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, 2003
-------------------------------------------------
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
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International Thoroughbred Breeders, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 22-2332039
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
211 Benigno Boulevard, Bellmawr, New Jersey 08031
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(856) 931-8163
- --------------------------------------------------------------------------------
(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 16, 2003
- ------------------------------- ------------------------------------
Common Stock, $ 2.00 par value 8,252,133 Shares
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
FORM 10-Q
QUARTERLY REPORT
FOR THE NINE MONTHS ENDED MARCH 31, 2003
(Unaudited)
TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets
as of March 31, 2003 and June 30, 2002..............1-2
Consolidated Statements of Operations
for the Three Months and Nine Months ended
March 31, 2003 and 2002 ............................3
Consolidated Statement of Stockholders' Equity
for the Nine Months ended March 31, 2003............4
Consolidated Statements of Cash Flows
for the Nine Months ended
March 31, 2003 and 2002.............................5
Notes to Financial Statements..............................6-17
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.......18-23
Item 4. Controls and Procedures....................................24
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K...........................25
SIGNATURES.............................................................26
CERTIFICATIONS.........................................................27-29
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2003 AND JUNE 30, 2002
ASSETS
March 31,
2003 June 30,
(UNAUDITED) 2002
------------ ------------
CURRENT ASSETS:
Cash and Cash Equivalents $ 3,637,917 $ 796,610
Accounts Receivable 263,959 37,682
Prepaid Expenses 706,431 190,639
Spare Parts Inventory 1,076,211 0
Other Current Assets 684,451 391,596
Net Assets of Discontinued
Operations - Current 115,152 123,569
------------ ------------
TOTAL CURRENT ASSETS 6,484,121 1,540,096
------------ ------------
EQUIPMENT:
Leasehold Improvements -
Port of Palm Beach 719,488 0
Equipment 871,216 723,420
------------ ------------
1,590,704 723,420
LESS: Accumulated Depreciation
and Amortization 217,802 113,061
------------ ------------
TOTAL EQUIPMENT, NET 1,372,902 610,359
------------ ------------
OTHER ASSETS:
Notes Receivable 33,000,000 33,000,000
Deposit on Purchase of Palm Beach
Princess Mortgage 4,000,000 3,500,000
Deposits and Other Assets -
Non-Related Parties 85,560 374,724
Deposits and Other Assets -
Related Parties 5,932,760 6,903,115
------------ ------------
TOTAL OTHER ASSETS 43,018,320 43,777,839
------------ ------------
TOTAL ASSETS $ 50,875,343 $ 45,928,294
============ ============
See Notes to Consolidated Financial Statements.
1
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2003 AND JUNE 30, 2002
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31,
2003 June 30,
(UNAUDITED) 2002
------------ ------------
CURRENT LIABILITIES:
Accounts Payable $ 2,268,176 $ 1,324,351
Accrued Expenses 2,036,579 1,353,811
Short-Term Debt 2,900,550 1,062,280
Short-Term Debt - Related Parties 207,560 0
------------ ------------
TOTAL CURRENT LIABILITIES 7,412,865 3,740,442
------------ ------------
DEFERRED INCOME 8,226,540 8,226,540
------------ ------------
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY:
Series A Preferred Stock, $100 Par Value,
Authorized 500,000 Shares, 362,489 and
362,488 Issued and Outstanding,
respectively 36,248,875 36,248,775
Common Stock, $2 Par Value, Authorized
25,000,000 Shares, Issued, 11,480,278
and 11,480,275, respectively and
Outstanding, 8,252,133 and
11,480,275, respectively 22,960,555 22,960,549
Capital in Excess of Par 20,191,984 20,192,090
(Deficit)(subsequent to June 30, 1993,
date of quasi-reorganization) (42,538,488) (45,423,435)
------------ ------------
36,862,926 33,977,979
LESS:
Treasury Stock, 3,228,145 Shares, at Cost (1,614,072) 0
Deferred Compensation, Net (12,916) (16,667)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 35,235,938 33,961,312
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 50,875,343 $ 45,928,294
============ ============
See Notes to Consolidated Financial Statements.
2
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2003 AND 2002
(UNAUDITED)
Three Months Ended Nine Months Ended
March 31, March 31,
-------------------------- ----------------------------
2003 2002 2003 2002
------------ ----------- ------------ -------------
REVENUE:
Revenue from Operations $ 8,850,009 $ 7,941,213 $ 21,962,247 $ 18,847,585
Other Income 0 0 0 70,056
Interest Income 40,391 108,803 254,439 347,196
------------ ----------- ------------ -------------
TOTAL REVENUES 8,890,400 8,050,016 22,216,686 19,264,837
------------ ----------- ------------ -------------
EXPENSES:
Cost of Revenues:
Operating Expenses 4,904,627 4,601,560 13,471,516 13,077,840
Depreciation & Amortization 34,991 53,921 164,140 77,966
General & Administrative Expenses -
Palm Beach Princess 800,679 587,008 2,648,848 2,043,202
General & Administrative Expenses -
Parent 309,809 578,461 1,265,466 1,726,071
ITG Vegas Bankruptcy Costs 300,130 0 300,130 0
Development Costs 153,507 260,352 295,614 501,955
Interest and Financing Expenses 387,186 35,798 976,025 251,733
------------ ----------- ------------ -------------
TOTAL EXPENSES 6,890,929 6,117,100 19,121,739 17,678,767
------------ ----------- ------------ -------------
INCOME BEFORE TAX PROVISION 1,999,471 1,932,916 3,094,947 1,586,070
State Income Tax Expense 121,000 80,000 210,000 102,000
------------ ----------- ------------ -------------
NET INCOME $ 1,878,471 $ 1,852,916 $ 2,884,947 $ 1,484,070
============ =========== ============ =============
NET BASIC AND DILUTED INCOME
PER COMMON SHARE $ 0.23 $ 0.16 $ 0.28 $ 0.13
============ =========== ============ ============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 8,252,133 11,480,273 10,207,869 11,480,271
============ =========== ============ ============
See Notes to Consolidated Financial Statements.
3
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED MARCH 31, 2003
Preferred Common
-------------------------------- ---------------------------------
Number of Number of
Shares Amount Shares Amount
-------------- -------------- --------------- ---------------
BALANCE - JUNE 30, 2002 362,488 $ 36,248,775 11,480,275 $ 22,960,549
Purchase of Shares for Treasury in connection
with REB Trustee
Shares Issued for Fractional Exchanges With
Respect to the One-for-twenty Reverse Stock
Split effected on March 13, 1992 1 100 3 6
Amortization of Deferred Compensation Costs --- --- --- ---
Net Income for the Nine Months Ended March 31, 2003 --- --- --- ---
-------------- --------------- --------------- ---------------
BALANCE - MARCH 31, 2003 362,489 $ 36,248,875 11,480,278 $ 22,960,555
============== =============== =============== ===============
Capital Treasury Deferred
in Excess Stock Compen-
of Par (Deficit) At Cost sation Total
----------- ------------- ------------ ----------- -------------
BALANCE - JUNE 30, 2002 $ 20,192,090 $ (45,423,435) $ 0 $ (16,667) $ 33,961,312
Purchase of Shares for Treasury in connection
with REB Trustee (1,614,072) (1,614,073)
Shares Issued for Fractional Exchanges With
Respect to the One-for-twenty Reverse Stock
Split effected on March 13, 1992 (106) --- --- ---
Amortization of Deferred Compensation Costs --- --- 3,751 3,751
Net Income for the Nine Months Ended March 31, 2003 --- 2,884,947 --- 2,884,947
----------- ------------- ----------- ---------- -------------
BALANCE - MARCH 31, 2003 $ 20,191,984 $ (42,538,488) $ (1,614,072) $ (12,916) $ 35,235,938
=========== ============= =========== ========== =============
See Notes to Consolidated Financial Statements.
