INTERNATIONAL THOROUGHBRED BREEDERS, INC.
1105 N. MARKET STREET, SUITE 1300
WILMINGTON, DE 19899
856-931-8163 Fax: 856-931-8165
March 17, 2006
Ms. Linda Cvrkel, Branch Chief
Securities & Exchange Commission
Washington, DC 20549
RE: International Thoroughbred Breeders, Inc.
Form 10-K for the Fiscal year ended June 30, 2005
Form 10-Q for the Quarter ended September 30, 2005
File No. 0-9624
Dear Ms. Cvrkel:
In response to your letter dated January 30, 2006 regarding our Form 10-K
for June 30, 2005 and Form 10-Q for September 30, 2005, the registrant offers
the following comments and supplemental information. We thank you for your
positive input and for providing the accounting authority references and believe
your comments will help us clarify information to our readers. Our comments and
supplemental information below follow the sequence of your letter.
1. Future revision, additionally please see the revised Selected Financial Data
schedule which will be filed with our amended Form 10-K for June 30, 2005.
2. Future revision.
3. The Company does not believe it would be proper to make a retrospective
adjustment to amend the "Total Adjusted EBITDA" calculation in the Form 10-K for
June 30, 2005. At the time of the filing of Form 10-K the Company believed that
it would be able to complete the required improvement in the immediate future on
the M/V Royal Star due to several favorable factors known at the time of filing.
1) The Company had recently received additional funds from the PDS Gaming
transaction; 2) on July 13, 2005 the Company began accepting subscriptions for
the purchase of Series B Convertible Preferred Stock and as of September 30,
2005 had received $2,322,750 in cash from the offering and the initial
acceptance of the offering in the market was very positive and the Company
expected that the offering would be sold out; and 3) the Company expected the
Big Easy vessel to begin operations immediately and the Company was expecting
positive cash flow from its operations.
In the Form 10-Q for September 30, 2005, the EBITDA calculation does not
reflect the add back of the M/V Royal Star start up charges. By the filing time
of Form 10-Q for September 30, 2005, made on November 21, 2005, it appeared that
the Company would not have the funds to
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complete the improvements to the Royal Star and thus the Royal Star start up
charges were not added back for the EBITDA calculation in accordance with
FRR-65.
4 & 5. The language below will be added to MD&A in the "Critical Accounting
Policies and Estimates" section of the amended Form 10-K.
"Financial Reporting Release No. 60 requires all companies to include a
discussion of critical accounting policies or methods and estimates used in the
preparation of financial statements. We prepare our Consolidated Financial
Statements in conformity with accounting principles generally accepted in the
United States. Certain of our accounting policies, including the estimated lives
assigned to our assets, asset impairment, and the calculation of our income tax
liabilities, require that we apply significant judgment in defining the
appropriate assumptions for calculating financial estimates. By their nature,
these judgments are subject to an inherent degree of uncertainty. Our judgments
are based on our historical experience, terms of existing contracts, our
observance of trends in the industry and information available from other
outside sources, as appropriate. There can be no assurance that actual results
will not differ from our estimates. Note 1 to the Consolidated Financial
Statements describes the significant accounting policies we have selected for
use in the preparation of our financial statements and related disclosures. We
believe the following to be the most critical accounting estimates and
assumptions affecting our reported amounts and related disclosures.
Notes Receivable
Statement of Financial Accounting Standards No. 114, "Accounting by
Creditors for Impairment of a Loan" as amended, requires management judgments
regarding the future collectability of notes receivable and the underlying fair
market value of collateral. As a result of the sale of the Garden State Park
Racetrack property in Cherry Hill, NJ, and the sale of the non- operating former
El Rancho Hotel and Casino in Las Vegas, NV, portions of the proceeds from each
sale were paid in the form of promissory notes.
During the fiscal year ended June 30, 2004 we sold the note receivable we
held on the Las Vegas, NV property for cash and other future benefits and
transferred the balance of the note to, and it is now secured by, the Cherry
Hill, NJ property (Second Cherry Hill Note). We had previously received a note
receivable from the sale of the Garden State Park property in the amount of $10
million and together, these notes are classified on the Balance Sheet as Long
Term Notes Receivables in the amount of $14,278,651 as of June 30, 2005.
