SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                           --------------------------

                                    FORM 10-K

                        For annual and transition reports
                     pursuant to sections 13 or 15(d) of the
                         Securities Exchange Act of 1934

[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
   ACT OF 1934

For the fiscal year ended June 30, 2001

                                       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 No. 0-9624

                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                 -----------------------------------------------
             (Exact name of registrant as specified in its charter)


          Delaware                                   22-2332039
 ----------------------------            ---------------------------------
 (State or other jurisdiction            (IRS Employer Identification No.)
      of incorporation)


   211 Benigno Boulevard, Suite 210, Bellmawr, New Jersey         08031
   ------------------------------------------------------      ----------
         (Address of principal executive offices)              (Zip Code)

                                 (856) 931-8163
         ---------------------------------------------------------------
              (Registrant's telephone number, including area code)

Securities registered pursuant to Section 12 (b) of the Act:

             None

Securities registered pursuant to Section 12 (g) of the Act:

             Common Stock, par value $2.00

Indicate by check mark whether 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 past 90 days. Yes X No

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best  of  the  registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K.[X]

The  aggregate   market  value  of  the   registrant's   common  stock  held  by
non-affiliates  of the  registrant  as of September  28, 2001 was  approximately
$1,794,863.  Shares of common stock held by each executive  officer and director
and by each  person who owns 10% or more of our  outstanding  common  stock have
been excluded since such persons may be deemed affiliates. This determination of
affiliate  status  is not  necessarily  a  conclusive  determination  for  other
purposes.

As of  September  28,  2001,  there were  11,480,269  outstanding  shares of the
registrant's common stock.




                                TABLE OF CONTENTS


                                     PART I
                                     ------

Item 1.  Business                                                          1
Item 2.  Properties                                                        6
Item 3.  Legal Proceedings                                                 6
Item 4.  Submission of Matters to a Vote of Security Holders               9

                                     PART II
                                     -------

Item 5.  Market for the Registrant's Common Equity and Related
         Stockholder Matters                                              10
Item 6.  Selected Financial Data                                          11
Item 7.  Management's Discussion and Analysis of Financial Condition
         and Results of Operations                                        12
Item 7A. Quantitative and Qualitative Disclosures about Market Risk       20
Item 8.  Financial Statements and Supplementary Data                      20
Item 9.  Changes in and Disagreements with Accountants on Accounting
         and Financial Disclosure                                         50


                                    PART III
                                    --------

Item 10. Directors and Executive Officers of the Registrant               51
Item 11. Executive Compensation                                           53
Item 12. Security Ownership of Certain Beneficial Owners and Management   56
Item 13. Certain Relationships and Related Transactions                   57

                                     PART IV
                                     -------

Item 14. Exhibits, Financial Statement Schedule, and Report on Form 8-K   59




           CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

     We have made  forward-looking  statements in this Form 10-K,  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
elsewhere in this document,  particularly under "Risk Factors," could affect our
future  results and could cause those  results to differ  materially  from those
expressed in our forward-looking statements:

        general   economic   and  business   general   economic  and  business
        conditions;

        competition;

        execution of our new business strategy;

        changes in laws regulating our industry;

        fluctuations in quarterly operating results as a result of
        seasonal and weather considerations; and

        events directly or indirectly relating to our business
        causing our stock price to be volatile.





                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.

                                     PART I

Item 1. Business.

General

     International  Thoroughbred  Breeders,  Inc., a Delaware  corporation,  was
incorporated  on October  31,  1980.  Until the  January  1999 sale of  Freehold
Raceway  and leasing to a third party of Garden  State Park,  we were  primarily
engaged, through various operating subsidiaries,  in the ownership and operation
of standardbred  and  thoroughbred  racetracks in New Jersey.  For the period of
approximately  22 months after our January 1999 sale of Freehold Raceway and our
leasing  of Garden  State Park to a third  party,  our focus  concentrated  upon
working out the Company's  debt problems,  by selling our real  properties in an
orderly  fashion rather than  permitting  such assets to be lost by foreclosure.
Our efforts in that regard were successful, and in two transactions,  one in May
2000 and the other in November 2000, we sold all of our real properties and paid
our indebtedness in full. Since November 2000, we have evaluated and continue to
look for business  opportunities.  We are committed to remaining as an operating
company.

     To that end, as of April 30,  2001,  we  acquired,  by a bareboat  charter,
operations  of an offshore  gaming  vessel,  the M/V Palm Beach  Princess.  This
vessel sails twice daily from the Port of Palm Beach,  Florida and,  once beyond
the  three-mile  territorial  limit,  engages in a casino  gaming  business.  We
acquired this business  pursuant to a bareboat charter for a one-year term only,
and, by  negotiating  to purchase  the  substantial  debt  secured by a mortgage
against  the  vessel,  we plan to  negotiate  an  acquisition  of the vessel and
related  assets.  The business of operating the cruise vessel includes a variety
of  shipboard  activities,  including  casino  gaming,  dining,  music and other
entertainment.

Current Operations

     Effective  April 30,  2001,  we entered  into a bareboat  charter  with MJQ
Corporation, pursuant to which we charter the vessel M/V Palm Beach Princess for
the purpose of operating a casino cruise business out of the Port of Palm Beach,
Florida.  Under the bareboat charter agreement,  we are 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 have entered into a letter of intent
with the Chapter 11 Trustee of the  Bankruptcy  Estate of Robert E. Brennan (the
"Brennan  Bankruptcy  Trustee"),  MJQ Corporation and others which  contemplates
that,  subject  to the  negotiation,  execution  and  delivery  of  satisfactory
definitive agreements, we would purchase from the Brennan Bankruptcy Trustee the
promissory note of MJQ  Corporation,  having a balance of principal and interest
outstanding as of June 30, 2001 of approximately  $14.3 million and secured by a
ship  mortgage   against  the  M/V  Palm  Beach  Princess  (the  "Ship  Mortgage
Obligation"),  for a purchase price of $13.75 million. Such purchase price would
be payable in consecutive monthly  installments of $250,000 through a date to be
negotiated,  but expected to be no earlier  than July 31,  2002,  with a balloon
payment due at that time. If the date for the final balloon  payment is July 31,
2002,  the  amount  of such  payment  at that  time  would be $10  million.  Our
chairman, Francis W. Murray, is a director of MJQ Corporation.


                                       1



     The  letter  of  intent  with  the  Brennan   Bankruptcy  Trustee  and  our
anticipated  purchase of the Ship Mortgage  Obligation is an  opportunity  which
arose out of the Brennan Bankruptcy Trustee's claims against MJQ Corporation and
others,  including Mr. Murray, alleging that MJQ Corporation had received a loan
(the Ship Mortgage  Obligation)  from an entity which,  in turn,  received funds
from  offshore  trusts  created  by  Robert E.  Brennan  (the  Company's  former
chairman).  We understand that the Brennan Bankruptcy Trustee expects to acquire
the Ship  Mortgage  Obligation  through a  settlement  of  litigation  which the
Brennan  Bankruptcy Trustee brought against those offshore trusts. We learned of
the  opportunity to acquire the Ship Mortgage  Obligation and of the opportunity
to acquire, at least temporarily (through the bareboat charter),  the vessel and
MJQ Corporation's  casino cruise business,  through Mr. Murray's connection as a
director of MJQ Corporation.

     Under the bareboat  charter,  we have acquired the right to operate the M/V
Palm Beach  Princess,  which,  once outside the three-mile  territorial  coastal
limit, operates a casino gaming business.

     The Palm  Beach  Princess  is a  large,  ocean  going  cruise  ship  with a
passenger capacity of 850 for coastal voyages.  The ship is 420 feet long, 6,659
gross tons, and registered in the Republic of Panama.  Originally built in 1964,
the ship was  substantially  reconstructed,  refurbished,  and upgraded in 1973,
1984 and  1997.  The ship  fully  complies  with the  highest  standards  of the
International  Convention  on  Safety  of Life  at Sea as  applicable  to  large
passenger ships, and is regularly  subjected to safety and health inspections by
the Unites States Coast Guard and the United States Public Health Service.

     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.

     Pursuant to the bareboat charter between MJQ Corporation,  the owner of the
vessel,  and a  subsidiary  of ours,  the vessel is  provided to us for a period
ending April 30, 2002, unless earlier terminated.  The charter may be terminated
before April 30, 2002, if a definitive  purchase agreement for the Ship Mortgage
Obligation is not entered into by us, MJQ Corporation and the Brennan Bankruptcy
Trustee before May 31, 2001.  Since such agreement has not yet been signed,  MJQ
Corporation  could terminate the bareboat charter in its discretion at any time.
The bareboat  charter also  provides that the Brennan  Bankruptcy  Trustee shall
have the right to terminate the bareboat charter in the event of a default by us
or our subsidiary under the definitive  purchase agreement for the Ship Mortgage
Obligation.  As charterer of the vessel,  we are responsible for maintaining the
vessel,  all  machinery,  boilers and other  equipment  on the  vessel,  and are
responsible  for  making  all  necessary  repairs.  We are  responsible  for all
expenses of  operations,  including  all taxes  payable in respect  thereof.  As
charterer,  we have the use of all  equipment on board the vessel at the time it
was  delivered  to us, and are  responsible  for re-  delivery of the vessel and
equipment  at the end of the  charter  period in the same  condition  as when we
received  it,  ordinary  wear and tear  excepted.  We are


                                       2


also  responsible  for replacing any items of equipment that need to be replaced
and, to the extent  equipment may be leased,  we are  responsible for all rental
and other  liabilities of MJQ  Corporation  under such leases during the term of
the charter. We are to keep all insurance in place for the vessel and equipment.
Further,  MJQ Corporation is to continue to conduct for us certain operations of
the vessel until such time as we obtain,  through our operating subsidiary,  all
permits, licenses and registrations required in connection with the operation of
the  vessel,   including  but  not  limited  to,  the  federal  water  pollution
certification,  registration  under the Gambling  Devices Act,  registration for
Florida sales tax, and Florida alcoholic beverage  licensing.  All costs of such
operations  incurred by MJQ Corporation on our behalf are to be reimbursed by us
to MJQ  Corporation.  Pending  completion  of  definitive  agreements  among MJQ
Corporation,  the Brennan  Bankruptcy  Trustee and us, we have not obtained such
permits, licenses or registrations in our own or our subsidiary's name.

Prior Operations

     In April of 1998,  our Board of Directors  authorized  the  exploration  of
strategic opportunities for our business, including a possible merger or sale of
all of our assets. The Board ultimately decided that a sale of all of our assets
was the preferred  alternative.  On November 30, 2000,  through our wholly-owned
subsidiary  GSRT,  LLC, we closed on the sale of our Garden State Park property,
located in Cherry Hill, New Jersey,  to  Realen-Turnberry/Cherry  Hill, LLC. The
purchase  price was $30  million  and was paid by: (i)  previous  cash  deposits
totaling $1 million;  (ii) a Promissory  Note in the face amount of $10 million;
and (iii) the balance of the  purchase  price paid in cash at the  closing.  The
cash  proceeds from such sale were  principally  used by us to repay in full the
outstanding  balances on our debt to Credit Suisse First Boston Mortgage Capital
LLC of  approximately  $14.3  million and to repay in full  approximately  $3.75
million of  principal  and  interest  on the debt to the  Chapter 11  Bankruptcy
Trustee for the estate of Robert E. Brennan  which had been incurred to purchase
2,904,016 shares of our common stock.

     Under the $10 Million Note,  the interest  payable will be dependent  upon,
and payable solely out of, the buyer's net cash flow available for  distribution
to its equity  owners.  After the equity  investors  in the buyer 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
fifteenth 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-Turnberry/Cherry
Hill during the  six-month  period  prior to the  fifteenth  anniversary  of the
issuance  of the  Note.  If not then  converted,  the Note  will be  payable  at
maturity 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-Turnberry/Cherry  Hill's  assets over
the sum of its  liabilities  (other  than the  Note) and any  unreturned  equity
investment  of its owners.  We have  elected to defer the gain on the sale until
such time that collectability, under the $10 million Note purchased from Realen-
Turnberry/Cherry Hill after the closing, can be determined.


     During June 2001, we held  auctions at which all of the personal  property,
including  equipment,  furniture,  furnishings  and art  work,  that we owned at
Garden State Park was sold


                                       3



for approximately $1.2 million in cash.

     On  May  22,  2000,  through  our  wholly-owned   subsidiary  Orion  Casino
Corporation,  we closed on the sale of the non-operating  former El Rancho Hotel
and Casino in Las Vegas, Nevada to Turnberry/Las Vegas Boulevard,  LLC. The sale
price was $45 million and was paid by: (i) previous  cash  deposits  totaling $2
million; and (ii) the balance of the sale price paid in cash at the closing. The
proceeds  from the El Rancho  sale  were  principally  used by us to reduce  the
outstanding balance on our loan from Credit Suisse First Boston Mortgage Capital
LLC to $14.7 million and to purchase a promissory note, secured by the rights to
100% of the  distributable  cash of the buyer in the event of a default,  of the
buyer in the amount of $23 million, which will be convertible at our option into
a 33 1/3% equity  interest in the buyer.  The interest  payable  under such note
will be  dependent  upon,  and payable  solely out of, the buyer's net cash flow
available for  distribution to its equity owners.  After the equity investors in
the  Company  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 thirtieth  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  on the  fifteenth
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 on the thirtieth anniversary
of its  issuance.  We have elected to defer the gain on the sale until such time
that  collectability,  under the $23 million Note purchased from Turnberry after
the closing, can be determined.

     On January 28, 1999, we completed the sale of Freehold Raceway, the sale of
a ten acre  parcel at Garden  State  Park and the  lease of  Garden  State  Park
facilities to subsidiaries of Greenwood Racing,  Inc. The purchase price was $46
million,  with up to an additional  $10 million in Contingent  Promissory  Notes
which become payable only upon, among other things, the New Jersey Legislature's
approval of  off-track  betting  facilities  or telephone  account  pari- mutuel
wagering  on  horse  racing  by  certain  dates  (which  has now  occurred)  and
Greenwood's  obtaining  necessary licenses to operate by January 24, 2002, which
is not likely to occur in time.

Employees

     As  of  June  30,  2001,  we  employed  7  full-time  corporate  executive,
administrative  and  clerical  personnel.  All of the crew of the M/V Palm Beach
Princess (226 persons) and office and  management  personnel of MJQ  Corporation
(78  persons)  are made  available  to us for  operation  of the  casino  cruise
business under an arrangement  between us and MJQ Corporation by which all costs
of such personnel are borne by us.

Competition

     Currently,  the M/V Palm Beach  Princess  is the only  vessel  operating  a
coastal gaming business from the Port of Palm Beach and our closest  competition
is approximately  50 miles away in Ft.  Lauderdale,  Florida.  From time to time
during the past few years,  competing  vessels have operated gaming cruises from
the Port of Palm Beach and/or the Riviera Beach marina facility,  located within
a mile of the Port of Palm Beach. There are also additional


                                       4



marinas  lining  the coast of  Florida  that are  capable  of  handling  vessels
dedicated to coastal  gaming,  although any such  vessels  necessarily  would be
substantially  smaller than the Palm Beach  Princess.  The Port of Palm Beach is
currently  constructing  a new  terminal and larger port  facilities  which will
enable the port to handle  increased  capacity,  including  possibly  additional
gaming cruise  vessels.  There is no assurance that a competing  vessel will not
enter the gaming  business  at the  existing  Port of Palm  Beach,  at a new and
larger  port  facility  under  construction  in Palm  Beach or at  another  port
facility in the future. Given the berthing and operating  preferences enjoyed by
the Palm Beach Princess pursuant to existing operating and lease agreements with
the Port of Palm Beach, however, the effectiveness of competition from any other
vessel at the Port of Palm Beach is questionable.

     In addition to competing  with other  vessels in the coastal  gaming cruise
business,  we compete with a variety of other  entertainment  activities  in and
around Palm Beach,  Florida,  including,  but not limited to,  land-based Indian
gaming casinos, poker rooms, dog racing, state- sponsored lotteries,  short-term
cruises,  resort  attractions,  various  sports  activities  and numerous  other
recreational  activities.  There  is no  assurance  that  we  will  be  able  to
successfully compete with such other activities.

Weather and Seasonal Fluctuations

     The success on our casino cruise business depends to significant  extent on
the weather conditions. In particular,  inclement weather, or the threat of such
weather,  has  a  direct  effect  on  passenger  counts,  potentially  adversely
affecting  our  revenues.  On  relatively  rare  occasions,  bad  weather or sea
conditions  may result in the  cancellation  of  cruises.  Our  business is also
subject to seasonal  fluctuations.  Our peak seasons are the late fall,  winter,
and early  spring  seasons  due to the  increased  local  population  as well as
increased tourist populations.

Federal and State Regulations - Florida

     The effect of  amendments  in 1994 to the Federal  Gambling Ship Act and in
1992 to the  Federal  Johnson  Act was to  repeal  the prior  prohibition  under
Federal law of gambling  aboard  ships  performing  coastal  voyages  beyond the
jurisdiction  of state  territorial  waters  (three  miles on the United  States
Atlantic  coast),  and to permit  individual  states to enact laws regulating or
prohibiting  gambling aboard ships performing coastal voyages from ports located
in such states.  From time to time in prior years, bills have been introduced in
the Florida legislature which, if enacted, would prohibit coastal gaming cruises
from  Florida  ports.  None of such bills have been  enacted and no such bill is
currently pending.  There is a risk that the State of Florida may at some future
date regulate or prohibit the coastal cruise gaming business.  In addition,  the
Federal  government  could  determine to enact  regulations  or  prohibition  of
coastal gaming cruises.

     Further,  from time to time,  bills have been  introduced  seeking to place
passenger  surcharges  on cruises  originating  from  ports  within the State of
Florida. Originally, this surcharge was intended to fund a trust fund to be used
for statewide beach  restoration and  management.  Such bills were  subsequently
amended so that the gaming cruise  industry would not be taxed.  However,  there
can be no assurance  that similar  bills  designed to tax  passengers on cruises
such as those offered by us will not be  introduced in the future.  In addition,
while


                                       5



current law and regulations do not now prohibit casino advertising, from time to
time bills have been introduced  which, in part,  prohibit the  advertisement of
any form of  gambling  in any  newspaper,  circular,  poster,  pamphlet,  radio,
telegraph,  telephone or  otherwise.  There can be no assurance  that such bills
will  not be  reintroduced  or  enacted  in the  future.  There  has  also  been
litigation  instituted in the State of Florida  against gaming cruise  operators
for allegedly causing a public nuisance.  There can be no assurance that further
litigation  will not be  instituted in the future which,  if  successful,  could
adversely affect the industry in which we operate.

Item 2. Properties.

     Until July 18, 2001, we owned a condominium unit and an ownership  interest
in the Ocala  Jockey  Club  located  in  Reddick,  Florida.  This  property  was
purchased at a time when the Company was in the thoroughbred breeding business.

     We lease approximately  4,000 square feet of office space in Bellmawr,  New
Jersey which serves as our corporate headquarters. The lease is for a three year
period, expiring on May 31, 2004, and provides for an option to extend such term
for an additional three year period commencing June 1, 2004.

     The operation of the M/V Palm Beach Princess requires the lease of terminal
and office space at the Port of Palm Beach as well as the use of port  operating
rights.  Currently,  such lease and attendant rights are held by MJQ Corporation
and another entity through which MJQ Corporation is permitted to operate; and we
are able to use such facilities (pending  negotiation of definitive  agreements)
by agreement of MJQ  Corporation.  MJQ Corporation  currently is negotiating for
additional space at a new terminal and office facility being  constructed by the
Port of Palm Beach. Once the settlement with the Brennan  Bankruptcy Trustee and
MJQ Corporation is finalized and Bankruptcy Court approval of such settlement is
obtained,  we will seek to negotiate an acquisition of MJQ Corporation's  lease,
port  operating  rights  and  assets.  No  assurance  can  be  given  that  such
negotiations  will be  successfully  completed  or that the  Port of Palm  Beach
District would approve an assignment of the operating rights at the Port to us.

     During fiscal year 2001, we completed the divestiture of substantially  all
of our real estate  holdings,  including  Garden State Park in Cherry Hill,  New
Jersey and in Fiscal  2000,  the former El Rancho Hotel and Casino in Las Vegas,
Nevada (see "Business").

Item 3. Legal Proceedings.

Harris v. DeSantis, et al.

     The first New Jersey  Action,  filed on February 24, 1998 in the New Jersey
District Court, captioned Myron Harris,  derivatively on behalf of International
Thoroughbred  Breeders,  Inc. v. Nunzio P. DeSantis,  Anthony Coelho, Kenneth W.
Scholl,  Michael  Abraham,  Joseph  Zappala,  Frank A. Leo,  Robert J.  Quigley,
Charles R. Dees, Jr. and Francis W. Murray  ("Harris-Federal"),  C.A. No. 98-CV-
517(JBS),  is a derivative  suit brought by a  stockholder  of the Company.  The
Harris-Federal  complaint  alleges that various  individual  defendants acted in
contravention of ITB's by-laws and their fiduciary duties by (i) causing the


                                       6



Company to undertake  various  actions,  including the issuance of a significant
amount of the Company's common stock, in violation of the Supermajority  By-law;
(ii) usurping certain corporate  opportunities  allegedly  belonging to ITB; and
(iii) causing the Company to fail to file current, audited financial statements.

     On May 4,  1998,  all  defendants  filed a motion  to  dismiss  or stay the
Harris-Federal  action,  pending resolution of the Quigley et al. v. DeSantis et
al.,  C.A.  No.  15919,  in the Court of Chancery of the State of Delaware  (the
"Quigley action").  On May 4, 1998, the plaintiff filed an amended complaint to,
among other things,  adding Howard J. Kaufman, a stockholder of the Company,  as
an additional plaintiff.

     As described more fully below,  pursuant to the New Jersey Settlement,  the
Harris-Federal  action was fully and finally  dismissed with prejudice,  and the
parties  provided mutual releases of all claims related to the action.  See "New
Jersey Settlement."

Harris v. DeSantis, et al.

     A second  New  Jersey  Action,  filed on July  15,  1998 in the New  Jersey
Superior Court, captioned Myron Harris and Howard Kaufman v. Nunzio P. DeSantis,
Anthony Coelho,  Kenneth W. Scholl,  Michael Abraham,  Joseph Zappala,  Frank A.
Leo,  Robert  J.  Quigley  and  Charles  R.  Dees,  Jr.   ("Harris-State"   and,
collectively  with  the  Harris-Federal   action,  the  "New  Jersey  Actions"),
Cam-L-5534-98,  was a purported class action suit brought by the same plaintiffs
as the  Harris-Federal  action.  The  complaint  alleged  that the  Harris-State
defendants  breached their  fiduciary  duties to the Company's  stockholders  by
failing to file timely  audited  financial  statements for the fiscal year ended
June  30,  1997,  resulting  in the  indefinite  suspension  of  trading  of the
Company's stock on AMEX.

New Jersey Settlement

     Prior to filing  pleadings in response to the Harris-State  complaint,  ITB
and the  defendants  in the New Jersey  Actions  entered  into a  memorandum  of
understanding  dated August 18, 1998 (the "New Jersey  Memorandum")  pursuant to
which, upon satisfaction of multiple conditions (including the parties' approval
of definitive settlement  documents,  notice of the settlement to ITB's past and
current stockholders,  and the approval of the New Jersey Superior Court and the
New Jersey District Court),  the New Jersey Actions were to be fully and finally
dismissed with  prejudice,  and ITB and all defendants were to receive a release
from all holders of ITB common and preferred  stock of any claims arising out of
the facts and transactions set forth in the complaints in the New Jersey Actions
(the "Proposed New Jersey Settlement").  The New Jersey Memorandum provided that
the Proposed New Jersey  Settlement  would be submitted  for approval to the New
Jersey  Superior  Court,  that a fee petition  would be submitted by plaintiffs'
attorneys  in the New Jersey  Actions for  approval  by the New Jersey  District
Court, and that the Harris-Federal action would be dismissed on the grounds that
the plaintiffs' claims are barred and released as a result of the settlement and
dismissal of the Quigley  action by the Delaware Court of Chancery on October 6,
1998. Pursuant to the Proposed New Jersey Settlement,  the plaintiffs agreed not
to file objections to the Delaware Settlement.


                                       7



     On June 17,  1999,  the New Jersey  Superior  Court acted  unilaterally  to
dismiss the  complaint in the  Harris-State  action  filed under  docket  number
Cam-L-5534-98. On July 30, 1999, the plaintiffs in the Harris-State action filed
in the New Jersey Superior Court a second  complaint,  identical to the original
action and naming as  defendants  the same parties as the original  complaint in
the  Harris-State   action,  under  docket  number  Cam-L-5620-99  (the  "Second
Harris-State  Complaint").  Subsequent to the filing of the Second  Harris-State
Complaint,  the terms of the  Proposed  New Jersey  Settlement  were  amended to
expressly  include the claims asserted by plaintiffs in the Second  Harris-State
Complaint.  Beginning in October  1999,  plaintiffs in the  Harris-State  Action
began  serving  process of the Second  Harris-State  Complaint on certain of the
defendants.

     On December 3, 1999, plaintiffs in the Harris-Federal action filed with the
New Jersey  District  Court a motion for an order  enforcing  the  Proposed  New
Jersey Settlement. On December 3, 1999, the New Jersey District Court entered an
order dismissing the  Harris-Federal  action without costs and without prejudice
to the plaintiffs' right to reopen the action within 60 days if the Proposed New
Jersey  Settlement is not  consummated.  In light of the entry of this order, on
December 7, 1999, the New Jersey  District Court  dismissed as moot  plaintiffs'
motion for an order enforcing the Proposed New Jersey Settlement.  On January 6,
2000,  plaintiffs  in the  Harris-Federal  action moved to vacate the New Jersey
District  Court's  dismissal  order and to pursue the original motion to enforce
the  Proposed  New Jersey  Settlement.  On  February  16,  2000,  the New Jersey
District Court granted the plaintiffs'  motion to vacate the dismissal order and
reopen  the  Harris-Federal  action.  The  plaintiffs  filed a second  motion to
enforce the terms of the Proposed New Jersey Settlement on April 25, 2000.

     On May 24,  2000,  the  parties  to the New  Jersey  Actions  agreed to and
executed a Stipulation  of  Settlement  (the "New Jersey  Settlement").  The New
Jersey  Settlement  provides  that,  subject to the  approval  of the New Jersey
District  Court,  the  Company  will pay,  on behalf and for the  benefit of the
individual  defendants in the New Jersey Actions,  the aggregate sum of $175,000
for  plaintiffs'  counsel  fees and  expenses  in the New  Jersey  Actions.  Any
incentive  award to  plaintiffs  Harris  and  Kaufman  would be paid out of this
$175,000 sum. Pursuant to the New Jersey Settlement,  the Board will restructure
its Audit  Committee  of the Company so as to  facilitate  the  procurement  and
timely filing of audited financial  statements in the future.  Further,  the ITB
Board will  establish a Relisting  Committee  for the purpose of  attempting  to
secure the relisting of the Company's  common stock on a public market.  On June
21,  2000,  in light of the  parties'  agreement  to the terms of the New Jersey
Settlement,  the New Jersey  District  Court  dismissed as moot the  plaintiffs'
second motion to enforce the proposed settlement.

     Pursuant to the New Jersey  Settlement,  on June 30,  2000,  the New Jersey
Superior Court  certified  preliminarily,  for the  settlement  purposes only, a
plaintiff  class (the "Class")  consisting of all holders of the Company's stock
between  October  13,  1997 (the date AMEX  suspended  trading of the  Company's
stock) and June 30,  2000,  the date the New Jersey  Superior  Court  entered an
order  approving the form of the proposed  Notice of Settlement to the Class. On
July 13, 2000, pursuant to the New Jersey Settlement,  the Company mailed to all
record  holders of ITB stock within the Class period a Notice of  Settlement  of
the Harris-State action and a Notice of Dismissal of the Harris-Federal action.


                                       8



     On August  21,  2000,  the New  Jersey  Superior  Court  held a hearing  to
consider  the  fairness  of the  New  Jersey  Settlement  to the  Class.  At the
conclusion of the hearing,  the New Jersey  Superior  Court entered an order (i)
certifying  the Class  pursuant to New Jersey Rule 4:32;  (ii) approving the New
Jersey Settlement as fair, reasonable, adequate and in the best interests of the
Class;  (iii)  dismissing  the  Harris-State  action  with  prejudice;  and (iv)
releasing all Class claims against the  defendants  arising from and relating to
the facts alleged in the Second Harris-State Complaint.

     On  September  26,  2000,  the New Jersey  Federal  Court held a hearing to
consider the proposed dismissal of the Harris-Federal action and the application
by plaintiffs'  counsel for payment of attorneys' fees and expenses  incurred in
connection  with pursuing the New Jersey  Actions.  During the hearing,  the New
Jersey Federal Court requested the submission of additional  materials  relating
to the New Jersey Settlement and the Delaware  Settlement.  Plaintiffs'  counsel
submitted the requested  materials to the New Jersey  Federal Court on September
29, 2000.  On October 25, 2000,  the New Jersey  Federal  Court entered an order
awarding  plaintiffs'  counsel the amount of $175,000 for payment of  attorney's
fees,  expenses and incentive  awards to plaintiffs to be paid by the Company in
accordance with the New Jersey  Settlement.  On December 6, 2000, the New Jersey
Federal Court entered a final order  dismissing the  Harris-Federal  Action with
prejudice.

