: (i) the amounts due under the Trustee Note are due at
the earlier of (a) June 1, 2000 or (b) the date on which the latter of the
Garden State Park or El Rancho property is sold, provided that the sale of the
latter will satisfy the remaining balance on the CSFB Loan and the Trustee Note;
(ii) all interest due under the Trustee Note will be accrued and deferred until
the maturity date of the Note; and (iii) the Company shall reimburse the Trustee
for legal and accounting fees up to $20,000, which amount will be advanced by
the Trustee and added to the outstanding principal balance of the Trustee Note.
Pursuant to the Restructure Agreement, the Trustee Note is subordinate to the
CSFB Loan, thereby principal and interest payments on the Trustee Note will be
made only if and when the CSFB Loan is paid in full.
Pursuant to the Restructure Agreement, Garden State Race Track, Inc.
transferred title to the Garden State Race Track to GSRT, LLC ("GSRT"), a
Delaware limited liability company in which Garden State Race Track, Inc. is the
sole member, the result of which effects no change in real ownership. Pursuant
to the limited liability company agreement of GSRT entered into in connection
with the Restructure Agreement, Garden State Race Track, Inc. may cause GSRT to
enter into an arm's-length sale or joint venture of the Garden State Property
under certain enumerated circumstances and conditions, including that the
purchase price for such sale or joint venture be at least equal to fifty-percent
of the combined outstanding principal balance of the CSFB Loan and the Trustee
Note, which amount must be paid to Credit Suisse, and the contract for such sale
or joint venture must have been entered into on or prior to January 25, 2000
(the "GSRT Option").
On January 25, 2000, the Company entered into an Agreement of Sale pursuant
to which it has agreed to sell the real property known as Garden State Park to
Turnberry/Cherry Hill LLC. The terms of the sale met all the conditions required
by Credit Suisse to be a valid GSRT Option, according to a letter received from
Credit Suisse. Under the Agreement of Sale, as amended, the purchase price for
the Garden State Park real property is $30 million, plus assumption of certain
monetary obligations of the Company with respect to the property sold which
aggregate approximately $500,000 (the "Assumed Liability"). The buyer also
agreed to pay up to $200,000 per month of the Company's out-of-pocket carrying
costs of the Garden State Park property after April 15, 2000 (including interest
on the Company's mortgage debt). At closing, $20 million of the purchase price
will be payable in cash (of which the Company has already received deposits of
$1,000,000), and the buyer will deliver its promissory note in the face amount
of $10 million (the "Note"). Under the Note, once the buyer has made
distributions to its equity investors equal to the amount of their invested
capital contributions plus an agreed upon return thereon, the next $10 million
of the buyer's distributable cash would be paid under the Note to the Company,
and the Company thereafter would receive payments under the Note equal to
one-third of the distributable cash of the buyer, including (without limitation)
distributable cash generated by development, sale or leasing of the Garden State
Park property. The agreed upon rate of return to be paid to buyer's owner on its
invested capital contributions, before payments under the Note will be made,
will be 15% per year, except that the rate of return on capital invested by
buyer's owner to cover certain costs, in excess of $1,000,000, which buyer may
incur in respect of the Assumed Liability, environmental investigation and
remediation, and various other specified items (including the September
extension fee of $146,680 paid to the Company's primary lender, CSFB), may be as
high as 33 1/3% per annum. Closing is scheduled to occur prior to December 1,
2000. The parties continue to negotiate certain issues and there can be no
assurance that the transaction will be consummated.
On February 24, 2000, the Company sold several pieces of artwork to Robert
E. Brennan Jr., son of the Company's former Chairman and Chief Executive
Officer. The $218,000 sales price of the artwork was in excess of the original
cost of $186,600. The Company recorded a $31,400 gain on the sale in Fiscal
14
<PAGE>
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
MANAGEMENT'S ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS FOR THE THREE MONTHS
ENDED SEPTEMBER 30, 2000
2000. In addition, the Company purchased two large bronze sculptures located on
the Garden State Park property that were previously on loan to the Company from
Mr. Brennan Jr. The purchase price of the sculptures was $700,000. In connection
with the transaction, the Company signed a $482,000 promissory note with Mr.