Estimates are required to be used by management to assess the
recoverability of our notes receivable. We regularly review our receivables to
determine if there has been any decline in value. These reviews require
management judgments that often include estimating the outcome of future events
and determining whether factors exist that indicate impairment has occurred. We
evaluate real estate appraisals, financial balance sheets for the Cherry Hill
development, earnings and cash forecasts of the Cherry Hill investors.
Our returns on the Cherry Hill Notes are subject to debt incurred by the
property and the developers capital contributions that precede the debt owed to
us. Our returns are also subject to factors affecting the profitability and
saleability of the project. Our assumptions, estimates and evaluations are
subject to the availability of reliable data and the uncertainty of
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predictions concerning future events. Accordingly, estimates of recoverable
amounts and future cash flows are subjective and may not ultimately be achieved.
Should the underlying circumstances change, the estimated recoverable amounts
and future cash flows could change by a material amount.
When making our impairment review for the year ended June 30, 2004 for the
Note Receivable on the Las Vegas property we determined that a portion of the
Second Cherry Hill Note should be impaired by $12,786,589 (or a net of
$10,000,000 when offset by $2,786,589 of deferred gain on the sale of the Las
Vegas property) based on the collectability of the note when assigned from the
Las Vegas property to the Cherry Hill property since we already held a note in
the amount of $10,000,000 on that same property. Additionally during the year
ended June 30, 2005 an additional impairment charge of $500,000 was recorded on
the Second Cherry Hill Note because projected future events did not materialize.
Valuation of Vessels and Vessel Deposits - Related Parties
In July, 2004 we entered into Sub-Bareboat Charters of the vessels, Palm
Beach Princess and Big Easy and pursuant to a restructuring of the PDS Gaming
transaction in June, 2005, we now charter the vessels directly from our Chairman
and CEO.
The charter and PDS Gaming loan agreement for the Palm Beach Princess has
been accounted for as a capital lease. In according with our lease and purchase
agreement for the Palm Beach Princess we have the right to purchase the vessel
for $17,500,000 at the end of the lease term. Payments made by us against the
PDS Gaming debt in the amount of $14,000,000 will be credited toward the
purchase price. The carrying value of the Palm Beach Princess of $17,500,000 is
less than the fair value appraisal on the vessel.
The charter and PDS Gaming loan agreement for the Big Easy has also been
accounted for as a capital lease. In accordance with our lease and purchase
agreement for the Big Easy we have the right to purchase the Big Easy for the
appraised value of the vessel which would be determined upon the refitting and
refurbishing of the vessel. The Company had an appraisal completed as of June
23, 2005 and it indicated an estimated fair market value of approximately $40
million. Based on a July 2002 fair market appraisal of the Palm Beach Princess
of $20.5 million, management believed the appraisal of the Big Easy could be
overstated and looked for alternatives to determine the capitalized fair value
for the vessel. The Company determined that it would capitalize 1) costs it had
incurred for improvements it had made to the Big Easy; 2) all payments required
under the PDS Gaming loans for the Big Easy of $12.6 million; and 3) all
payments required under the charter hire fees, for a total capitalized amount as
of June 30, 2005 of $24,318,989.
The Company has Vessel Deposit credits in the amount of $10,228,758 which
are available to use against the purchase costs for the vessels. Should the
Company elect not to purchase one or either vessel at the end of the lease, the
Company could lose some or all of the value of the Vessel Deposit credits unless
other terms are negotiated with the owner of the vessels."
6. We note that the Commission is suggesting that the extraordinary income in
the amount of $4,000,000 should be presented net of tax. The Company believes
the original presentation to be correct in view of the fact that the Company has
over $111 million in Net Operating Loss carryforwards. The deferred tax asset on
these losses has not be recognized because of the
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uncertainty that the Company will generate income in the future sufficient to
fully or partially utilize these carryforwards. However, they are currently
available to be utilized to offset taxable income.
The Company will add the following information to Footnote 15 (Income Tax
Expense) to its amended Form 10-K:
"During the year ended June 30, 2005 the Company recognized $4 million of
extraordinary income. This income was reported in the Company's federal and
state income tax return in a prior year and the extraordinary item amount was
offset by state net operating loss carryforwards. Additionally, federal and
state income taxes were not recognized on the income because the Company has Net
Operating Loss deductions to offset any federal taxes accrued."