Other Litigation

     We are  involved  in  litigation  incidental  to our  prior  ownership  and
operation  of Garden State Race Track and  Freehold  Raceway.  We do not believe
that the resolution of any existing litigation will result in a material adverse
effect on our business, results of operations, or financial condition.

Item 4. Submission of Matters to a Vote of Security Holders.

     We did not submit  any  matters to a vote of  security  holders  during the
fourth quarter of fiscal year 2001.

                                       9

                                     PART II


Item 5.  Market  for the  Registrant's  Common  Equity and  Related  Stockholder
         Matters

     Our common  stock has been traded  infrequently  on the Pink  Sheets  since
September  15,  1998.  The  following  table sets  forth,  for the fiscal  years
indicated,  the high and low sales  prices for each share of our common stock on
the Pink Sheets based upon information supplied by the Pink Sheets.


                                                    High  Low
                                                    ----  ---
                2000
                       First Quarter                .75   .20
                       Second Quarter               .75   .35
                       Third Quarter                .58   .25
                       Fourth Quarter               .89   .29
                2001
                       First Quarter                .60   .20
                       Second Quarter               .45   .10
                       Third Quarter                .51   .19
                       Fourth Quarter               .46   .30


     On June 30, 2001,  there were 30,245 holders of record of the shares of our
outstanding common stock.

     We have not paid any dividends  since our inception.  The  declaration  and
payment of dividends in the future will be  determined by our board of directors
in  light  of  conditions  then  existing,  including  our  earnings,  financial
condition and capital requirements. We do not anticipate paying dividends in the
foreseeable future.


                                       10




Item 6. Selected Financial Data

                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES


                                                                             Years Ended June 30,
                                                ----------------------------------------------------------------------------
                                                        2001           2000           1999           1998          1997
                                                --------------- ---------------  -------------- -------------- -------------

                                                                                                
(Loss) Before Discontinued Operations (1)(3)(6) $   (2,402,142) $   (6,980,831)  $ (16,034,769) $ (25,468,850) $ (15,144,053)

Income From Discontinued Operations (2)         $            0  $            0   $   8,144,072  $   7,207,633  $   1,594,096

(Loss)  Before Extraordinary Item               $   (2,402,142) $   (6,980,831)  $  (7,890,697) $ (18,261,217) $ (13,549,957)

Net (Loss)  (4)                                 $   (2,402,142) $   (6,980,831)  $  (7,890,697) $ (18,261,217) $ (17,387,582)

Per Common Share - Basic and Diluted:

(Loss) Before Discontinued Operations
  and Extraordinary Item                        $        (0.24) $        (0.78)  $       (1.38) $       (1.82) $       (1.29)

Gain on Sale of Net Assets of
   Discontinued Operations                      $    --         $    --          $        0.32  $     --       $       --

Income From Discontinued Operations             $    --         $    --          $        0.39  $        0.51  $        0.14

(Loss) Before Extraordinary Item                $        (0.24) $        (0.78)  $       (0.67) $       (1.31) $       (1.15)

Net (Loss)                                      $        (0.24) $        (0.78)  $       (0.67) $       (1.31) $       (1.49)

Weighted Average Number of Shares                    9,987,114       8,980,244      11,554,476     13,978,086     11,715,256




                                                                                    June 30,
                                                ----------------------------------------------------------------------------
                                                        2001           2000           1999           1998          1997
                                                --------------- ---------------  -------------- -------------- -------------

                                                                                                
Working Capital (Deficiency)                    $      559,356  $  (17,792,740)  $ (33,069,102) $ (36,744,740) $ (41,300,996)

Total Assets                                    $   41,391,208  $   58,166,739   $  76,588,565  $ 120,252,901  $ 164,694,029

Long-Term Debt                                  $      482,000  $      482,000   $           0  $           0  $  13,131,003

Stockholders' Equity (4)                        $   31,973,709  $   33,870,852   $  40,846,683  $  59,913,361  $  75,651,933


(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)  Prior to June 30, 1998, the Company decided to sell its racing  operations.
     As  a  result,   such  operations  have  been  classified  as  discontinued
     operations for all periods presented.
(3)  As a result of the above  described  decision,  the (loss) from  continuing
     operations primarily consists of corporate expenses, charges and write-offs
     for years subsequent to June 30, 1996.
(4)  The Net  (Loss)  for the  fiscal  year  ended  June  30,  1997 is  after an
     extraordinary  loss  on  early  extinguishment  of debt  in the  amount  of
     $3,837,625.
(5)  The Company did not pay cash dividends during any of the fiscal years shown
     above.
(6)  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, 2001.


                                       11



Item 7. Management's Discussion And Analysis of Financial Conditions And Results
        of Operations

Liquidity and Capital Resources

     Our working  capital,  as of June 30,  2001,  was $559,356 as compared to a
deficit at June 30, 2000 of  ($17,792,740).  The change was primarily caused by:
(i) the retirement of $14.6 million of debt to our primary lender, Credit Suisse
First Boston Mortgage  Capital LLC,  ("Credit  Suisse");  (ii) the retirement of
$3.4  million of debt to the  Chapter 11  Bankruptcy  Trustee  for the estate of
Robert E.  Brennan;  (iii) the  reclassification  of  approximately  $900,000 in
environmental  escrow  deposits  which are  scheduled  to be  released  to us in
January 2002;  and (iv) the working  capital cash  generated by our operation of
the Palm Beach  Princess  during  the last two  months of the fourth  quarter in
fiscal 2001.

     The net loss for the year ended June 30, 2001 was ($2,402,142).  Cash flows
provided by operating activities amounted to $1,198,225.

     Cash provided by investing activities (sale of discontinued operations) was
$17,136,912  during the year ended June 30,  2001,  primarily  the result of the
cash proceeds from the sale of the Garden State Park property.

     Cash used in financing  activities  was  $17,261,931  during the year ended
June  30,  2001,  consisting  principally  of  the  principal  payments  on  the
short-term debt.

     On January 26, 2001 we borrowed  $1,000,000  from Michael J.  Quigley,  III
which is due on demand.  Mr. Quigley has no  relationship  to Robert J. Quigley,
the Company's director and former president. The proceeds were partially used to
(1) repay the  balance of a loan to  Francis  W.  Murray,  our  Chairman,  Chief
Executive Officer and President,  in the amount of approximately  $105,000;  (2)
make  loans in the  amounts  of  $351,500  on a golf club  project  in  Southern
California  (see Related  Party  Transactions);  and (3) make  $250,000 in loans
(which as of September 30, 2001 total  $2,250,495)  for the vacation  membership
condominium  hotel  resort  project in Fort  Lauderdale,  Florida (see Note 14 -
Related Party Transactions).  The balance was used for our working capital. From
April 1, 2001, we have relied on the re-payment of loans  previously given by us
to the property owner of the Ft. Lauderdale project,  cash generated by the Palm
Beach Princess operations and the release of a $1,150,000 Certificate of Deposit
in May 2001 as a result of negotiations  with the Chapter 11 Bankruptcy  Trustee
for the estate of Robert E. Brennan.  (See Note 7 to the  Financials.)  Our cash
balance as of June 30, 2001 was $1,361,287.

     We currently  estimate that  approximately  $200,000 per month is needed to
cover overhead expenses of International Thoroughbred Breeders. In June 2001, we
held an  auction at which all of the  personal  property,  including  equipment,
furniture, furnishings and art work, that we owned at Garden State Park was sold
for  approximately  $1.2 million in cash,  which was received in August 2001 and
used for working  capital  purposes  and to make  additional  loans (which as of
September 30, 2001 total $2,250,495) for the Ft. Lauderdale  project.  (See Note
14 - Related Party Transactions.)

     Effective  April 30,  2001,  we entered  into a bareboat  charter  with MJQ
Corporation, pursuant to which we charter the vessel M/V Palm Beach Princess for
the purpose of operating


                                       12




a casino  cruise  business  out of the Port of Palm  Beach,  Florida.  Under the
bareboat  charter  agreement,  we are  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 have  entered into a letter of intent with the Chapter 11
Trustee of the Bankruptcy  Estate of Robert E. Brennan (the "Brennan  Bankruptcy
Trustee"),  MJQ Corporation and others which  contemplates  that, subject to the
negotiation,  execution and delivery of satisfactory  definitive agreements,  we
would purchase from the Brennan  Bankruptcy  Trustee the promissory  note of MJQ
Corporation,   having  a  balance  of  principal  and  interest  outstanding  of
approximately  $14.3  million as of June 30, 2001 and secured by a ship mortgage
against the M/V Palm Beach  Princess  (the "Ship  Mortgage  Obligation"),  for a
purchase  price of $13.75  million.  Such  purchase  price  would be  payable in
consecutive  monthly  installments of $250,000  through a date to be negotiated,
but expected to be no earlier than July 31, 2002,  with a balloon payment due at
that  time.  If the date for the final  balloon  payment is July 31,  2002,  the
amount of such payment at that time would be $10 million. Accordingly, we expect
that we will need to generate $300,000 per month from operation of the vessel to
pay the monthly  bareboat  charter fee and monthly  installments  to the Brennan
Bankruptcy  Trustee of the purchase  price of the Ship Mortgage  Obligation,  at
least until July 31,  2002,  and expect to have the need for  approximately  $10
million in financing in order to make the balloon  payment of the purchase price
of the Ship Mortgage  Obligation  due as early as July 31, 2002. We plan to seek
refinancing of the vessel at the earliest possible time in order to finance such
balloon payment.

     Substantially  all of our revenues are currently derived from our operation
of the M/V Palm Beach Princess.  Certain of our 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. While we have
generated  sufficient  revenues  from the M/V  Palm  Beach  Princess  to pay its
expenses  (including the charter fee) and the $250,000 per month payments to the
Brennan  Bankruptcy  Trustee  on  account  of the  purchase  price  for the Ship
Mortgage  Obligation,  there is no guarantee that we will be able to continue to
do so, or that we will be able to finance the balloon payment expected to be due
to the Brennan  Bankruptcy  Trustee and the failure to do so in the future could
materially harm our revenues and cause us to lose our only operating asset.

     Other 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.  If we need  additional  working



                                       13




capital, we may attempt to borrow on these Notes, but such borrowing is expected
to be  difficult  to obtain as long as the timing and amounts of payments  under
the Notes remain unpredictable.

     In conjunction  with the settlement  agreement  being  negotiated  with the
Brennan  Bankruptcy  Trustee,  we expect to commit to purchase  from the Brennan
Bankruptcy Trustee approximately 1,335,000 shares of common stock in the Company
at a purchase price of $0.50 per share, for an aggregate purchase price expected
to be approximately  $667,500.  We believe that such stock purchase is desirable
in order to prevent the Brennan  Bankruptcy  Trustee  from  selling  such shares
since the sale could adversely affect our tax loss  carryforward.  The letter of
intent between us and the Brennan Bankruptcy Trustee  contemplates that we would
be obligated to consummate  such purchase on July 1, 2002. Such letter of intent
also provides for us to pledge payments due or to become due to us under the $10
Million Note as collateral security for our obligation to pay the purchase price
of those shares of common stock. We hope to be able to fund such purchase out of
payments we receive  under the $10 Million Note or by borrowing  against the $10
Million  Note,  but no assurance  can be given that we will  receive  sufficient
payments under that Note or be able to borrow against that Note.

     While  management  believes  that the $10 Million  Note and the $23 Million
Note  owned  by us have  substantial  value  and,  ultimately,  should  generate
significant  cash  payments  to us, the  timing of receipt of any such  payments
cannot be accurately predicted and we may not receive substantial payments under
the notes for one year or more.  At the same time,  we have  utilized  available
cash over the last  several  months to invest  in the  development  of  projects
which, while believed by management to be worthwhile,  are expected to take more
than one year  before  generating  cash  returns  to us.  We will seek to borrow
against  the notes in order to  obtain  funds for  short  term  obligations  and
current  expenses.  However,  there can be no assurance  that we will be able to
borrow the necessary funds.

Results of Operations for the Fiscal Years Ended June 30, 2001 and 2000
-----------------------------------------------------------------------

     Revenue  from  operations  for the year ended June 31,  2001  increased  by
$4,474,503  from $446,588 in Fiscal 2000 to $4,921,091 in Fiscal 2001  primarily
as a result of revenues  generated by the Palm Beach Princess  operations  which
commenced on April 30, 2001. Total expenses decreased $104,186,  from $7,427,419
in Fiscal 200 to  $7,323,233  in Fiscal  2001.  This  decrease in  expenses  was
primarily the net result of: (i) a decrease in interest and financing expense of
$3,273,054 primarily as a result reduced debt; (ii) carrying costs of $1,011,634
during Fiscal 2000 for the El Rancho  property  being  eliminated as a result of
its sale in Fiscal  2000;  partially  offset by (iii)  operating  expenses  of $
3,315,260 associated with the Palm Beach Princess during the two month period in
Fiscal 2001; (iv) an increase in general and administrative expenses of $739,520
primarily  associated with: (a) the $500,000  non-cash  compensation cost of the
2,500,000  shares of  common  stock  issued  to  Francis  W.  Murray,  our Chief
Executive  Officer,  on  January  28,  2001;  and (b)  additional  environmental
remediation costs of approximately $300,000 associated with the sale of Freehold
Raceway.

     Effective  April 30, 2001, we chartered the vessel M/V Palm Beach  Princess
for the purpose of  operating a casino  business  out of the Port of Palm Beach,
Florida.  During the two month  period of May and June 2001,  total  revenue was
$4,592,469  and total  expenses  were  $3,309,269.  Net income for the two month
period of operation was $1,283,200.


                                       14



     During the year ended June 30, 2001,  the Company  incurred a net loss from
operations  of  ($2,402,142)  as  compared  to a net  loss  from  operations  of
($6,980,831)  for the prior fiscal year.  The decrease in net loss of $4,578,689
for the comparable  fiscal years was the result of those  differences  described
above.

Results of Operations for the Fiscal Years Ended June 30, 2000 and 1999
-----------------------------------------------------------------------

     On January 28, 1999, we completed the sale of Freehold Raceway, the sale of
a ten-acre  parcel at Garden State Park,  and the lease of the Garden State Park
facilities.  Accordingly,  the operating  results of the racetrack  subsidiaries
were segregated and reported as discontinued  operations for year ended June 30,
1999.


     Revenue for the year ended June 30, 2000 decreased $31,737 from $478,325 in
Fiscal 1999 to $446,588 in Fiscal 2000  primarily as a result of: (i) a decrease
in  interest  income  primarily  the result of the  decrease  in cash during the
fiscal  year;  partially  offset by (ii) an increase  in rental  income from the
lease of the Garden State  property for the full year in Fiscal 2000 as compared
to five months in Fiscal 1999.  Expenses from  continuing  operations  decreased
$9,085,675 or 55%, from $16,513,094 in Fiscal 1999 to $7,427,419 in Fiscal 2000.
This decrease in expenses was primarily the result of: (i) a decrease in general
and administrative  expenses of $2,023,353 or 43% from $4,667,737 in Fiscal 1999
to $2,644,384 in Fiscal 2000; (ii) a decrease in interest and financing  expense
of $4,059,620  primarily as a result of reduced debt and a financing expense for
warrants of $1,242,883  associated with the settlement of certain  litigation in
the third quarter of fiscal 1999; and (iii) bank fees  associated  with the debt
no longer being  amortized in Fiscal  2000.  These fees were fully  amortized in
Fiscal 1999.

     The  decrease of  $2,023,353  in general and  administrative  expenses  was
principally attributable to: (i) a decrease in expenses primarily as a result of
the  settlement  of certain  litigation  in Fiscal  1999 of:  (a)  approximately
$1,064,000  in  legal  expenses   associated  with  the  various   director  and
stockholder  lawsuits in the prior  fiscal  year;  (b) a decrease in officer and
corporate   administrative  salaries  and  benefits  of  approximately  $532,000
primarily   associated   with  the   termination  of  certain   agreements  upon
consummation  of the  Delaware  Settlement;  (c) a decrease  in  consulting  and
director fees of $246,000  associated with the termination of certain agreements
upon  consummation of the Delaware  Settlement;  (d) a decrease of approximately
$311,000 in travel expenses and the administrative  costs of operating an office
in New Mexico; (e) a decrease of approximately $231,000 in printing, mailing and
transfer  agent  expenses  associated  with  an  information  statement  sent to
stockholders in Fiscal 1999; and (f) a decrease in costs of $60,000 in penalties
assessed by the New Jersey  Racing  Commission  associated  with  certain  stock
issuance in Fiscal 1999;  (ii) a decrease in  accounting  fees of $334,000;  and
(iii) a decrease  in  political  contributions  of $50,000  associated  with New
Jersey legislation affecting racetrack  operations;  partially offset by (iv) an
increase  of  approximately  $549,000  in  corporate  expenses  associated  with
discontinuing the racing operations which includes $150,000 to replace sprinkler
system  parts as provided in the lease with  Pennwood;  (v) an increase in legal
fees of  approximately  $136,000  during the second and third quarters of Fiscal
2000 in connection with various  corporate  activities;  and (vi) an increase of
approximately  $113,000  primarily  associated  with an  increase in expense for
officers and directors insurance.

     During the year ended June 30, 2000, we incurred a loss before discontinued
operations of ($6,980,831) as compared to a loss before discontinued  operations
of  ($16,034,769)  for the year ended June 30, 1999. We recognized a net gain of
$3,657,688,  following the write down of



                                       15




approximately  $14,000,000 to fair value of the remaining assets of Garden State
Park and the  approximate  gain of $17,600,000 on the sale of Freehold  Raceway,
the sale of a ten-acre parcel at the Garden State Park facility and the lease of
the Garden  State Park  facilities  in Fiscal  1999 in  addition  to income from
discontinued  racetrack  operations  of  $4,486,384  for the year ended June 30,
1999.

     During the year ended June 30, 2000, we incurred a net loss of ($6,980,831)
as compared to a net loss of  ($7,890,697)  for the comparable  period in Fiscal
1999.  The decrease in net loss of $909,866 was the result of those  differences
described above.

Recently Issued Accounting Standards

     In  September  2000,  the  Financial   Accounting  Standards  Board  issued
Statement of Financial Account Standards No. 140,  "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities".

     In June 2001, the Financial  Accounting Standards Board issued Statement of
Financial  Statement  of  Financial  Accounting  Standards  No.  141,  "Business
Combinations".  This statement addresses financial  accounting and reporting for
business combinations.

     In June 2001, the Financial  Accounting Standards Board issued Statement of
Financial  Accounting  Standards  No.  143,  "Accounting  for Assets  Retirement
Obligations".  This Statement  establishes  accounting standards for recognition
and  measurement  of a  liability  for an asset  retirement  obligation  and the
associated asset retirement cost.

     Presently,  the Company does not have any circumstances  that would require
the  implementation  of these standards.  Accordingly,  the Company believes the
adoption of these  statements  will have no impact on its financial  position or
results of operations.

Other Information - Risk Factors

     You  should  consider  the  following  risk  factors  that  pertain  to our
business. The realization of any of these risks could result in significant harm
to our results of operations,  financial condition,  cash flows, business or the
market price of our common  stock.  Keep these risk factors in mind when reading
"forward-looking" statements elsewhere in this Form 10-K.

We derive substantially all of our revenues from our offshore gaming operations.

     Substantially  all of our revenues are currently derived from our operation
of the M/V Palm Beach Princess.  Certain of our 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. While we have
generated  sufficient  revenues  from the M/V  Palm  Beach  Princess  to pay its
expenses and the $250,000 per month payments to the Brennan  Bankruptcy  Trustee
on account of the purchase price for the Ship Mortgage  Obligation,  there is no
guarantee  that we will be able to continue to do so, the failure of which could
materially harm our revenues.



                                       16




Our acquisition of operations of the M/V Palm Beach Princess remains temporary.

     Our acquisition of operations of the vessel M/V Palm Beach Princess at this
time is derived from a bareboat  charter which has a term ending April 30, 2002,
which term may be  terminated  earlier than that date if  negotiations  with the
Brennan  Bankruptcy  Trustee of the terms of our  purchase of the Ship  Mortgage
Obligation  are not promptly  concluded to the  satisfaction  of all  interested
parties,  or if  for  any  other  reason  the  settlement  between  the  Brennan
Bankruptcy  Trustee,  MJQ Corporation and other parties to litigation brought by
the Brennan Bankruptcy Trustee is not accomplished.  Once definitive  settlement
documents are agreed to by all  interested  parties,  the  settlement  among the
Brennan Bankruptcy Trustee,  MJQ Corporation and other defendants of the Brennan
Bankruptcy  Trustee's  claims,  including the definitive  purchase  agreement by
which we would agree to purchase the Ship Mortgage  Obligation,  will be subject
to bankruptcy court approval. If for any reason the Brennan Bankruptcy Trustee's
claims are not settled in the manner contemplated by the letter of intent signed
by  interested  parties  and  the  Company  as of  April  30,  2001,  or if  MJQ
Corporation  otherwise  terminates or decides not to extend our bareboat charter
beyond  April 30,  2002,  we stand to lose our primary  operating  business  and
source  of  revenues.  We  plan  to  negotiate  with  MJQ  Corporation  for  the
acquisition  of the M/V Palm Beach  Princess  and  related  assets and rights to
operate out of the Port of Palm  Beach,  and no  assurance  can be given that we
will be able to reach a  satisfactory  agreement with MJQ  Corporation  for such
acquisition.

Retention of the casino cruise  business also depends upon our ability to borrow
approximately $10 million to refinance the Ship Mortgage Obligation.

     If  definitive  settlement  documents  are  entered  into with the  Brennan
Bankruptcy  Trustee and other  parties,  and bankruptcy  court approval  thereof
becomes  final and  non-appealable,  we expect to  continue  making  installment
payments of the purchase price of the Ship Mortgage  Obligation in the amount of
$250,000  per  month,  to the  Brennan  Bankruptcy  Trustee,  until a date to be
negotiated but which is not expected to be before July 31, 2002. At that time, a
balloon  payment of the  remaining  balance of the  purchase  price for the Ship
Mortgage  Obligation will be due and payable. If the balloon payment is due July
31,  2002,  the amount of such  payment  (after  making all monthly  payments of
$250,000) would be $10 million.  Our failure to pay any of the $250,000  monthly
installments  of the purchase  price for the Ship  Mortgage  Obligation,  or any
failure to pay the balloon payment when due, will permit the Bankruptcy  Trustee
to terminate the bareboat charter  arrangement and take possession of the vessel
M/V Palm Beach Princess.  While we would not be liable for any unpaid portion of
the  purchase  price of the Ship  Mortgage  Obligation,  we  would  forfeit  (as
liquidated  damages) all  installments  of $250,000  previously  paid by us. Our
ability to pay the $250,000 per month portion of the purchase  price of the Ship
Mortgage  Obligation  is  dependent  upon our cash  flow from  operation  of the
vessel,  and our ability to pay the balloon  payment  when due will be dependent
upon our ability to  refinance  the Ship  Mortgage  Obligation.  We will seek to
borrow a minimum of $10 million  with which to make the  balloon  payment of the
purchase  price of the Ship Mortgage  Obligation.  There is no assurance that we
will be able to obtain such financing.

Revenues from our investments in real estate developments are uncertain.

     When we sold our real estate property located in Las Vegas,  Nevada in May,
2000, we used proceeds from that sale to purchase a promissory note, in the face
amount of $23 million,



                                       17



issued by the  purchaser  of the  property.  And,  when we sold our real  estate
property in Cherry Hill, New Jersey in November, 2000, a portion of the purchase
price was paid to us in the form of the purchaser's  promissory note in the face
amount  of $10  million.  Each  such  promissory  note is  payable  solely  from
distributable  cash  generated  by the  purchaser's  development  or sale of the
property  purchased  from us, and, in each case,  we could  receive more or less
than the face amount of the note.  The times and amounts of all  payments  under
these notes are uncertain and depend  entirely  upon the  profitability  of each
purchaser's development (or resale) of the subject real property.

We cannot be certain that we will be successful in implementing our new business
plan.

     Although we have an  extensive  background  in  operating  horse racing and
related  para-  mutuel  operations,  we do not  have  any  experience  operating
offshore gaming cruises. Our financial success depends on our ability to execute
our new business plan, and we can make no assurances  that we will be able to do
so.

We face competition from other  recreational  activities,  and we face potential
competition to our gaming operations.

     We currently  compete with a variety of other  vacation  activities  in and
around Palm Beach, Florida, including short-term cruises, resort attractions and
sporting and other  recreational  activities.  Although no other coastal  gaming
vessels do business from the Port of Palm Beach,  we expect  competition  in the
Palm Beach area and in other areas surrounding Palm Beach in the future.  Within
fifty  miles of the Port of Palm  Beach,  there are a number of smaller  marinas
that are capable of handling  other coastal  gaming  vessels,  although any such
vessels necessarily would be substantially smaller than the Palm Beach Princess.
We expect our  operations  to compete  directly  with other  gaming  vessels and
operations in Florida in the future.  We expect this  competition to increase as
new  gaming  operators  enter our  market,  existing  competitors  expand  their
operations,  gaming  activities  expand in existing  jurisdictions and gaming is
legalized  in new  jurisdictions.  Several  of our  potential  competitors  have
substantially better name recognition, marketing and financial resources than we
do.

     In general,  gaming  activities  include  traditional  land-based  casinos,
dockside gaming, casino gaming on Indian land,  state-sponsored lotteries, video
poker in restaurants,  bars and hotels, pari-mutuel betting on horse racing, dog
racing and jai-alai and sports  bookmaking.  Our operations  compete with all of
these forms of gaming and will  compete with any new forms of gaming that may be
legalized in the future, as well as with other types of entertainment.  Over the
past few years,  there has been an attempt to  legalize  gaming  throughout  the
state of Florida.  While this  movement has yet to be  successful,  it is likely
that the gaming  industry  will  continue  to pursue  legalization  of gaming in
Florida,  and we believe that the legalization of gaming in Florida would have a
material adverse impact on our operations.  In addition,  we are also subject to
competition from other gaming  establishments in other jurisdictions,  including
but not limited to Atlantic City, New Jersey,  Las Vegas,  Nevada,  the Bahamas,
and  riverboat  gambling  on  the  Mississippi  river.  Such  competition  could
adversely  affect our  ability to compete  for new gaming  opportunities  and to
maintain revenues.

We are potentially subject to a number of gaming regulations and statutes.

     Under Federal law,  individual states are permitted to regulate or prohibit
coastal gaming. The state of Florida does not currently regulate coastal gaming.
However,  from  time to time in



                                       18



prior years,  legislation has been introduced which, if enacted,  would prohibit
the coastal gaming  business.  There is the risk that Florida may at some future
date regulate the coastal gaming business.  Such regulation could adversely harm
our business.

     In  addition,  the Federal  government  has also  previously  considered  a
Federal tax on casino  revenues and may consider  such tax or other  regulations
that  would  affect  our  gaming  business  in the  future.  From  time to time,
legislators  and special  interest groups have proposed  legislation  that would
expand,   restrict  or  prevent  gaming  operations  in  Florida  and  in  other
jurisdictions  throughout  the country.  Any such taxes,  expansion of gaming or
restriction  on or prohibition  of our gaming  operations  could have a material
adverse effect on our operating results.

We are subject to non-gaming regulations.

     The M/V Palm Beach  Princess and any other  vessels which we may operate in
the  future  must  comply  with  various  international  and  U.S.  Coast  Guard
requirements as to ship design, on- board facilities,  equipment,  personnel and
general safety. Our inability to maintain compliance with such regulations could
force us to incur additional  costs to reattain  compliance or require us to buy
new vessels.  In addition,  we are subject to certain  Federal,  state and local
safety and health laws,  regulations  and  ordinances  that apply to  non-gaming
businesses generally,  such as the Clean Air Act, the Clean Water Act, and other
environmental   rules  and  regulations.   The  coverage  and  compliance  costs
associated  with such  laws,  regulations  and  ordinances  may result in future
additional costs to our operations.

We rely on patrons primarily from Florida and tourists from the Northeastern
United States.

     We derive a  substantial  portion of our  revenues  from  patrons  from the
southern  and  central  portions  of Florida as well as from  tourists  visiting
Florida  from other  parts of the United  States,  particularly  the  Northeast.
Adverse  economic  conditions  in any of these  markets,  or the  failure of our
vessel to  continue  to attract  customers  from these  geographic  markets as a
result of increased  competition  in such markets,  or other factors such as the
recent  terrorist  attacks which may lead to a decline in tourist travel,  could
have a material  adverse effect on our operating  results.  Conditions and other
factors beyond our control include competition from other amusement  properties,
changes in regional and local  population  and  disposable  income  composition,
seasonality,  changes or  cancellations  in local tourist,  athletic or cultural
events,  changes in travel  patterns  or  preferences  which may be  affected by
increases in gasoline prices,  changes in airline  schedules and fares,  strikes
and  weather  patterns,  and our need to make  renovations,  refurbishments  and
improvements to our vessel.