Brennan Jr. which represented the purchase price of the sculptures less the
sales price of the artwork sold to Mr. Brennan Jr. The note is due on January
31, 2002 without interest if the principal is paid on or before January 31,
2002. Any amounts not paid prior to January 31, 2002 will accrue interest at 8%.
On July 27, 2000 the Company received a notice from the Chapter 11 Trustee for
the bankruptcy estate of Robert E. Brennan asserting certain ownership rights in
a number of items on loan to the Company, including the sculptures mentioned
above.
On May 22, 2000, the Company, through its wholly-owned subsidiary, Orion
Casino Corporation, closed on the sale (the "El Rancho Transaction") of the
non-operating former El Rancho Hotel and Casino (the "El Rancho Property") in
Las Vegas, Nevada, to Turnberry/Las Vegas Boulevard, LLC ("Turnberry"). The
purchase price was $45 million and was paid by: (i) previous cash deposits
totaling $2,000,000; and (ii) the balance of the purchase price paid in cash at
the closing. The proceeds of the El Rancho Transaction were principally used by
the Company to reduce the outstanding balance on the Company's loan from Credit
Suisse First Boston Mortgage Capital LLC ("Credit Suisse") to $14.7 million and
to purchase a promissory note, secured by the rights to 100% of the
distributable cash of the buyer in the event of default, of the buyer in the
amount of $23,000,000 which will be convertible at the Company's option into a
33 1/3% equity interest in the buyer. The interest rate will be adjusted from
time to time since the interest actually payable will be dependent upon, and
payable solely out of, the buyer's net cash flow available for distribution to
its equity owners ("Distributable Cash"). After the equity investors in the
buyer have received total distributions equal to their capital contributions
plus an agreed upon return on their invested capital, the next $23 million of
Distributable Cash will be paid to the Company. The Company will thereafter
receive payments under the note equal to 33 1/3% of all Distributable Cash until
the maturity date, which occurs on the 30th anniversary of the Company's
purchase of the note. The Company may convert the promissory note, at its
option, into a 33 1/3% equity interest in the buyer during a six month period
beginning at the 15th anniversary of the issuance of the note. If not then
converted, the note will convert into a 33 1/3% equity interest in the buyer at
the 30th anniversary of its issuance. The Company has elected to defer the gain
on the sale until such time that collectability, under the $23,000,000 note
purchased from Turnberry after the closing, can be determined.
On January 28, 1999, the Company completed the sale of Freehold Raceway,
the sale of a ten-acre parcel at Garden State Park and the lease of the Garden
State Park facilities to subsidiaries of Greenwood Racing, Inc.("Greenwood"),
which owns Philadelphia Park racetrack, the Turf Clubs and Phonebet (the
"Greenwood Transaction"). The purchase price was $46 million ($1 million of
which will be held in escrow to cover certain indemnification and other
obligations of the Company), with an additional $10 million in contingent
promissory notes (the "Contingent Notes") which become effective upon, among
other things, the New Jersey Legislature's approval of off-track betting
facilities or telephone account pari-mutuel wagering on horse racing. Further
adjustments could be made to increase the purchase price if certain additional
regulatory gaming changes are approved by the New Jersey Legislature in the
future. The Greenwood Transaction was subsequently amended to include Penn
National Gaming, Inc.("Penn National"), which owns Penn National Race Course,
Pocono Downs Racetrack, Charles Town Races and at least ten off-track betting
parlors in Pennsylvania as a 50% joint venture between Greenwood and Penn
National ( "Pennwood"). Greenwood and Pennwood have guaranteed the performance
by the purchaser of all obligations under the Contingent Notes.
On September 18, 2000, the Company borrowed $150,000 from the Company's
acting Chief Executive Officer, Mr. Francis Murray, in order to finance its
current operations until November 30, 2000. The Company expects to repay the
note with a portion of the Garden State Park sale proceeds.
The Company currently estimates that the proceeds from the sale of the El
Rancho property, the $500,000 deposit made available March 2, 2000 toward the
sale of the Garden State Park property and a short term loan of $150,000 made
available on September 18, 2000 will be sufficient to finance its current
15
<PAGE>
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
MANAGEMENT'S ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS FOR THE THREE MONTHS
ENDED SEPTEMBER 30, 2000
operations through November 30, 2000.