Please see a copy of the revised Statement of Operations for Form 10-K to
be filed attached hereto.
7. Please see a copy of the revised Statement of Operations to be filed attached
hereto reflecting the Commission's suggested changes for the Form 10-K.
8. In accordance with EITF 96-19 the Company does not believe that the
refinancing of the PDS loan on June 30, 2005 was a substantial modification to
the PDS Gaming loan agreements. The agreement entered into in July 2004
permitted the Company to sub-lease the Palm Beach Princess and the Big Easy and
the use of purchase credits for the purchase of the vessels at the end of the
lease. The refinance in June 2005 moved the vessel ownership from PDS Gaming to
companies owned or controlled by Mr. Murray, our CEO, but continued to allow the
Company's lease and purchase option for the vessels and the purchase credits.
These conditions of the lease and loan agreements are paramount to the business
purpose for entering into the lease and loan agreements in July 2004 and in June
2005.
The balance of the loans and leases payable prior to the refinance was
$27,155,723. Effective June 30, 2005 the Borrowers received $2,158,166 in new
funding bringing the new total debt owed by the Borrowers to $29,313,889. The
amortization schedules which were put in place for the Palm Beach Princess and
the Big Easy in July 2004 in the amount of $20,000,000 remain unchanged with
respect to the interest rate and the maturity date of the loans remain as July
2009. On April 6, 2005, the Borrowers entered into a loan agreement with PDS
Gaming to borrow $4,350,000 secured by the vessel, the Royal Star. The maturity
date of this loan was set in anticipation of the funding of the loan
contemplated by the $29,313,889 Loan Agreement signed in June 2005 so that the
loan would be due in July 2009.
Various other provisions agreed to in the July 2004 lease and loan
agreements also remained in place in the June 2005 loan. The loan given in April
2005 required the pledge of the $10 million Cherry Hill note which remains in
place. The upstream of funds to the Parent Company also remains in place,
although the determination has been slightly restructured and the amounts
allowed have been slightly changed. EBITDAR requirements remain although the
levels have been increased slightly because of the anticipated cash flows from
the Big Easy. Both the July 2004 and the June
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2005 loan agreements required the assignment of the Maritime office and dock
space lease as security for the loan.
As a result of the June 2005 refinance the Company did not write off any
deferred financing costs which were on the books at the time.
9. After review of Rule 5-04 of Reg. S-X the Company will file parent-only
financial statements as a schedule to Form 10-K. Please see a copy of the
required schedule attached to this letter which will be filed in the Company's
amended Form 10-K filing.
10. The Original Sub-Bareboat Charter for the Palm Beach Princess as of July
2004 and Amended and Restated Bareboat Charter and Option to Purchase agreement
as of July 1, 2005 permits the Company to purchase the Palm Beach Princess for a
stated amount of $17,500,000 at the end of the lease term. Therefore, because
there is an established purchase price which the Company treated as the
capitalized value of the Palm Beach Princess the additional charter hire fee
amounts are treated as additional interest and expensed as paid.
The Original Sub-Bareboat Charter for the Big Easy as of July 2004 and
Amended and Restated Bareboat Charter and Option to Purchase agreement as of
July 1, 2005 permits the Company to purchase the Big Easy for the appraised
value of the vessel which shall be determined upon the refitting and
refurbishing of the vessel. The Company had an appraisal completed as of June
23, 2005. The appraisal indicated an estimated fair market value as of June 23,
2005 of $39,795,000. Based on a July 2002 fair market appraisal of the Palm
Beach Princess of $20,500,000, the Company felt the appraisal of the Big Easy
could be overstated and looked for an alternative to determine the capitalized
fair market value for the vessel.
The Company determined that it would be more appropriate to capitalize the
total of; 1) the costs it had incurred for improvements it had made to the Big
Easy; 2) all payments required under the PDS Gaming loans; and 3) all payments
required under the Big Easy charter hire fees. The table on page 47 of footnote
3 describes the PDS Gaming liabilities of $12,600,000 and the charter hire fee
liability payments of $4,450,722.