Weather and other conditions could seriously disrupt our operations.

     Our gaming  operations  are  subject  to unique  risks,  including  loss of
service  because of  casualty,  mechanical  failure,  extended or  extraordinary
maintenance  requirements,  flood, hurricane or other severe weather conditions.
Our vessel  faces  additional  risks from its movement and the movement of other
vessels  on  waterways.  Palm  Beach,  Florida  is  subject  to  severe  storms,
hurricanes and occasional flooding.  As a result of such weather conditions,  as
well as the ordinary or extraordinary maintenance requirements of our vessel, if
we are unable to operate our vessel,  our results of operations  will be harmed.
The loss of our vessel  from  service  for any  period of time  could  adversely
affect our revenues.


                                       19



We depend on our management to execute our business plan.

     Our success is  dependent  upon the efforts of our current  management,  in
particular that of our President and Chief Executive Officer, Francis W. Murray.
Since the business of gaming has expanded significantly over the past few years,
competition for qualified employees will be intense.  There is no assurance that
such persons can be retained or readily replaced, and there is no assurance that
we will be able to continue to add qualified personnel as required.  The loss of
the  services  of any of our  executive  officers  could  adversely  affect  our
business.

We experience quarterly fluctuations in operating results.

     Our  quarterly  operating  results are expected to fluctuate  significantly
because of seasonality and other factors.  We expect to generate the majority of
our income during our third and fourth fiscal  quarters ending March 31 and June
30. Such  fluctuations  could  affect our stock price,  particularly  during the
first and second fiscal quarters.

Our stock price faces volatility as a result of a number of factors.

     The market price of our stock is dependent upon future  operating  results,
and therefore, is highly dependent on specific developments  including,  but not
limited  to,  passage  or defeat  of  relevant  gaming  legislation  or  related
initiatives,  weather patterns,  and the general vibrancy of the economy and the
Florida tourism  industry.  Announcements  concerning  legislation  approving or
defeating gaming legislation,  various governmental actions, developments in the
gaming industry generally,  announcements by our competitions, weather patterns,
and other general  economic  matters or tourism  industry may have a significant
impact on the market price of our common stock.

Item 7A.     Quantitative and Qualitative Disclosures about Market Risk.

         Not Applicable

Item 8.      Financial Statements and Supplemental Data.

         INDEX TO FINANCIAL STATEMENTS



           Report of Independent Public Accountants.................21
           Balance Sheets...........................................22
           Statements of Operations.................................24
           Statements of Stockholders' Equity.......................25
           Statements of Cash Flow..................................26




                                       20




               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders of
International Thoroughbred Breeders, Inc.
Bellmawr, New Jersey


     We  have  audited  the   accompanying   consolidated   balance   sheets  of
International  Thoroughbred Breeders,  Inc. and subsidiaries as of June 30, 2001
and 2000 and the related  consolidated  statements of operations,  stockholders'
equity and cash flows for each of the three years then ended. These consolidated
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements based on our audit.

     We conducted our audits in accordance with U.S. generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable  assurance about whether the  consolidated  financial  statements are
free of material  misstatement.  An audit includes  examining,  on a test basis,
evidence  supporting the amounts and disclosures in the  consolidated  financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
consolidated  financial  statement  presentation.  We  believe  that our  audits
provide a reasonable basis for our opinion.

     In our opinion,  the consolidated  financial  statements  referred to above
present  fairly,   in  all  material   respects,   the  financial   position  of
International  Thoroughbred  Breeders,  Inc. and its subsidiaries as of June 30,
2001, 2000 and 1999 and the results of their operations and their cash flows for
the three years then ended in conformity with U.S. generally accepted accounting
principles.



                               STOCKTON BATES, LLP




Philadelphia, Pennsylvania
September 24, 2001

                                       21


                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                          AS OF JUNE 30, 2001 AND 2000

                                     ASSETS


                                                               June 30,
                                                 -------------------------------
                                                       2001           2000
                                                 -------------   ---------------
CURRENT ASSETS:
     Cash and Cash Equivalents                   $   1,361,287   $     271,119
     Restricted Cash and Investments                         0       1,656,743
     Accounts Receivable                               843,385         427,654
     Prepaid Expenses                                  362,048         362,321
     Refundable Deposit on Palm Beach
      Princess Vessel                                  750,000               0
     Other Current Assets                            1,032,311         516,721
     Net Assets of Discontinued
      Operations - Current                           1,007,398               0
                                                  -------------   -------------
     TOTAL CURRENT ASSETS                            5,356,429       3,234,558
                                                  -------------   -------------


NET ASSETS OF DISCONTINUED
  OPERATIONS - Long Term                                     0      30,000,000
                                                  -------------   -------------

LAND, BUILDINGS AND EQUIPMENT:
     Land and Buildings                                214,097         214,097
     Equipment and Artwork                             289,426       1,199,284
                                                  -------------   -------------
                                                       503,523       1,413,381
     LESS: Accumulated Depreciation
           and Amortization                            285,004         387,404
                                                  -------------   -------------

     TOTAL LAND, BUILDINGS AND EQUIPMENT, NET          218,519       1,025,977
                                                  -------------   -------------



OTHER ASSETS:
     Note Receivable                                23,000,000      23,000,000
     Note Receivable of Discontinued
      Operations - Long-Term                        10,000,000               0
     Deposits and Other Assets                       2,816,260         906,204
                                                  -------------   -------------
     TOTAL OTHER ASSETS                             35,816,260      23,906,204
                                                  -------------   -------------


TOTAL ASSETS                                     $  41,391,208   $  58,166,739
                                                  =============   =============

See Notes to Consolidated Financial Statements.

                                      22





                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                          AS OF JUNE 30, 2001 AND 2000

                      LIABILITIES AND STOCKHOLDERS' EQUITY


                                                           June 30,
                                                 -------------------------------
                                                      2001            2000
                                                 ------------   ----------------
CURRENT LIABILITIES:
     Accounts Payable                            $  2,549,540   $       62,502
     Accrued Expenses                               1,247,534          858,510
     Short-Term Debt                                1,000,000       18,596,709
     Net Liabilities of Discontinued
      Operations - Current                                  0        1,509,577
                                                  ------------   --------------
     TOTAL CURRENT LIABILITIES                      4,797,074       21,027,298
                                                  ------------   --------------


DEFERRED INCOME                                     4,138,426        2,786,589
                                                  ------------   --------------

LONG-TERM DEBT                                        482,000          482,000
                                                  ------------   --------------

COMMITMENTS AND CONTINGENCIES                           -                 -


STOCKHOLDERS' EQUITY:
     Series A Preferred Stock, $100.00 Par Value,
      Authorized 500,000 Shares, Issued
      and Outstanding,
      362,487 and 362,484 Shares, Respectively     36,248,675       36,248,375
     Common Stock, $2.00 Par Value, Authorized
      25,000,000 Shares,
      Issued, 11,480,267 and 11,884,270 Shares,
      and Outstanding, 11,480,267 and 8,980,254
      Shares, Respectively                         22,960,533       23,768,539
     Capital in Excess of Par                      20,192,206       26,144,540
     (Deficit) (subsequent to June 30, 1993,
      date of quasi-reorganization)               (47,406,039)     (45,003,895)
                                                  ------------   --------------
            TOTAL                                  31,995,375       41,157,559
    LESS:
     Treasury Stock, 2,904,016 Shares, at Cost
      (retired January 12, 2001)                            0       (7,260,040)
     Deferred Compensation, Net                       (21,667)         (26,667)
                                                  ------------   --------------
      TOTAL STOCKHOLDERS' EQUITY                   31,973,708       33,870,852
                                                  ------------   --------------


TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY       $ 41,391,208   $   58,166,739
                                                  ============   ==============


See Notes to Consolidated Financial Statements.



                                       23

                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                FOR THE YEARS ENDED JUNE 30, 2001, 2000 AND 1999




                                                           June 30,
                                          -------------------------------------------
                                             2001            2000             1999
                                          ------------    ------------   ------------

REVENUE:
                                                               
   Revenue from Operations              $   4,588,592   $           0   $          0
   Other Income                               209,939         337,334        134,753
   Interest Income                            122,560         109,254        343,572
                                          ------------    ------------   ------------
              TOTAL REVENUES                4,921,091         446,588        478,325
                                          ------------    ------------   ------------

EXPENSES:
   Cost of Revenues:
    Operating Expenses                      3,273,163               0              0
    Depreciation & Amortization                42,097               0              0
   General & Administrative Expenses        3,509,626       2,644,384      4,667,737
   Interest and Financing Expenses            498,347       3,771,401      7,831,021
   Amortization of Financing Costs                  0               0      2,900,749
   El Rancho Property Carrying Costs                0       1,011,634      1,113,587
                                          ------------    ------------   ------------
              TOTAL EXPENSES                7,323,233       7,427,419     16,513,094
                                          ------------    ------------   ------------

(LOSS) BEFORE DISCONTINUED OPERATIONS      (2,402,142)     (6,980,831)   (16,034,769)
                                          ------------    ------------   ------------

INCOME FROM DISCONTINUED OPERATIONS:
   Net Gain on Sale of Net Assets of
    Discontinued Operations                         0               0      3,657,688
    (less applicable state income taxes
     of $1,335,500)
   Income from operations of discontinued
    racetrack operations(less applicable
    state income taxes of $119,348 for
    the year ended June 30, 1999)                   0               0      4,486,384
                                          ------------    ------------   ------------
   INCOME FROM DISCONTINUED OPERATIONS              0               0      8,144,072
                                          ------------    ------------   ------------

NET (LOSS)                              $  (2,402,142)  $  (6,980,831)    (7,890,697)
                                          ============    ============   ============


BASIC AND DILUTED PER SHARE DATA:
(LOSS) BEFORE DISCONTINUED OPERATIONS   $       (0.24)  $       (0.78)  $      (1.38)
NET GAIN ON SALE OF NET ASSETS
 OF DISCONTINUED OPERATIONS                         0               0           0.32
INCOME FROM DISCONTINUED OPERATIONS                 0               0           0.39
                                          ------------    ------------   ------------
NET (LOSS)                              $       (0.24)  $       (0.78)  $      (0.67)
                                          ============    ============   ============

WEIGHTED AVERAGE COMMON
   SHARES OUTSTANDING                       9,987,114       8,980,244     11,554,476
                                          =============   ============   ============




See Notes to Consolidated Financial Statements.


                                       24

                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
             FOR THE THREE YEARS ENDED JUNE 30, 2001, 2000 AND 1999



                                                        Preferred                       Common
                                                ---------------------------   ----------------------------
                                                        Number of                      Number of
                                                  Shares          Amount        Shares           Amount
                                                ------------    ------------  ------------    ------------

                                                                                
BALANCE - JUNE 30, 1998                             362,480   $  36,247,975    13,978,099   $  27,956,197

   Shares Canceled in connection with
      Delaware Settlement                           ---             ---        (2,093,868)     (4,187,736)
   Purchase of 2,904,016 Shares for
      Treasury in connection with
      Delaware Settlement                           ---             ---           ---             ---
   Compensation for Options Granted to
      Non-Employees                                 ---             ---           ---             ---
   Shares Issued for Fractional Exchanges
      With Respect to the
      One-for-twenty Reverse Stock Split
      effected on March 13, 1992                          2             200            18              36
   Financing Costs for Warrants Issued
       in Connection with Debt Financing            ---             ---           ---             ---
   Warrants Issued in Connection With
       Debt Retirement                              ---             ---           ---             ---
   Amortization of Deferred Compensation Costs      ---             ---           ---             ---
   Net (Loss) for the Year Ended June 30, 1999      ---             ---           ---             ---

                                                ------------    ------------  ------------    ------------
BALANCE - JUNE 30, 1999                             362,482   $  36,248,175    11,884,249   $  23,768,497

   Shares Issued for Fractional Exchanges
      With Respect to the
      One-for-twenty Reverse Stock Split
      effected on March 13, 1992                          2             200            21              42
   Amortization of Deferred Compensation Costs      ---             ---           ---             ---
   Net (Loss) for the Year Ended June 30, 2000      ---             ---           ---             ---

                                                ------------    ------------  ------------    ------------
BALANCE - JUNE 30, 2000                             362,484   $  36,248,375    11,884,270   $  23,768,539

   Treasury Shares Retired                          ---             ---        (2,904,016)     (5,808,032)
   Shares Issued for Compensation                   ---             ---         2,500,000       5,000,000
   Shares Issued for Fractional Exchanges
      With Respect to the
      One-for-twenty Reverse Stock Split
      effected on March 13, 1992                          3             300            13              26
   Amortization of Deferred Compensation Costs      ---             ---           ---             ---
   Net (Loss) for the Year Ended June 30, 2001      ---             ---           ---             ---

                                                ------------    ------------  ------------    ------------
BALANCE - JUNE 30, 2001                             362,487   $  36,248,675    11,480,267   $  22,960,533
                                                ============    ============  ============    ============





                                                             Capital                  Treasury        Deferred
                                                            in Excess                  Stock,         Compen-
                                                       of Par         (Deficit)        At Cost        sation          Total
                                                   -------------   --------------    ------------    ----------    ------------

                                                                                                  
BALANCE - JUNE 30, 1998                          $   25,878,224  $   (30,132,367)  $           0   $   (36,667)  $  59,913,362

   Shares Canceled in connection with
      Delaware Settlement                            (1,046,934)        ---              ---            ---         (5,234,670)
   Purchase of 2,904,016 Shares for
      Treasury in connection with
      Delaware Settlement                              ---              ---           (7,260,040)       ---         (7,260,040)
   Compensation for Options Granted to
      Non-Employees                                      44,550         ---              ---            ---             44,550
   Shares Issued for Fractional Exchanges
      With Respect to the
      One-for-twenty Reverse Stock Split
      effected on March 13, 1992                           (236)        ---              ---            ---            ---
   Financing Costs for Warrants Issued
       in Connection with Debt Financing                 26,296         ---              ---            ---             26,296
   Warrants Issued in Connection With
       Debt Retirement                                1,242,882         ---              ---            ---          1,242,882
   Amortization of Deferred Compensation Costs         ---              ---              ---             5,000           5,000
   Net (Loss) for the Year Ended June 30, 1999         ---            (7,890,697)        ---            ---         (7,890,697)

                                                   -------------   --------------    ------------    ----------    ------------
BALANCE - JUNE 30, 1999                          $   26,144,782  $   (38,023,064)  $  (7,260,040)  $   (31,667)  $  40,846,683

   Shares Issued for Fractional Exchanges
      With Respect to the
      One-for-twenty Reverse Stock Split
      effected on March 13, 1992                           (242)        ---              ---            ---            ---
   Amortization of Deferred Compensation Costs         ---              ---              ---             5,000           5,000
   Net (Loss) for the Year Ended June 30, 2000         ---            (6,980,831)        ---            ---         (6,980,831)

                                                   -------------   --------------    ------------    ----------    ------------
BALANCE - JUNE 30, 2000                          $   26,144,540  $   (45,003,895)  $  (7,260,040)  $   (26,667)  $  33,870,852

   Treasury Shares Retired                           (1,452,008)        ---            7,260,040        ---            ---
   Shares Issued for Compensation                    (4,500,000)        ---              ---            ---            500,000
   Shares Issued for Fractional Exchanges
      With Respect to the
      One-for-twenty Reverse Stock Split
      effected on March 13, 1992                           (326)        ---              ---            ---            ---
   Amortization of Deferred Compensation Costs         ---              ---              ---             5,000           5,000
   Net (Loss) for the Year Ended June 30, 2001         ---            (2,402,144)        ---            ---         (2,402,144)

                                                   -------------   --------------    ------------    ----------    ------------
BALANCE - JUNE 30, 2001                          $   20,192,206  $   (47,406,039)  $           0   $   (21,667)  $  31,973,708
                                                   =============   ==============    ============    ==========    ============


See Notes to Consolidated Financial Statements.



                                       25



                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                FOR THE YEARS ENDED JUNE 30, 2001, 2000 AND 1999



                                                                         June 30,
                                                        -------------------------------------------
                                                            2001           2000            1999
                                                        ------------    ------------    ------------

                                                                               
CASH FLOWS FROM OPERATING ACTIVITIES:
 (LOSS) BEFORE DISCONTINUED OPERATIONS                  $ (2,402,142)   $ (6,980,831)   $(16,034,769)
                                                        ------------    ------------    ------------
 Adjustments to reconcile (loss) to net cash
  (used in) operating activities:
     Depreciation and Amortization                            47,097          62,737       2,958,067
     Financing Cost from Warrants Granted                          0               0       1,269,178
     Compensation for Stock Options Granted                        0               0          44,550
     (Gain) Loss on Disposal of Fixed Assets                 (81,733)        (31,400)        146,238
     Compensation for Common Shares Issued                   500,000               0               0
     Changes in Operating Assets and Liabilities -
       (Increase) Decrease in Restricted
        Cash & Investments                                 1,656,743      (1,656,740)              0
       (Increase) Decrease in Accounts Receivable           (415,731)       (192,880)       (197,935)
       (Increase) Decrease in Other Assets                  (720,559)         37,049         271,985
       (Increase) Decrease in Prepaid Expenses               750,273         (13,139)        (26,869)
        Increase (Decrease) in Accounts Payable
         and Accrued Expenses                              2,876,062        (523,725)       (538,387)
                                                        ------------    ------------    ------------

CASH PROVIDED BY (USED IN) OPERATING
 ACTIVITIES BEFORE DISCONTINUED OPERATIONS                 2,210,010      (9,298,929)    (12,107,942)

CASH (USED IN) PROVIDED BY DISCONTINUED
 OPERATING ACTIVITIES                                     (1,011,785)      1,369,362      10,155,578
                                                        ------------    ------------    ------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES        1,198,225      (7,929,567)     (1,952,364)
                                                        ------------    ------------    ------------



                             CONTINUED ON FOLLOWING PAGE


See Notes to Consolidated Financial Statements.


                                       26






                   INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                FOR THE YEARS ENDED JUNE 30, 2001, 2000 AND 1999


CONTINUED FROM PREVIOUS PAGE

                                                                         June 30,
                                                        -------------------------------------------
                                                           2001              2000            1999
                                                        ------------    --------------  -------------

                                                                               
CASH FLOWS FROM INVESTING ACTIVITIES:
    Refundable Deposits on Palm Beach Princess              (750,000)              0               0
    Proceeds from Sale of El Rancho                                0      22,304,540               0
    Proceeds from Sale of Freehold                                 0               0      17,900,000
    Proceeds from Sale of Land at Garden State Park .              0               0       2,000,000
    Purchase of 2,904,016 Shares of Treasury Stock ..              0               0      (6,850,000)
    Capital Expenditures                                           0          (2,456)        (69,044)
    Loans on Development Projects                         (2,095,105)              0               0
    (Increase) Decrease in Other Investment Activity         (17,983)         96,968               0
                                                        ------------    ------------    ------------
     CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES
      BEFORE DISCONTINUED INVESTING ACTIVITIES            (2,863,088)     22,399,052      12,980,956
     CASH PROVIDED BY (USED IN) DISCONTINUED
     INVESTING ACTIVITIES                                 20,000,000        (131,110)       (146,648)
                                                        ------------    ------------    ------------
     NET CASH PROVIDED BY INVESTING ACTIVITIES            17,136,912      22,267,942      12,834,308
                                                        ------------    ------------    ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Proceeds from Short-Term Loans                         1,650,000               0               0
    Escrow Deposits Utilized                                       0         502,154      10,278,727
    Deposit to Escrow Funds                                        0        (320,000)              0
    Decrease in Balances Due to/From Discontinued
     Subsidiaries                                         17,747,801       3,473,637      (1,823,666)
    Principal Payments on Short Term Notes               (17,654,555)    (17,842,995)     (5,016,770)
                                                        ------------    ------------    ------------
     CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
      BEFORE DISCONTINUED FINANCING ACTIVITIES             1,743,246     (14,187,204)      3,438,291
     CASH (USED IN) DISCONTINUED FINANCING ACTIVITIES    (19,005,177)     (1,947,636)    (12,437,662)
                                                        ------------    ------------    ------------
     NET CASH (USED IN) FINANCING ACTIVITIES             (17,261,931)    (16,134,840)     (8,999,371)
                                                        ------------    ------------    ------------

NET INCREASE (DECREASE) IN CASH AND
  CASH EQUIVALENTS                                         1,073,206      (1,796,465)      1,882,573
     LESS CASH AND CASH EQUIVALENTS AT
      END OF THE YEAR FROM DISCONTINUED
      OPERATIONS                                              16,962         709,384        (738,168)
  CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR
   BEFORE DISCONTINUED OPERATIONS                            271,119       1,358,200         213,795
                                                        ------------    ------------    ------------

  CASH AND CASH EQUIVALENTS AT END OF THE YEAR          $  1,361,287    $    271,119    $  1,358,200
                                                        ============    ============    ============

  Supplemental Disclosures of Cash Flow Information:
        Cash paid during the period for:
        Interest                                        $    109,681    $  1,306,950    $  6,498,191
        Income Taxes                                    $          0    $     19,699    $  1,490,000




See Notes to Consolidated Financial Statements.



                                       27




                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     (A) Nature of  Operations  - The Company is  currently  engaged in a casino
cruise  ship  business  under a  bareboat  charter  of the  vessel MV Palm Beach
Princess  (the "Palm Beach  Princess").  Prior to January 28, 1999,  the Company
conducted live race meetings for thoroughbred and harness  (standardbred) horses
and participated in intrastate and interstate  simulcast  wagering as a host and
receiving  track in Cherry Hill  ("Garden  State Park") and Freehold  ("Freehold
Raceway"), New Jersey.

     (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.

     (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.

     The Company has adopted the provisions of Statement of Financial Accounting
Standards  No. 121 ("SFAS 121")  "Accounting  for the  Impairment  of Long-Lived
Assets  and for  Long-Lived  Assets to Be  Disposed  Of."  SFAS 121  establishes
accounting   standards  for  the  impairment  of  long-lived   assets,   certain
identifiable  intangibles  and  goodwill  related to those assets to be held and
used for long-lived assets and certain  identifiable  intangibles to be disposed
of. The Company  reviews the carrying  values of its long-lived  property assets
for possible  impairment  whenever events or changes in  circumstances  indicate
that  the  carrying  amount  of the  assets  may  not be  recoverable  based  on
undiscounted estimated future operating cash flows.

     (E) Net Assets of  Discontinued  Operations - At June 30, 1998,  the Garden
State  Property  and  Freehold   Raceway  were  classified  as  "Net  Assets  of
Discontinued  Operations."  During the third quarter of Fiscal 1999, the Company
recognized a net gain of $3,657,688 from the sale of Freehold Raceway,  the sale
of a ten-acre  parcel at the Garden  State  Park  facility  and the lease of the
Garden State Park facilities after applying  approximately  $14,000,000 from the
transaction to reduce the fair value of the Garden State  property.  At June 30,
2001, the remaining net assets and liabilities of Garden State Park and Freehold
Raceway were classified as "Net Assets of Discontinued  Operations." At June 30,
2000, the remaining net assets and liabilities of Garden State Park and Freehold
Raceway were classified as "Net Liabilities of Discontinued Operations."

     (F) Recent  Accounting  Pronouncements  - In September  2000, the Financial
Accounting  Standards Board issued Statement of Financial  Account Standards No.
140,   "Accounting   for  Transfers  and  Servicing  of  Financial   Assets  and
Extinguishments  of  Liabilities".   In  June  2001,  the  Financial  Accounting
Standards Board issued Statement of Financial Statement of Financial  Accounting
Standards No. 141, "Business  Combinations".  This statement addresses financial


                                       28



                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


accounting and reporting for business combinations.  In June 2001, the Financial
Accounting  Standards Board issued Statement of Financial  Accounting  Standards
No.  143,  "Accounting  for  Assets  Retirement  Obligations".   This  Statement
establishes  accounting standards for recognition and measurement of a liability
for an asset retirement obligation and the associated asset retirement cost.

     Presently,  the Company does not have any circumstances  that would require
the  implementation  of these standards.  Accordingly,  the Company believes the
adoption of these  statements  will have no impact on its financial  position or
results of operations.

     (G) Revenue  Recognition - The Company  recognized the revenues  associated
with the casino operation on the Palm Beach Princess and the revenues associated
with horse racing at Garden State Park and Freehold Raceway as they were earned.
Both Garden State Park and Freehold Raceway operated as satellite wagering sites
for both  thoroughbred  and harness racing meets conducted at other  racetracks.
The tracks  received  broadcasts  of live  racing  from other  racetracks  under
various  simulcasting  agreements.  The tracks also provided  broadcasts of live
racing  conducted at the Company's  facilities to other racetracks under various
host  simulcasting  agreements.  Under these contracts,  the Company received or
paid  pari-mutuel  commissions of varying  percentages of simulcast  pari-mutuel
wagering.  Costs and expenses associated with horse racing revenues were charged
against  income  in those  periods  in which  the  horse  racing  revenues  were
recognized. Other costs and expenses, including advertising,  were recognized as
they actually occur throughout the year.

     (H) Income Taxes - The Company has adopted the  provisions  of Statement of
Financial  Accounting  Standards No. 109,  "Accounting  for Income Taxes" ("SFAS
109").  SFAS 109 requires a company to recognize  deferred tax  liabilities  and
assets  for the  expected  future  tax  consequences  of  events  that have been
recognized  in its  financial  statements  or tax  returns.  Under this  method,
deferred  tax  liabilities  and assets are  determined  based on the  difference
between the  financial  statement  carrying  amounts and tax bases of assets and
liabilities. Deferred tax assets and liabilities are adjusted for the effects of
changes in tax laws and rates on the date of enactment.

     (I) Cash and Cash  Equivalents  - The Company  considers  all highly liquid
investments  with  an  original  maturity  of  three  months  or less to be cash
equivalents.

     (J) 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.

     (K)  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



                                       29


                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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.

     (L) Net Loss per Common  Share - In March 1997,  the  Financial  Accounting
Standards  Board issued  Statement of Financial  Accounting  Standards  No. 128,
"Earnings  Per Share"  ("SFAS  128").  SFAS 128  provides a different  method of
calculating  earnings  per  share  than was  used in APB  Opinion  15.  SFAS 128
provides for the  calculation  of basic and diluted  earnings  per share.  Basic
earnings  per share  includes  no dilution  and is  computed by dividing  income
available to common stockholders by the weighted average number of common shares
outstanding  for the period.  Diluted  earnings per share reflects the potential
dilution of securities that could share in the earnings of an entity.

     Loss per common  share is  computed by  dividing  net loss by the  weighted
average  number of shares of common stock  outstanding.  Options and warrants to
purchase  3,104,000  shares of Common Stock at various prices per share, for the
each of the three years ended June 30, 2001, 2000 and 1999, were not included in
the   computation   of  diluted   loss  per  share  as  their  effect  would  be
anti-dilutive.

(2)  NOTES RECEIVABLE

     A portion  of the  proceeds  form 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 the Company to purchase a  promissory
note in the amount of  $23,000,000  which can be  convertible  at the  Company's
option into a 33 1/3% equity  interest in the buyer.  The interest  rate will be
adjusted from time to time since the interest actually payable will be dependent
upon,  and  payable  solely  out of, the  buyer's  net cash flow  available  for
distribution  to its  equity  owners  ("Distributable  Cash").  After the equity
investors in the buyer have received total  distributions equal to their capital
contributions plus an agreed upon return on their invested capital, the next $23
million of  Distributable  Cash will be paid to the  Company.  The Company  will
thereafter receive payments under the note equal to 33 1/3% of all Distributable
Cash  until the  maturity  date,  which  occurs on the 30th  anniversary  of the
Company's  purchase of the note. The Company may convert the promissory note, at
its  option,  into a 33 1/3%  equity  interest  in the buyer  during a six month
period  beginning at the 15th  anniversary  of the issuance of the note.  If not
then  converted,  the note will  convert  into a 33 1/3% equity  interest in the
buyer at the 30th anniversary of its issuance.

     A portion of the  proceeds  from sale of the  Company's  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 equity  investors in the
buyer have received aggregate distributions equal to their capital contributions
plus an agreed upon return on their  invested



                                       30


                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


capital, the next $10 million of Distributable Cash will be paid to the Company.
The Company will thereafter  receive payments under the Note equal to 33 1/3% of
all  Distributable  Cash  until  the  maturity  date,  which  occurs on the 15th
anniversary  of the issuance of the Note. The Company may convert the promissory
note,  at its 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 the Company 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.