4
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED MARCH 31, 2003 AND 2002
(UNAUDITED)
Nine Months Ended
March 31,
---------------------------
2003 2002
------------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES: $ 2,884,947 $ 1,484,070
------------- -----------
Adjustments to reconcile income to net cash provided
by operating activities:
Depreciation and Amortization 164,140 81,716
(Gain) on Sale of Fixed Assets 0 (77,577)
Changes in Operating Assets and Liabilities -
(Increase) Decrease in Accounts Receivable (226,278) 213,866
Decrease (Increase) in Other Assets 29,783 (291,061)
(Increase) Decrease in Prepaid Expenses (515,792) 91,983
Increase in Accounts Payable and Accrued Expenses 1,909,029 762,104
------------- -----------
CASH PROVIDED BY OPERATING ACTIVITIES 4,245,829 2,265,101
------------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Deposits on Purchase of Palm Beach Princess Mortgage (500,000) (2,250,000)
Deposits on Purchase of Additional Vessel (300,000) 0
Investment in Port Lease (250,000) 0
Proceeds from Auction of Garden State Park Fixed Assets 0 1,334,042
Capital Expenditures (885,185) (403,602)
Loans made on Development Projects 0 (1,508,528)
Decrease in Other Investment Activity 262,129 0
------------- -----------
CASH USED IN INVESTING ACTIVITIES (1,673,056) (2,828,088)
------------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Related Party Loans 207,346 0
Proceeds from Bank Financing 200,000 0
Principal Payments on Short Term Notes (140,029) (177,766)
Decrease in Balances Due to/From Subsidiaries (0) 804,565
------------- -----------
CASH PROVIDED BY FINANCING ACTIVITIES 267,317 626,799
------------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,840,090 63,812
LESS CASH AND CASH EQUIVALENTS FROM
DISCONTINUED OPERATIONS 1,217 (18,875)
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD 796,610 1,361,287
------------- -----------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $ 3,637,917 $ 1,406,224
============= ===========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest $ 282,082 $ 0
Income Taxes $ 3,448 $ 0
Supplemental Schedule of Non-Cash Investing and Financing Activities:
On November 13, 2002 parts inventory in the amount of $1,103,125
was recorded on the balance sheet as part of a non-cash transaction
offset by existing liabilities.
On Decemberr 13, 2002, the Company issued a promissory note in the
amount of $1,648,403 to purchase 3,228,145 shares of its Common Stock.
See Notes to Consolidated Financial Statements.
5
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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. On January 3,
2003, ITG Vegas, Inc.("ITGV"), our subsidiary operating the Palm Beach Princess
and MJQ Corporation ("MJQ"), which owns the Palm Beach Princess vessel, an
unrelated affiliate owned by Francis W. Murray, filed voluntary petitions for
relief under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy
Code") in the United States Bankruptcy Court for the Southern District of
Florida, Palm Beach Division (the "Bankruptcy Court"), In re: ITG Vegas, Inc.,
Case No. 03-30038. The petition does not cover the parent company, ITB, nor any
other of ITB's subsidiaries. The Palm Beach Princess is continuing to operate as
"debtor-in-possession" under the jurisdiction of the Bankruptcy Court and in
accordance with the applicable provisions of the Bankruptcy Code and orders of
the Bankruptcy Court. As described in Note 6 below we had previously entered
into a Master Settlement Agreement to purchase from the Chapter 11 Trustee for
the Bankruptcy Estate of Robert E. Brennan (the "Trustee") the promissory note
of MJQ Corporation for $13.75 million. We did not have funds necessary to
complete that purchase by January 6, 2003, the date required for payment of the
balance of such purchase price. Therefore, on January 3, 2003, in order to
protect our invested deposits and operation of the vessel, ITGV (together with
MJQ Corporation) filed a voluntary petition for relief under Chapter 11 of the
Bankruptcy Code. ITGV and MJQ are in the process of preparing a reorganization
plan (the "Plan"). The Bankruptcy Court has granted an extension of the May 5,
2003 date, at which our exclusive right to file a plan of reorganization would
have expired, to June 2, 2003. Our future is dependant, among other things, on
the timely filing of the Plan, approval of the Plan by a majority of the ITGV
and MJQ creditors and implementation and performance by us of an approved Plan
which would enable us to exit the Chapter 11 proceedings. At this time it is not
possible to predict the outcome of the Plan or the effect it will have on our
reorganization.
The financial statements do not include any adjustments that might result
from the outcome of the above uncertainties associated with a plan of
reorganization.
(A) Nature of Operations - ITGV is currently engaged in an entertainment
cruise and casino ship business under a bareboat charter of the vessel M/V Palm
Beach Princess (the "Palm Beach Princess"). The Palm Beach Princess performs
fourteen cruises weekly, that is, a daytime and an evening cruise each day. Each
cruise is of five to six hours duration. During each cruise, the Palm Beach
Princess offers a range of amenities and services to her passengers, including a
full casino, sit-down buffet dining, live musical shows, discotheque, bars and
lounges, swimming pool and sundecks. The casino occupies 15,000 square feet
aboard the ship and is equipped with approximately 400 slot machines, all major
table games (blackjack, dice, roulette and poker), and a sports wagering book.
(B) Principles of Consolidation - The accounts of all subsidiaries are
included in the consolidated financial statements. All significant intercompany
accounts and transactions have been eliminated in consolidation.
(C) Classifications - Certain prior years' amounts have been reclassified
to conform with the current years' presentation.
6
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(D) Depreciation and Amortization - Depreciation of property and equipment
were computed by the straight-line method at rates adequate to allocate their
cost or adjusted fair value in accordance with generally accepted accounting
principles over the estimated remaining useful lives of the respective assets.
Amortization expense consists of the write off of major vessel repairs and
maintenance work normally completed at dry dock in the fall of each year. These
expenses are written off during a one year period following the dry dock period.
For the nine months ended March 31, 2003, the amortized expense was $55,650.
(E) Net Assets of Discontinued Operations - At March 31, 2003 and June 30,
2002, the remaining net assets and liabilities of Garden State Park and Freehold
Raceway were classified as "Net Assets of Discontinued Operations."
(F) Revenue Recognition - The Company recognized the revenues associated
with the casino operation on the Palm Beach Princess as they were earned.
(G) Cash and Cash Equivalents - The Company considers all highly liquid
investments with an original maturity of three months or less to be cash
equivalents. As of March 31, 2003, funds classified as cash and cash
equivalents, which are primarily those of the Palm Beach Princess operations
under debtor-in-possession, are only available under bankruptcy court approval
guidelines.
(H) Concentrations of Credit Risk - Financial instruments which potentially
subject the Company to concentrations of credit risk are cash and cash
equivalents. 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.
(I) Use Of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the dates of
the financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those estimates.
(J) Net Income per Common Share - Income per common share is computed by
dividing net income by the weighted average number of shares of common stock
outstanding. For the three months ended March 31, 2003 and 2002 the weighted
average number of shares outstanding is 8,252,133 and 11,480,273, respectively.
For the nine months ended March 31, 2003 and 2002 the weighted average number of
shares outstanding is 10,207,869 and 11,480,271, respectively. On December 13,
2002, the Company purchased 3,228,145 shares of its Common Stock from the
Trustee and have accounted for the transaction on the cost method of accounting
for treasury stock. Options and warrants to purchase 4,046,500 of Common Stock
at various prices per share, for the three and nine months ended March 31, 2003
and 2002 were not included in the computation of income per share because the
exercise price of those options and warrants were above market value.
(K) Spare Parts Inventory - Spare parts inventory consists of operating
supplies, maintenance materials and spare parts. The inventories are carried at
cost. Should the Trustee be able to exercise his right to take possession of the
vessel, the Company may be required to forfeit the spare parts inventory if the
book value of the assumed liabilities exceeds the current assets at the time of
his possession. It is necessary that these parts be readily available so that
the daily cruise operations are not cancelled due to mechanical failures.
7
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(2) NOTES RECEIVABLE
A portion of the proceeds from the sale of the non-operating former El
Rancho Hotel and Casino in Las Vegas to Turnberry/Las Vegas Boulevard, LLC
("Turnberry") on May 22, 2000 was used by us to purchase a Turnberry promissory
note in the face amount of $23,000,000. The interest rate under such note 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 us. We 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 our purchase of the note.
We may convert the promissory note, at our 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.