11. In June 2004 the fair value of the second Cherry Hill note was written down
to $4,778,651. When the $23 million Las Vegas note was sold and replaced by the
Second Cherry Hill note, by terms of the new note, it included several new
considerations which the Company valued at present value over the life of the
new note. Below is a breakdown of the various note considerations:
Present value of $483,205 payment due 3/1/09 381,732
Est. value on sale of remaining Las Vegas Property 500,000
(written off FYE 6/30/05)
Present value of Ray Parello's interests in vessel 3,896,919
---------
Total 4,778,651
=========
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The fair value was based on those items in the table above. At the time the
Company believed it could not rely on the future cash flows from the Cherry Hill
project to determine the fair value. At the time of the impairment the Company
estimated the Big Easy vessel to have a fair value of $10 million or $5 million
for Mr. Parello's interest. This estimate was made at the time with the
knowledge that the Palm Beach Princess has been appraised in July 2002 for $20.5
million. Subsequently, the Company has recorded a fair value for the Big Easy of
$24.3 million and obtained an appraisal in June 2005 indicating an estimated
fair market value of $39.8 million.
The following language will be added to footnote 5, at the end of paragraph (A).
"The fair value of the Second Cherry Hill Note was determined using the
present value of the additional benefits derived from the sale of the note after
the cash proceeds of $7.8 million ."
12. Management has been testing the $10 million Cherry Hill Note receivable
periodically since the sale of the property. Because of the delays in the mixed
use real estate project, impairment of the note has been tested by obtaining
copies of real estate appraisal values the purchaser had received subsequent to
his purchase of the property. An appraisal completed in March 2002 for the buyer
in order to obtain bank financing for the project indicated a fair value of $60
million. A second appraisal completed in December 2004 indicated a fair value of
$37,900,000 while the Cherry Hill Tax and Assessment data indicated an implied
Market Value of $46,107,232 at that time. In the Company's yearly assessment
conducted in December 2004 meaningful historical financial statements were made
available by the purchaser of the property. During 2004 the developer sold two
parcels of property for $34,000,000, however the Company was still unable to
develop a future valuation based on fair value because the Company believed that
the developers projections appeared too aggressive and to be projected too far
into the future to develop reliable sales and cash flow information. Therefore
real estate appraisals were used for our December 2004 fair value assessment.
(In hindsight, when comparing actual historical results for December 2005 to
prior forecasts it now appears the results forecasted by the developer appeared
fairly accurate).
Retrospectively, the fair value assessment completed for December 2005 was
based on historical financial statements in addition to projections of future
sales and development of the property. The Company completed its fair value test
using this information and concluded that no impairment as of December 2005 is
required.
When assessing the fair value of the Second Cherry Hill note the
collectibility of the note based on the Cherry Hill development proceeds was not
considered, but rather only the terms of that particular note were considered in
the Company's assessment.
Attached to this letter (in a separate file) please find the Company's
impairment review analysis for its December 31, 2004 review, per your request.
13. The investment in the liquor license is carried on the June 30, 2005 Balance
Sheet at a value of $400,000. The balance is included in the Assets of
Discontinued Operations section of the
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Balance Sheet. The Company believes the carrying value to be correct and
believes its fair value exceeds the carrying value based on known recent sales
of liquor licenses in Cherry Hill, N.J. On January 18, 2006 the Company file a
Complaint in Camden County Superior Court of N.J., Chancery Division, (Civil
Action No. C-7-06) against the defendants to protect its interests in the
license. The Company expects a favorable outcome from these proceedings. The
following language will be inserted into Footnote 8 in the Company's amended
filings. "The carrying value of the liquor license of $400,000 is shown in the
"Assets of Discontinued Operations" of the Balance Sheet."
14. Future revision.
15. All 1,024,143 options were issued to employees. Future filings will disclose
this information.
16. The $929,541 balance assumed by OC Realty is included in the "Deposits and
Other Assets- Related Parties" and Footnote 7(B) details the Deposits and Other
Assets-Related Parties balances. The OC Realty principal balance is included in
"Loans to the Ft Lauderdale Project (OC Realty, LLC)" in the amount of $735,584
and the accrued interest on such loan is included in the "Accrued Interest on
Loans to the Ft. Lauderdale Project (OC Realty, LLC)" in the amount of $193,957.