(3)  DISCONTINUED OPERATIONS

     On November 30, 2000,  the Company,  through its  wholly-owned  subsidiary,
GSRT,  LLC,  closed on the sale (the "Garden State  Transaction")  of the Garden
State Park  property  (the "Garden  State Park  Property")  in Cherry Hill,  New
Jersey, to Realen-Turnberry/Cherry  Hill, LLC ("Realen"). The purchase price was
$30 million and was paid by: (i) previous cash  deposits  totaling a $1,000,000;
(ii) a promissory note in the face amount of $10 million (the "Note"); and (iii)
the balance of the purchase price paid in cash at the closing.

     The cash proceeds of the Garden State  Transaction were principally used by
the Company to repay in full the  outstanding  balances on the Company's debt to
Credit  Suisse  First  Boston   Mortgage   Capital  LLC  ("Credit   Suisse")  of
approximately  $14.3 million and to repay in full approximately $3.75 million of
principal and interest on the debt to the Chapter 11 Bankruptcy  Trustee for the
estate of Robert E. Brennan which was incurred to purchase  2,904,016  shares of
the Company's Common Stock.

     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 equity  investors in the buyer 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 the Company.  The Company will thereafter receive payments under
the Note equal to 33 1/3% of all  Distributable  Cash until the  maturity  date,
which occurs on the 15th  anniversary  of the issuance of the Note.  The Company
may convert the promissory  note, at its 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 the Company 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.  The Company has elected to defer the gain on
the sale until such time that  collectability  under the  $10,000,000  note from
Realen can be determined.


                                       31


                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



     In June  2001,  the  Company  conducted  a five-day  public  auction of the
equipment,  furnishings  and artwork  that were not  included in the sale of the
Garden State Park to Realen.  Net proceeds after  commission of the Garden State
Park equipment,  furnishings and artwork were in the amount of $1,110,113  which
are classified as accounts  receivable at June 30, 2001.  Proceeds from the sale
were received in September 2001.

The  discontinued  Garden State Park and Freehold  operations  are summarized as
follows:
--------------------------------------------------------------------------------

                                                         Year Ended June 30,
Discontinued Racetrack Operations:                              1999 *
                                                                ----

  Revenue                                                  $ 37,992,012

                                                            -----------
  Expenses:

      Cost of Revenues:

         Purses                                              12,591,222

         Operating Expenses                                  16,612,009

         Depreciation & Amortization                          1,078,701

      General & Administrative Expenses                       2,619,944

      Interest Expenses                                         484,404
                                                            -----------
                 Total Expenses                              33,386,280
                                                            -----------
Income From Discontinued Racetrack

  Operations Before Taxes                                     4,605,732

      Income Tax Expense                                        119,348
                                                            -----------
                                                              4,486,384
Net Gain on Sale of Net Assets of Discontinued Operations
(Net of $1,335,500 state income taxes)                        3,657,688
                                                            -----------
Income From Discontinued Racetrack Operations              $  8,144,072
                                                            ===========

--------------------------------------------------------------------------------
* July 1, 1998 to January 28, 1999

     As of June 30, 1998,  the Garden State  Property was  reclassified  to "Net
Assets of Discontinued Operations." During the third quarter of Fiscal 1999, the
Company  recognized a net gain of $3,657,688 from the sale of Freehold  Raceway,
the sale of a ten-acre parcel at the Garden State Park facility and the lease of
the Garden State Park facilities after applying  approximately  $14,000,000 from
the transaction to reduce the fair value of the Garden State property.




                                       32


                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



     The  net  assets  of the  operations  to be  disposed  of  included  in the
accompanying consolidated balance sheets as of June 30, 2001 and 2000 consist of
the following:

                                                            June 30,
                                                --------------------------------
Classified As:                                       2001            2000
                                                     ----            ----

Current Assets                                  $   1,542,100   $    546,034

Current Liabilities                                  (534,702)    (1,055,611)

Deferred Income                                           -0-     (1,000,000)
                                                 -------------   -----------
  Net Assets of Discontinued Operations -
      Current                                       1,007,398           -0-

  Net Liabilities of Discontinued Operations -
      Current                                             -0-     (1,509,577)

Property Assets of Garden State Park                      -0-     30,000,000

Note Receivable of Discontinued Operations -
      Long-Term                                    10,000,000           -0-

  Net Assets of Discontinued Operations         $  11,007,398   $ 28,490,423
                                                 =============   ===========

     Cash  flows  from  discontinued  operations  for the  year  ended  June 30,
1999,2000 and 2001 consist of the following:



                                                                                          June 30,
                                                                       --------------------------------------------
                                                                            2001            2000           1999
                                                                       -------------    -----------    ------------

                                                                                              
Cash Flows From Discontinued Operating Activities:

     Income                                                           $          -0-  $          -0-   $  8,144,072
                                                                       -------------    -----------    ------------
     Adjustments to reconcile income to net cash provided by
      discontinued operating activities

         Depreciation and Amortization                                           -0-             -0-      1,078,701

         Net (Gain) Loss on Sale of Discontinued Operations                      -0-             -0-     (3,657,688)

         Changes in Operating Assets and Liabilities of Discontinued
         Operations:

                     Decrease in Restricted Cash and Investments                 -0-          (8,241)     3,444,267

                     (Increase) Decrease in Accounts Receivable           (1,030,285)        772,445        331,742

                     Decrease in Other Assets                                    -0-             -0-         21,142

                     Decrease in Prepaid Expenses                                -0-          10,304        773,312

                     Increase (Decrease) in Accounts and Purses
                      Payable and Accrued Expenses                             1,000        (405,145)     1,790,189

                     Increase (Decrease) Increase in Deferred
                     Revenue                                                  17,500       1,000,000     (1,770,159)
                                                                       -------------    ------------   ------------
     Net Cash Provided by Discontinued Operating Activities           $   (1,011,785) $    1,369,362   $ 10,155,578
                                                                       -------------    ------------   ------------




                                       33


                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



                                                                                          June 30,
                                                                      ----------------------------------------------
                                                                            2001            2000           1999
                                                                      --------------   -------------    ------------

                                                                                              
Cash Flows From Discontinued Investing Activities:

     Capital Expenditures                                             $          -0-  $          -0-   $    (69,616)

     Proceeds from Sale of Garden State Park                              20,000,000             -0-            -0-

     (Increase) in Other Investments                                             -0-        (131,110)       (77,032)
                                                                      -------------    -------------    -----------
     Net Cash (Used In) Provided by Discontinued Investing
     Activities                                                           20,000,000        (131,110)      (146,648)
                                                                       -------------   -------------    ------------

Cash Flows from Discontinued Financing Activities:

     Principal Payments on Short Term Notes                                      -0-         (82,789)      (856,475)

     Increase (Decrease) in Balances Due To/From Continuing
     Operations                                                          (19,005,177)     (1,864,847)     1,823,666

     Principal Payments on Long Term Notes                                       -0-             -0-    (13,404,853)
                                                                       -------------   -------------    ------------
     Net Cash (Used In) Discontinued Financing Activities                (19,005,177)     (1,947,636)   (12,437,662)
                                                                       -------------   -------------    ------------

     Net (Decrease) Increase in Cash and Cash Equivalents From
     Discontinued Operations                                                 (16,962)       (709,384)    (2,428,732)
         Cash and Cash Equivalents at Beginning of Year From
         Discontinued Operations                                              28,787         738,168      3,166,900
                                                                       -------------   -------------    -----------
         Cash and Cash Equivalents at End of Year From
         Discontinued Operations                                      $       11,825  $       28,787   $    738,168
                                                                       =============   =============    ===========



(4)  ACQUISITIONS AND DISPOSITIONS

     o    Fiscal 2001

     On November 30, 2000,  the Company,  through its  wholly-owned  subsidiary,
GSRT,  LLC, closed on the sale of the Garden State Park property in Cherry Hill,
New Jersey, to Realen- Turnberry/Cherry Hill, LLC ("Realen"). (See Note 3.)

     In June  2001,  the  Company  conducted  a five-day  public  auction of the
equipment,  furnishings and artwork that were excluded in the sale of the Garden
State Park to Realen.

     o    Fiscal 2000

     On May 22, 2000, the Company,  through its wholly-owned  subsidiary,  Orion
Casino  Corporation,  closed on the sale of the  non-operating  former El Rancho
Hotel and Casino in Las Vegas,  Nevada, to Turnberry/Las  Vegas Boulevard,  LLC.
The sales  price was $45  million and was paid by: (i)  previous  cash  deposits
totaling $2,000,000;  and (ii) the balance of the purchase price paid in cash at
the closing.(See Note 2.)



                                       34


                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



     o    Fiscal 1999

     On January 28, 1999,  the Company  completed the sale of Freehold  Raceway,
the sale of a ten-acre  parcel at Garden  State Park and the lease of the Garden
State Park  facilities to  subsidiaries of Greenwood  Racing,  Inc.,  which owns
Philadelphia Park racetrack,  the Turf Clubs and Phonebet. The transaction later
included Pennwood Racing,  Inc. ("Pennwood "), a joint venture between Greenwood
Racing, Inc. and Penn National Gaming,  Inc. ("Penn National"),  which owns Penn
National Race Course,  Pocono Downs  Racetrack,  Charles Town Races and at least
ten off-track betting parlors in Pennsylvania.

     In connection with the January 28, 1999 transactions, the Company purchased
the undepreciated  balance of kitchen and resturant  equipment located at Garden
State Park and a liquor license owned by an  unaffiliated  third party,  Service
America  Corporation,  for $500,000  ($100,000 of which was paid by the lessee).
This asset is recorded in net assets of discontinued operations.

     Pursuant to the terms of the settlement of certain litigation,  the Company
purchased from NPD, Inc. ("NPD")  approximately 2.9 million shares of ITB common
stock (the "NPD  Shares") for $4.6 million cash and the  assumption  by ITB of a
$5.8 million promissory note originally issued by NPD to acquire the NPD Shares,
held by Donald F. Conway, Chapter 11 Trustee for the Bankruptcy Estate of Robert
E. Brennan (the "Bankruptcy Trustee").

(5)  INVESTMENTS

     Interest  income for the fiscal years ended June 30, 2001,  2000,  and 1999
was $78,560,  $109,254,  and $343,572,  respectively.  Realized losses resulting
from the sale of trading securities for fiscal 1999 were $12,908.  There were no
realized  gains or losses  resulting  from the sale of  trading  securities  for
fiscals 2001 and 2000.

(6)  LAND, BUILDINGS AND EQUIPMENT

     Land,  buildings and equipment are recorded at cost.  Depreciation is being
computed  over the  estimated  remaining  useful  lives using the  straight-line
method.


                                       35


                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Major classes of land, buildings and equipment consist of the following:

                                                      June 30,
                             Estimated Useful   -----------------------
                              Lives in Years       2001         2000
--------------------------   ----------------   ---------   -----------
Buildings and Improvements        15-40        $  214,097  $    214,097

Equipment and Artwork              5-15           289,426     1,199,284
                                                ---------    ----------
Totals                                            503,523     1,413,381

Less Accumulated Depreciation
 and Amortization                                 285,004       387,404
                                                ---------    ----------
                                               $  218,519  $  1,025,977
                                                =========     =========

     As of June 30, 2000, Land,  Buildings and Improvements,  Equipment relating
to the racetrack  operations were classified as "Net Liabilities of Discontinued
Operations - Current", and "Net Assets of Discontinued Operations - Long Term".


(7)  NOTES AND  MORTGAGES  PAYABLE Notes and  Mortgages  Payable are  summarized
     below:



                                                                June 30, 2001             June 30, 2000
                                       Interest %        ------------------------- ----------------------------
                                       Per Annum           Current     Long-Term      Current       Long-Term
                                 ---------------------   -----------  ------------ ------------- --------------

                                                                                  
International Thoroughbred
Breeders, Inc.:

Robert E. Brennan Jr. (A)                                        -0-      482,000           -0-      482,000

Michael J. Quigley, III (B)                       10%      1,000,000          -0-           -0-          -0-

Credit Suisse First Boston        LIBOR Rate plus  7%   $        -0-  $       -0- $  14,668,022  $       -0-
                                 (6/30/00 rate 13.64%)

REB Bankruptcy Trustee           Prime Rate  (6/30/00            -0-          -0-     3,652,226          -0-
                                           rate 9.50%)

Other                                         Various            -0-          -0-       276,461          -0-

Garden State Park:

Service America Corporation (C)                    6%        240,000          -0-       320,000          -0-

Other                                         Various            -0-          -0-       179,375          -0-
                                                         -----------   ----------  ------------   ----------
    Totals                                              $  1,240,000  $   482,000 $  19,181,082  $   482,000

 Net Assets of Discontinued
  Operations - Long Term                                         -0-          -0-           -0-          -0-

 Net Liabilities of Discontinued
  Operations - Long Term                                    (240,000)         -0-      (499,375)         -0-
                                                         -----------   ----------  ------------   ----------
Totals                                                  $  1,000,000  $   482,000 $  18,596,709  $   482,000
                                                         ===========   ==========  ============   ==========


The  effective  LIBOR  Rate and the Prime  Rate at June 30,  2000 were 6.64% and
9.50%,  respectively.  There was no short term borrowings outstanding as of June
30, 2001.


                                       36


                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     (A) On February  24, 2000,  the Company  sold several  pieces of artwork to
Robert E. Brennan Jr., son of the Company's  former Chairman and Chief Executive
Officer.  The $218,000  sales price of the artwork was in excess of the original
cost of  $186,600.  The  Company  recorded a $31,400  gain on the sale in Fiscal
2000. In addition,  the Company purchased two large bronze sculptures located on
the Garden State Park property that were  previously on loan to the Company from
Mr. Brennan Jr. The purchase price of the sculptures was $700,000. In connection
with the  transaction,  the Company signed a $482,000  promissory  note with Mr.
Brennan Jr. which  represented  the purchase  price of the  sculptures  less the
sales price of the artwork sold to Mr.  Brennan Jr. On July 27, 2000 the Company
received  a notice  from the  Chapter 11 Trustee  for the  bankruptcy  estate of
Robert E. Brennan (the "Chapter 11 Trustee")  asserting certain ownership rights
in a number of items on loan to the Company,  including the sculptures mentioned
above.  After the Chapter 11 Trustee  claimed  ownership of the  sculptures,  an
arrangement  was  agreed to  between  the  Company  and the  Chapter  11 Trustee
pursuant to which the Company was  permitted to resell the  sculptures to Realen
in May 2001, free and clear of any claim by the Chapter 11 Trustee,  in exchange
for a $700,000  promissory  note of Realen due  November  30, 2002 (the  "Realen
Sculpture Note").  Pursuant to the agreement between the Company and the Chapter
11 Trustee, payments by Realen under the Realen Sculpture Note are to be held in
escrow pending determination of the Chapter 11 Trustee's claims. On December 29,
2000,  the Chapter 11 Trustee  instituted  suit against the Company  seeking the
right to all payments and proceeds of the Realen  Sculpture Note.  After the end
of the fiscal year, in September  2001, a settlement  agreement was entered into
among the  Company,  Robert E.  Brennan,  Jr., the Chapter 11 Trustee and others
pursuant  to which,  among  other  things,  subject  to entry of an order by the
Bankruptcy   Court   approving   the   settlement   which   becomes   final  and
non-appealable,  the  litigation  by the Chapter 11 Trustee  against the Company
will be  dismissed  with  prejudice  and the first  $350,000 of  principal  plus
one-half of the interest  received under the $700,000 Realen Sculpture Note will
be paid to the Chapter 11 Trustee. The balance (up to $350,000 in principal plus
one-half  of the  interest)  will be paid to the  Company.  As a result  of this
settlement,  the  Company  and Mr.  Brennan  Jr.  agreed  that,  subject  to the
dismissal  with  prejudice  of the Chapter 11 Trustee's  litigation  against the
Company (i) all claims of the Company against Mr. Brennan Jr. arising out of his
sale of the  sculptures to the Company will be released and (ii) the  promissory
note issued by the Company to Mr.  Brennan Jr. will be amended (x) to reduce the
principal  amount  of such  promissory  note from  $482,000  to  $132,000,  with
interest on that sum at the rate of 15% annum to accrue from  November  30, 2001
only if the principal of such note is not paid in full by December 10, 2001, (y)
to make such  promissory  note due and payable on November 30, 2002,  and (z) to
permit the Company to defer payment of the promissory note to such later date as
the Company shall have received  payment in full of the Realen  Sculpture  Note.
The effect of the aforesaid  settlement is therefore  that the Company's loss of
the amount to be paid under the  settlement  agreement to the Chapter 11 Trustee
will be borne by Brennan  Jr. by  reduction  to the  Company's  promissory  note
payable to him.

     (B) On January 26, 2001, the Company  borrowed  $1,000,000  from Michael J.
Quigley,  III at an annual  interest rate of 10%. (See Note 14) On May 14, 2001,
the loan was  modified to be due on demand.  Principal  and interest on the note
was due on or about April 25,  2001.  As


                                       37


                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


collateral for the loan, the Company pledged the $33 million in notes receivable
from the sale of the El Rancho and Garden State Park properties.

     (C) 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.  The Company  paid  $100,000 on June 1,
1999, yearly principal  payments of $80,000 plus interest are due on December 28
of each year until December 28, 2003 when all outstanding principal will be due.

(8)  INCOME TAX EXPENSE

     In the event the Company  incurs  income  taxes in the  future,  any future
income tax benefits  resulting from the utilization of net operating  losses and
other  carryforwards  existing at June 30, 1993 to the extent  resulting  from a
quasi-reorganization  of the Company's assets effective June 30, 1993, including
those assets  associated  with the possible  sale of the Garden State  Property,
will be excluded from the results of operations and credited to paid in capital.

     The  Company's  income tax expense for the year ended June 30, 1999 relates
to New Jersey income taxes for its Freehold Raceway  operations and for the sale
of the property.

     The Company has net operating loss carryforwards  aggregating approximately
$219,000,000  at June 30, 2001  expiring in the years June 30, 2002 through June
30, 2021.  SFAS No. 109 requires the  establishment  of a deferred tax asset for
all deductible temporary  differences and operating loss carryforwards.  Because
of the  uncertainty  that  the  Company  will  generate  income  in  the  future
sufficient  to fully or partially  utilize  these  carryforwards,  however,  the
deferred  tax  asset of  approximately  $90,000,000  is  offset  by a  valuation
allowance of the same amount. Accordingly, no deferred tax asset is reflected in
these financial statements.

     Certain amounts of the net operating loss  carryforward  may be limited due
to possible changes in the Company's stock ownership.  In addition,  the sale of
Common Stock by the Company to raise  additional  operating funds, if necessary,
could limit the  utilization  of the  otherwise  available  net  operating  loss
carryforwards.  The grant and/or  exercise of stock options by others would also
impact the number of shares which could be sold by the Company or by significant
stockholders without affecting the net operating loss carryforwards.


                                       38




The Company has the following  carryforwards  to offset future taxable income at
June 30, 2001:


                Net Operating Loss                             Year End
                  Carryforwards                            Expiration Dates
                  -------------                            ----------------
                  $ 45,750,000                                 6/30/2002

                    26,400,000                                 6/30/2003

                    19,900,000                                 6/30/2004

                    15,600,000                                 6/30/2005

                    11,800,000                                 6/30/2006

                    99,730,000                                 6/30/2007
                                                           through 6/30/2021
                  ------------

                  $219,000,000
                  ============

(9)  COMMITMENTS AND CONTINGENCIES

     See  Note 14 for  commitmentments  and  contingencies  of the  Company  and
transactions with related parties.

     On January  26,  2001,  the Company  borrowed  $1,000,000  from  Michael J.
Quigley,  III at an annual  interest  rate of 10%.  (See Note 14)  Principal and
interest on the note was due on April 25, 2001,  however,  on May 14, 2001,  the
loan was modified to be due on demand.  As collateral  for the loan, the Company
pledged the $33 million in notes  receivable  from the sale of the El Rancho and
Garden State Park properties.

     Effective December 1, 2000, the Company entered into a five-year employment
contract with Francis W. Murray,  the Company's  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 the
Company's employees.  As part of his contract,  on December 28, 2000, Mr. Murray
was awarded options to purchase  2,000,000  shares of the Company's Common Stock
(with  tandem  stock  appreciation  rights).  (See Note 12.) In  addition to his
employment contract, on January 3, 2001, Mr. Murray was awarded 2,500,000 shares
of the  Company's  Common  Stock  valued at $.20 per share as a bonus in lieu of
cash for his  extraordinary  efforts over the last several  years related to the
successful litigation settlements and the successful transactions related to the
sale of the Company's real estate assets.

     Commencing in the third quarter of Fiscal 1999,  the Company and certain of
its officers and directors and former officers and directors  received subpoenas
from the  Securities  and Exchange  Commission  (the "SEC")  relating to certain
transactions  and  reports.  The  Company  has fully  cooperated  with the SEC's
investigation.  On March 15,  2001,  the Company was advised by the staff of the
SEC that they intend to recommend  that the SEC bring civil  injunction  actions
against the Company and certain current and former


                                       39


                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


officers.  The Company and the current and former  officers  will  determine the
appropriate response when and if there is any action brought in this matter.

     The  Company  is  responsible  for  remediation  costs  associated  with an
environmental  site on the Freehold  Raceway  property.  The Company has accrued
what it  believes to be the total cost of  remediation.  At June 30,  2001,  the
remaining balance of such accrual was $295,000 for remediation costs.

     In connection with the January 28, 1999 lease  transactions  for the Garden
State  Park  facility,  the  Company  purchased  a  liquor  license  owned by an
unaffiliated third party, Service America Corporation,  for $500,000 financed by
a five (5) year  promissory  note at a 6% interest  rate. At June 30, 2001,  the
unpaid principal balance was $240,000. Yearly principal payments of $80,000 plus
interest  are due on December 28 of each year until  December  28, 2003 when all
outstanding  principal  will be due. The liquor  license was  transferred to the
lessee in consideration  of a $100,000 payment to the Company.  If the lessee is
not awarded a license to own and operate an off-track  betting facility prior to
January 28,  2002,  the lessee may be  required  by the Company to transfer  the
liquor  license to the Company in  consideration  of the Company's  repayment of
such $100,000 to the lessee.

     The Chapter 11 Trustee (the "Trustee") for the bankruptcy  estate of Robert
E.  Brennan  has  asserted   certain   claims   challenging   the  ownership  of
approximately 2,300,000 shares of the Company's Common Stock (the "Shares") held
by certain  individuals.  In order to preserve the Company's net operating  loss
carryforwards  which otherwise may be lost due to the Shares being  transferred,
the Company and the Trustee have  entered into an agreement  whereby the Company
will pay the  Trustee a minimum  of $.50 per share or a maximum  of $1 per share
for the  Trustee's  release of claim to the Shares in the event that the Trustee
is awarded a  judgement  granting  him an  ownership  interest in the Shares and
executes  on such  judgement.  The  price per  share is based  upon the  average
trading  price per share  during the  previous  thirty  day period  prior to the
Trustee  being  awarded the  judgement but will not be less than the agreed upon
$.50 per share or more than $1 per share.  It is  expected  that this  agreement
with the Trustee will be replaced by another  agreement,  in connection with the
settlement  being  negotiated  with the Trustee  involving  the  purchase by the
Company's  subsidiary  of the Ship  Mortgage  Obligation  on the vessel M/V Palm
Beach  Princess,  pursuant to which the Company would purchase from the Trustee,
on or about July 1, 2002,  approximately 1,335,000 shares of common stock in the
Company at a purchase price of $0.50 per share and acquire an option to purchase
up to 2,315,731  additional  shares of the  Company's  common stock at $0.50 per
share.

     On May 3, 2001,  the Company  executed an agreement to lease  approximately
4,000  square  feet of office  space in  Bellmawr,  New  Jersey for a three year
period,  expiring on May 31, 2004. The lease provides for a current monthly rent
of  $5,527.56  which  amount  will  increase  approximately  3%  each  year  for
inflation.  The lease also  provides  for an  extended  lease term  option of an
additional three year period commencing June 1, 2004.



LEGAL PROCEEDINGS

Harris v. DeSantis, et al.
--------------------------

     The first New Jersey  Action,  filed on February 24, 1998 in the New Jersey
District Court, captioned Myron Harris,  derivatively on behalf of International
Thoroughbred  Breeders,  Inc. v. Nunzio P. DeSantis,  Anthony Coelho, Kenneth W.
Scholl,  Michael  Abraham,  Joseph  Zappala,  Frank A. Leo,  Robert J.  Quigley,


                                       40


                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Charles  R.  Dees,  Jr.  and  Francis W.  Murray  ("Harris-Federal"),  C.A.  No.
98-CV-517(JBS),  is a derivative  suit brought by a stockholder  of the Company.
The Harris-Federal complaint alleges that various individual defendants acted in
contravention  of ITB's  by-laws and their  fiduciary  duties by (i) causing the
Company to undertake  various  actions,  including the issuance of a significant
amount of the Company's common stock, in violation of the Supermajority  By-law;
(ii) usurping certain corporate  opportunities  allegedly  belonging to ITB; and
(iii) causing the Company to fail to file current, audited financial statements.

     On May 4,  1998,  all  defendants  filed a motion  to  dismiss  or stay the
Harris-Federal action,  pending resolution of the certain litigation.  On May 4,
1998, the plaintiff  filed an amended  complaint to, among other things,  adding
Howard J. Kaufman, a stockholder of the Company, as an additional plaintiff.

     As described more fully below,  pursuant to the New Jersey Settlement,  the
Harris-Federal  action was fully and finally  dismissed with prejudice,  and the
parties  provided mutual releases of all claims related to the action.  See "New
Jersey Settlement."

Harris v. DeSantis, et al.
--------------------------

     A second  New  Jersey  Action,  filed on July  15,  1998 in the New  Jersey
Superior Court, captioned Myron Harris and Howard Kaufman v. Nunzio P. DeSantis,
Anthony Coelho,  Kenneth W. Scholl,  Michael Abraham,  Joseph Zappala,  Frank A.
Leo,  Robert  J.  Quigley  and  Charles  R.  Dees,  Jr.   ("Harris-State"   and,
collectively  with  the  Harris-Federal   action,  the  "New  Jersey  Actions"),
Cam-L-5534-98,  was a purported class action suit brought by the same plaintiffs
as the  Harris-Federal  action.  The  complaint  alleged  that the  Harris-State
defendants  breached their  fiduciary  duties to the Company's  stockholders  by
failing to file timely  audited  financial  statements for the fiscal year ended
June  30,  1997,  resulting  in the  indefinite  suspension  of  trading  of the
Company's stock on AMEX.

New Jersey Settlement
---------------------

     Prior to filing  pleadings in response to the Harris-State  complaint,  ITB
and the  defendants  in the New Jersey  Actions  entered  into a  memorandum  of
understanding  dated August 18, 1998 (the "New Jersey  Memorandum")  pursuant to
which, upon satisfaction of multiple conditions (including the parties' approval
of definitive settlement  documents,  notice of the settlement to ITB's past and
current stockholders,  and the approval of the New Jersey Superior Court and the
New Jersey District Court),  the New Jersey Actions were to be fully and finally
dismissed with  prejudice,  and ITB and all defendants were to receive a release
from all holders of ITB common and preferred  stock of any claims arising out of
the facts and transactions set forth in the complaints in the New Jersey Actions
(the "Proposed New Jersey Settlement").  The New Jersey Memorandum provided that
the Proposed New Jersey  Settlement  would be submitted  for approval to the New
Jersey  Superior  Court,  that a fee petition  would be submitted by plaintiffs'
attorneys  in the New Jersey  Actions for  approval  by the New Jersey  District
Court, and that the Harris-Federal action would be dismissed on the grounds that
the plaintiffs' claims are barred and released as a result of the settlement and
dismissal of the Quigley  Action by the Delaware Court of Chancery on October 6,
1998. Pursuant to the Proposed New Jersey Settlement,  the plaintiffs agreed not
to file objections to the Delaware Settlement.

     On June 17,  1999,  the New Jersey  Superior  Court acted  unilaterally  to
dismiss the  complaint in the  Harris-State  action  filed under  docket  number
Cam-L-5534-98. On July 30, 1999, the plaintiffs in the Harris-State action filed
in the New Jersey Superior Court a second  complaint,  identical to the original
action and naming as  defendants  the same parties as the original  complaint in
the  Harris-State   action,  under  docket


                                       41


                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


number  Cam-L-5620-99 (the "Second Harris-State  Complaint").  Subsequent to the
filing of the  Second  Harris-State  Complaint,  the terms of the  Proposed  New
Jersey  Settlement  were  amended to  expressly  include the claims  asserted by
plaintiffs  in the Second  Harris-State  Complaint.  Beginning in October  1999,
plaintiffs  in the  Harris-State  Action  began  serving  process  of the Second
Harris-State Complaint on certain of the defendants.