A portion of the proceeds from the sale on November 30, 2000 of our Garden
State Park property in Cherry Hill, New Jersey, to Realen-Turnberry/Cherry Hill,
LLC ("Realen") was paid in the form of a promissory note in the face amount of
$10 million (the "Note.") Under the Note, 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 buyer's equity investors
have received aggregate distributions equal to their capital contributions plus
an agreed upon return on their invested capital, the next $10 million of
Distributable Cash will be paid to us. We will thereafter receive payments under
the Note equal to 33 1/3% of all Distributable Cash until the maturity date,
which occurs on the 15th anniversary of the issuance of the Note. We may convert
the promissory note, at our option, into a 33 1/3% equity interest in Realen
during the six month period prior to the 15th anniversary of the issuance of the
Note. If not then converted, the Note will be payable at maturity on said 15th
anniversary in an amount equal to (i) the difference, if any, between $10
million and total payments previously made to us under the Note and (ii) 33 1/3%
of any excess of the fair market value of Realen's assets over the sum of its
liabilities (other than the Note) and any unreturned equity investment of its
owners.
In addition, we sold two large bronze sculptures located at the Garden
State Park property to Realen, in exchange for Realen's promissory note due
November 30, 2002, in the principal amount of $700,000. The Chapter 11 Trustee
for the Bankruptcy Estate of Robert E. Brennan (the "Trustee") claimed ownership
of those sculptures, and we settled the resulting litigation over the sculptures
by agreeing that the first $350,000 in principal payments made by Realen under
such note would be remitted to the Trustee (together with one-half of the
interest paid by Realen under such note). The remaining $350,000 of the $700,000
note is classified in other current assets on our balance sheet as of March 31,
2003 and June 30, 2002. As part of the settlement of the sculpture litigation,
the party who sold us the sculptures agreed to reduce the amount of our
obligation for payment of the balance of the sculpture price (described in Note
5(A) below) by the same principal amount, $350,000, given up by us to the
Trustee. As of May 15, 2003, Realen had not made the payment in the amount of
$700,000 which was due on November 30, 2002. On January 30, 2003, the Trustee
instituted litigation against Realen and the Company demanding payment of the
first $350,000. Realen, in its answer an counter-claim in such case, has claimed
that the Company defrauded it by misrepresenting the value of the sculptures.
8
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(3) DEPOSITS AND OTHER ASSETS - RELATED PARTIES
The following items are classified as deposits and other assets (See Note 9
- Related Party Transactions):
March 31, June 30,
2003 2002
-------------- ------------
Loans to the Ft Lauderdale Project (OC Realty, LLC) $ 2,034,304 $ $ 2,067,363
Loan Transferred from Golf Course Project to OC Realty, LLC 735,584 -0-
Note Receivable from Francis W. Murray * 2,600,749 -0-
Accounts Receivable from Francis W. Murray 35,099 19,236
Loans to Francis W. Murray 93,000 -0-
Loan from Francis W. Murray (250,000) -0-
Accrued Wages due and Advances from Francis W. Murray (282,432) -0-
Advances from MJQ Corporation (FWM ownership) (157,704) -0-
Advances to OC Realty, LLC 76,848 -0-
-----------
Net Receivable from OC Realty, LLC/Francis W. Murray 4,885,448
Accrued Interest on Loans to the Ft. Lauderdale Project (OC
Realty, LLC) 537,415 458,711
Accrued Interest Transferred from Golf Course Project to OC
Realty, LLC $ 155,945
-----------
Total Accrued Interest on Loans to OC Realty, LLC 693,360
Loans including accrued interest to the Golf Course Project in -0- 911,169
California
Advances to MJQ Corporation (MJQ ownership) -0- 521,583
Accounts Receivable from Frank Leo 103,952 13,804
Port Lease Rights 250,000 75,000
Assets Assigned from Leo Equity Group, Inc. (See Note 9):
Note Receivable from Michael J Quigley III* -0- 2,600,749
Accounts Receivable from MJQ Corp -0- 21,000
Accounts Receivable from Ft Lauderdale Project -0- 8,000
Loans to Francis W Murray -0- 93,000
Accounts Receivable from GMO Travel -0- 113,500
----------- ----------
Total Deposits and Other Assets $ 5,932,760 $ 6,903,115
=========== ==========
* The note receivable from Francis W. Murray is non-recourse except to his stock
in MJQ Corporation which stock was previously owned Michael J. Quigley and now
owned by our CEO, Francis W. Murray, subject to our lien.
9
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(4) DEPOSITS AND OTHER ASSETS - NON RELATED PARTIES
The following items are classified as deposits and other assets -
non-related parties:
March 31, June 30,
2003 2002
---------------- ---------------
Loans to South American Gaming Projects $ -0- $ 349,472
Other Misc. Assets 85,560 25,252
---------------- ---------------
Total $ 85,560 $ 374,724
================ ===============
(5) NOTES AND MORTGAGES PAYABLE
Notes and Mortgages Payable are summarized below:
Interest March 31, 2003 June 30, 2002
% Per -------------------------- -----------------------
Annum Current Long-Term Current Long-Term
-------- ------------- ----------- ----------- ---------
International Thoroughbred
Breeders Inc.:
MCJEM, INC. (A) 15% $ 132,000 $ -0- $ 132,000 $ -0-
Chapter 11 Trustee (the "Trustee")
for the Bankruptcy Estate of Robert
E. Brennan (B) 11% 1,511,036 -0- -0- -0-
Michael J. Quigley, III (C) 10% 900,000 -0- 900,000 -0-
Florida Bank, N.A. (D) 4.5% 200,000 -0-
First Insurance Funding Corp.(E) 6.95% 112,468 -0- -0- -0-
Francis X. Murray (F) 8% 187,560 -0- -0- -0-
William H. Warner(F) 12% 20,000 -0-
Other Various 45,046 -0- 30,280 -0-
Garden State Park:
Service America Corporation (G) 6% 160,000 -0- 160,000 -0-
------------ -------- ----------- --------
Totals $ 3,268,110 $ -0- $ 1,222,280 $ -0-
Less:
Net Liabilities of Discontinued
Operations - Current (160,000) -0- (160,000) -0-
------------ -------- ----------- --------
Totals $ 3,108,110 $ -0- $ 1,062,280 $ -0-
============ ======== =========== ========
10
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(A) Our promissory note payable to MCJEM, INC. represents the balance of
the purchase price owing from our purchase of two large bronze sculptures
located on the Garden State Park property. This note is due upon collection of
our note receivable from Realen in the amount of $350,000. (See Note 2.)
(B) On December 13, 2002, we issued a twelve month promissory note in the
amount of $1,648,403 (the "Stock Purchase Note") bearing interest at 9%
(increases to 11% after default) to Donald F. Conway, the Chapter 11 Trustee
(the "Trustee") for the Bankruptcy Estate of Robert E. Brennan for the purchase
of 3,228,146 shares of our common stock held or claimed by the Trustee. The
first principal payment of $137,367 was also paid on that date. At March 31,
2003, the principal balance on the note was $1,511,036. The Stock Purchase Note
is secured by a security interest in proceeds and payments receivable under the
$10 million Realen Note. A principal payment of $137,367 was made in December
2002. We are currently in default on the monthly payments of principal and
interest from January 13, 2003 through May 13, 2003. (See Note 6.)
(C) On January 26, 2001, we borrowed $1,000,000 from Michael J. Quigley,
III at an annual interest rate of 10%. Principal and interest on the note was
due on or about April 25, 2001. On May 14, 2001, the loan was modified to be due
on demand. The loan is secured by a pledge of the $10 million Realen Note, which
is subordinate to the security interest of the Trustee which secures the Stock
Purchase Note and by a pledge of the $23 million Turnberry Note. As of May 15,
2003, the loan is due on demand. (See Note 9.)
(D) On March 19, 2003, we issued a two month promissory note in the amount
of $200,000 bearing interest at prime plus .25% to Florida Bank, N.A. The
proceeds of such note were used to fund a escrow deposit in connection with a
charter/purchase of an offshore gaming vessel. The escrow deposit was returned
to us on May 7, 2003 following the expiration of the negotiation period, and we
have satisfied the note to Florida Bank, N.A.
(E) Our directors and officers liability policy was financed by First
Insurance Funding Corp. for a $314,677 one year promissory note at a 6.95%
interest rate. At March 31, 2003, the principal balance on the note was
$112,468.
(F) On March 1, 2003, we issued a promissory note for a line of credit up
to $225,000 bearing interest at 8% to Francis X. Murray. The outstanding balance
on the line of credit note at March 31, 2003 was $187,560. On February 3, 2003,
we issued a promissory note for $20,000 bearing interest at 12% to William H.