Transfer from OC Realty
Golf Course to
Total OC Realty
Loan to Ft. Lauderdale Project 2,769,989 735,584 2,034,405
Accrued Interest on Loans 1,485,080 193,957 1,291,123
--------- ------- ---------
Total 4,255,069 929,541 3,325,528
========= ======= =========
The second paragraph of footnote 24 in the 10-K will be amended to correct the
accrued interest shown on the OC Realty project from $1,485,080 (the total
accrued interest along with the Golf Course transfer) to $1,291,123 (the accrued
interest only on the Original OC Realty note).
17. Mr. Murray is the Company's majority stockholder and continues to invest in
the Company through the purchase of Preferred Stock, convertible into Common
Stock; the exercise of options to purchase Common Stock; and additionally, the
Board of Directors has authorized the grant of common shares as compensation in
lieu of deferred salary. Mr. Murray has advanced funds to the Company, however
these advances have subsequently been offset by the purchase of additional
shares of stock.
It is the Company's position that these advances are, in fact, capital
investments due to the history of such transactions as detailed below.
Additionally, Mr. Murray holds 724,143 shares at $2.00 per share which exercise
could be used to offset any of his future advances.
December 29, 2005 - Mr. Murray purchased 204,966 shares of Series B Pref.
Stock at a cost of $3,074,490. These shares were paid for by offsetting
advances made to the Company by Mr. Murray. These Pref. Shares will be
converted into approx. 1,815,000 common shares
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when their registration with the SEC is approved, however it is unknown at
this time, when that will be.
July 23, 2004 - Mr Murray elected to take his deferred salary in the amount
of $344,865 in the form of 689,730 common shares, valued for such purpose
at $.50 per share.
July 23, 2004 - Mr. Murray exercised 2,000,000 options at $0.26875 per
share in exchange for $537,500 of advances previously given to the Company.
18. Future revision.
19. The Placement Fee Agreement with PDS Gaming was made on September 1, 2005.
The agreement was verbally agreed to between the parties during the period of
our negotiations with PDS Gaming, which resulted in the additional loan proceeds
given to the Company in the amount of $2,158,166 and a potential agreement where
PDS would loan an additional $3.2 million in the fall of 2005, which loan was
never completed.
When the Placement fee agreement was signed the Company placed a short and
long term prepaid expense on the balance sheet of the Company and a short and
long term liability for the amount of the Placement fee. The fee was then to be
amortized as paid. There was no entry against the cancelled equipment lease
since it was an operating lease that was paid and expensed monthly.
Subsequently, on December 29, 2005, PDS Gaming agreed to accept the
Company's common stock, valued at $2.00 per share, in full payment of the
placement fee. At that time the prior entries were reversed and the fee expensed
in total with an offsetting entry to the common stock and paid in capital
accounts.
20. The Company did not account for the beneficial conversion feature associated
with the Series B Convertible Pref. Shares in its September 30, 2005 financial
statement. The Company is consulting with its outside auditing firm to determine
the effect, if any, on the Statement of Operations and whether it should file a
amended Form 10-Q for September 30, 2005.
The warrants issued to MBC Global were valued at $86,590 and recorded as an
expense for the three months ended September 30, 2005. This expense is included
in the Parent administrative expenses.
21. Future revision
22. The Staff's comments will be addressed in the Company's Annual Report on
Form 10-K, in future amendments to our registrations statement on Form S-1 and
Quarterly Reports on Form 10-Q, where applicable.
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In connection with this response the Company acknowledges that:
The Company is responsible for the adequacy and accuracy of filings
referred to in the Commissions letter dated January 30, 2006;
Staff comments or changes to disclosure in response to staff comments do
not foreclose the Commission from taking any action with respect to the filing;
and
The company may not assert staff comments as a defense in any proceeding
initiated by the Commission or any person under the federal securities laws of
the United States.
Sincerely,
/s/Francis W. Murray
-----------------------
Francis W. Murray
Chief Executive Officer
and Treasurer
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Comment #2, Proposed revision.