     On December 3, 1999, plaintiffs in the Harris-Federal action filed with the
New Jersey  District  Court a motion for an order  enforcing  the  Proposed  New
Jersey Settlement. On December 3, 1999, the New Jersey District Court entered an
order dismissing the  Harris-Federal  action without costs and without prejudice
to the plaintiffs' right to reopen the action within 60 days if the Proposed New
Jersey  Settlement is not  consummated.  In light of the entry of this order, on
December 7, 1999, the New Jersey  District Court  dismissed as moot  plaintiffs'
motion for an order enforcing the Proposed New Jersey Settlement.  On January 6,
2000,  plaintiffs  in the  Harris-Federal  action moved to vacate the New Jersey
District  Court's  dismissal  order and to pursue the original motion to enforce
the  Proposed  New Jersey  Settlement.  On  February  16,  2000,  the New Jersey
District Court granted the plaintiffs'  motion to vacate the dismissal order and
reopen the Harris-  Federal  action.  The  plaintiffs  filed a second  motion to
enforce the terms of the Proposed New Jersey Settlement on April 25, 2000.

     On May 24,  2000,  the  parties  to the New  Jersey  Actions  agreed to and
executed a Stipulation  of  Settlement  (the "New Jersey  Settlement").  The New
Jersey  Settlement  provides  that,  subject to the  approval  of the New Jersey
District  Court,  the  Company  will pay,  on behalf and for the  benefit of the
individual  defendants in the New Jersey Actions,  the aggregate sum of $175,000
for  plaintiffs'  counsel  fees and  expenses  in the New  Jersey  Actions.  Any
incentive  award to  plaintiffs  Harris  and  Kaufman  would be paid out of this
$175,000 sum. Pursuant to the New Jersey Settlement,  the Board will restructure
its Audit  Committee  of the Company so as to  facilitate  the  procurement  and
timely filing of audited financial  statements in the future.  Further,  the ITB
Board will  establish a Relisting  Committee  for the purpose of  attempting  to
secure the relisting of the Company's  common stock on a public market.  On June
21,  2000,  in light of the  parties'  agreement  to the terms of the New Jersey
Settlement,  the New Jersey  District  Court  dismissed as moot the  plaintiffs'
second motion to enforce the proposed settlement.

     Pursuant to the New Jersey  Settlement,  on June 30,  2000,  the New Jersey
Superior Court  certified  preliminarily,  for the  settlement  purposes only, a
plaintiff  class (the "Class")  consisting of all holders of the Company's stock
between  October  13,  1997 (the date AMEX  suspended  trading of the  Company's
stock) and June 30,  2000,  the date the New Jersey  Superior  Court  entered an
order  approving the form of the proposed  Notice of Settlement to the Class. On
July 13, 2000, pursuant to the New Jersey Settlement,  the Company mailed to all
record  holders of ITB stock within the Class period a Notice of  Settlement  of
the Harris-State action and a Notice of Dismissal of the Harris-Federal action.

     On August  21,  2000,  the New  Jersey  Superior  Court  held a hearing  to
consider  the  fairness  of the  New  Jersey  Settlement  to the  Class.  At the
conclusion of the hearing,  the New Jersey  Superior  Court entered an order (i)
certifying  the Class  pursuant to New Jersey Rule 4:32;  (ii) approving the New
Jersey Settlement as fair, reasonable, adequate and in the best interests of the
Class;  (iii)  dismissing  the  Harris-State  action  with  prejudice;  and (iv)
releasing all Class claims against the  defendants  arising from and relating to
the facts alleged in the Second Harris-State Complaint.

     On  September  26,  2000,  the New Jersey  Federal  Court held a hearing to
consider the proposed dismissal of the Harris-Federal action and the application
by plaintiffs'  counsel for payment of attorneys' fees


                                       42


                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

and expenses incurred in connection with pursuing the New Jersey Actions. During
the hearing, the New Jersey Federal Court requested the submission of additional
materials  relating to the New Jersey  Settlement  and the Delaware  Settlement.
Plaintiffs'  counsel submitted the requested materials to the New Jersey Federal
Court on September 29, 2000. On October 25, 2000,  the New Jersey  Federal Court
entered an order awarding plaintiffs' counsel the amount of $175,000 for payment
of attorney's  fees,  expenses and incentive  awards to plaintiffs to be paid by
the Company in accordance with the New Jersey  Settlement.  On December 6, 2000,
the New Jersey Federal Court entered a final order dismissing the Harris-Federal
Action with prejudice.

Other Litigation
----------------

     As described in Note 7 above, in January 2000, litigation was instituted by
the Chapter 11 Trustee against the Company seeking the right to all payments and
proceeds of the $700,000 "Realen  Sculpture Note." Settlement of that litigation
has been agreed to as described in Note 7.

     The Company is a defendant  in various  other  lawsuits  incidental  to the
ordinary course of business.  It is not possible to determine with any precision
the probable  outcome or the amount of liability,  if any, under these lawsuits;
however, in the opinion of the Company and its counsel, the disposition of these
lawsuits  will not have  material  adverse  effect  on the  Company's  financial
position, results of operations, or cash flows.

(10) FAIR VALUE OF FINANCIAL INSTRUMENTS

     As of June 30, 2001, in assessing the fair value of financial  instruments,
the Company has used a variety of methods and  assumptions,  which were based on
estimates of market conditions and loan risks existing at that time. For certain
instruments,  including  cash  and  cash  equivalents,   investments,  non-trade
accounts  receivable and loans,  and short-term  debt, it was estimated that the
carrying amount  approximated  fair value for the majority of these  instruments
because of their short- term  maturity.  The carrying  amounts of long term debt
approximate fair value since the Company's  interest rates  approximate  current
interest rates.

(11) RETIREMENT PLANS

     The Company  maintains a Retirement  Plan under the  provisions  of section
401(k) of the Internal  Revenue Code of 1986,  as amended (the "Code")  covering
all its non-union  full time  employees who have  completed one year of service.
The Company's basic contribution under the plan is 4% of each covered employee's
compensation for such calendar year. In addition,  the Company contributes up to
an additional  50% of the first 4% of  compensation  contributed  by any covered
employee to the plan (an employee's maximum contribution is $10,500 factored for
inflation  annually).  The Company's  expense totaled $36,863,  $1,911(utilizing
accumulated  forfeitures) and $137,091 for the fiscal years ended June 30, 2001,
2000 and 1999, respectively.


                                       43


                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(12) STOCK OPTIONS AND WARRANTS

     (A)  EMPLOYEE AND NON-EMPLOYEE OPTIONS

     On October 16, 2000, the Company  awarded  options to purchase 6,500 shares
of  the  Company's  Common  Stock  to  various   employees  as  part  of  annual
compensation.  On December 28, 2000,  Mr.  Francis W. Murray and Mr.  William H.
Warner  were  awarded   options  to  purchase   2,000,000  and  75,000   shares,
respectively,  of the Company's  Common Stock pursuant to a stock incentive plan
(the  "Incentive  Plan")  which  the  Board of  Directors  adopted,  subject  to
stockholder  approval.  The options for 75,000 shares  granted to Mr. Warner are
incentive  stock options,  have an exercise price per share equal to 100% of the
fair market value of a share on the date of the option grant,  were  immediately
vested and expire ten years from the date of grant.  With respect to the options
for 2 million  shares granted to Mr.  Murray,  options for 1,116,279  shares are
incentive  stock  options,  have an exercise price per share of 110% of the fair
market  value of a share of the date of grant and  expire in five years from the
date of grant.  Options for the other 883,721  shares granted to Mr. Murray were
non-qualified  stock options,  have an exercise price of 100% of the fair market
value a share on the date of grant  and  expire  in ten  years  from the date of
grant.  One-third of the  incentive  and  non-qualified  options  granted to Mr.
Murray were immediately vested, one-third will be vested one year after the date
of grant, and the remaining one-third will be vested two years after the date of
grant. At June 30, 2001, total employee  options  outstanding were 3,136,500 and
total non-employee options outstanding were 300,000.

     The  Incentive  Plan was adopted by the Board of  Directors on December 28,
2000. All employees, members of the Board of Directors, consultants and advisors
to the Company are eligible to receive stock  options,  stock awards,  and stock
appreciation  rights under the Incentive  Plan. A maximum of four million shares
of common  stock of the  Company may be issued  under the  Incentive  Plan.  The
Incentive  Plan provides that the Incentive Plan will be submitted to holders of
the  Company's  common  stock for their  approval at the next annual  meeting of
stockholders,  or prior thereto at a special meeting of  stockholders  expressly
called  for  such  purpose,  and  that  if  approval  of  the  Company's  common
stockholders  shall  not be  obtained  within  twelve  months  from the date the
Incentive  Plan was adopted by the Board,  the  Incentive  Plan and all options,
awards and stock  appreciation  rights then  outstanding  under it automatically
will terminate and be of no force or effect.

     In December 1994, the Company's Board of Directors and stockholders adopted
and approved the 1994 Employees' Stock Option Plan ("Option  Plan").  The Option
Plan  permits the grant of options to  purchase  up to 475,000  shares of Common
Stock,  at a price per share no less than 100% of the fair  market  value of the
Common Stock on the date the option is granted.  The price would be no less than
110% of fair market  value in the case of an incentive  stock option  granted to
any individual who owns more than 10% of the Company's outstanding Common Stock.
The Option Plan  provides  for the  granting  of both  incentive  stock  options
intended to qualify  under  section  422 of the Code,  and  non-qualified  stock
options  which do not  qualify.  No option may have a term  longer than 10 years
(limited  to five  years in the case of an option  granted  to a 10% or  greater
stockholder of the Company).  Options under the Option Plan are non-transferable
except  in the  event of death  and are only  exercisable  by the  holder  while
employed by the  Company.  Unless the Option Plan is  terminated  earlier by the
Board, the Option Plan will terminate in June 2004.

     In addition,  the Company has also granted  non-qualified stock options for
the purchase of Common Stock to employees  and directors of the Company that are
not part of the above  mentioned  Option Plan.


                                       44


                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


These options have been granted with terms of five and ten years.  These options
have been  granted at prices per share that have been  below,  equal to or above
the fair market value on the grant date.

     The  following  table  contains  information  on stock  options for options
granted from the Plans and options  granted outside the Plans for the three year
period ended June 30, 2001:

                                                  Stock Options
                                                  -------------
                                                     Exercise          Weighted
                                   Number          Price Range          Average
                                  of Shares         Per Share            Price
                                -------------   ---------------------  ---------
Outstanding at June 30, 1998        1,900,000     $ 4.00 - $ 5.875       $ 4.50

Canceled                             (350,000)    $ 4.00 - $ 5.00        $ 4.14
                                -------------
Outstanding at June 30, 1999        1,550,000     $ 4.00 - $ 5.875       $ 4.58

Granted                                 5,000     $ 1.00                 $ 1.00

Canceled                             (200,000)    $ 5.875                $ 5.875
                                -------------
Outstanding at June 30, 2000        1,355,000     $ 1.00 - $ 5.00        $ 4.37

Granted                             2,081,500     $ 0.20 - $ 0.295625    $ 0.28
                                -------------
Outstanding at June 30, 2001        3,436,500     $ 0.20 - $ 5.00        $ 1.89
                                =============

                                                     Exercise          Weighted
                                                    Price Range         Average
                                Option shares        Per Share           Price
                                -------------   ---------------------  ---------
Exercisable at June 30:

1999                                1,550,000     $ 4.00 - $ 5.875       $ 4.58
                                -------------   ---------------------  ---------
2000                                1,355,000     $ 1.00 - $ 5.00        $ 4.37
                                -------------   ---------------------  ---------
2001                                3,436,500     $ 0.20 - $ 5.00        $ 1.89
                                -------------   ---------------------  ---------
Options available for future
grant under the Plan at June 30:                     1994 Plan
                                                ---------------------
1999                                                  275,000

2000                                                  475,000

2001                                                  475,000



                                       45


                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



The following table summarizes  information  about stock options  outstanding at
June 30, 2001:


                                                                         Ranges                    Total
                                                      ---------------------------------------- -------------

                                                                                    
Range of exercise prices                                $0.20 - 0.30   $1.00 - 4.625     $5.00  $0.20 - 5.00
                                                        ------------   -------------     -----  ------------

Outstanding options:
--------------------
   Number outstanding at June 30, 2001                     2,081,500         980,000   375,000     3,436,500
                                                      ---------------------------------------- -------------
   Weighted average remaining contractual life (years)          6.80            4.85      4.50          6.00
                                                      ---------------------------------------- -------------
   Weighted average exercise price                            $0.283           $4.13     $5.00         $1.89
                                                      ---------------------------------------- -------------
Exercisable options:
--------------------
   Number outstanding at June 30, 2001                     2,081,500         980,000   375,000     3,436,500
                                                      ---------------------------------------- -------------
   Weighted average exercise price                            $0.283           $4.13     $5.00         $1.89
                                                      ---------------------------------------- -------------



                                                                          Weighted
                                                       Number of          Average      Weighted
Weighted Average Fair Value of Options Granted           Shares           Exercise   Average Fair
                                                                           Price         Value
----------------------------------------------        -----------       ------------  ------------

June 30, 1999 and 2000:
                                                      --------------------------------------------
                                                                                
    Below Market                                         5,000             $1.00         $1.00

    At Market                                              --                --            --

    Above Market                                           --                --            --
                                                      -----------
                                               Total     5,000
                                                      -----------
June 30, 2001:
                                                      --------------------------------------------
    Below Market                                       2,081,500           $.283         $.128

    At Market                                              --                --            --

    Above Market                                           --                --            --
                                                      -----------
                                               Total   2,081,500
                                                      -----------


     During 1995, the Financial  Accounting Standards Board adopted Statement of
Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation,"  which has  recognition  provisions  that  establish a fair value
based method of  accounting  for  stock-based  employee  compensation  plans and
established  fair value as the  measurement  basis for  transactions in which an
entity  acquires  goods or services  from  non-employees  in exchange for equity
instruments.  SFAS 123 also has certain disclosure  provisions.  Adoption of the
recognition  provisions of SFAS 123 with regard to these  transactions with non-
employees was required for all such transactions entered into after December 15,
1995,  and the Company  adopted these  provisions as required.  The  recognition
provision  with  regard  to the  fair  value  based  method  of  accounting  for
stock-based employee compensation plans is optional. Accounting Principles Board
Opinion No. 25 "Accounting  for Stock Issued to Employees"  ("APB 25") uses what
is referred to as an intrinsic value


                                       46


                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


based method of accounting.  The Company has decided to continue to apply APB 25
for  its  stock-  based  employee  compensation  arrangements.  Accordingly,  no
compensation  cost has been recognized.  The Company estimates the fair value of
each  option and warrant  granted on the date of grant using the Black-  Scholes
option-pricing  model  with  the  following  assumptions:   a  weighted  average
risk-free  interest  rate of 6.3%, a weighted  average  expected life of 5 years
based on Company  expectations,  and a weighted average  expected  volatility of
56.29%.

     Had  compensation  cost for the Company's  employee  stock option plan been
determined  based on the fair value at the grant date for awards  under the Plan
consistent  with the method of SFAS 123, the Company's net loss and net loss per
share would have been increased to the pro forma amounts indicated below:



                                                     Years Ended June 30,
                                                     --------------------

                                            2001              2000           1999
                                            ----              ----           ----

                                                               
Net (Loss): As Reported

(Loss) Before Discontinued Operations   $ (2,402,142)   $ (6,980,831)   $(16,034,769)

Income from Discontinued Operations              -0-             -0-       8,144,072
                                        ------------    ------------    ------------
Net (Loss)                              $ (2,402,142)   $ (6,980,831)   $ (7,890,697)
                                        ------------    ------------    ------------

Pro Forma Net (Loss)

(Loss) Before Discontinued Operations   $ (2,498,508)   $ (7,026,581)   $(16,034,769)

Income from Discontinued Operations              -0-             -0-       8,144,072
                                        ------------    ------------    ------------
Net (Loss)                              $ (2,498,508)   $ (7,026,581)   $ (7,890,697)
                                        ------------    ------------    ------------



                                                   Years Ended June 30,
                                                   --------------------

                                            2001              2000           1999
                                            ----              ----           ----

                                                               
Net (Loss) Per Share- Basic and Diluted:
  As Reported

(Loss) Before Discontinued Operations   $      (0.24)   $      (0.78)   $       (1.38)

Income from Discontinued Operations               -0-            -0-             0.71
                                         ------------   ------------     ------------
Net (Loss)                              $      (0.24)   $      (0.78)   $       (0.67)
                                         ------------   ------------     ------------

Pro Forma Net (Loss) Per Share - Basic
  and Diluted

(Loss) Before Discontinued Operations   $      (0.25)   $      (0.78)   $       (1.38)

Income From Discontinued Operations               -0-            -0-             0.71
                                         ------------   ------------     ------------
Net (Loss)                              $      (0.25)   $      (0.78)   $       (0.67)
                                         ------------   ------------     ------------





                                       47


                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




     (B)  WARRANTS

     During the fiscal year ended June 30, 1996, the Company issued  warrants to
purchase  925,000  shares  of  Common  Stock in  connection  with its  financing
activities  and the purchase of the El Rancho  Property.  During the fiscal year
ended June 30, 1997, the Company issued  warrants to purchase  746,847 shares of
Common Stock in connection with its financing  activities,  including the Credit
Suisse Credit Facility.  During the fiscal year ended June 30, 1999, the Company
issued  warrants to purchase  932,153 shares of Common Stock in connection  with
its financing  activities,  including the Credit  Suisse  Credit  Facility.  All
warrants are exercisable at June 30, 2000.

     The fair value of warrants  issued during the years ended June 30, 1999 and
1998 was $1,269,179, and $0, respectively.  The 1999 warrants were accounted for
as financing expenses.

     Warrants have been granted to acquire Common Stock at various prices above,
below  and at fair  market  value  at the date of  grant.  The  following  table
contains information on warrants for the three-year period ended June 30, 2001:

                                                  Warrants
                                 ----------------------------------------
                                                   Exercise      Weighted
                                     Number       Price Range    Average
                                   Of Shares       Per Share      Price
                                   ---------     -------------    -----
Outstanding at June 30,1998         1,671,847    $4.00 - $5.25    $4.66

Granted During Fiscal 1999            497,153    $4.375           $4.375

Granted During Fiscal 1999            435,000    $2.50            $2.50
                                 -------------
Outstanding at  June 30, 1999,
 2000 and 2001                      2,604,000    $2.50 - $5.25    $4.25
                                 =============

(13) DIVIDENDS

     The Company is required  to pay to the  holders of the  Company's  Series A
Convertible  Preferred  Stock  ("Preferred  Stock") a cash dividend from any net
racetrack earnings, as defined, of Garden State Park. No dividends were required
for fiscals 2001, 2000 and 1999. The Preferred  Stock has liquidation  rights of
$100 per share plus accrued dividends, if any.

(14) RELATED PARTY TRANSACTIONS

     During the third  quarter  of Fiscal  2001,  the  company  invested  in two
projects in which its Chairman,  President and Chief Executive Officer,  Francis
W. Murray, also has a pecuniary  interest.  In connection with one such project,
the Company has agreed to advance,  as a loan, up to $1.5 million,  the proceeds
of which are to be used to pay  costs and  expenses  for  development  of a golf
course in Southern  California.  A limited  partnership,  the general partner of
which is owned by Mr.  Murray,  has acquired an option to purchase  certain real
estate in Southern  California on which it intends to construct a golf club. The
project is a  long-term  one,  requiring  environmental,  engineering  and other
studies, regulatory approvals and other governmental entitlements.  Loans by the
Company to the limited  partnership will bear interest at an annual rate of 12%,
and the  Company  will have the right to  convert  its loans  into a 50%



                                       48


                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



equity interest in the limited  partnership (which percentage  interest would be
reduced  if   additional   investments   by  others  are  made  in  the  limited
partnership).   Mr.  Murray's  equity  interest  in  the  limited   partnership,
indirectly  through his ownership of the general partner,  presently is 80%, and
will be reduced proportionally if the Company exercises its right to convert its
loans into equity. At June 30, 2001 and September 30, approximately $677,252 and
$695,848, respectively,have been loaned to such project.

     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  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 owner,  MJQ Development  which is owned by Michael J. Quigley,  III, is
developing a vacation  membership/condominium hotel resort and is in the process
of offering  vacation  membership  interests in the resort.  Mr.  Quigley has no
relationship to Robert J. Quigley,  the Company's director and former president.
At June 30, 2001 and September  30, 2001,  the Company has lent  $1,840,597  and
$2,250,495,  respectively,  to the property owner. The Company's loans will bear
interest at 12% and will be repayable out of the first  proceeds,  after payment
of bank debts,  generated by the sale of vacation memberships.  The Company will
have the right to convert its loan into an equity interest (subject to receiving
certain  third party  approvals),  which would  entitle it to receive a priority
return of its  investment and a priority  profits  interest equal to three times
its investment.  It is expected that, once one-half of the memberships are under
agreement of sale, the property owner will proceed with construction.  Repayment
of the  Company's  loans (and  receipt of any return if it converts its loans to
equity) will be subject to repayment of, first, bank debt of approximately  $3.8
million incurred in the purchase of the real property and, second,  construction
financing  expected  to  amount  to $25  to  $30  million.  If  the  project  is
successful,  Mr. Murray stands to receive a contingent  benefit,  which could be
substantial, from the owner for his participation in the project, but only after
the Company and the owner have received priority returns of their investment and
priority shares of profits.

     On September  18, 2000,  the Company  borrowed  $150,000 from the Company's
Chairman, Mr. Francis Murray at an interest rate of 10%, in order to finance its
current operations. On February 8, 2001, the Company repaid said loan.

     On  January  26,  2001 the  Company  borrowed  $1,000,000  from  Michael J.
Quigley,  III at an annual  interest rate of 10%. On May 14, 2001,  the loan was
modified to be due on demand.  Principal  and interest on the note was due on or
about April 25, 2001. As collateral  for the loan,  the Company  pledged the $33
million in notes receivable from the sale of the El Rancho and Garden State Park
properties.

     Effective April 30, 2001, the Company entered into a bareboat  charter with
MJQ Corporation,  pursuant to which the Company is chartering the vessel MV Palm
Beach  Princess for the purpose of operating a casino  cruise  business from the
Port  of Palm  Beach,  Florida.  Francis  W.  Murray,  the  Company's  Chairman,
President  and Chief  Executive  Officer,  is an  officer  and  director  of MJQ
Corporation,  and his son, Francis X. Murray, is President and a director of MJQ
Corporation.  Under the  charter  agreement,  the  Company is  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
reimbrused by us to MJQ Corporation.  As of June 30, 2001 and September 30, 2001
we owed  MJQ  Corporation  $1,471,084  and  $1,279,894,  respectively,  for such
expenses.  In addition, in order to obtain


                                       49


                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


the bareboat  charter,  the Company has entered into a letter of intent with the
Chapter  11  Trustee  of  the  Bankruptcy  Estate  of  Robert  E.  Brennan  (the
"Trustee"),  MJQ Corporation and others which  contemplates that, subject to the
negotiation,  execution and delivery of satisfactory definitive agreements,  the
Company would purchase from the Trustee the promissory note of MJQ  Corporation,
having a balance of principal and interest  outstanding of  approximately  $14.3
million as of June 30,  2001 and  secured by a ship  mortgage  against  the Palm
Beach Princess vessel (the "Ship Mortgage Obligation"),  for a purchase price of
$13.75  million.  Pursuant  to the letter of intent  (which is subject to change
during negotiation of the definitive  agreements),  such purchase price would be
payable in 12 consecutive  monthly  installments of $250,000,  a 13th payment of
$10.5  million on April 30,  2002,  and a final  payment of  $250,000 on July 1,
2002.  Pursuant to the letter of intent,  MJQ  Corporation  and its officers and
directors  (including  Francis  W.  Murray and his son)  would  exchange  mutual
releases  with the  Trustee  and  others  having  claims  to the  Ship  Mortgage
Obligation.

(15) TREASURY SHARES RETIRED

     Effective  January 12, 2001, the Company  retired  2,904,016  shares of the
Company's Common Stock which were held as Treasury Stock.

(16) SUBSEQUENT EVENTS

     On July 18, 2001, we sold our condominium unit and an ownership interest in
the Ocala Jockey Club that was located in Reddick,  Florida. The sales price was
$94,000 and the proceeds after closing fees and other  expenses were $81,645.  A
gain of $81,645 will be  recognized  during the first  quarter of Fiscal 2002 as
the property was fully depreciated.

Item 9. Changes in and Disagreements with Accountants on Accounting and
        Financial Disclosure

        None

                                       50




                                    PART III

Item 10. Directors and Executive Officers of the Registrant.

     Set  forth  below  is  certain  information  regarding  our  directors  and
executive officers:

Name                            Age      Position
----                            ---      --------
Francis W. Murray                 60     Chairman of the Board, President and
                                         Chief Executive Officer(1)
James J. Murray                   62     Director(2)
Walter ReDavid                    75     Director
Robert J. Quigley                 72     Director
-----------------------------------------------------------------------------
(1)Member of the Compensation Committee of the Board of Directors.
(2)Member of the Audit Committee of the Board of Directors.

     Set forth below is certain  biographical  information  with respect to each
director set forth above,  including his  principal  occupation  and  employment
during the past five years.

     Francis  W.  Murray.  Mr.  Murray  has been a  director  since 1996 and our
President,  Chief Executive  Officer and Chairman of the Board since October 10,
2000. From time to time from November 1995 until June 1999, Mr. Murray served as
President  of  the  Company's  subsidiaries  International  Thoroughbred  Gaming
Development Corporation ("ITG") and Orion Casino Corporation. From November 1993
through June 1995,  Mr. Murray served as a consultant to ITG. From December 1988
through  November  1993,  Mr.  Murray was the co-owner and  President of the New
England  Patriots  and  co-founder  of the  St.  Louis  NFL  Partnership,  which
attempted to obtain an expansion NFL  franchise  for the city of St. Louis.  Mr.
Murray has been a member of the  Executive  Committee and the  Compensation  and
Stock Options  Committee since March 15, 1999. Mr. Murray  previously  served on
the Executive Committee from February 21, 1996 to July 9, 1996 and from December
20, 1996 to February 12, 1997.

     James J.  Murray.  Mr.  Murray  was  elected by the Board of  Directors  on
February 22, 1999.  Mr.  Murray  previously  served as a director of the Company
from November 6, 1996 to January 15, 1997.  Mr. Murray is a member of the Ronald
McDonald House of Charities Local Operations Advisory Council and past President
of Jim Murray,  Ltd., a sports promotion and marketing firm. In 1969, Mr. Murray
joined the  Philadelphia  Eagles'  public  relations  staff and two years  later
became the NFL team's administrative  assistant.  In 1974, just five years after
joining the  organization,  he was named the Eagles'  General  Manager and spent
more than nine years in that post,  during  which the Eagles'  appeared in Super
Bowl XV. He also  served as  Director  of  Marketing  for our Garden  State Park
subsidiary from  1985-1987.  Mr. Murray has been a member of the Audit Committee
since March 15, 1999. Mr. Murray  previously  served on the Executive  Committee
and the  Compensation  and Stock  Options  Committee  from  December 20, 1996 to
January  15,  1997.  Mr.  Murray is the brother of Francis W.  Murray,  who is a
director


                                       51


and our President, Chief Executive Officer and Chairman of the Board.

     Walter  ReDavid.  Mr. ReDavid was elected to the board on July 3, 2001. Mr.
ReDavid is a past Registrar of Wills and has served on various  Delaware County,
Pennsylvania  township boards.  Mr. ReDavid has been practicing general law as a
sole practitioner for over 50 years.

     Robert J.  Quigley.  Mr.  Quigley  has been a  director  since  1980.  From
February  1996 until  October 15,  1997,  and again from 1999 until  October 10,
2000, Mr. Quigley served as our President.  Mr. Quigley also served as President
from 1988 until July  1992.  Between  November  1995 and May 1996,  Mr.  Quigley
served as our Chairman of the Board and acting  Chief  Executive  Officer.  From
July 1992 until November  1995,  Mr.  Quigley was President and Chief  Operating
Officer of Retama Park Association,  Inc., a racetrack  facility in San Antonio,
Texas. Mr. Quigley previously served as a member of the Executive Committee from
July 9, 1996 to December 20, 1996.

Executive and Other Key Officers

Our  executive  and other key  officers,  in addition to Mr.  Francis W. Murray,
include:

Name                         Age   Position
----                         ---   --------

William H. Warner            56    Treasurer and Secretary

Christine E. Rice Newell     56    Assistant Treasurer and Controller

     William H. Warner.  Mr. Warner has served as our  Treasurer  since 1983. In
October 2000, Mr. Warner was appointed our Secretary.  Mr. Warner is a certified
public  accountant,  and prior to joining us, was employed in public  accounting
for 11 years.

     Christine E. Rice Newell. Ms. Rice Newell has been our Assistant  Treasurer
and  Controller  since  1990.  From 1986 until  1990,  Ms.  Rice  Newell was our
Corporate Accounting Manager. Ms. Rice Newell is a certified public accountant.

Section 16(a) Beneficial Ownership Reporting Compliance

     Pursuant  to Section  16(a) of the  Securities  Exchange  Act of 1934,  our
executive  officers  and  directors  are  required to file  reports with the SEC
relating to their ownership of and transactions in our equity securities.  Based
on our records and other  information,  we believe that all Section 16(a) filing
requirements were met for fiscal year 2001.


                                       52





Item 11. Executive Compensation.