Warner, Secretary of the Company. The outstanding balances on the note at March
31, 2003 was $20,000. The proceeds from both notes were used as working capital.
(G) In connection with the January 28, 1999 lease transactions for the
Garden State Park facility, the Company purchased equipment located at Garden
State Park and a liquor license owned by an unaffiliated third party, Service
America Corporation (the "Holder"), for $500,000 financed by a five (5) year
promissory note at a 6% interest rate. Yearly principal payments of $80,000 plus
interest are due on December 28, 2002 and December 28, 2003. The payment due on
December 28, 2002 has not been made as of May 15, 2003.
11
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(6) COMMITMENTS AND CONTINGENCIES
See Note 9 for additional commitments and contingencies of the Company and
transactions with related parties.
Effective December 1, 2000, we entered into a five-year employment contract
with Francis W. Murray, our Chief Executive Officer. The contract provides for
annual compensation of $395,000, a $1,500 monthly automobile expense allowance,
a country club annual dues allowance and travel and entertainment reimbursements
for business expenses reasonably incurred by him in addition to participation in
various other benefits provided to our employees. As part of his employment
contract, Mr. Murray was awarded options to purchase 2,000,000 shares of our
Common Stock. On January 4, 2003, we began deferring payments of compensation
due to Mr. Murray which as of March 31, 2003 total $91,153 due to a lack of
funds resulting from the institution of proceedings by our subsidiary, ITGV,
under Chapter 11 of the bankruptcy code.
We are responsible for remediation costs associated with an environmental
site on the Freehold Raceway property. We have accrued what we believe to be the
total cost of remediation. At March 31, 2003, the remaining balance of such
accrual was $130,398 for remediation costs. The remediation work has been
delayed due to a lack of funds resulting from the institution of proceedings by
our subsidiary, ITGV, under Chapter 11 of the bankruptcy code. At this time, we
are unable to predict the effects that such delays may cause.
In connection with the January 28, 1999 lease transactions for the Garden
State Park facility, we purchased a liquor license owned by an unaffiliated
third party, Service America Corporation, for $500,000 financed by a five (5)
year promissory note at a 6% interest rate. At December 31, 2002, the unpaid
principal balance was $160,000. Yearly principal payments of $80,000 plus
interest are due on December 28, 2002 and December 28, 2003. The payment due on
December 28, 2002 has not been made as of May 15, 2003.
Effective February 20, 2002, we entered into a Master Settlement Agreement
with the Chapter 11 Trustee (the "Trustee") for the Bankruptcy Estate of Robert
E. Brennan and a related Stock Purchase Agreement, and, through our Palm Beach
Princess, Inc. subsidiary, a Purchase and Sale Agreement, described below. These
agreements followed many months of negotiation with the Trustee of the details
of the transactions outlined in the letter of intent that had been signed by the
parties effective April 30, 2001. It was on the basis of the letter of intent,
initially, and then the Master Settlement Agreement that we have been operating
the vessel M/V Palm Beach Princess and conducting a casino cruise business since
April 30, 2001.
As permitted by the Master Settlement Agreement with the Trustee, we have
entered into a bareboat charter with MJQ Corporation, pursuant to which we have
chartered the vessel M/V Palm Beach Princess for the purpose of operating a
casino cruise business from the Port of Palm Beach, Florida. Under the bareboat
charter agreement, we are obligated to pay $50,000 per month as a charter hire
fee to the vessel's owner, MJQ Corporation. Other parties to the Master
Settlement Agreement include MJQ Corporation, Leo Equity Group, Inc. and Francis
W. Murray, our Chairman, who is also a director and officer of MJQ Corporation
and a director of Leo Equity Group, Inc. In October 2002, Mr. Murray purchased
the stock of MJQ Corporation and effective October 27, 2002 we purchased the
stock of Leo Equity Group, Inc. (See Note 9, Related Party Transactions.)
12
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In accordance with the Master Settlement Agreement, through our Palm Beach
Princess, Inc. subsidiary (which has been merged into ITGV) we entered into a
Purchase and Sale Agreement which provides for our purchase from the Trustee of
the promissory note of MJQ Corporation, having an original balance of principal
and interest of approximately $15.7 million and secured by a ship mortgage
against the M/V Palm Beach Princess (the "Ship Mortgage Obligation"). The
purchase price payable by us for the Ship Mortgage Obligation is $13.75 million.
We began making payments on account of such purchase price effective April 30,
2001, in monthly installments of $250,000. Such monthly installments continued
under the terms of the Purchase and Sale Agreement through July 31, 2002, at
which time a $9.75 million balloon payment was to be due. However, before July
31, 2002, we exercised our right to extend the time for payment of the balance
of the purchase price for up to three (3) additional months, to October 31,2002,
by paying fees of $70,000 for the first one month extension, an additional
$80,000 for the second month extension and an additional $100,000 for the third
month extension. On October 30, 2002, the Master Settlement Agreement was
amended to provide for a further extension of the due date for payment of the
$9.75 million balance under the Purchase and Sale Agreement until January 6,
2003, in consideration of our payment of $220,000 as an extension fee. On
January 3, 2003, we did not have the funds to complete the purchase by January
6, 2003 and the Trustee denied our request for a further extension of the
January 6, 2003 due date. Therefore, on January 3, 2003, in order to protect our
invested deposits and operation of the vessel, ITGV, successor by merger to our
subsidiary the Palm Beach Princess, Inc., filed a voluntary petition for relief
under Chapter 11 of the Bankruptcy Code. MJQ Corporation, the entity which ownes
the vessel, also filed for relief under Chapter 11 of the Bankruptcy Code. The
Trustee is the largest creditor in the MJQ/ITGV cases, and is secured by a
mortgage against the vessel. In order to re-organize under a Chapter 11 plan on
a basis under which we would continue to operate the vessel, we will need to pay
or provide for payment of a minimum of $9.75 million payable to the Trustee plus
approximately $1.7 million of debt to unsecured creditors of ITGV and MJQ
Corporation (excluding debt to related parties). The Bankruptcy Court has
required and approved ITGV to pay interest on said $9.75 million monthly to the
Trustee at an interest rate of 12% per year. Interest of $282,082 has been paid
through March 31, 2003.
The second agreement which we entered into with the Trustee pursuant to the
Master Settlement Agreement is a Stock Purchase Agreement. Under this Agreement,
which superseded all prior agreements and understandings between us and the
Trustee for the purchase of our common stock held or claimed by the Trustee, we
agreed to purchase up to approximately 2,235,000 shares of our common stock at a
purchase price of $0.50 per share on July 11, 2002. We desired to purchase these
shares in order to preserve our net operating loss carryforwards which otherwise
may be lost if the shares are transferred. As collateral security for our
payment of the purchase price for these shares, we granted to the Trustee a
security interest in all proceeds of (including all payments that might be made
in the future under) the $10 million Realen Note, described in Note 2 above. We
were unable to pay the purchase price under the Stock Purchase Agreement on July
11, 2002 (which price, at that date, was $892,500 for 1,785,000 shares). On
October 30, 2002, the Stock Purchase Agreement was amended to provide for an
extension of the due date on the purchase of the shares until December 13, 2002
at which time the Trustee agreed to accept payment of the purchase price for
3,228,145 shares (including additional shares over which the Trustee obtained
control) in the form of a twelve month promissory note bearing interest at
9%(increasing to 11% after default) in the amount of $1,648,402. (See Note
5(B).) Should the Trustee obtain control over an additional 450,000 shares, we
are further obligated to purchase those shares at $0.50 per share. A principal
payment of $137,367 was made in December 2002. We are currently in default on
all monthly payments of principal and interest that were due to the Trustee from
January 13, 2003 through May 13, 2003.
13
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Through ITGV, we have negotiated with the Port of Palm Beach District a new
operating agreement and lease of space in a new office complex constructed at
the Port of Palm Beach adjacent to a new cruise terminal effective April 25,
2002. The term of the initial lease is five years at $183,200 per year payable
monthly. We are also required to make tenant improvements to the new space in a
minimum amount of $333,000, however we estimate that the actual cost to make the
improvements will be approximately $885,000. As of May 15, 2003, we have made
payments in the amount of $785,472 on such improvements. Additionally we are
committed to purchase approximately $450,000 in office furniture and equipment.