Item 6 - SELECTED FINANCIAL DATA
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
Years Ended June 30,
---------------------------------------------------------------------------------
2005 2004 2003 2002 2001
-------------- --------------- -------------- ------------- --------------
Revenue From Operations (1) $ 32,773,247 $ 32,962,239 $ 31,290,599 $ 25,473,777 $ 4,921,091
Net Income (Loss) $ (1,900,035) $ (6,800,030) $ 5,233,826 $ 1,982,603 $ (2,402,142)
Income (Loss) Per Common Share
Basic & Diluted $ (0.18) $ (0.86) $ 0.54 $ 0.17 $ (0.24)
Weighted Average Number of Shares 10,303,942 7,933,691 9,720,275 11,480,272 9,987,114
June 30,
---------------------------------------------------------------------------------
2005 2004 2003 2002 2001
-------------- --------------- -------------- ------------- --------------
Total Assets $ 83,363,665 $ 50,813,716 $ 54,822,023 $ 45,928,295 $ 41,391,208
Long-Term Debt $ 33,813,301 $ 6,339,396 $ 985,017 $ - $ 482,000
Stockholders' Equity $ 29,550,451 $ 30,566,037 $ 37,586,067 $ 33,961,313 $ 31,973,710
(1) The Company commenced operation of a casino cruise vessel as of April 30,
2001 which materially affects the comparability of a portion of the
information reflected in the above data.
(2) The Company recognized an impairment loss in Fiscal 2004 in the amount of
$10 million which materially affects the comparability of a portion of the
information reflected in the above data.
(3) The Company did not pay cash dividends during any of the fiscal years shown
above.
(4) See Management's Discussion and Analysis of Financial Conditions and
Results of Operations and the consolidated financial statements and the
notes thereto for additional information for each of the three years in the
period ended June 30, 2005.
Comment #6 & 7, Proposed revisions.
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 2005, 2004 AND 2003
June 30,
---------------------------------------------------
2005 2004 2003
---------------- -------------- --------------
OPERATING REVENUES:
Gaming $ 27,350,154 $ 27,528,631 $ 26,354,929
Fare 2,999,130 3,151,182 2,952,066
On Board 2,003,746 1,921,583 1,773,926
Other 420,217 360,843 209,678
---------------- -------------- --------------
NET OPERATING REVENUES 32,773,247 32,962,239 31,290,599
---------------- -------------- --------------
OPERATING COSTS AND EXPENSES:
Gaming 9,136,981 8,805,157 7,889,140
Fare 4,310,927 3,868,705 3,381,534
On Board 987,397 925,980 849,022
Maritime & Legal Expenses 6,421,129 6,796,486 5,960,421
General & Administrative Expenses 3,007,640 3,722,984 4,121,811
General & Administrative Expenses - Parent 1,976,507 1,655,378 1,452,047
Ship Development Costs - Big Easy 5,011,756 - -
Ship Development Costs - Royal Star 284,257 - -
Equine Costs 447,989 - -
Development Costs - Other 970,836 700,580 306,952
Depreciation & Amortization 1,994,507 739,871 254,082
Loss on Impairment of Note Receivable 500,000 10,000,000 0
ITG Vegas Bankruptcy Costs 0 417,454 841,348
---------------- -------------- --------------
TOTAL OPERATING COSTS AND EXPENSES 35,049,926 37,632,595 25,056,357
---------------- -------------- --------------
OPERATING INCOME (LOSS) (2,276,679) (4,670,356) 6,234,242
---------------- -------------- --------------
OTHER INCOME (EXPENSE):
Interest and Financing Expenses (2,518,214) (2,232,119) (1,334,463)
Interest and Financing Expenses - Related Party (1,327,674) (15,873) (4,186)
Interest Income 11,988 79,320 81,039
Interest Income Related Parties 292,583 247,785 342,226
Other Income 7,961 19,713 60,468
---------------- -------------- --------------
TOTAL OTHER INCOME (EXPENSE) (3,533,356) (1,901,174) (854,916)
---------------- -------------- --------------
INCOME (LOSS) BEFORE TAX PROVISION
AND EXTRAORDINARY ITEM (5,810,035) (6,571,530) 5,379,326
Income Tax Expense 90,000 228,500 145,500
---------------- -------------- --------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM (5,900,035) (6,800,030) 5,233,826
EXTRAORDINARY ITEM - Fees charged to related
parties for Master Settlement Agreement ( Notes 15 & 21). 4,000,000 - -
---------------- -------------- --------------
NET INCOME (LOSS) $ (1,900,035) $ (6,800,030) $ 5,233,826
================ ============== ==============
BASIC AND DILUTED INCOME (LOSS) PER COMMON SHARE:
Income (Loss) before Extroardinary Item $ (0.57) $ (0.86) $ 0.54
Extraordinary Item 0.39 $ - -
---------------- -------------- --------------
Net Income (Loss) $ (0.18) $ (0.86) $ 0.54
================ ============== ==============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING - Basic and Diluted 10,303,942 7,933,691 9,720,275
================ ============== ==============
See Notes to Consolidated Financial Statements.