     The  following  table sets forth the cash  compensation  as well as certain
other  compensation  paid or accrued during fiscal years 1999,  2000 and 2001 to
the  individuals  who served as our chief  executive  officer during fiscal year
2001 and each other  executive  officer  who earned  more than  $100,000  during
fiscal year 2001 (collectively, the "Named Executives"):



                                                                     Long-Term
                                                                   Compensation
                                     Annual Compensation              Awards
                                     -------------------              ------
                                                                     Securities    All
Name and                                             Other Annual    Underlying    Other
Principal Position       Year   Salary($)  Bonus($)  Compensation($) Options(#) Compensation($)

                                                                 
Francis W. Murray,       2001    278,654   500,000(1)   17,011(2)       -0-        18,537(3)
President and Chief      2000    122,308     -0-        17,737          -0-        10,997
Executive Officer        1999    120,692     -0-        15,145          -0-        12,323


Robert J. Quigley,       2001     89,517     -0-         8,000(4)       -0-        15,603(5)
Former President,        2000     71,346     -0-        12,000          -0-         6,593
Chairman                 1999    138,461     -0-         4,000          -0-        12,267


William H. Warner,       2001    123,693      0-          -0-           -0-        15,430(6)
Treasurer and Secretary  2000    126,000     -0-          -0-           -0-        11,219
                         1999    123,693     -0-          -0-           -0-       117,355



(1)  In  recognition  of Mr.  Murray's  efforts  in  successfully  settling  the
     significant  litigation in Delaware  involving Mr.  DeSantis,  successfully
     closing the transactions  involving the sale of our real properties located
     in Las Vegas,  Nevada and Cherry  Hill,  New Jersey,  paying off all of our
     bank debt and acquiring  valuable interests in the profits from development
     of the  properties  sold,  we  awarded a bonus to Mr.  Murray of  $500,000,
     payable  solely in shares of our  common  stock  valued at $0.20 per share,
     which was  determined by the Board of Directors to equal or exceed the fair
     market value per share of our common stock. Accordingly,  such compensation
     was paid in the form of 2,500,000 shares of our common stock.

(2)  Consists of monthly automobile lease payments.

(3)  Fiscal 2001 amounts  consist of $7,868 of life  insurance  premiums paid by
     the Company with respect to term life  insurance  payable to  beneficiaries
     designated by Mr. Murray and $10,669  contributed  by the Company under the
     Company's 401(k) plan.

(4)  Fiscal 2001 amounts  consist of $1,000 per month  automobile  allowance for
     eight months.

(5)  Fiscal 2001 amounts  consist of $10,877 of life insurance  premiums paid by
     the Company with respect to term life  insurance  payable to  beneficiaries
     designated by Mr.  Quigley and $4,726  contributed by the Company under the
     Company's 401(k) plan.

(6)  Fiscal 2001 amounts  include $7,868 of life insurance  premiums paid by the
     Company  with  respect  to term life  insurance  payable  to  beneficiaries
     designated  by Mr. Warner and $7,562  contributed  by the Company under the
     Company's 401(k) plan.


                                       53





Stock Options Grants

     The following table contains information concerning grants of stock options
to the Named Executives during fiscal year 2001.


                                  Option Grants in Fiscal 2001
----------------------------------------------------------------------------------------------------
                      Individual Grants
                   ------------------------
                   Number of     % of Total
                   Securities    Options                             Potential Realizable
                   Underlying    Granted to   Exercise               Value At Assumed Annual
                   Options       Employees    Price      Expiration  Rates of Stock Price
Name               Granted(#)    In 2001      ($/Sh)     Date        Appreciation for Option Term(1)
----               ----------  ------------   --------  -----------  -------------------------------

                                                                     
                                                                        5% ($)         10% ($)
                                                                        ------         -------

Francis W. Murray   1,116,279     53.63       0.295625   12/28/05       91,173         201,468
                      883,721     42.45       0.268750   12/28/10      188,048         440,115

Robert J. Quigley       0           --           --         --            --              --

William H. Warner      75,000      3.60       0.268750   12/28/10       15,959          37,351
----------------------------------------------------------------------------------------------------

(1)  Illustrates  the value  that might be  received  upon  exercise  of options
     immediately prior to the assumed  expiration of their term at the specified
     compounded  rates of appreciation  based on the market price for the common
     stock when the options were granted.  Assumed rates of appreciation are not
     necessarily indicative of future stock performance.

Stock Option Exercises and Holdings

     The  following  table sets  forth the value of options  held by each of the
Named  Executives at June 30, 2001. None of the Named  Executives  exercised any
options during fiscal year 2001.


               Aggregated Option Exercises in 2001 and Option Values at June 30, 2001
-------------------------------------------------------------------------------------------------------
                                                 Number of Securities         Value of Unexercised
                                                 Underlying Unexercised       In-the-Money Options
                                                 Options at June 30, 2001(#)  at June 30, 2001($)(1)
                     Shares
                     Acquired on   Value
Name                 Exercise (#)  Realized($)   Exercisable  Unexercisable   Exercisable Unexercisable

                                                                           
Francis W. Murray       --            --           966,666     1,333,334        10,833       21,666
Robert J. Quigley       --            --           100,000             0             0            0
William H. Warner       --            --            75,000             0         2,344            0

-------------------------------------------------------------------------------------------------------


(1)  The value of  unexercised  in-the-money  options is based on the difference
     between the last reported sale price of a share of common stock as reported
     on the Pink Sheets on June 21, 2001 ($0.30) and the  exercise  price of the
     options, multiplied by the number of options.

                                       54





Compensation of Directors

     Outside  directors are provided  compensation of $1,000 for each regular or
special meeting of the Board in which each outside director  participates either
in person or by telephone.

Employment Contracts and Termination of Employment

     Effective December 1, 2000, we entered into a five-year employment contract
with Mr. Francis W. Murray as 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 contract,  on December 28, 2000, Mr. Murray was awarded  options to purchase
2,000,0000  shares of our common  stock under our stock  incentive  plan,  which
remains subject to stockholder approval.  Options for 1,116,279 of the 2,000,000
are incentive  stock  options,  have an exercise  price per share of 110% of the
fair  market  value of a share on the date of grant  ($0.295625  per  share) and
expire on the  five-year  anniversary  from the date of grant.  Options  for the
other 883,721 shares granted to Mr. Murray are non-qualified stock options, have
an exercise price of 100% of the fair market value of a share of common stock on
the date of grant  ($0.26875)  and expire on the ten year  anniversary  from the
date of  grant.  One-third  of the  incentive  and  non-qualified  options  were
immediately vested, and an additional one-third will become vested after each of
the one-year and two-year  anniversaries from the date of grant. In addition, on
January 3, 2001,  Mr.  Murray was awarded  2,500,000  shares of our common stock
valued  at $.20  per  share  as a bonus  in lieu of cash  for his  extraordinary
efforts related to litigation  settlements and the various  transactions related
to the sale of our real estate assets.

Compensation Committee Interlocks and Insider Participation

     Mr. Francis W. Murray, a member of the Compensation  Committee of the Board
of Directors, currently serves as our President and Chief Executive Officer. See
also "Item 13. Certain  Relationships  and Related  Transaction"  for additional
information with respect to Mr. Murray.



                                       55





Item 12. Security Ownership of Certain Beneficial Owners and Management.

Security Ownership of Certain Beneficial Owners

     The  following  table sets forth  certain  information  with respect to the
beneficial  ownership,  as of October 1, 2001,  of each person who we knew to be
the  beneficial  owner  of  more  than  5% of  our  common  stock.  Each  of the
stockholders  named below has sole voting and  investment  power with respect to
such shares, unless otherwise indicated.

--------------------------------------------------------------------------------
                                        Common Stock
                                        ------------
    Name and Address of            Number of
    Beneficial Owner                Shares         Percent
    -------------------            ---------       -------

    The Family Investment Trust    1,090,731 (1)     9.5%
    Henry Brennan, Trustee
    340 North Avenue
    Cranford, NJ 07016

    Credit Suisse First            1,276,652 (2)    10.2%
    Boston Mortgage Capital LLC
    Eleven Madison Avenue
    New York, NY 10010

    Francis W. Murray              3,466,666 (3)    27.2%
    211 Benigno Boulevard
    Suite 210
    Bellmawr, NJ 08031

    Frank A. Leo                     736,201 (4)     6.3%
    44 Minebrook Rd
    Colts Neck, NJ 07722
--------------------------------------------------------------------------------

(1)  Henry  Brennan is the brother of Robert E. Brennan,  our former  president,
     whose adult sons are the beneficiaries of the trust.
(2)  Includes  1,044,000  shares of common stock  issuable  upon the exercise of
     warrants.
(3)  Includes  966,266 shares  purchasable at, or within 60 days after September
     15, 2001, under stock options.
(4)  Includes  200,000  shares of common  stock  issuable  upon the  exercise of
     options.

                                       56




Security Ownership of Management

     The  following  table sets forth  certain  information  with respect to the
beneficial ownership,  as of September 15, 2001, of (i) each director,  (ii) the
Named  Executives  and (iii) all of our directors  and  executive  officers as a
group. Each of the stockholders named below has sole voting and investment power
with respect to such shares, unless otherwise indicated.

--------------------------------------------------------------------------------
Name of Beneficial Owner            Number of Shares(1)   Percent of Class
------------------------            -------------------   ----------------
Francis W. Murray                     3,466,666   (2)     27.9%
James J. Murray                          25,000   (3)     *
Walter ReDavid                                0           *
Robert J. Quigley                       105,830   (4)     *
William H. Warner                        75,124   (5)     *
All executive officers and
directors as a group (6 persons)      3,677,620           29.1%
--------------------------------------------------------------------------------
* Less than 1 percent.

(1)  With  respect  to each  stockholder,  includes  any  shares  issuable  upon
     exercise of any options or warrants  held by such  stockholder  that are or
     will become exercisable within sixty days of September 15, 2001.
(2)  Includes 966,666 shares issuable upon the exercise of stock options.
(3)  Consists of shares of common stock issuable upon the exercise of options.
(4)  Includes  100,000  shares of common  stock  issuable  upon th  exercise  of
     options.
(5)  Includes 75,000 shares issuable upon the exercise of stock options.

Item 13. Certain Relationships and Related Transactions.

     During the third  quarter of fiscal year 2001,  we invested in two projects
which our Chairman,  President and Chief Executive  Officer,  Francis W. Murray,
also has a pecuniary  interest.  In connection  with one such  project,  we have
agreed to advance,  as a loan, up to $1.5 million,  the proceeds of which are to
be used to pay costs and expenses for  development  of a golf course in Southern
California.  At  of  June  30,  2001  and  September  30,  September  30,  2001,
approximately  $677,252  and  $695,848,  respectively,  have been loaned to such
project.  A limited  partnership,  the general  partner of which is owned by Mr.
Murray,  has  acquired  an option to  purchase  certain  real estate in Southern
California  on which it intends  to  construct  a golf club.  Loans by us to the
limited  partnership  will bear  interest at an annual rate of 12%,  and we will
have the right to convert  our loans into a 50% equity  interest  in the limited
partnership   (which   percentage   interest  would  be  reduced  if  additional
investments by others are made in the limited partnership).  Mr. Murray's equity
interest in the limited  partnership,  indirectly  through his  ownership of the
general  partner,  presently  is 80%, and will be reduced  proportionally  if we
exercise our right to convert our loans into equity.

     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,  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 owner,  MJQ Development  which is owned by Michael J. Quigley,  III, is
developing a vacation  membership/condominium hotel resort and is in the process
of offering  vacation  membership  interests in the resort.  Mr.  Quigley has no
relationship to Robert J. Quigley,  the Company's director and former president.
At June 30, 2001 and September  30, 2001,  the



                                       57


Company has lent $1,840,597 and $2,250,495, respectively, to the property owner.
Our  loans  will bear  interest  at 12% and will be  repayable  out of the first
proceeds,  after  payment  of bank  debts,  generated  by the  sale of  vacation
memberships  or hotel  condominiums.  We will have the right to convert our loan
into an equity interest  (subject to receiving  certain third party  approvals);
which  would  entitle us to receive a priority  return of our  investment  and a
priority  profits  interest equal to three times our investment.  It is expected
that, once one-half of the  memberships or  condominiums  are under agreement of
sale, the property owner will proceed with construction.  Repayment of our loans
(and receipt of any return if we convert our loans to equity) will be subject to
repayment of, first,  bank debt of  approximately  $3.8 million  incurred in the
purchase of the real property and, second,  construction  financing  expected to
amount to $25 million to $30 million.  If the project is successful,  Mr. Murray
stands to receive a contingent  benefit,  which could be  substantial,  from the
owner for his participation in the project, but only after we and the owner have
received priority returns of our investment and priority shares of profits.

     On January  26,  2001,  the Company  borrowed  $1,000,000  from  Michael J.
Quigley,  III at an annual  interest rate of 10%. On May 14, 2001,  the loan was
modified to be due on demand.  Principal  and interest on the note was due on or
about April 25, 2001. As collateral  for the loan,  the Company  pledged the $33
million in notes receivable from the sale of the El Rancho and Garden State Park
properties.

     On September  18, 2000,  we borrowed  $150,000  from our Chairman and Chief
Executive  Officer,  Mr.  Francis Murray at an interest rate of 10%, in order to
finance our current operations. On February 8, 2001, we repaid the loan.

     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 a casino cruise  business from the Port of
Palm Beach,  Florida.  Francis W.  Murray,  our  Chairman,  President  and Chief
Executive Officer,  is an officer and director of MJQ Corporation,  and his son,
Francis X. Murray,  is President  and a director of MJQ  Corporation.  Under the
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.  As of
June 30, 2001 and  September  30, 2001 we owed MJQ  Corporation  $1,471,084  and
$1,279,894, respectively, for such expenses. In addition, in order to obtain the
bareboat  charter,  we have  entered into a letter of intent with the Chapter 11
Trustee of the  Bankruptcy  Estate of Robert E.  Brennan,  MJQ  Corporation  and
others  which  contemplates  that,  subject to the  negotiation,  execution  and
delivery of  satisfactory  definitive  agreements,  we would  purchase  from the
Trustee the promissory  note of MJQ  Corporation,  having a balance of principal
and interest  outstanding of approximately $14.3 million as of June 30, 2001 and
secured  by a ship  mortgage  against  the Palm  Beach  Princess  vessel,  for a
purchase  price of $13.75  million.  Such purchase  price would be payable in at
least 15  consecutive  monthly  installments  of $250,000 and a final payment on
July 31, 2002 (or such later date as we may negotiate);  if the final payment is
due on July 31,  2002,  $10 million  would be due at that time.  Pursuant to the
letter of intent,  MJQ  Corporation  and its officers and  directors  (including
Francis W. Murray and his son) would exchange  mutual  releases with the Trustee
and others having claim to the Ship Mortgage Obligation.



                                       58





                                     PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports On Form 8-K.

(a)  The following documents are filed as part of this report

     1.   Financial Statements.

       See index to Financial Statements at Item 8 on page 19 of this report.

     2.   Financial Statement Schedules.

       See index to Financial Statements at Item 8 on page 19 of this report.

     3.   Exhibits.

       The  following  exhibits  are  filed as part of,  or  incorporated  by
       reference into, this report:


      Exhibit
       Number   Description
       ------   -----------

        3.1     Certificate  of  Incorporation,   as  amended  (incorporated  by
                reference  to  Exhibit  3(a)  to the  Registrant's  Registration
                Statement  on Form S-1,  File No.  2-70153,  filed  December  5,
                1980).


        3.2     Amendment to the Certificate of  Incorporation  (incorporated by
                reference  to  Exhibit  3(a)(11)  to  Amendment  No.  3  to  the
                Registrant's  Registration  Statement  on  Form  S-1,  File  No.
                2-70153).

        3.3     Amended and Restated By-Laws of the Registrant  (incorporated by
                reference to Exhibit 3.3 to the  Registrant's  Annual  Report on
                Form 10-K for the fiscal year ended June 30, 1997).

        4.1     Warrant No. 1 dated May 23, 1997 to purchase  546,847  shares of
                the  Registrant's  Common  Stock  (incorporated  by reference to
                Exhibit  10.2 to the  Registrant's  Current  Report  on Form 8-K
                dated May 23, 1997).

        4.2     Warrant No. 2 dated May 23, 1997 to purchase  497,153  shares of
                the  Registrant's  Common  Stock  (incorporated  by reference to
                Exhibit  10.3 to the  Registrant's  Current  Report  on Form 8-K
                dated May 23, 1997).

        10.1    Asset  Purchase  Agreement  dated as of July 2, 1998 by, between
                and among Greenwood New Jersey,  Inc.,  Garden State Race Track,
                Inc., Freehold Raceway Association, Atlantic City Harness, Inc.,
                Circa  1850  and  International   Thoroughbred  Breeders,   Inc.
                together  with  exhibits  thereto(incorporated  by  reference to
                Exhibit 10.2 on Form 8-K dated July 2, 1998).

                                       59




      Exhibit
       Number   Description
       ------   -----------

        10.2    Registration  Rights  Agreement dated as of May 23, 1997 between
                the  Registrant and CSFB  (incorporated  by reference to Exhibit
                10.4 to the  Registrant's  Current  Report on Form 8-K dated May
                23, 1997).

        10.3*   Employment  Agreement by and between the  Registrant and Francis
                W. Murray dated as of December 1, 2000

        10.4    First Amendment to Asset Purchase  Agreement dated as of January
                28,  1999 among the  Company,  Garden  State Race  Track,  Inc.,
                Freehold Racing Association,  Atlantic City Harness, Inc., Circa
                1850, Inc., Greenwood New Jersey, Inc. and Penn National Gaming,
                Inc.  (without  Exhibits)  (incorporated by reference to Exhibit
                10.1  to the  Registrant's  Current  Report  on Form  8-K  dated
                January 28, 1999).

        10.5    Lease  Agreement  between  Garden State Race Track,  Inc. and GS
                Park Racing, L.P. (without Exhibits)  (incorporated by reference
                to Exhibit 10.2 to the  Registrant's  Current Report on Form 8-K
                dated January 28, 1999).

        10.6    Agreement  dated  January 6, 1999 between the Company and Donald
                F.  Conway,  Chapter 11  Trustee  for the  Bankruptcy  Estate of
                Robert E. Brennan (without Exhibits)  (incorporated by reference
                to Exhibit 10.4 to the  Registrant's  Current Report on Form 8-K
                dated January 28, 1999).

        10.7    $5,000,000  Contingent Promissory Note from GS Park Racing, L.P.
                and FR Park  Racing,  L.P. to the  Company,  as Agent for Garden
                State Race Track, Inc.,  Freehold Racing  Association,  Atlantic
                City  Harness,  Inc.  and  Circa  1850,  Inc.  (incorporated  by
                reference to Exhibit 10.6 to the Registrant's  Current Report on
                Form 8-K dated January 28, 1999).

        10.8    $3,000,000  Contingent Promissory Note from GS Park Racing, L.P.
                and FR Park  Racing,  L.P. to the  Company,  as Agent for Garden
                State Race Track, Inc.,  Freehold Racing  Association,  Atlantic
                City  Harness,  Inc.  and  Circa  1850,  Inc.  (incorporated  by
                reference to Exhibit 10.7 to the Registrant's  Current Report on
                Form 8-K dated January 28, 1999).

        10.9    $2,000,000  Contingent Promissory Note from GS Park Racing, L.P.
                and FR Park  Racing,  L.P. to the  Company,  as Agent for Garden
                State Race Track, Inc.,  Freehold Racing  Association,  Atlantic
                City  Harness,  Inc.  and  Circa  1850,  Inc.  (incorporated  by
                reference to Exhibit 10.8 to the Registrants  Current Report on
                Form 8K dated January 28, 1999)

        10.10   Agreement  of  Sale  between   Orion  Casino   Corporation   and
                Turnberry/Las Vegas Boulevard, LLC (incorporated by reference to
                Exhibit  10.1 to the  Registrant's  Current  Report  on Form 8-K
                dated May 22, 2000).




                                       60



      Exhibit
       Number   Description
       ------   -----------

        10.11   Note Purchase  Agreement  Between Orion Casino  Corporation,  as
                Purchaser,  and Turnberry/Las  Vegas Boulevard,  LLC, as Issuer,
                Dated as of March 1, 2000  (incorporated by reference to Exhibit
                10.2 to the  Registrant's  Current  Report on Form 8-K dated May
                22, 2000).

        10.12   $23,000,000.00   Promissory   Note  dated  May  18,  2000,  from
                Turnberry/Las Vegas Boulevard, LLC (the "Maker") to Orion Casino
                Corporation (the "Payee")  (incorporated by reference to Exhibit
                10.3 to the  Registrant's  Current  Report on Form 8-K dated May
                22, 2000).

        10.13   Security  Agreement,  dated  as of May 18,  2000,  by and  among
                Turnberry/Las  Vegas Boulevard,  LLC (the "Joint Venture"),  the
                members of the Joint  Venture  parties to this  Agreement  (said
                members being  collectively  called the  "Pledgers"),  and Orion
                Casino  Corporation,  a  Nevada  corporation  (the  "Purchaser")
                (incorporated  by reference to Exhibit 10.4 to the  Registrant's
                Current Report on Form 8-K dated May 22, 2000).

        10.14   Note Agreement  between GSRT,  LLC, and  Realen-Turnberry/Cherry
                Hill,   LLC,  as  Issuer,   dated  as  of  November   29,  2000.
                (incorporated  by reference to Exhibit 10.1 to the  Registrant's
                Current Report on Form 8-K dated November 30, 2000)

        10.15   $10,000,000.00  Promissory  Note dated  November 29, 2000,  from
                Realen-  Turnberry/Cherry  Hill, LLC to GSRT, LLC. (incorporated
                by reference to Exhibit 10.2 to the Registrant's  Current Report
                on Form 8-K dated November 30, 2000)

        10.16   Security Agreement,  dated as of November 29, 2000, by and among
                Realen-    Turnberry/Cherry   Hill,   LLC,   its   sole   member
                Realen-Turnberry/Cherry   Hill   Associates   and   GSRT,   LLC.
                (incorporated  by reference to Exhibit 10.3 to the  Registrant's
                Current Report on Form 8-K dated November 30, 2000)

        10.17   Bareboat  Charter  dated as of April 30, 2001 between Palm Beach
                Princess. Inc. and MJQ Corporation

        21      Subsidiaries.

---------------------------------------------------------
* Constitutes a management contract or compensation plan.

(b)  Reports on Form 8-K.

     No reports on Form 8-K were filed by the Registrant during the last quarter
     of fiscal year 2001.


                                       61





                                   SIGNATURES


     Pursuant  to the  requirements  of  Section  13 or 15(d) 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,  in Bellmawr,  New
Jersey, this 12th day of October, 2001.

               INTERNATIONAL THOROUGHBRED BREEDERS, INC.


               By:/s/Francis W. Murray
                  ------------------------------------------------------------
                  Francis W. Murray
                  Chairman of the Board, President and Chief Executive Officer

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934,  this report has been signed by the  following  persons on
behalf of the Registrant and in the capacities and on the dates indicated.

     Signature                  Title                           Date
     ---------                  -----                           ----

/s/Francis W. Murray   Chairman of the Board, President   October 12, 2001
--------------------   and Chief Executive Officer
Francis W. Murray      (Principal Executive Officer)



/s/William H. Warner   Chief Financial Officer            October 12, 2001
--------------------   (Principal Financial and
William H. Warner      Accounting Officer)


/s/James J. Murray     Director                           October 12, 2001
--------------------
James J. Murray

/s/Robert J. Quigley   Director                           October 12, 2001
--------------------
Robert J. Quigley

/s/Walter ReDavid      Director                           October 12, 2001
--------------------
Walter ReDavid



                                       62


                                 EXHIBIT INDEX

      Exhibit
       Number   Description
       ------   -----------

        3.1     Certificate  of  Incorporation,   as  amended  (incorporated  by
                reference  to  Exhibit  3(a)  to the  Registrant's  Registration
                Statement  on Form S-1,  File No.  2-70153,  filed  December  5,
                1980).


        3.2     Amendment to the Certificate of  Incorporation  (incorporated by
                reference  to  Exhibit  3(a)(11)  to  Amendment  No.  3  to  the
                Registrant's  Registration  Statement  on  Form  S-1,  File  No.
                2-70153).

        3.3     Amended and Restated By-Laws of the Registrant  (incorporated by
                reference to Exhibit 3.3 to the  Registrant's  Annual  Report on
                Form 10-K for the fiscal year ended June 30, 1997).

        4.1     Warrant No. 1 dated May 23, 1997 to purchase  546,847  shares of
                the  Registrant's  Common  Stock  (incorporated  by reference to
                Exhibit  10.2 to the  Registrant's  Current  Report  on Form 8-K
                dated May 23, 1997).

        4.2     Warrant No. 2 dated May 23, 1997 to purchase  497,153  shares of
                the  Registrant's  Common  Stock  (incorporated  by reference to
                Exhibit  10.3 to the  Registrant's  Current  Report  on Form 8-K
                dated May 23, 1997).

        10.1    Asset  Purchase  Agreement  dated as of July 2, 1998 by, between
                and among Greenwood New Jersey,  Inc.,  Garden State Race Track,
                Inc., Freehold Raceway Association, Atlantic City Harness, Inc.,
                Circa  1850  and  International   Thoroughbred  Breeders,   Inc.
                together  with  exhibits  thereto(incorporated  by  reference to
                Exhibit 10.2 on Form 8-K dated July 2, 1998).

        10.2    Registration  Rights  Agreement dated as of May 23, 1997 between
                the  Registrant and CSFB  (incorporated  by reference to Exhibit
                10.4 to the  Registrant's  Current  Report on Form 8-K dated May
                23, 1997).

        10.3*   Employment  Agreement by and between the  Registrant and Francis
                W. Murray dated as of December 1, 2000

        10.4    First Amendment to Asset Purchase  Agreement dated as of January
                28,  1999 among the  Company,  Garden  State Race  Track,  Inc.,
                Freehold Racing Association,  Atlantic City Harness, Inc., Circa
                1850, Inc., Greenwood New Jersey, Inc. and Penn National Gaming,
                Inc.  (without  Exhibits)  (incorporated by reference to Exhibit
                10.1  to the  Registrant's  Current  Report  on Form  8-K  dated
                January 28, 1999).

        10.5    Lease  Agreement  between  Garden State Race Track,  Inc. and GS
                Park Racing, L.P. (without Exhibits)  (incorporated by reference
                to Exhibit 10.2 to the  Registrant's  Current Report on Form 8-K
                dated January 28, 1999).

                                       63


                                 EXHIBIT INDEX

        10.6    Agreement  dated  January 6, 1999 between the Company and Donald
                F.  Conway,  Chapter 11  Trustee  for the  Bankruptcy  Estate of
                Robert E. Brennan (without Exhibits)  (incorporated by reference
                to Exhibit 10.4 to the  Registrant's  Current Report on Form 8-K
                dated January 28, 1999).

        10.7    $5,000,000  Contingent Promissory Note from GS Park Racing, L.P.
                and FR Park  Racing,  L.P. to the  Company,  as Agent for Garden
                State Race Track, Inc.,  Freehold Racing  Association,  Atlantic
                City  Harness,  Inc.  and  Circa  1850,  Inc.  (incorporated  by
                reference to Exhibit 10.6 to the Registrant's  Current Report on
                Form 8-K dated January 28, 1999).

        10.8    $3,000,000  Contingent Promissory Note from GS Park Racing, L.P.
                and FR Park  Racing,  L.P. to the  Company,  as Agent for Garden
                State Race Track, Inc.,  Freehold Racing  Association,  Atlantic
                City  Harness,  Inc.  and  Circa  1850,  Inc.  (incorporated  by
                reference to Exhibit 10.7 to the Registrant's  Current Report on
                Form 8-K dated January 28, 1999).

        10.9    $2,000,000  Contingent Promissory Note from GS Park Racing, L.P.
                and FR Park  Racing,  L.P. to the  Company,  as Agent for Garden
                State Race Track, Inc.,  Freehold Racing  Association,  Atlantic
                City  Harness,  Inc.  and  Circa  1850,  Inc.  (incorporated  by
                reference to Exhibit 10.8 to the Registrants  Current Report on
                Form 8K dated January 28, 1999)

        10.10   Agreement  of  Sale  between   Orion  Casino   Corporation   and
                Turnberry/Las Vegas Boulevard, LLC (incorporated by reference to
                Exhibit  10.1 to the  Registrant's  Current  Report  on Form 8-K
                dated May 22, 2000).

        10.11   Note Purchase  Agreement  Between Orion Casino  Corporation,  as
                Purchaser,  and Turnberry/Las  Vegas Boulevard,  LLC, as Issuer,
                Dated as of March 1, 2000  (incorporated by reference to Exhibit
                10.2 to the  Registrant's  Current  Report on Form 8-K dated May
                22, 2000).