As of May 15, 2003, we have made payments on these items in the amount of
$313,618. We will continue payments on the project under the protection of the
Bankruptcy Court. We will have the right to a credit of up to the minimum amount
of improvements required of $333,000 of construction costs against the initial
term of our five year lease.
In February 2003, an unrelated party deposited $200,000 to our escrow agent
on behalf of the Company for an option to charter a second gaming vessel which
would operate out of the Port of Palm Beach. These funds were replaced on March
19, 2003 by a loan obtained from the Florida Bank, N.A. in the amount of
$200,000. In consideration for the deposit made by the unrelated third party,
Mr. Francis W. Murray transferred 200,000 of his options to purchase the
Company's common stock to the third party. These options have an exercise price
of $0.20 and will not be exercisable by the transferee until August 14, 2004.
The Company assumed a Promissory Note negotiated by Francis W. Murray in the
amount of $25,000 due on May 24, 2003. This note was negotiated to cover legal
and transactions fees for the $200,000 escrow advance on the gaming vessel and
the stock option agreement.
LEGAL PROCEEDINGS
We are a defendant in various 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 a material adverse effect on our financial position, results of
operations, or cash flows.
Our subsidiary, ITG Vegas, Inc., successor by merger to Palm Beach
Princess, Inc., initiated proceedings under Chapter 11 of the Bankruptcy Code on
January 3, 2003. (See Note 1.)
(7) FAIR VALUE OF FINANCIAL INSTRUMENTS
As of March 31, 2003, in assessing the fair value of financial instruments,
we have 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 our interest rates approximate current interest
rates that would be available to us in the market place.
Management believes that the carrying amounts of the two long-term notes
receivable approximate fair value and will continue to evaluate the fair value
of these instruments.
14
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(8) STOCK OPTIONS AND WARRANTS
(A) EMPLOYEE AND NON-EMPLOYEE OPTIONS
At March 31, 2003, total employee options outstanding were 2,911,500 and
total non-employee options outstanding were 425,000. On February 24, 2003, Mr.
Francis W. Murray transferred 200,000 options to an unrelated third party in
consideration of an escrow deposit of funds on behalf of the Company. These
options are not exercisable until August 4, 2004. At March 31, 2003 all of the
employee and 225,000 of the non-employee options were exercisable.
(B) WARRANTS
At December 31, 2002, total warrants outstanding were 710,000. All warrants
were exercisable at March 31, 2003.
(9) RELATED PARTY TRANSACTIONS
During the third quarter of Fiscal 2001, we invested in two projects in
which our Chairman, President and Chief Executive Officer, Francis W. Murray,
also has a pecuniary interest. In connection with one such project, the Board of
Directors approved advances, as loans, of up to $1.5 million to a limited
partnership in which Francis W. Murray owned, at that time, an 80% equity
interest and owned the general partner, the proceeds of which were to be used to
pay costs and expenses for development of a golf course in Southern California.
Mr. Murray's equity interest in the limited partnership, indirectly through his
ownership of the general partner, as of December 26, 2002, was 64%. At December
26, 2002, $735,584 had been loaned to such project and we had accrued $155,945
of interest due on the loan. On December 26, 2002, the limited partnership's
indebtedness to us was assumed by OC Realty, LLC, a Florida limited liability
company which is owned by Francis W. Murray and which ownes the second real
estate project described below. Such indebtedness is due December 31, 2004 and
bears an interest rate of 6%
In the second project, Mr. Murray is participating in the development of an
oceanfront parcel of land, located in Fort Lauderdale, Florida, which has
received all governmental entitlements from the City of Fort Lauderdale and the
state of Florida to develop a 14-story building to include a 5-story parking
garage, approximately 6,000 square feet of commercial space and a residential
9-story tower. The property had been owned by MJQ Development, LLC, which was
owned by Michael J. Quigley, III until December 26, 2002 when the property was
acquired by OC Realty, LLC, the entity owned by Mr. Murray. Mr. Quigley has no
relationship to Robert J. Quigley, one of our directors. OC Realty is developing
a condominium hotel resort on the property as discussed above. At March 31,
2003, we had lent $2,034,304 in total to MJQ Development and we have accrued
interest in the amount of $537,415 on the loan. Upon the acquisition of the
property, OC Realty assumed MJQ Development's indebtedness to us. These loans
bear interest at 12% and will be repayable out of the first proceeds, after
payment of bank debts, generated by the sale of the condominiums. We will also
have the right to receive, as participation interest, from available cash flow
if the project is successful, a priority return of our investment and a priority
profits interest for up to three times our investment. Repayment of these loans
and our participation interest will be subject to repayment of, first, bank debt
of approximately $5.5 million (at present) incurred in the purchase of the real
property and, second, construction financing expected to amount to $25 to $30
million. At the time the loans to MJQ Development were approved, Mr. Murray
stood to receive a substantial contingent benefit from MJQ Development for his
participation in the project.
15
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
On January 26, 2001, we borrowed $1,000,000 from Michael J. Quigley, III at
an annual interest rate of 10%. Principal and interest on the note was due on or
about April 25, 2001. On May 14, 2001, the loan was modified to be due on
demand. The principal balance on the note at March 31, 2003 is $900,000 and we
have accrued interest through that date in the amount of $208,575. As collateral
for the loan, we pledged the $10 million Realen Note and the $23 million
Turnberry Note. On February 20, 2002 Mr. Quigley released his security interest
in the Realen Note in connection with the Master Settlement Agreement. As of May
15, 2003, the loan is due on demand. (See Note 5.)
Effective April 30, 2001, we entered into a bareboat charter with MJQ
Corporation, pursuant to which we are chartering the vessel M/V Palm Beach
Princess for the purpose of operating an entertainment casino cruise business
from the Port of Palm Beach, Florida. Michael J. Quigley, III was a principal of
MJQ Corporation. In October 2002, Francis W. Murray, our Chairman, President and
Chief Executive Officer purchased the stock of MJQ Corporation and has been an
officer and director of MJQ Corporation. Francis X. Murray, the son of Francis
W. Murray, is President and a director of MJQ Corporation and President of our
subsidiary, ITG Vegas, Inc., which operates the vessel. Under the bareboat
charter agreement, we are obligated to pay $50,000 per month as the charter hire
fee to MJQ Corporation. All costs of operating the vessel incurred by MJQ
Corporation on our behalf are to be reimbursed by us to MJQ Corporation. In
addition, as described in Note 6 above, we have entered into an amended Master
Settlement Agreement with the Chapter 11 Trustee of the Bankruptcy Estate of
Robert E. Brennan, MJQ Corporation and others to purchase from the Trustee the
Ship Mortgage Obligation of MJQ Corporation, having an original balance of
principal and interest outstanding of approximately $15.7 million for a purchase
price of $13.75 million. Pursuant to the Master Settlement Agreement, MJQ
Corporation and its officers and directors (including Francis W. Murray)
exchanged mutual releases with the Trustee and others having claims to the Ship
Mortgage Obligation.
Also we entered into an agreement to purchase all of the shares of
outstanding stock of Leo Equity Group, Inc. Mr. Francis W. Murray has been a
director of Leo Equity Group, Inc. Closing on the Leo Equity Group, Inc. stock
purchase occurred effective October 27, 2002. The purchase price payable by us
for the stock in Leo Equity Group, Inc. was $250,000, payable without interest
in 10 monthly installments of $25,000 each. As of March 31, 2003, this note was
paid in full. We also agreed to reduce the exercise price of previously granted
options held by the seller, Frank A. Leo (our former director and chairman), to
purchase 200,000 shares of our common stock, from $4.00 per share to $0.50 per
share, while conditioning exercise of such options upon our first having
consummated the purchase of the shares required to be purchased by us from the
Trustee under the Stock Purchase Agreement. The purpose of such acquisition was
to enable us to obtain the lease and operating agreement with the Port of Palm
Beach District which had been owned by Leo Equity Group, Inc. During the period
we made the $25,000 monthly installments to Mr. Leo and before the note was paid
in full, we made advances on Mr. Leo's behalf. These advances totaled $103,953
as of March 31, 2003.