Comment #9, Proposed revisions.
Schedule I
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY ONLY)
BALANCE SHEETS
AS OF JUNE 30, 2005 AND 2004
ASSETS
June 30,
-------------------------------------
2005 2004
---------------- ---------------
CURRENT ASSETS:
Cash and Cash Equivalents $ 52,411 $ 6,981
Prepaid Expenses 70,458 8,140
Other Current Assets 70,283 532
---------------- ---------------
CURRENT ASSETS $ 193,152 $ 15,653
---------------- ---------------
TOTAL EQUIPMENT - Net 89,298 100,495
---------------- ---------------
OTHER ASSETS:
Deposits and Other Assets - Non-Related 476,886 299,635
Mortgage Contract Receivable - Related Parties - 13,750,000
Deposits and Other Assets - Related Parties 4,334,189 4,311,603
Notes Receivable 10,000,000 10,000,000
---------------- ---------------
TOTAL OTHER ASSETS 14,811,075 28,361,238
---------------- ---------------
TOTAL ASSETS $ 15,093,525 $ 28,477,386
================ ===============
LIBILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable $ 271,660 $ 313,360
Accrued Expenses 1,063,447 661,182
Short-Term Debt - Related Party 196,164 183,164
Current Maturities of Long-Term Debt 25,000 4,063,838
Current Advances & Wages - Related Parties 236,851 0
---------------- ---------------
CURRENT LIABILITIES: 1,793,122 5,221,544
---------------- ---------------
LONG-TERM DEBT - Net of Current Portion 57,460 4,104,324
---------------- ---------------
DEFERRED INCOME - 4,000,000
---------------- ---------------
Due To/(From) Affiliates (235,815,602) (231,101,454)
---------------- ---------------
STOCKHOLDERS' EQUITY:
Series A Preferred Stock $100.00 Par Value 36,284,375 36,248,875
Common Stock $2.00 Par Value 22,938,523 22,933,955
Capital in Excess of Par 180,393,040 180,472,694
Retained Earnings (Deficit) 9,901,812 8,443,187
---------------- ---------------
TOTAL 249,517,750 248,098,711
---------------- ---------------
LESS:
Treasury Stock 457,538 1,839,073
Deferred Compensation, Net 1,666 6,666
---------------- ---------------
STOCKHOLDERS' EQUITY: 249,058,545 246,252,972
---------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 15,093,525 $ 28,477,386
================ ===============
INTERNATIONAL THOROUGHBRED BREEDERS, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY ONLY)
FOR THE YEARS ENDED JUNE 30, 2005, 2004 AND 2003
STATEMENT OF OPERATIONS
June 30,
----------------------------------------------
2005 2004 2003
------------ ------------- -------------
------------ ------------- -------------
OPERATING COSTS AND EXPENSES: $ 1,819,304 $ 1,576,879 $ 1,442,361
------------ ------------- -------------
OTHER INCOME (EXPENSE):
Interest and Financing Expenses (289,078) (1,011,261) (268,169)
Interest Income 29,496 63,270 72,777
Other Income 11 19,713 70
------------ ------------- -------------
OTHER INCOME (EXPENSE): (259,571) (928,278) (195,322)
------------ ------------- -------------
INCOME (LOSS) BEFORE TAX PROVISION
AND EXTRAORDINARY ITEM (2,078,875) (2,505,157) (1,637,684)
Income Tax Expense - 76,500
------------ ------------- -------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM (2,078,875) (2,581,657) (1,637,684)
EXTRAORDINARY ITEM - Fees charged to related
parties for Master Settlement Agreement 4,000,000 - -
------------ ------------- -------------
NET INCOME (LOSS) $ 1,921,125 $ (2,581,657) $ (1,637,684)
============ ============= =============
STATEMENT OF CASH FLOWS
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) $ 1,921,125 $ (2,581,657) $ (1,637,684)
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation and Amortization 16,517 13,183 13,183
(Decrease) in Deferred Income - Related Parties (4,000,000) - -
Changes in Assets and Liabilities -
(Increase) Decrease in Other Assets (69,751) 349,537 4,187