        10.12   $23,000,000.00   Promissory   Note  dated  May  18,  2000,  from
                Turnberry/Las Vegas Boulevard, LLC (the "Maker") to Orion Casino
                Corporation (the "Payee")  (incorporated by reference to Exhibit
                10.3 to the  Registrant's  Current  Report on Form 8-K dated May
                22, 2000).

        10.13   Security  Agreement,  dated  as of May 18,  2000,  by and  among
                Turnberry/Las  Vegas Boulevard,  LLC (the "Joint Venture"),  the
                members of the Joint  Venture  parties to this  Agreement  (said
                members being  collectively  called the  "Pledgers"),  and Orion
                Casino  Corporation,  a  Nevada  corporation  (the  "Purchaser")
                (incorporated  by reference to Exhibit 10.4 to the  Registrant's
                Current Report on Form 8-K dated May 22, 2000).

        10.14   Note Agreement  between GSRT,  LLC, and  Realen-Turnberry/Cherry
                Hill,   LLC,  as  Issuer,   dated  as  of  November   29,  2000.
                (incorporated  by reference to Exhibit 10.1 to the  Registrant's
                Current Report on Form 8-K dated November 30, 2000)

                                       64


                                  EXHIBIT INDEX

        10.15   $10,000,000.00  Promissory  Note dated  November 29, 2000,  from
                Realen-  Turnberry/Cherry  Hill, LLC to GSRT, LLC. (incorporated
                by reference to Exhibit 10.2 to the Registrant's  Current Report
                on Form 8-K dated November 30, 2000)

        10.16   Security Agreement,  dated as of November 29, 2000, by and among
                Realen-    Turnberry/Cherry   Hill,   LLC,   its   sole   member
                Realen-Turnberry/Cherry   Hill   Associates   and   GSRT,   LLC.
                (incorporated  by reference to Exhibit 10.3 to the  Registrant's
                Current Report on Form 8-K dated November 30, 2000)

        10.17   Bareboat  Charter  dated as of April 30, 2001 between Palm Beach
                Princess. Inc. and MJQ Corporation

        21      Subsidiaries.

---------------------------------------------------------
* Constitutes a management contract or compensation plan.

                                       65




                                                                    Exhibit 10.3
EMPLOYMENT

                                    AGREEMENT

     THIS  EMPLOYMENT  AGREEMENT  (the  "Agreement")  made  as of the 1st day of
December,  2000, by and between  International  Thoroughbred  Breeders,  Inc., a
Delaware corporation (the "Company") and Francis W. Murray ("Executive").

                                   BACKGROUND

     A. The Company  believes  that it would  benefit  from the  application  of
Executive's  particular  and unique  skill,  experience  and  background  to the
management and operation of the Company,  and wishes to employ  Executive on the
terms and conditions hereinafter set forth; and

     B. The  parties  desire  to set  forth  the  terms  and  conditions  of the
employment relationship between the Company and Executive.

     NOW, THEREFORE,  in consideration of the foregoing and the mutual covenants
in this  Agreement,  the Company and  Executive,  intending to be legally bound,
hereby agree as follows:

     1. Employment and Duties. The Company hereby employs Executive as its Chief
Executive  Officer and  President on the terms and  conditions  provided in this
Agreement and Executive  agrees to accept such  employment  subject to the terms
and  conditions  of this  Agreement.  Executive  shall  perform  the  duties and
responsibilities  reasonably  determined  from  time  to time  by the  Board  of
Directors of the Company (the "Board")  consistent  with the types of duties and
responsibilities  typically performed by a person serving in the same capacities
for  businesses  similar  to the  Company.  Executive  agrees to devote his best
efforts and his full business time,  attention,  energy, and skill to performing
the duties of Chief Executive Officer and President; provided, however, that the
foregoing  shall not preclude  Executive  from engaging in charitable  and civil
affairs and provided  further that the  foregoing  shall not preclude  Executive
from  pursuing  personal  business  opportunities  so long as the  latter do not
interfere with his performance of the material  responsibilities  of his office.
The Company shall exercise its best efforts to cause  Executive to be elected as
a  director  of the  Company  and  to  nominate  Executive  as a  member  of the
management  slate of  candidates  for  election as  director at each  meeting of
stockholders  during the term of his employment  hereunder.  Executive agrees to
serve as a director  so long as he is duly  elected by the  stockholders  of the
Company and employed by the Company.

     2.  Term.  The term of this  Agreement  shall be for  five (5)  years  (the
"Initial Term"),  commencing as of the date hereof (the "Effective  Date"),  and
expiring on the fifth  anniversary  of the Effective  Date,  unless  extended by
mutual  agreement of the parties or earlier  terminated in  accordance  with the
terms of this Agreement.

     3.  Compensation.  As compensation for performing the services  required by
this Agreement for the Company and during the term of this Agreement,  Executive
shall be compensated as follows:

          (a) Base Salary.  Company shall pay to Executive a minimum base salary
     of Three hundred ninety-five  thousand dollars  ($395,000.00) for each year
     of the term of this Agreement,  payable in substantially equal installments
     pursuant to the Company's  customary  payroll  procedures in effect for its
     executive personnel at the time of payment,  and subject to withholding for
     applicable  federal,  state,  and local taxes and all other items,  if any,
     required  to be  withheld.  Executive's  annual base salary may be reviewed
     from  time to time  during  the  term of this  Agreement  by the  Board  to
     determine  whether,  in its sole  discretion,  such base  salary  should be
     increased.

          (b) Discretionary  Bonus. In addition to all other  compensation under
     this Agreement,  Executive shall be entitled to any bonus compensation that
     the Board in its sole  discretion  may decide to pay to Executive to reward
     the  Executive  for  exceptional  performance.  Pursuant  to the  Company's
     applicable bonus plan as may be in effect from time to time, such bonus may
     be  determined  according  to criteria  intended to qualify  under  Section
     162(m) of the Internal Revenue Code, as amended (the "Code").

     4. Options.  Within 90 days after the date hereof,  the Company shall grant
to Executive options (the "Options") to purchase two million  (2,000,000) shares
of common stock of the Company ("Common Shares"), with tandem stock appreciation
rights. In connection therewith,  the Company shall exercise its best efforts to
adopt a stock  option  plan which  shall  provide  for stock  options  and stock
appreciation  rights (the  "Plan"),  and to cause such Plan to be submitted to a
vote  of the  Company's  stockholders  entitled  to vote  at a  meeting  of such
stockholders  to be held within one year after the date the Plan shall have been
adopted by the Company's Board of Directors.  Options granted to Executive which
are  designated by the Board under the Plan as incentive  stock options  ("ISO")
shall have an exercise  price per share equal to one hundred ten percent  (110%)
of the fair market value of a Common Share on the date of grant. The fair market
value of a Common Share will be determined  as provided in the Plan.  Any of the
Options  which are not  designated  ISO shall have an  exercise  price per share
equal to the fair market value, as determined  pursuant to the Plan, of a Common
Share as of the date of grant.  If the Board of  Directors  of the Company  does
not,  for any  reason,  adopt a Plan within 90 days after the date  hereof,  the
Company  shall  proceed  to issue  the  Options  hereunder,  which  shall not be
incentive stock options within the meaning of the Code, at an exercise price per
share equal to the fair market value of a common  share,  as  determined in good
faith by the Board of Directors  as of the 90th day after the date  hereof.  The
Options shall be subject to the following  terms and, if granted under the Plan,
the terms of the Plan,  and the terms of the Plan shall control in the case of a
conflict between such terms and any of the following terms:

          (a) The Options shall become  exercisable  for one-third of the shares
     purchasable  thereunder in three installments,  cumulatively,  so that upon
     grant,  they shall be  exercisable  for  one-third of the Common  Shares to
     which the Options  apply,  after one year from the date of grant they shall
     be exercisable  for 66-2/3% of the Common Shares covered  thereby and after
     two years from the date of the grant they shall be fully exercisable;

          (b) The Options, to the extent not previously  exercised,  shall lapse
     10 years from the date of grant;

          (c) Tandem stock  appreciation  rights shall apply in conjunction with
     the Options,  so that Executive shall have the right to surrender an Option
     to the Company, in whole or in part, and to receive in exchange therefor an
     amount  equal to the excess of the fair market  value of the Common  Shares
     subject to such Option, or portion thereof,  so surrendered  (determined as
     of the date the stock  appreciation  right is exercised)  over the exercise
     price to acquire such Common Shares,  payable in cash or, in the discretion
     of the  Company,  in Common  Shares or any  combination  of cash and Common
     Shares;

          (d) Except as may be permitted by the Plan,  the Options  shall not be
     transferrable  except  on  death,  by  will  or the  laws  of  descent  and
     distribution;

          (e) In the event of  termination  of  employment of  Executive(i)  the
     Options  will become  fully  vested  (exercisable  for the total  number of
     Common Shares covered thereby) if such termination  resulted from his death
     or disability,  and  otherwise,  the Options shall lapse to the extent they
     have not vested prior to such  termination  of  employment,  and(ii) to the
     extent they are (or so become)  vested,  the Options shall remain in effect
     for the  balance of their  10-year  term or such  shorter  period as may be
     required by applicable provisions of the Plan; and

          (f) The  number  of  shares  purchasable  under  the  Options  and the
     exercise  price per Common Share shall be adjusted  proportionately  in the
     event  of  any  stock  split,  stock  dividend,   reverse  split  or  other
     combination of shares, and in the event the outstanding Common Shares shall
     be changed  into or exchanged  for a different  number or kind of shares of
     stock or other securities of the Company or of another corporation, whether
     through   reorganization,   recapitalization,   merger,   consolidation  or
     otherwise,  there shall be substituted for each Common Share subject to the
     Options  the  number and kind of shares of stock or other  securities  into
     which each outstanding Common Share shall have been so changed or for which
     each such Common Share shall have been exchanged.

     5. Employee  Benefits.  During the term of this Agreement,  Executive shall
have  the  right  to  participate  in  any  retirement   plans   (qualified  and
nonqualified),  401-K plan,  pension,  profit sharing,  stock bonus,  insurance,
health,  medical,  disability or other  benefit plan or program  (other than any
stock option plan except as described in Paragraph 4 hereof) that has been or is
hereafter  adopted  by the  Company  (or in  which  the  Company  participates),
according  to the terms of such plan or  program,  on terms  similar to the most
senior  executives  of the  Company.  Company  agrees  that  Executive  shall be
eligible to participate in all insurance  programs on the Effective Date without
regard to any waiting period.

     6. Vacation. Executive shall be entitled to not less than four (4) weeks of
paid vacation in each year during the term of this  Agreement,  beginning on the
Effective  Date of this  Agreement.  Any  vacation  days that are not taken in a
given twelve (12) month period shall accrue and carry over from year to year.

     7. Expenses.  The Company will provide Executive with a monthly  automobile
expense  allowance of Fifteen  Hundred Dollars  ($1,500)  throughout the term of
this Agreement. In addition, the Company will pay the Executive's annual dues at
a country  club  and/or  golf  club of  Executive's  choice.  The  Company  will
reimburse  Executive for all travel,  entertainment  and other business expenses
reasonably  incurred  by him in  performing  services  for  the  benefit  of the
Company,  subject to  submission  of receipts or other  supporting  documents in
accordance with applicable Company policy.

     8. Protection of Company's Interests.

          (a)  During  the  term  of  Executive's  employment  by  the  Company,
     Executive will not compete in any manner,  directly or indirectly,  whether
     as a principal,  employee,  consultant, agent, owner or otherwise, with the
     Company or any  subsidiary  thereof,  except  that the  foregoing  will not
     prevent Executive from (i) continuing to own or to engage or participate in
     any  business  which he owned or in which he was  engaged  or  participated
     before the Company or its  subsidiary  began or acquired  such  business or
     (ii) holding at any time less than 5% of the  outstanding  capital stock of
     any company whose stock is publicly traded.

          (b) To the extent  permitted by law, all rights worldwide with respect
     to any and all  intellectual  property of any nature  produced,  created or
     suggested by Executive  during the term of his employment or resulting from
     his  services  shall be  deemed to be a work made for hire and shall be the
     sole and exclusive  property of the Company.  Executive  agrees to execute,
     acknowledge  and deliver to the Company,  at the  Company's  request,  such
     further  documents  as  the  Company  finds  appropriate  to  evidence  the
     Company's  rights in such property.  Any  confidential  and/or  proprietary
     information of the Company or any subsidiary  thereof  (including,  without
     limitation,  any  information  relating  to the  identities,  capabilities,
     compensatory and contractual  arrangements and/or general personnel data of
     employees  of the  Company  and its  subsidiaries  to which  Executive  has
     access)  shall not be used by Executive  or disclosed or made  available by
     Executive to any person except as required in the course of his employment.
     After expiration or earlier termination of the term of this Agreement, upon
     request of the  Company,  Executive  shall  return to the  Company all such
     information  that exists in written or other  physical form (and all copies
     thereof)  under his  control.  The  provision  of this  Section  8(b) shall
     survive the expiration or earlier termination of this Agreement.

          (c) Executive recognizes that his services hereunder are of a special,
     unique,  unusual,  extraordinary  and intellectual  character giving them a
     peculiar  value,  the loss of which  cannot  be  reasonably  or  adequately
     compensated for in damages,  and in the event of a breach of this Agreement
     by  him  (particularly,   but  without  limitation,  with  respect  to  the
     provisions  thereof  relating to the  exclusivity  of his  services and the
     provisions  of Section 8 hereof),  the  Company  shall,  in addition to all
     other remedies  available to it, be entitled to equitable  relief by way of
     injunction and any other legal or equitable remedies.

     9. Termination of Employment.  Notwithstanding  any other provision of this
Agreement, Executive's employment may be terminated as set forth below:

          (a) Death or Disability. Executive's employment shall terminate in the
     event of Executive's  death or upon notice from the Company to Executive in
     the event an illness or other disability causes Executive to be totally and
     permanently  incapacitated  and unable to perform his duties  hereunder for
     six  consecutive  months  as  determined  in good  faith  by the  Board  of
     Directors of the Company;

          (b)  Resignation  for Good  Reason.  Executive  may  resign  for "Good
     Reason,"  defined  below,  upon 30 days' written notice by Executive to the
     Company.  The Company may waive Executive's  obligation to work during this
     thirty (30) day notice period and terminate his employment immediately, but
     if the Company takes this action Executive shall be entitled to receive the
     payments provided for in Paragraph 10(a) of this Agreement. For purposes of
     this  Agreement,  "Good  Reason" shall mean:  (i) a  substantial  change in
     Executive's  duties and  responsibilities,  which change  would  materially
     reduce Executive's stature, importance and dignity within the Company; (ii)
     the appointment of an executive  officer superior in rank to Executive;  or
     (iii) the failure of the Board to nominate  Executive for  re-election as a
     director.

          (c)  Resignation  Without  Good  Reason.   Notwithstanding  any  other
     provision  of this  Agreement,  Executive  may resign for any or no reason,
     upon ninety (90) days'  written  notice by Executive  to the  Company.  The
     Company may waive  Executive's  obligation  to work during this ninety (90)
     day notice  period and  terminate his  employment  immediately,  but if the
     Company  takes  this  action in the  absence  of  agreement  by  Executive,
     Executive  shall  receive the base  salary  which  would  otherwise  be due
     through the end of the notice period.

          (d) Resignation  Upon A Change of Control.  Notwithstanding  any other
     provision of this Agreement,  Executive may resign upon a Change of Control
     (as defined below), at any time within twelve (12) months of such Change of
     Control, upon thirty (30) days' written notice by Executive to the Company.
     The Company  may waive  Executive's  obligation  to work during this thirty
     (30) day notice period and terminate his employment immediately, but if the
     Company  takes this  action  Executive  shall  nevertheless  be entitled to
     receive the payments provided for in the second sentence of Paragraph 10(b)
     of this Agreement.

          (e)  Discharge for Cause.  The Company may discharge  Executive at any
     time for "Cause," which shall consist solely of Executive's being convicted
     of a felony or Executive's gross negligence or willful misconduct  relating
     the  operation of the  Company's  affairs.  The term  "willful  misconduct"
     consists  solely of (i) the  Executive's  refusal  or  willful  failure  to
     perform his employment duties and responsibilities,  other than for reasons
     of sickness, accident or other similar causes beyond Executive's control or
     (ii)  the  Executive's  commission  of a  intentionally  dishonest  act  or
     intentional  wrongdoing  against the  Company,  its agents or  employees or
     otherwise in  connection  with his  employment  by the  Company;  provided,
     however,  the Company  shall not have the right to discharge  Executive for
     Cause under clause (i) of this paragraph unless the Company gives Executive
     written  notice of the grounds of  discharge  and provides  Executive  with
     thirty (30) days to cure the grounds for Cause.

          (f) Discharge  Without Cause.  Notwithstanding  any other provision of
     this Agreement,  Executive's employment may be terminated by the Company at
     any  time  without  Cause.  However,  upon  any  discharge  without  Cause,
     Executive  shall have,  at minimum,  the right to receive  compensation  as
     provided in Paragraph 10(a) or 10(b) of this Agreement, as applicable.

          (g) Definitions of Certain Terms. For purposes of this Agreement,  the
     following definitions shall apply:

               (i)  "Beneficial  Owner,"  "Beneficially  Owns," and  "Beneficial
          Ownership" shall have the meanings ascribed to such terms for purposes
          of Section  13(d) of the  Securities  Exchange Act of 1934, as amended
          (the  "Exchange  Act")  and the rules  thereunder,  except  that,  for
          purposes of this Paragraph 9, "Beneficial  Ownership" (and the related
          terms) shall include Voting  Securities that a Person has the right to
          acquire  pursuant to any  agreement,  or upon  exercise of  conversion
          rights, warrants, options or otherwise, regardless of whether any such
          right is exercisable within 60 days of the date as of which Beneficial
          Ownership is to be determined.

               (ii)  "Change  of  Control"  means  and  shall be  deemed to have
          occurred if

                    (A) any Person,  other than the Company or a Related  Party,
               acquires  directly or indirectly the Beneficial  Ownership of any
               Voting  Security  of  the  Company  and  immediately  after  such
               acquisition  such  Person  has,   directly  or  indirectly,   the
               Beneficial  Ownership of Voting  Securities  representing  25% or
               more of the total voting power of all the then-outstanding Voting
               Securities, or

                    (B)  those   individuals   who  as  of  the  Effective  Date
               constitute  the Board or who  thereafter are elected to the Board
               and whose election,  or nomination for election, to the Board was
               approved by a vote of at least  two-thirds (2/3) of the directors
               then  still  in  office  who  either  were  directors  as of  the
               Effective  Date or whose  election or nomination for election was
               previously  so  approved,  cease for any reason to  constitute  a
               majority of the members of the Board; or

                    (C)  the  shareholders  of the  Company  approve  a  merger,
               consolidation, recapitalization or reorganization of the Company,
               a reverse stock split of  outstanding  Voting  Securities,  or an
               acquisition   of   securities   or  assets  by  the   Company  (a
               "Transaction"),   or   consummation  of  such  a  Transaction  if
               shareholder  approval is not  obtained,  other than a Transaction
               which would result in the holders of Voting  Securities having at
               least 80% of the total  voting  power  represented  by the Voting
               Securities  outstanding  immediately prior thereto  continuing to
               hold Voting  Securities  or voting  securities  of the  surviving
               entity having at least 60% of the total voting power  represented
               by  the  Voting  Securities  or the  voting  securities  of  such
               surviving entity  outstanding  immediately after such Transaction
               and in or as a result of which the voting  rights of each  Voting
               Security  relative  to the  voting  rights  of all  other  Voting
               Securities  are not  altered;  provided,  however,  a  Change  of
               Control  shall not be deemed to have  occurred if the Board shall
               have  determined  in good  faith,  by action  taken  prior to the
               approval of the  Transaction by  shareholders  or consummation of
               the  Transaction  if shareholder  approval is not obtained,  that
               such  Transaction  shall not  constitute  a Change of Control for
               purposes of this Agreement and options then outstanding under the
               Plan, which determination, if made with respect to a Transaction,
               shall not be deemed to constitute a determination with respect to
               any subsequent Transaction; or

                    (D)  the  shareholders  of the  Company  approve  a plan  of
               complete  liquidation of the Company or an agreement for the sale
               or disposition by the Company of all or substantially  all of the
               Company's  assets  other than any such  transaction  which  would
               result in Related  Parties  owning or acquiring  more than 50% of
               the  assets  owned  by  the  Company  immediately  prior  to  the
               transaction.

               (iii)  "Person"  shall have the meaning  ascribed for purposes of
          Section 13(d) of the Exchange Act and the rules thereunder.

               (iv) "Related Party" means (A) a majority-owned subsidiary of the
          Company;  or (B) a trustee or other fiduciary holding securities under
          an  employee  benefit  plan  of  the  Company  or  any  majority-owned
          subsidiary  of the Company;  or (C) a  corporation  owned  directly or
          indirectly by the  shareholders  of the Company in  substantially  the
          same  proportion as their ownership of Voting  Securities;  or (D) if,
          prior to any  acquisition  of a Voting  Security which would result in
          any Person  Beneficially Owning more than 10% of any outstanding class
          of Voting  Security  and which  would be  required to be reported on a
          Schedule 13D or an amendment  thereto,  the Board approved the initial
          transaction  giving  rise to an increase in  Beneficial  ownership  in
          excess  of 10%  and  any  subsequent  transaction  giving  rise to any
          further increase in Beneficial Ownership; provided, however, that such
          Person  has  not,  prior  to  obtaining  Board  approval  of any  such
          transaction, publicly announced an intention to take actions which, if
          consummated or successful (at a time such Person has not been deemed a
          "Related Party"), would constitute a Change of Control.

               (v) "Voting Securities" means any securities of the Company which
          carry the right to vote generally in the election of directors.

     10. Payments Upon Termination.

          (a) Discharge  Without Cause or Resignation for Good Reason or Because
     of Change in Control.  If Executive is discharged without Cause (other than
     death or  permanent  and total  disability)  or resigns  for Good Reason or
     because of a Change in Control, or this Agreement expires at the end of the
     Initial Term or any renewal term without extension pursuant to Paragraph 2,
     Executive  shall  receive an amount  equal to 2.99 times his "base  amount"
     within the meaning of Section  280G(b)(3)  of the Internal  Revenue Code of
     1986,  as amended  (the  "Code") or the  balance of his base salary for the
     remaining  term of this  Agreement,  whichever  is the  lesser  amount.  In
     addition,   during   the   period   in   which   Executive   receives   any
     post-termination  compensation,  the  Company  will  pay  the  premiums  in
     connection with Executive's continued  participation in the Company's group
     health plans  pursuant to COBRA,  subject to such plans' terms,  conditions
     and restrictions.

          (b) Death or Disability/Incapacity. On death, Executor's estate's sole
     entitlement will be to receive his salary through the date of death and any
     amounts  payable on account of  Executive's  death under any  insurance  or
     benefit  plans or  policies  maintained  by the  Company,  plus any  vested
     Options.  On termination for permanent and total disability under Paragraph
     9(a) or as a result  of  Executive's  resignation  following  a  Change  in
     Control pursuant to Paragraph 9(d), Executive's sole entitlement will be to
     (i) a  continuation  of his base salary for a period of one (1) year,  plus
     (ii) any amounts payable on account of Executive's disability or incapacity
     under any insurance or benefit plans or policies maintained by the Company,
     plus (C) any vested Options.

          (c)  Discharge  for  Cause or  Resignation  without  Good  Reason.  If
     Executive is discharged for Cause or Executive resigns without Good Reason,
     Executive's  sole  entitlement  will be the  receipt of base salary for any
     days worked through the date of termination plus any vested Options.

     11.  Company  Property.  All  advertising,  sales  and other  materials  or
articles or information,  including without limitation data processing  reports,
customer  sales or sourcing  analyses,  invoices,  price  lists or  information,
samples,  or any other  materials or data of any kind  furnished to Executive by
the  Company  or  developed  by  Executive  on behalf of the  Company  or at the
Company's  direction or for the Company's  use or otherwise in  connection  with
Executive's  employment  with the  Company,  are and shall  remain  the sole and
confidential  property of the  Company,  and shall not be used or  disclosed  by
Executive  except as  required in the course of his  employment.  If the Company
requests  the  return of such  materials  at any time  during or at or after the
termination of Executive's  employment,  Executive shall immediately deliver the
same to the Company.

     12. Prohibited Public Statements.  Executive shall not, either during or at
any time after the  termination  of his  employment,  make any public  statement
(including  a  private  statement  reasonably  likely to be  repeated  publicly)
reflecting adversely on the Company and its business prospects,  except for such
statements which during Executive's employment he may be required to make in the
ordinary course of his service as Chief Executive Officer.

     13. Taxes.

          (a) All payments to be made to Executive  under this Agreement will be
     subject to  required  withholding  of federal,  state and local  income and
     employment taxes and any other items required to be withheld therefrom.

          (b) Notwithstanding  any other provision of this Agreement,  if any of
     the  payments  provided  for in this  Agreement,  together  with any  other
     payments  which  Executive has the right to receive from the Company or any
     corporation  which is a member of an  "affiliated  group"  (as  defined  in
     Section  1504(a) of the Code without regard to Section 1504(b) of the Code)
     of which the Company is a member,  would  constitute a "parachute  payment"
     (as defined in Section  280G(b)(2) of the Code),  payments pursuant to this
     Agreement  shall be  reduced  to the  largest  amount as will  result in no
     portion of such payments being subject to the excise tax imposed by Section
     4999 of the Code and the  determination  of which such  payments  are to be
     reduced shall be made by the Company in its sole discretion.

     14.   Post-Termination   Obligations.   After  the  expiration  or  earlier
termination  of  Executive's  employment  hereunder  for any reason  whatsoever,
Executive shall not either alone or jointly with or on behalf of others,  either
directly or  indirectly,  whether as  principal,  partner,  agent,  shareholder,
director, employee,  consultant or otherwise, at any time during a period of two
years following such expiration or termination, solicit in any manner whatsoever
the  employment  or  engagement  of, either for his own account or for any other
person, firm, company or other entity, any person who is employed by the Company
or any  subsidiary  of the Company,  whether or not such person would commit any
breach of his contract of employment by reason of his leaving the service of the
Company or any subsidiary of the Company.

     15. Miscellaneous.

          (a)  Integration;  Amendment.  This Agreement  constitutes  the entire
     agreement  between the parties hereto with respect to the matters set forth
     herein  and  supersedes  and  renders  of no force  and  effect  all  prior
     understandings  and  agreements  between  the parties  with  respect to the
     matters set forth  herein.  No  amendments,  waivers or  additions  to this
     Agreement shall be binding unless in writing and signed by both parties.

          (b)  Assignment.  Executive  shall  not,  without  the  consent of the
     Company,  assign or transfer  this  Agreement or any rights or  obligations
     hereunder.  The Company may assign this Agreement or all or any part of its
     rights hereunder to any entity that succeeds to all or substantially all of
     the  Company's  assets  or  that  owns,  directly  or  indirectly,  all  or
     substantially  all of the  outstanding  voting stock of the  Company.  This
     Agreement and all of the provisions  herein shall be binding upon and inure
     to the  benefit  of, the  parties  hereto and their  successors  (including
     successors by merger,  consolidation  or similar  transactions),  permitted
     assigns, personal representatives, heirs, executors and administrators.

          (c)  Severability.  If any  part of this  Agreement  is  contrary  to,
     prohibited by, or deemed invalid under applicable law or regulations,  such
     provision  shall be  inapplicable  and  deemed  omitted  to the  extent  so
     contrary, prohibited, or invalid, but the remainder of this Agreement shall
     not be invalid and shall be given full force and effect so far as possible.

          (d) Waivers.  The failure or delay of any party at any time to require
     performance by the other party of any provision of this Agreement,  even if
     known,  shall not affect the right of such party to require  performance of
     that provision or to exercise any right,  power, or remedy  hereunder,  and
     any waiver by any party of any breach of any  provision  of this  Agreement
     shall not be construed as a waiver of any  continuing or succeeding  breach
     of such  provision,  a waiver of the provision  itself,  or a waiver of any
     right, power, or remedy under this Agreement. No notice to or demand on any
     party in any case  shall,  of  itself,  entitle  such party to any other or
     further notice or demand in similar or other circumstances.

          (e) Power and Authority.

               (i) The Company  represents and warrants to Executive that it has
          the requisite power to enter into this Agreement and perform the terms
          hereof;  and that the  execution,  delivery  and  performance  of this
          Agreement by it has been duly  authorized by all  appropriate  action;
          and this Agreement represents the valid and legally binding obligation
          of the Company and is  enforceable  against it in accordance  with its
          terms.

               (ii) Executive represents and warrants to the Company that he has
          full  power to enter  into  this  Agreement  and  perform  his  duties
          hereunder;  that the execution and delivery of this  Agreement and the
          performance of his duties  hereunder  shall not result in a breach of,
          or constitute a default under, any agreement or understanding, oral or
          written,  to which he is a party or by which he may be bound; and this
          Agreement  represents  the valid and  legally  binding  obligation  of
          Executive and is enforceable against him in accordance with its terms.