The Master Settlement Agreement with the Chapter 11 Trustee for the
Bankruptcy Estate of Robert E. Brennan included a final settlement by the
Trustee with numerous parties. Among those parties were Frank A. Leo, Leo Equity
Group, Inc., Michael J. Quigley III and MJQ Corporation. During the quarter
ended March 31, 2002 we charged Leo Equity Group $3,000,000 and MJQ Corporation
$1,000,000 for their portion of expenses incurred by us and a success fee for
the efforts of International Thoroughbred Breeders, Inc. in connection with the
final settlement with the Trustee. Prior to our acquisition of Leo Equity Group,
Inc., Leo Equity Group, Inc. assigned to us certain receivables in the
approximate amount of $3 million, including the receivables of approximately
$2.6 million due it from Michael J. Quigley III,
16
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
in payment of this obligation. That $2.6 million debt from Mr. Quigley was
assumed by Francis W. Murray when he purchased the MJQ Corporation shares and is
a non-recourse obligation which is payable solely from pledged shares of his
stock in MJQ Corporation. Mr. Murray purchased the MJQ Corporation stock subject
to our lein securing payment of that debt. We have deferred all income from
these transactions until such time as payment is received.
On July 12, 2002, we borrowed $300,000 from Francis W. Murray at an annual
interest rate of 6%. The note is due on demand and interest is payable monthly.
As of March 31, 2003, the balance of the note was $250,000 and is classified as
Deposits and Other Assets - Related Parties on the balance sheet as an offset to
previous advances to Mr. Murray.
On November 13, 2002, the Company and MJQ Corporation signed an agreement
and bill of sale which transferred maintenance materials and spare parts
inventory previously maintained by MJQ Corporation to Palm Beach Princess, Inc.
The value of the parts inventory sold and assigned was $1,103,125. Payment for
the inventory was made by way of offsets on amounts previously due to Palm Beach
Princess, Inc. by MJQ Corporation.
Francis X. Murray, President of our ITG Vegas, Inc. subsidiary and son of
Francis W. Murray, our President, CFO and CEO has agreed to loan the company up
to $225,000 in the form of a line of credit. As of March 31, 2003, these loans
totaled $187,560. (See Note 5) The proceeds of the loans were used to: (i) make
the final payment on the port lease purchase in the amount of $75,000; (ii) make
a $100,000 escrow deposit on an option to charter a second gaming vessel (which
deposit was returned to Mr. Murray on April 17, 2003); and (iii) provide working
capital in the amount of $12,560. As of May 15, 2003, the unpaid principle of
the loan totaled $148,335.
Mr. Francis X. Murray guaranteed on the Company's behalf, a loan from
Florida Bank, N.A. in the amount of $200,000 which was also used as a deposit on
the second gaming vessel (which deposit was returned to the bank on May 7,
2003). The Company agreed to indemnify Mr. Murray for the guaranteed obligation
with respect to this loan.
During the quarter, a Company officer loaned $20,000 to the Company. This
note is due on demand and bears interest at 12%. These funds were used for
working capital requirements of the parent company.
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, 2002.
(10) SUBSEQUENT EVENTS
(A) On April 17, 2003, we returned the $100,000 loan to us from Mr. Francis
X. Murray that was used as a deposit on the option negotiation on the gaming
vessel.
(B) On May 5, 2003, the Bankruptcy Court extended the date, at which our
exclusive right to file a plan of reorganization would have expired, to June 2,
2003.
(C) On May 7, 2003, the escrow agent returned the $200,000 deposit on the
option negotiation on the gaming vessel to the Florida Bank, N.A.
17
INTERNATIONAL THOROUGHBRED BREEDERS, INC
AND SUBSIDIARIES
MANAGEMENT'S ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS FOR THE THREE AND NINE MONTHS
ENDED MARCH 31, 2003
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
Forward-Looking Statements
We have made forward-looking statements in this Form 10-Q, including the
information concerning possible or assumed future results of our operations and
those preceded by, followed by or that include words such as "anticipates,"
"believes," "expects," "intends," or similar expressions. For those statements,
we claim the protection of the safe harbor for forward-looking statements
contained in the Private Securities Litigation Reform Act of 1995. You should
understand that the following important factors, in addition to those discussed
under "Risk Factors" in our most recent Annual Report on Form 10-K, could affect
our future results and could cause those results to differ materially from those
expressed in our forward-looking statements:
o Chapter 11 proceedings affecting our Palm Beach Princess business and
our ability to successfully develop a Chapter 11 plan of
re-organization;
o termination of the bareboat charter under which we operate our gaming
business;
o lack of cash flow for the Parent Company to continue to operate and
pay its debts as a result of the Chapter 11 proceedings of our
operating subsidiary;
o general economic and business conditions affecting the tourism
business in Florida;
o competition;
o changes in laws regulating the gaming industry;
o fluctuations in quarterly operating results as a result of seasonal
and weather considerations; and
o events directly or indirectly relating to our business causing our
stock price to be volatile.
Liquidity and Capital Resources
Cash flow and liquidity during the nine month period ended March 31, 2003
included approximately $5 million in cash generated by the Palm Beach Princess
operations. Such cash flow was used, in part, to fund $500,000 of the payments
on account of the purchase price of the Ship Mortgage Obligation against the
Palm Beach Princess, $470,000 of fees to extend the closing under the Purchase
and Sale Agreement as described below and approximately $800,000 for leasehold
improvements and equipment in connection with the Port of Palm Beach lease. We
have explored gaming related business opportunities in various foreign countries
and may continue to incur expenses for exploring potential business
opportunities in the future. As of March 31, 2003, $295,614 has been funded and
expensed in various foreign projects during the nine months ended March 31,
2003. Until January 3, 2003, all of our cash flow during the current fiscal year
had come from the Palm Beach Princess vessel.
On January 3, 2003, our only source of cash from operations was cut off
when ITG Vegas, Inc.("ITGV"),our subsidiary operating the Palm Beach Princess,
and MJQ Corporation ("MJQ"), an unrelated affiliate owned by Francis W. Murray,
filed voluntary petitions for relief under Chapter 11 of the United States
Bankruptcy Code (the "Bankruptcy Code") in the United States Bankruptcy Court
for the
18
INTERNATIONAL THOROUGHBRED BREEDERS, INC
AND SUBSIDIARIES
MANAGEMENT'S ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS FOR THE THREE AND NINE MONTHS
ENDED MARCH 31, 2003
Southern District of Florida, Palm Beach Division (the "Bankruptcy Court"), In
re: ITG Vegas, Inc., Case No. 03-30038. The petition does not cover the parent
company, ITB, nor any other of ITB's subsidiaries. The Parent Company has used
all the available funds that we had prior to the bankruptcy filing to pay some
of our expenses and need to find immediate financing in order to pay remaining
existing liabilities as well as future expenses. Since the bankruptcy filing,
the only source of funds to the Parent Company has been limited to loans made by
Company officers, collection of a loan previously made to a South American
gaming project and refunds from vendors and tax agencies relating to our prior
racetrack operations. The Bankruptcy filing has severely limited our ability to
make timely payments to our creditors and corporate vendors which has affected
our ability to retain the professional services and vendors who serve our
company. The Palm Beach Princess will continue to operate as
"debtor-in-possession" under the jurisdiction of the Bankruptcy Court and in
accordance with the applicable provisions of the Bankruptcy Code and orders of
the Bankruptcy Court.
Under our bareboat charter of the vessel, ITG Vegas, Inc. is obligated to
pay $50,000 per month as the charter hire fee to the vessel's owner, MJQ
Corporation. In order to obtain the bareboat charter, we negotiated and on
February 20, 2002 entered into a Master Settlement Agreement with the Chapter 11
Trustee of the Bankruptcy Estate of Robert E. Brennan (the "Trustee"), MJQ
Corporation and others. Pursuant to the Master Settlement Agreement we have
incurred the following financial commitments:
o For the purchase of the Ship Mortgage Obligation, we paid $250,000 per
month through July 31, 2002, and an additional $9.75 million balloon
payment was due at that time. As permitted by the Master Settlement
Agreement we extended the date for payment of the balloon payment on a
month-to-month basis until October 31, 2002 by paying extension fees
of $70,000 for the first month, an additional $80,000 for the second
month and an additional $100,000 for the third month. On October 30,
2002, the Master Settlement Agreement was amended to provide for a
further extension of the due date for the Purchase and Sale Agreement
until January 6, 2003 by paying $220,000 in extension fees. We did not
have the necessary funds to complete the purchase by January 6, 2003.