The Company's debt with CSFB is due on November 30, 2000. Unless the sale
of the Garden State Park property is consummated prior to that date or CSFB
further extends the due date of the Note, the Company will be in default in
connection with the CSFB loan agreement. Additionally, the cash proceeds from
the sale must be in an amount sufficient to satisfy the loan due on the trustee
note together with accrued interest. The total amount due on November 30, 2000
to satisfy the CSFB loan together with accrued interest and fees and the trustee
note together with accrued interest is approximately $18,600,000. The proceeds
from the sale of the Garden State Park property are expected to be sufficient to
meet this obligation.
The Company currently estimates that approximately $150,000 per month is
needed to cover operating expenses of International Thoroughbred Breeders.
Should the closing of the Garden State Park property be delayed beyond November
30, 2000, the Company will need to seek additional short term loans or
additional advances from the buyer to fund its operations.
The Company's Board is continuing to consider all of the Company's
strategic options to maximize stockholder value and alternatives for the
Company's future.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Footnote 1 to the
consolidated financial statements, the Company's debt with its major lender is
due November 30, 2000 and the Company has sustained losses of approximately $33
million during the last three fiscal years, all of which raise substantial doubt
about its ability to continue as a going concern. Management's plans in regard
to these matters are also described in Footnote 1 to the consolidated financial
statements. The consolidated financial statements do not include any adjustments
that might result from the outcome of these uncertainties.
Results of Operations for the Three Months Ended September 30, 2000 and 1999
Revenue for the three months ended September 30, 2000 increased $12,226
from $94,991 in Fiscal 2000 to $107,217 in Fiscal 2001 primarily as a result of
increased interest income. Expenses decreased $1,437,564 or 71%, from $2,014,533
in the three month period in Fiscal 2000 to $576,969 in the comparable period in
Fiscal 2001. This decrease in expenses was primarily the result of: (i)a
decrease in interest expense of $1,150,702 primarily as a result of interest on
the Company's mortgage debt being paid by the purchaser of the Garden State Park
property; (ii) the elimination of carrying costs on the El Rancho property as a
result of is sale in Fiscal 2000; partially offset by (iii) an increase in
general and administrative expenses of $89,787 from $482,205 in during the three
month period in Fiscal 2000 to $571,992 in for the comparable period in Fiscal
2001.
The increase in general and administrative expenses of $89,787 was
principally attributable to: (i) an increase of approximately $160,000 in costs
associated with the final phases of a stockholder lawsuit in the first quarter
of Fiscal 2001; (ii) a decrease in salaries and benefits of approximately
$43,000 associated with a reduced number of corporate employees in the
comparable three month periods; and (iii) a decrease in accounting fees of
$26,000 in the three month comparable period in Fiscal 2001.
For the first quarter of Fiscal 2001, the Company's loss was ($469,752) as
compared to a loss for the comparable period in prior fiscal year of
($1,919,542), a decrease in the loss of $1,449,790 or 76%. The decrease in net
loss was the result of those differences described above.
16
<PAGE>
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
MANAGEMENT'S ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS FOR THE THREE MONTHS
ENDED SEPTEMBER 30, 2000
Inflation
To date, inflation has not had a material effect on the Company's
operations.
Impact of Year 2000 on the Company's Systems
The year 2000 issue was the result of computer programs being written using
two digits rather than four to define the applicable year, which may have
resulted in systems failures and disruptions to operations at January 1, 2000.
Management determined where appropriate action was necessary and at a cost of
approximately $5,000 brought the Company's accounting and operational systems
into year 2000 compliance. The Company has not experienced any problems with its
vendors associated with a Year 2000 issue.
17
<PAGE>
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
Part II
OTHER INFORMATION
Item 6.
The Company did not file any reports on Form 8-K with respect to the
quarter ended September 30, 2000.
18
<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.
November 8, 2000 /s/Francis W. Murray
------------------------------
Francis W. Murray, President, and
Chairman of the Board
November 8, 2000 /s/William H. Warner
------------------------------
William H. Warner
Secretary/Treasurer
(Principal Financial and
Accounting Officer)
19
<PAGE>