Decrease (Increase) in Prepaid Expenses (62,318) 25,897 35,329
Increase (Decrease) in Accounts Payable and Accrued Expenses 542,874 (312,736) 711,683
------------ ------------- -------------
CASH FLOWS (USED IN) OPERATING ACTIVITIES (1,651,553) (2,505,776) (873,302)
------------ ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures (320) - (8,110)
Loans made on Development Projects 2,600,749 - -
Deposits on Purchase of Additional Vessel - - (300,000)
(Increase)Decrease in Other Investment Activity 58,739 200,000 (109,126)
(Increase)Decrease in Other Investment Activity - RP 1,206,533 (188,224) -
------------ ------------- -------------
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES 3,865,701 11,776 (417,236)
------------ ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Funds from Related Parties - ST 33,230 - 183,164
Proceeds from Bank Financing - - 200,000
Long-Term Deferred Financing Costs (235,990) - -
Principal Payments on Short Term Notes - (1,267,685) (203,364)
Principal Payments on Long Term Notes - Related Parties - (324,022) -
Principal Payments on Long Term Notes (1,241,669) - -
Increase (Decrease) in Balnces Due To/From Affilliates (724,289) 4,081,897 1,125,152
------------ ------------- -------------
CASH FLOWS (USED IN) PROVIDED BY FINANCING ACTIVITIES (2,168,717) 2,490,191 1,304,952
------------ ------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 45,431 (3,809) 14,415
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 6,981 10,790 (3,625)
------------ ------------- -------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 52,412 $ 6,981 $ 10,790
============ ============= =============
Comment #12
Cherry Hill Note Receivable impairment review at 12/04
6/14/04
Sold Las Vegas Note, balance of $4,778,651 put on GSP porperty 4,778,651
Orginal Note 10,000,000
--------------
Total Notes on GSP property 14,778,651
Real estate appraisal dated 12/20/04by Sockler Mignogna
DiLello Realty Group
estimated value 37,900,000
Note: appraised for $60 million in 2002
Per appraisal tax assessment is $35,000,000 times
current equalization rate of 75.91% = 46,107,232
--------------
AVERAGE OF EACH APPRAISAL 42,003,616
==============
First two land sales completed in 2004 for $34,000,000
per projection
Future land sales per Turnberry projection
2004 actual 34,000,000
2005 projections per Turnberry: 13,150,000
2006 3,000,000
2007 5,800,000
2008 15,000,000
2009 30,000,000
------------------
Total projected sales 100,950,000
not used - too far in future ------------------
Use real estate appraisals for est. of fair value.
Average R/E appraisal 42,000,000
Less: Debt / GMAC (12,350,000)
Turnberry Equity (4,657,000)
--------------
Net Value 24,993,000
Net to be distributed 24,993,000
Distribution to ITB (up to $10.0 million) 10,000,000
--------------
Remaining 14,993,000
itb share = 1/3 4,997,667
Total pd to ITB 14,997,667
==============
P/V of cash flows from 11/2000, date of sale
to 12/2004 5 years at 10% 0.621 9,313,551
Note on books:
Cherry Hill Note 10,000,000
less: Deferred income for GSP on books (1,595,000)
--------------
Net Cherry Hill Note - carrrying value 8,405,000
P/V of Turnberry project as stated above 9,313,551
--------------
(Excess fair value over carrying value) (908,551)
2nd Cherry Hill Note - CH dev. value 4,278,651
not considered in fair value of note, survives =============
on own merits
Realen - Turnberry / Balance Sheet 12/31/04
Cash 1,091,108
Escrow acct 4,000,000
Real Estate Held for dev. 14,169,899
CIP 18,195,392
-------------
Total 37,456,399
-------------
A/P 858,318
Accured interest - GSP 8,983,333
Due to Turnberry Dev 4,657,466
Note Pay - GMAC 12,350,612
Note Pay. - ITB 10,000,000
Deferred Land Sales 4,000,000
Deposits 1,000,000
Equity (4,393,330)
-------------
Total 37,456,399
-------------