Therefore, on January 3, 2003, in order to protect our invested
deposits and our operation of the vessel, ITGV filed a voluntary
petition for relief under Chapter 11 of the Bankruptcy Code. Prior to
the bankruptcy filing, our subsidiary, Palm Beach Princess, Inc. which
operated the vessel, was merged into ITGV. MJQ Corporation also filed
for relief under Chapter 11 of the Bankruptcy Code. The Trustee is the
largest creditor in the MJQ Corp./ITGV cases, and is secured by a
mortgage against the vessel. In order to re-organize under a Chapter
11 plan on a basis under which we would continue to operate the
vessel, we will need to pay or provide for payment of a minimum of
$9.75 million payable to the Trustee year plus approximately $1.7
million of debt to unsecured creditors of ITGV and MJQ Corporation
(excluding debt to related parties). The Bankruptcy Court has required
and approved ITGV to pay interest on said $9.75 million monthly to the
Trustee at an interest rate of 12% per.
o We were obligated to purchase approximately 1,785,000 shares of our
common stock from the Trustee at $0.50 per share (aggregate purchase
price of approximately $892,500), on July 11, 2002 and we were unable
to make such payment. On October 30, 2002, the Stock Purchase
Agreement was amended to provide for an extension of the due date on
the purchase of the shares until December 13, 2002, at which time the
Trustee agreed to accept payment of the purchase price for 3,228,145
shares (including additional shares over which the Trustee has
obtained control) in the form of a twelve month promissory note in the
amount of $1,648,402
19
INTERNATIONAL THOROUGHBRED BREEDERS, INC
AND SUBSIDIARIES
MANAGEMENT'S ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS FOR THE THREE AND NINE MONTHS
ENDED MARCH 31, 2003
bearing interest at 9% (increasing to 11% after default) per year.
Should the Trustee obtain control over an additional 450,000 shares,
we are further obligated to purchase those shares at $0.50 per share.
A principal payment of $137,367 was made in December 2002. We are
currently in default on payments of principal and interest that were
due to the Trustee under such note from January 13, 2003 through May
13, 2003.
ITGV is committed to making the tenant improvements to new office space at
the Port of Palm Beach. Total costs of such improvements are expected to be
approximately $885,000 and we are committed to approximately $140,000 of
additional furniture and fixture costs. As of May 15, 2003, ITGV had expended
$785,472 for such improvements and an additional $314,000 for office furniture
and equipment.
ITGV's cash flow from operations of the vessel is seasonal. The period July
1st to December 31st is a seasonably slow period for the vessel operation. The
period from January 1st to June 30th has been a period of increased activity and
profits for the vessel. Certain of ITGV's operating costs, including the charter
fee payable to the vessel's owner, fuel costs and wages, are fixed and cannot be
reduced when passenger loads decrease or when rising fuel or labor costs cannot
be fully passed through to customers. Passenger and gaming revenues earned from
the vessel must be high enough to cover such expenses.
Unless and until ITGV successfully emerges from its Chapter 11 case, our
possible sources of cash include the two promissory notes we received when we
sold our Garden State Park real property in November, 2000 and our Las Vegas
real property in May, 2000. One such Note is in the face amount of $10 million,
issued by Realen-Turnberry/Cherry Hill, LLC, the purchaser of the Cherry Hill
property (the "$10 Million Note"), and the other promissory note is in the face
amount of $23 million, issued by Turnberry/Las Vegas Boulevard, LLC, purchaser
of our Las Vegas real property (the "$23 Million Note"). Under both Notes,
interest and principal payments will be dependent upon, and payable solely out
of, the obligor's net cash flow available for distribution to its equity owners.
After the obligor's equity investors have received aggregate distributions equal
to their capital contributions plus an agreed upon return on their invested
capital, the next $10 million of distributable cash in the case of the $10
Million Note, and the next $23 million of distributable cash in the case of the
$23 Million Note, will be paid to us, and following our receipt of the face
amount of the Note we will receive 33 1/3% of all distributable cash of the
obligor until maturity of the Note. The probable timing and amounts of payments
under these Notes cannot be predicted. We are attempting to borrow on these
Notes for additional working capital but such borrowing is expected to be
difficult to obtain as long as the timing and amounts of payments under the
Notes remain unpredictable.
Our working capital as of March 31, 2003 was a negative ($928,744) as
compared to a negative ($2,200,346) at June 30, 2002. The change in working
capital during the past nine months was primarily caused by an increase in cash
provided by the operating activities which is limited to disbursement by the
Bankruptcy Court, the use of cash to make payments of $500,000 on the Ship
Mortgage Obligation, pay the extension fees of $470,000 on the purchase and to
fund on-going development projects partially offset by the cash provided by
operating activities. Other transactions affecting working capital that did not
require the use of cash was the purchase of the spare parts inventory in the
amount of $1,103,125 because the amount due for the inventory was offset by
amounts owed to the Company from the seller that were previously classified as
other long term assets and the assumption of additional debt primarily to the
Trustee in the amount of $1,648,403 for the purchase of 3,296,806 shares of the
Company's common stock.
20
INTERNATIONAL THOROUGHBRED BREEDERS, INC
AND SUBSIDIARIES
MANAGEMENT'S ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS FOR THE THREE AND NINE MONTHS
ENDED MARCH 31, 2003
Results of Operations for the Three Months Ended March 31, 2003 and 2002
Revenue for the three months ended March 31, 2003 increased $840,384 from
$8,050,016 in Fiscal 2002 to $8,890,400 in Fiscal 2003 primarily as a result of
increased revenues generated by the Palm Beach Princess operations during the
comparable quarters. Expenses increased $773,829 from $6,117,100 in the three
month period in Fiscal 2002 to $6,890,929 in Fiscal 2003 primarily the result of
an increase in Palm Beach Princess operating costs during the comparable
quarters, financing costs incurred during the third quarter of Fiscal 2003
primarily associated with the amended Purchase and Sale Agreement for the Palm
Beach Princess operation in the amount of $286,774, and costs associated with
the bankruptcy filing of $300,130, partially offset by a decrease in development
costs and a decrease in corporate general and administrative expenses during the
comparable quarters.
During the three months ended March 31, 2003, total revenue from vessel
operations was $8,830,317 as compared to $7,931,587 for the three months ended
March 31, 2002. The increase in revenue of $898,730 during the comparable
quarters primarily resulted from an increase in casino gaming revenue primarily
the result of an increase in the passenger count during the comparable periods,
partially offset by a decrease in fare revenues primarily associated with
competitive pricing related to the ship competing with another gaming vessel for
one half of the quarter of operation in Fiscal 2003. Total expenses before
income taxes for the comparable periods increased $1,209,347 from $5,099,790 for
the three months ended March 31, 2002 to $6,309,137 for the three months ended
March 31, 2003 primarily as a result of an increase in the number of passengers
which increased operating costs, increases in sales and marketing expenses
associated with competition, $286,774 in financing fees, costs associated with
the bankruptcy filing of $300,130 and an increase in other operating expenses.
Income before income tax expense for the third quarter of operation in Fiscal
2003 was $2,521,180 as compared to $2,831,797 in the comparable quarter of
Fiscal 2002.
The Palm Beach Princess performs fourteen cruises weekly, that is, a
daytime and an evening cruise each day. Each cruise is of five to six hours
duration. During each cruise, the Palm Beach Princess offers a range of
amenities and services to her passengers, including a full casino, sit-down
buffet dining, live musical shows, discotheque, bars and lounges, swimming pool
and sundecks. The casino occupies 15,000 square feet aboard the ship and is
equipped with approximately 400 slot machines, all major table games (blackjack,
dice, roulette and poker), and a sports wagering book. Out of the scheduled
cruises during the third quarter in both fiscal years, no cruises were cancelled
for weather or mechanical difficulties. Five (5) cruises were missed due to
scheduled wet dock maintenance.
21
INTERNATIONAL THOROUGHBRED BREEDERS, INC
AND SUBSIDIARIES
MANAGEMENT'S ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS FOR THE THREE AND NINE MONTHS
ENDED MARCH 31, 2003
The following is a comparative summary of income and expenses of the Palm
Beach Princess operation for the three month periods ended March 31, 2003 and
2002:
Three Months Ended
March 31,
---------------------------------------------
Description 2003 2002 Change
- --- --------------------------------------------- ------------- ------------- ------------
Passenger Count 76,855 68,687 8,168
Number of Cruises 177 182 (5)
Revenue:
Fare $ 889,464 $ 1,030,335 $ (140,871)
On Board 442,085 449,761 (7,676)
Casino 7,498,768 6,451,491 1,047,277
------------ ------------ ------------
Total Revenue 8,830,317 7,931,587 898,730
------------ ------------ -----------
Expenses:
Casino Operating Expenses 1,976,157 1,843,792 132,365
Hotel and Gift Shop Expenses 220,803 213,137 7,666
Sales, Marketing and Advertising Expenses 872,179 740,573 131,606
Maritime and Legal Expenses 1,665,867 1,655,370 10,497
Administrative and Finance Expenses 1,574,131 646,918 927,213
------------ ------------ -----------
Total Expenses 6,309,137 5,099,790 1,209,347
------------ ------------ -----------
Income Before Income Tax Expense $ 2,521,180 $ 2,831,797 $ (310,617)
============ ============ ===========
For the third quarter of Fiscal 2003, our net income was $1,878,471 or
$0.23 per share as compared to net income for the comparable period in prior
fiscal year of $1,852,916 or $0.16 per share.
Results of Operations for the Nine Months Ended March 31, 2003 and 2002
Revenue for the nine months ended March 31, 2003 increased $2,951,849 from
$19,264,837 in Fiscal 2002 to $22,216,686 in Fiscal 2003 primarily as a result
of increased revenues generated by the Palm Beach Princess operations during the
comparable periods. Expenses increased by $1,442,972 from $17,678,767 in the
nine month period in Fiscal 2002 to $19,121,739 in Fiscal 2003 primarily the
result of an increase in Palm Beach Princess operating costs during the
comparable quarters and financing costs incurred during the second and third
quarters of Fiscal 2003 primarily associated with the extentions of the
scheduled maturity dates for payment to the Trustee under the Purchase and Sale
Agreement for the Palm Beach Princess operation in the amount of $756,774 and
costs associated with the bankruptcy filing of $300,130, partially offset by a
decrease in development costs and a decrease in corporate general and
administrative expenses during the comparable periods.
During the nine months ended March 31, 2003, total revenue from vessel
operations was $21,910,595 as compared to $18,829,943 for the nine months ended
March 31, 2002. The increase in revenue of $3,080,652 during the comparable
periods primarily resulted from an increase in casino gaming and on board
revenue primarily the result of an increase in the passenger count and the
number of cruises during the comparable periods partially offset by a decrease
in fare revenues primarily associated with the competitive pricing discussed
above. Total expenses before income taxes for the comparable periods increased
22
INTERNATIONAL THOROUGHBRED BREEDERS, INC
AND SUBSIDIARIES
MANAGEMENT'S ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS FOR THE THREE AND NINE MONTHS
ENDED MARCH 31, 2003
$2,110,200 from $15,053,714 for the nine months ended March 31, 2002 to
$17,163,913 for the nine months ended March 31, 2003 primarily as a result of an
increase in the number of passengers and the number of cruises which increased
operating costs, increases in sales and marketing expenses associated with
competition, a $231,000 increase in accrued employee bonus compensation costs
related to our full calendar year of operation, $756,774 in financing fees,
costs associated with the bankruptcy filing of $300,130 and a decrease in other
operating expenses. Income before taxes from operation of the vessel for the
nine months ended March 31, 2003 was $4,746,682 as compared to $3,674,229 for
the nine months ended March 31, 2002. Out of the 539 scheduled cruises during
the nine months ended March 31, 2003, none were cancelled for weather or
mechanical difficulties as compared to Fiscal 2002 where out of 534 scheduled
cruises, 13 cruises were cancelled for weather or mechanical difficulties.
The following is a comparative summary of income and expenses of the Palm
Beach Princess operation for the nine month periods ended March 31, 2003 and
2002:
Nine Months Ended
March 31,
---------------------------
Description 2003 2002 Change
- --- ---------------------------------------------- ------------ ----------- ----------
Passenger Count 190,387 173,262 17,125
Number of Cruises 539 521 18
Revenue:
Fare $ 2,118,151 $ 2,335,679 $ (217,528)
On Board 1,294,969 1,242,673 52,296
Casino 18,497,475 15,251,591 3,245,884
------------ ----------- ----------
Total Revenue 21,910,595 18,829,943 3,080,652
------------ ----------- ----------
Expenses:
Casino Operating Expenses 5,779,935 5,267,962 511,973
Hotel and Gift Shop Expenses 617,811 663,867 (46,056)
Sales, Marketing and Advertising Expenses 2,382,961 2,139,412 243,549
Maritime and Legal Expenses 4,446,554 4,623,465 (176,911)
Administrative and Finance Expenses 3,936,652 2,359,008 1,577,645
------------ ----------- ----------
Total Expenses 17,163,913 15,053,714 2,110,200
------------ ----------- ----------
Income Before Income Tax Expense $ 4,746,682 $ 3,674,229 $ 862,453
============ =========== ==========
During the nine months ended March 31, 2003, our income was $2,884,947 or
$.28 per share as compared to income for the comparable period in Fiscal 2002 of
$1,484,070 or $0.13 per share. The change of $1,400,877 was primarily the result
of the increase in net income from operation of the vessel.
23
INTERNATIONAL THOROUGHBRED BREEDERS, INC
AND SUBSIDIARIES
MANAGEMENT'S ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS FOR THE THREE AND NINE MONTHS
ENDED MARCH 31, 2003
Item 4. - CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure
that information required to be disclosed in our Exchange Act reports is
recorded, processed, summarized and reported within the time periods specified
in the SEC's rules and forms, and that such information is accumulated and
communicated to our management, including our chief executive officer and chief
financial officer, as appropriate, to allow timely decisions regarding required
disclosure. In designing and evaluating the disclosure controls and procedures,
management recognized that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the
desired control objectives, and management necessarily was required to apply its
judgment in evaluating the cost-benefit relationship of possible controls and
procedures.
Within 90 days prior to the filing of this report, we completed an
evaluation, under the supervision and with the participation of our management,
including our chief executive officer and chief financial officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures. Based on the foregoing, our chief executive officer and chief
financial officer concluded that the Company's disclosure controls and
procedures were effective.
CHANGES IN INTERNAL CONTROLS
There have not been any significant changes in the Company's internal
controls or in other factors that could significantly affect these controls
subsequent to the date of their evaluation.
24
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
During the quarter ended March 31, 2003, the registrant filed the following
Current Reports on Form 8-K:
Date Subject Matter
- ------------------- ---------------------------------------------------
January 3, 2003 Chapter 11 filing of ITG Vegas, operator of the
Palm Beach Princess vessel
25
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 20, 2003 /s/Francis W. Murray
----------------------------------------------------
Francis W. Murray, President, Chief Executive Officer
and Chief Financial Officer
26
CERTIFICATION PURSUANT TO RULE 13A-14 AND 15D-14 OF
THE SECURITIES AND EXCHANGE ACT OF 1934
I, Francis W. Murray, certify that:
1. I have reviewed this quarterly report on Form 10-Q of International
Thoroughbred Breeders;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions);
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: May 20, 2003
/s/Francis W. Murray________________
Chairman/Chief Executive Officer/
Chief Financial Officer
27
Exhibit 99.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002
In connection with the filing of the Quarterly Report on Form 10-Q of
International Thoroughbred Breeders, Inc. (the "Company") for the three and nine
months ended March 31, 2003 as filed with the Securities and Exchange Commission
on the date hereof (the "Report"), I, Francis W. Murray, Chief Executive Officer
of the Company, hereby certify pursuant to 18 U.S.C. ss.1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of
my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or
Section 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
/s/ Francis W. Murray
- ------------------------
Name: Francis W. Murray
Title: President and CEO
May 20, 2003
28
Exhibit 99.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002
In connection with the filing of the Quarterly Report on Form 10-Q of
International Thoroughbred Breeders, Inc. (the "Company") for the three and nine
months ended March 31, 2003 as filed with the Securities and Exchange Commission
on the date hereof (the "Report"), I, Francis W. Murray, Chief Financial Officer
of the Company, hereby certify pursuant to 18 U.S.C. ss.1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of
my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or
Section 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
/s/ Francis W. Murray
- -----------------------
Name: Francis W. Murray
Title:Chief Financial Officer
May 20, 2003
29