          (f) Burden and Benefit; Survival. This Agreement shall be binding upon
     and inure to the benefit of the parties hereto and their respective  heirs,
     executors,  personal and legal representatives,  successors and, subject to
     Paragraph  15(b) above,  assigns.  In addition to, and not in limitation of
     anything contained in this Agreement, it is expressly understood and agreed
     that the Company's  obligation to pay  termination  compensation  set forth
     herein and the  provisions  of  Paragraphs  11 through  13, 14 and 15 shall
     survive any termination of this Agreement.

          (g) Governing  Law;  Headings.  This  Agreement and its  construction,
     performance,  and  enforceability  shall be governed  by, and  construed in
     accordance  with,  the laws of the State of  Delaware.  Headings and titles
     herein are included solely for convenience and shall not affect, or be used
     in connection with, the interpretation of this Agreement.

          (h) Notices.  All notices called for under this Agreement  shall be in
     writing and shall be deemed given upon receipt if delivered  personally  or
     by  facsimile  transmission  and  followed  promptly by mail,  or mailed by
     registered or certified mail (return receipt  requested),  postage prepaid,
     to the parties at the  following  addresses (or at such other address for a
     party as shall be  specified  by like  notice;  provided  that notices of a
     change of address shall be effective only upon receipt thereof):

                                       If to Executive:

                                       Francis W. Murray
                                       1293 Farm Road
                                       Berwyn, PA 19312

                                       with a copy to:

                                       David Petkun, Esquire
                                       Cozen and O'Connor
                                       1900 Market Street
                                       Philadelphia, PA  19103

                                       If to the Company:

                                       International Thoroughbred Breeders, Inc.
                                       Garden State Park
                                       Route 70 and Haddonfield Road
                                       Cherry Hill, NJ 08032
                                       Attention:  Treasurer

     or to any other  address  or  addressee  as any party  entitled  to receive
     notice under this  Agreement  shall  designate,  from time to time,  to the
     other in the manner  provided  in this  Paragraph  15(h) for the service of
     notices.  Any notice  delivered to the party hereto to whom it is addressed
     shall be deemed to have been given and received on the day it was received;
     provided,  however,  that if such day is not a business day then the notice
     shall be deemed to have been given and  received on the  business  day next
     following such day.

          (i)  Counterparts.  This  Agreement  may be  executed  in one or  more
     counterparts and by facsimile, each of which counterparts and/or facsimiles
     shall be deemed to be an original, and all such counterparts and facsimiles
     shall constitute one and the same instrument.

          (j)  Expenses.  The Company  agrees to pay all legal fees and expenses
     which  Executive   incurs  in  connection  with  the  negotiation  of  this
     Agreement.

          (k) Inconsistent  Documents.  If any provision of this Agreement would
     conflict with any policy,  procedure,  manual,  program,  practice or other
     Company  document  (collectively  "Plan")  which would  otherwise  apply to
     Executive   (including,   without   limitation,   the   provisions  of  any
     compensation,  bonus, option or severance Plan) then the provisions of this
     Agreement shall apply and shall supersede any such Plan.

          (l) No  Continuing  Contract.  This  Agreement  does not  constitute a
     commitment of the Company with regard to Executive's employment, express or
     implied,  other than to the extent  expressly  provided  for  herein.  Upon
     expiration of the term hereof, it is the contemplation of both parties that
     Executive's  employment  with the Company  shall cease unless an employment
     agreement with respect to a subsequent period shall have been entered into,
     and that neither the Company nor Executive shall have any obligation to the
     other with respect to continued  employment.  In the event that Executive's
     employment continues for any period of time following the expiration of the
     stated  term,  unless  and  until  agreed  to in a new  subscribed  written
     document, such employment or any continuation thereof is "at will," and may
     be  terminated  without  obligation  at any time by either  party's  giving
     notice to the other.

     IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date first above written.

                                       INTERNATIONAL THOROUGHBRED
                                              BREEDERS, INC.

                                       By: /s/ William H. Warner

                                               William H. Warner

                                          /s/  Francis W. Murray

                                               Francis W. Murray


                                                                  EXHIBIT 10.17

                  THE BALTIC AND INTERNATIONAL MARITIME COUNCIL
                                     (BIMCO)
                            STANDARD BAREBOAT CHARTER
                             CODE NAME: "BARECON A"

                                     PART I

1.       Shipbroker

         None

2.       Place and date

         Riviera Beach, Florida; April 30, 2001

3.       Owners/Place of business

         MJQ Corporation
         777 East Port Road
         Riviera Beach, Florida 33404

4.       Bareboat charterers (Charterers)/Place of business

         Palm Beach Princess, Inc
         777 East Port Road
         Riviera Beach, Florida 33404

5.       Vessel's name

         Palm Beach Princess

6.       Flag & County of Registry

         Panama

7.       Call Sign

         3FNQ2

8.       Type of Vessel

         Motor passenger vessel

9.       GRT/NRT

         6,659GRT/2,499NRT

10.      When/Where built

         Finland; 1964

11.      Total DWT (abt.) in metric tons on summer freeboard

         Not Applicable



12.      Class (Cl. 8)

         Det norske Veritas + 1A1 ICE A

13.      Date of last special survey by the Vessel's classification society

         October, 1998

14.      Further particulars of Vessel (also indicate minimum number of months'
         validity of class certificates agreed acc. to Cl. 13)

         LOA  421 feet; beam 53.5 feet; draft 14.5 feet.
         Passenger capacity: 870 on coastal cruises; 480 on
         Bahamas cruises.  Minium 6 months validity of class
         certificates on redelivery.

15.      Port or Place of delivery (Cl. 1)

         Palm Beach, Florida

16.      Time for delivery (Cl. 2)

         Effective April 30,2001

17.      Cancelling date (Cl. 3)

         [Intentionally left blank]

18.      Port or Place of redelivery (Cl. 13)

         Palm Beach, Florida

19.      Running days' notice if other than stated in Cl. 2

         [Intentionally left blank]

20.      Frequency of dry-docking if other than stated in Cl. 8(f)

         See Clause 8 (f).

21.      Trading Limits (Cl. 4)

         United States east coast; Bahamas; Gulf of Mexico; Caribbean.

22.      Charter period

         Twelve (12) months, through April 30, 2002, unless terminated
         earlier pursuant to Clause (33).

23.      Charter hire (Cl. 9)

         U.S. $50,000 per month.

24.      Currency and method of payment (Cl. 9)

         United States Dollars, by wire transfer.

25.      Place of payment; also state beneficiary and bank account (Cl. 9)



         Deerfield Beach, Florida; account no. 2090002690578 of MJQ
         Corporation at First Union
         National Bank, 1950 West Hillsboro Boulevard, Deerfield Beach,
         Florida 33442 ABA no.
         067006432

26.      Bank guarantee/bond (sum and place) (Cl. 21) (optional)

         None

27.      Mortgage(s), if any (Cl. 10)

         1.  First Union National Bank
         2.  Cambridge Capital Group, Inc.

28.      Insurance (marine and war risks) (state value acc. to Cl. 11(e)
         or, if applicable, acc. to Cl. 12(k)) (also state if Cl. 12 applies)

         U. S. $18,000,000 value.  Clause 12 not applicable.

29.      Additional insurance cover, if any, for Owners' account limited
         to (Cl. 11(b)) or, if applicable, (Cl. 12(g))

         None

30.      Additional insurance cover, if any, for Charterers' account
         limited to (Cl. 11(b))
         or, if applicable, (Cl. 12(g))

         None

31.      Brokerage commission and to whom payable (Cl. 24)

         None

32.      Latent defects (only to be filled in if period other than
         stated in Cl. 1)

         [Intentionally left blank]

33.      Applicable law (Cl. 25)

         United States

34.      Place of arbitration (Cl. 25)

         New York City

35.      Hire/Purchase agreement (indicate with "yes" or "no" whether
         Part IV applies) (optional)

         Not Applicable

36.      Number of additional clauses covering special provisions, if agreed

         Clauses 33 and 34

PREAMBLE. - It is mutually agreed that this Contract shall be performed subject
to the conditions contained in this Charter which shall include Part I as well
as Part II. In the event of a conflict of conditions, the provisions of Part I
shall prevail over those of Part II to the extent of such conflict. It is
further mutually agreed that Part III shall only apply and shall only form part
of this Chart if expressly agreed and stated in



Box 35. If Part III applies it is further mutually agreed that in the event of a
conflict of conditions, the provisions of Part I and Part II shall prevail over
those of Part III to the extent of such conflict.



Signature (Owners)(Lessors)              Signature (Charterers)(Lessees)

      MJQ CORPORATION                      PALM BEACH PRINCESS, INC.
      By: /s/ Francis X. Murray            By: /s/ Francis X. Murray




                                     PART II
                      "BARECON A" Standard Bareboat Charter

1.   Delivery

The Vessel shall be delivered  and taken over by the  Charterers  at the port or
place indicated in Box 13, in such ready berth as the Charterers may direct.

The Owners  shall before and at the time of delivery  exercise due  diligence to
make the Vessel  seaworthy  and in every  respect  ready in hull,  machinery and
equipment  for  service  under  this  Charter.  The  Vessel  shall  be  properly
documented at time of delivery.

The delivery to the  Charterers  of the Vessel and the taking over of the Vessel
by the Charterers  shall  constitute a full performance by the Owners of all the
Owners'  obligations  hereunder,  and  thereafter  the  Charterers  shall not be
entitled  to make or assert  any claim  against  the  Owners on  account  of any
conditions,  representations or warranties  expressed or implied with respect to
the  Vessel  but the  Owners  shall  be  responsible  for  repairs  or  renewals
occasioned   by   latent    defects   in   the   Vessel,    her   machinery   or
appurtenances,existing  at the time of delivery under the Charter, provided such
defects  have  manifested  themselves  within 18 months  after  delivery  unless
otherwise provided in Box 32.

2.   Time for Delivery

The Vessel to be delivered  not before the date  indicated in Box 16 unless with
the Charterers'  consent.  Unless otherwise agreed in Box 19, the Owners to give
the Charterers  not less than 30 running days'  preliminary of the date on which
the  Vessel  is  expected  to be ready  for  delivery.  The  Owners  to keep the
Charterers  closely  advised of possible  changes in the Vessel's  position.  3.
Cancelling  Should the Vessel not be  delivered  latest by the  cancelling  date
indicated  in Box 17,  the  Charterers  to have the  option of  cancelling  this
Charter.

If it appears that the Vessel will be delayed  beyond the  cancelling  date, the
Owners  shall,  as soon as they  are in a  position  to  state  with  reasonable
certainty  the day on which the Vessel should be ready,  give notice  thereof to
the Charterers asking whether they will exercise their option of cancelling, and
the option must then be declared within one hundred and sixty-eight  (168) hours
of the receipt by the  Charterers of such notice.  If the Charterers do not then
exercise  their option of  cancelling,  the seventh day after the readiness date
stated in the Owners' notice shall be regarded as a new cancelling  date for the
purpose of this Clause.

4.   Trading Limits

The Vessel  shall be  employed  in lawful  trades for the  carriage  of suitable
lawful   merchandise   within  the   trading   limits   indicated   in  Box  21.
Notwithstanding any other provisions contained in this Charter it is agreed that
nuclear fuels or radioactive  products or waste are  specifically  excluded from
the cargo  permitted to be loaded or carried under this Charter.  This exclusion
does not apply to radio-isotopes used or intended to be used for any industrial,
commercial,  agricultural,  medical or scientific  purposes provided the Owners'
prior approval has been obtained to loading thereof.

5.   Surveys



Survey on  Delivery  and  Redelivery.  - The  Owners and  Charterers  shall each
appoint  surveyors  for the purpose of  determining  and agreeing in writing the
condition of the Vessel at the time of delivery and  redelivery  hereunder.  The
Owners shall bear all expenses of the On-Survey  including loss of time, if any,
and the Charterers  shall bear all expenses of the Off-Survey  including loss of
time,  if any, at the rate of hire per day or pro rata,  also  including in each
case the cost of any docking and undocking, if required, in connection herewith.

6.   Inspection

Inspection.  - The Owners  shall have the right at any time to inspect or survey
the Vessel or  instruct a duly  authorized  surveyor to carry out such survey on
their behalf to  ascertain  the  condition of the Vessel and satisfy  themselves
that the Vessel is being properly repaired and maintained.  Inspection or survey
in dry- dock shall be made only when the  Vessel  shall be in  dry-dock  for the
Charterers'  purpose.  However,  the Owners  shall have the right to require the
Vessel to be dry-docked  for inspection if the Charterers are not docking her at
normal classification intervals. The fees for such inspection or survey shall in
the event of the Vessel being found to be in the condition  provided in Clause 9
of this  Charter be  payable  by the Owners and shall be paid by the  Charterers
only in the event of the Vessel being found to require repairs or maintenance in
order to  achieve  the  condition  so  provided.  All time  taken in  respect of
inspection, survey or repairs shall count as time on hire and shall form part of
the Charter period.

The  Charterers  shall also permit the Owners to inspect the  Vessel's log books
whenever  requested and shall whenever  required by the Owners furnish them with
full  information  regarding any casualties or other  accidents or damage to the
Vessel.  For the purpose of this Clause,  the  Charterers  shall keep the Owners
advised of the intended employment of the Vessel.

7.   Inventories and Consumable Oil and Stores

A complete inventory of the Vessel's entire equipment, outfit, appliances and of
all  consumable  stores on board the Vessel shall be made by the  Charterers  in
conjunction  with the Owners on delivery and again on  redelivery of the Vessel.
The Charterers and the Owners,  respectively,  shall at the time of delivery and
redelivery  take  over  and pay for all  bunkers,  lubricating  oil,  water  and
unbroached  provisions,  paints,  oils, ropes and other consumable stores in the
said  Vessel at the then  current  market  prices at the ports of  delivery  and
redelivery, respectively.

8.   Maintenance and Operation

(a) The Vessel shall during the Charter period be in the full  possession and at
the  absolute  disposal  for all  purposes  of the  Charterers  and under  their
complete control in every respect. The Charterers shall maintain the Vessel, her
machinery, boilers,  appurtenances and spare parts in a good state of repair, in
efficient operating condition and in accordance with good commercial maintenance
practice and,  except as provided for in Clause  12(l)they shall keep the Vessel
with unexpired  classification  of the class  indicated in Box 12 and with other
required certificates in force at all times.

The Charterers to take immediate steps to have the necessary repairs done within
a reasonable  time failing which the Owners shall have the right of  withdrawing
the Vessel from the  service of the  Charterers  without  noting any protest and
without  prejudice  to any claim the  Owners  may  otherwise  have  against  the
Charterers under the Charter.

Unless otherwise agreed, in the event of any improvement,  structural changes or
expensive new equipment  becoming  necessary for the continued  operation of the
Vessel by reason of new class requirements or by compulsory  legislation costing
more than 5 per cent. of the Vessel's  marine  insurance  value as stated in Box
28, then the  arbitrators  under  Clause 25 shall have the power to  renegotiate
this contract in a reasonable  way having  regard,  inter alia, to the length of
the period  remaining  under the  Charter  and may decide the ratio in which the
cost of compliance shall be shared between the parties concerned.

The  Charterers  are required to establish  and maintain  financial  security or
responsibility in respect of oil



or other  pollution  damage as required by any  government,  including  Federal,
state or municipal or other division or authority thereof, to enable the Vessel,
without  penalty or  charge,  lawfully  to enter,  remain at, or leave any port,
place, territorial or contiguous waters of any country, state or municipality in
performance  of this  Charter  without any delay.  This  obligation  shall apply
whether or not such  requirements  have been lawfully imposed by such government
or division or authority  thereof.  The  Charterers  shall make and maintain all
arrangements  by  bond  or  otherwise  as  may  be  necessary  to  satisfy  such
requirements at the Charterers'  sole expense and the Charterers shall indemnify
the Owners against all consequences  whatsoever (including loss of time) for any
failure or inability to do so.

TOVALOP SCHEME (Applicable to oil tank vessels only). [Intentionally Deleted]

(b) The Charterers  shall at their own expense and by their own procurement man,
victual, navigate, operate, supply, fuel and repair the Vessel whenever required
during the Charter  period and they shall pay all charges and  expenses of every
kind and nature  whatsoever  incidental to their use and operation of the Vessel
under this Charter,  including  any foreign  general  municipality  and/or state
taxes. The Master,  officers and crew of the Vessel shall be the servants of the
Charterers for all purposes whatsoever,  even if for any reason appointed by the
Owners.

Charterers  shall  comply with the  regulations  regarding  officers and crew in
force in the country of the Vessel's flag or any other applicable law.

(c) During the  currency of this  Charter,  the Vessel  shall retain her present
name as  indicated in Box 5 and shall remain under and fly the flag as indicated
in Box 6. Provided, however, that the Charterers shall have the liberty to paint
the Vessel in their own colours,  install and display their funnel  insignia and
fly  their  own  house  flag.   Painting  and   re-painting,   installment   and
re-installment to be for the Charterers'  account and time used thereby to count
as time on hire.

(d) The Charterers shall make no structural  changes in the Vessel or changes in
the machinery,  boilers,  appurtenances  or spare parts thereof  without in each
instance first securing the Owners'  approval  thereof.  If the Owners so agree,
the Charterers shall, if the Owners so require, restore the Vessel to its former
condition before the termination of the Charter.

(e) The CharterersF shall have the use of all outfit,  equipment, and appliances
on  board  the  Vessel  at the  time of  delivery,  provided  the  same or their
substantial equivalent shall be returned to the Owners on redelivery in the same
good order and condition as when received,  ordinary wear and tear excepted. The
Charterers  shall from time to time during the Charter period replace such items
of  equipment  as  shall be so  damaged  or worn as to be  unfit  for  use.  The
Charterers  are to procure  that all repairs to or  replacement  of any damaged,
worn or lost parts or  equipment  be effected  in such  manner  (both as regards
workmanship  and  quality  of  materials)  as not to  diminish  the value of the
Vessel.  The  Charterers  have the right to fit  additional  equipment  at their
expense and risk but the  Charterers  shall remove such  equipment at the end of
the period if requested by the Owners.

Any  equipment  including  radio  equipment  on  hire on the  Vessel  at time of
delivery shall be kept and maintained by the Charterers and the Charterers shall
assume the  obligations  and liabilities of the Owners under any lease contracts
in connection therewith and shall reimburse the Owners for all expenses incurred
in connection therewith,  also for any new equipment required in order to comply
with radio regulations.

(f) The Charterers  shall dry-dock the Vessel and clean and paint her underwater
parts  whenever  the same may be  necessary,  but not  less  than  once in every
eighteen calendar months after delivery unless otherwise agreed in Box 20.

9.   Hire

(a) The  Charterers  shall pay to the  Owners  for the hire of the Vessel at the
lump sum per calendar  month as indicated in Box 23  commencing  on and from the
date and hour of her delivery to the Charterers and at and after the agreed lump
sum for any part of a month. Hire to continue until the date and hour when the



Vessel is redelivered by the Charterers to her Owners.

(b) Payment of Hire,  except for the first and last month's  Hire, if sub-clause
(b)of this Clause is  applicable,  shall be made in cash without  discount every
month in  advance  on the first  day of each  month in the  currency  and in the
manner indicated in Box 24 and at the place mentioned in Box 25.

(c)  Payment  of Hire for the  first and last  month's  Hire if less than a full
month shall be calculated  proportionally according to the number of days in the
particular calendar month and advance payment to be effected accordingly.

(d) Should the Vessel be lost or  missing,  Hire to cease from the date and time
when she was lost or last  heard of.  Any Hire paid in  advance  to be  adjusted
accordingly.

(e) In default  of payment  beyond a period of seven  running  days,  the Owners
shall have the right to withdraw  the Vessel from the service of the  Charterers
without  noting any protest and without  interference  by any court or any other
formality whatsoever, and shall, without prejudice to any other claim the Owners
may  otherwise  have against the  Charterers  under the Charter,  be entitled to
damages  in  respect  of all  costs  and  losses  incurred  as a  result  of the
Charterers' default and the ensuing withdrawal of the Vessel.

(f) Any delay in payment of Hire shall  entitle  the Owners to an interest of 10
percent per annum.

10.  Mortgage

Owners  warrant that they have not  effected  any mortgage of the Vessel  unless
otherwise indicated in Box 27. Owners hereby undertake not to effect any (other)
mortgage without the prior consent of the Charterers.  Any mortgage  approved by
Charterers  hereunder is herein  referred to as an "approved  mortgage"  and any
mortgagee  under an  approved  mortgage is herein  referred  to as an  "approved
mortgagee."

11.  Insurance and Repairs

(a) During the Charter period the Vessel shall be kept insured by the Charterers
at their expense against marine,  war and Protection and Indemnity risks in such
form as the  Owners  shall in  writing  approve,  which  approval  shall  not be
unreasonably  withheld.  Such  marine  war and P.  and I.  insurances  shall  be
arranged by the  Charterers  to protect the interests of both the Owners and the
Charterers and  mortgagees  (if any), and the Charterers  shall be at liberty to
protect  under such  insurances  the interests of any managers they may appoint.
All  insurance  policies  shall  be in the  joint  names of the  Owners  and the
Charterers as their interests may appear.

If the Charterers  fail to arrange and keep any of the  insurances  provided for
under the provisions of sub- clause (a) above in the manner  described  therein,
the Owners shall notify the Charterers  whereupon the  Charterers  shall rectify
the position  within seven  running  days,  failing  which Owners shall have the
right  to  withdraw  the  Vessel  from the  service  of the  Charterers  without
prejudice to any claim the Owners may otherwise have against the Charterers.

The  Charterers   shall,   subject  to  the  approval  of  the  Owners  and  the
Underwriters,  effect all insured repairs and shall undertake  settlement of all
costs in connection with such repairs as well as insured  charges,  expenses and
liabilities   (reimbursement   to  be  secured  by  the   Charterers   from  the
Underwriters)  to the extent of coverage  under the insurances  herein  provided
for.

The  Charterers  also to  remain  responsible  for  and to  effect  repairs  and
settlement  of costs and  expenses  incurred  thereby  in  respect  of all other
repairs  not  covered  by the  insurances  and/or  not  exceeding  any  possible
franchise(s) or deductibles provided for in the insurances.

All time used for repairs under the  provisions of sub-clause (a) of this Clause
and for repairs of latent  defects  according  to Clause 1 above  including  any
deviation shall count as time on hire and shall form



part of the Charter period.

(b) If the conditions of the above insurances permit additional  insurance to be
placed by the parties,  such cover shall be limited to the amount for each party
set out in Box 29 and Box 30, respectively.  The Owners or the Charterers as the
case may be shall  immediately  furnish the other party with  particulars of any
additional  insurance effected,  including copies of any cover notes or policies
and the written  consent of the insurers of any such  required  insurance in any
case where the consent of such insurers is necessary.

(c) Should the Vessel  become an  actual,  constructive,  compromised  or agreed
total loss under the insurances  required under sub-clause (a) of Clause 12, all
insurance payments for such loss shall be paid to the Mortgagee,  if any, in the
manner  described in the Deed(s) of Covenant,  who shall  distribute  the moneys
between themselves,  the Owners and the Charterers according to their respective
interests.

(d) The Owners shall upon the request of the Charterers,  promptly  execute such
documents as may be required to enable the  Charterers  to abandon the Vessel to
insurers and claim a constructive total loss.

(e) For the purpose of insurance coverage against marine and war risks under the
provisions of sub-clause (a) of this Clause,  the value of the Vessel is the sum
indicated in Box 28.

12.  Insurance, Repairs and Classification

(Optional only to apply if expressly agreed and stated in Box 28, in which event
Clause 11 shall be considered deleted).

[Intentionally Deleted]

13.  Redelivery

The  Charterers  shall at the  expiration  of the Charter  period  redeliver the
Vessel  at a safe  and  ice-free  port or  place  as  indicated  in Box 18.  The
Charterers shall give the Owners not less than 30 running days'  preliminary and
not less than 14 days'  definite  notice  of  expected  date,  range of ports of
redelivery or port or place of  redelivery.  Any changes  thereafter in Vessel's
position shall be notified immediately to the Owners.

Should  the Vessel be  ordered  on a voyage by which the  Charter  period may be
exceeded the Charterers to have the use of the Vessel to enable them to complete
the voyage,  provided it could be  reasonably  calculated  that the voyage would
allow redelivery about the time fixed for the termination of the Charter.

The Vessel shall be redelivered to the Owners in the same or as good  structure,
state,  condition  and class as that in which she was  delivered,  fair wear and
tear not affecting class excepted.

The Vessel  upon  redelivery  shall have her survey  cycles up to date and class
certificates valid for at least the number of onths agreed in Box 14.

14.  Non-Lien and Indemnity

Charterers will not suffer, nor permit to be continued,  any lien or encumbrance
incurred by them or their  agents,  which might have priority over the title and
interest of the Owners in the Vessel.

The Charterers  further agree to fasten to the Vessel in a conspicuous place and
to keep so fastened during the Charter period a notice reading as follows:-

"This Vessel is the property of (name of Owners).  It is under  charter to (name
of Charterers)  and by the terms of the Charter Party neither the Charterers nor
the Master have any right,  power or authority to create,  incur or permit to be
imposed on the Vessel any lien whatsoever."

Charterers  shall  indemnify  and hold the Owners  harmless  against any lien of
whatsoever nature arising



upon the Vessel during the Charter  period while she is under the control of the
Charterers,  and  against  any claims  against  the Owners  arising out of or in
relation to the operation of the Vessel by the Charterers.  Should the Vessel be
arrested by reason of claims or liens arising out of her operation  hereunder by
the  Charterers,  the Charterers  shall at their own expense take all reasonable
steps to secure that  within a  reasonable  time the Vessel is  released  and at
their own expense put up bail to secure release of the Vessel.

15.  Lien

The Owners to have a lien upon all cargoes  and  sub-freights  belonging  to the
Charterers and any Bill of Lading freight for all claims under this Charter, and
the  Charterers  to have a lien on the Vessel for all moneys paid in advance and
not earned.

16.  Salvage

All  salvage and towage  performed  by the Vessel  shall be for the  Charterers'
benefit and the cost of repairing  damage  occasioned  thereby shall be borne by
the Charterers.

17.  Wreck Removal

In the event of the Vessel  becoming a wreck or  obstruction  to navigation  the
Charterers  shall  indemnify the Owners  against any sums  whatsoever  which the
Owners shall  become  liable to pay and shall pay in  consequence  of the Vessel
becoming a wreck or obstruction to navigation.

18.  General Average

General Average,  if any, shall be adjusted  according to the York-Antwerp Rules
1974 or any subsequent modification thereof current at the time of the casualty.

The Charter Hire not to contribute to General Average.

19.  Assignment and Sub-Demise

The  Charterers  shall not assign this Charter nor  sub-demise the Vessel except
with the prior consent in writing of the Owners which shall not be  unreasonably
withheld and subject to such terms and conditions as the Owners shall approve.

20.  Bills of Lading

[Intentionally Deleted]

21.  Bank Guarantee

The  Charterers  undertake to furnish,  before  delivery of the Vessel,  a first
class bank  guarantee or bond in the sum and at the place as indicated in Box 26
as guarantee  for full  performance  of their  obligations  under this  Charter.
(Optional, only to apply if Box 26 filled in).

22.  Requisition/Acquisition

(a) In the event of the Requisition  for Hire of the Vessel by any  governmental
or other competent authority (hereinafter referred to as "Requisition for Hire")
irrespective of the date during the Charter period when  "Requisition  for Hire"
may occur and irrespective of the length thereof and whether or not it be for an
indefinite or a limited  period of time, and  irrespective  of whether it may or
will remain in force for the remainder of the Charter period, this Charter shall
not be deemed thereby or thereupon to be frustrated or otherwise  terminated and
the Charterers  shall continue to pay the stipulated hire in the manner provided
by this Charter until the time when the Charter would have  terminated  pursuant
to any of the  provisions  hereof always  provided  however that in the event of
"Requisition  for  Hire"  any  Requisition  Hire  or  compensation  received  or
receivable by the Owners shall be payable to the Charterers during the



remainder  of the  Charter  period or the period of the  "Requisition  for Hire"
whichever be the shorter.

The Hire under this Charter shall be payable to the Owners from the same time as
the Requisition Hire is payable to the Charterers.

(b) In the event of the Owners being  deprived of their  ownership in the Vessel
by any  Compulsory  Acquisition  of the Vessel or  requisition  for title by any
governmental  or  other  competent   authority   (hereinafter   referred  to  as
"Compulsory  Acquisition"),  then,  irrespective  of the date during the Charter
period when  "Compulsory  Acquisition"  may occur,  this Charter shall be deemed
terminated  as of the  date  of such  "Compulsory  Acquisition".  In such  event
Charter Hire to be  considered  as earned and to be paid up to the date and time
of such "Compulsory Acquisition".

23.  War

(a) The Vessel  unless the  consent  of the Owners be first  obtained  not to be
ordered  nor  continue  to any place or on any voyage nor be used on any service
which  will  bring her  within a zone  which is  dangerous  as the result of any
actual or threatened act of war, war, hostilities,  warlike operations,  acts of
piracy or of hostility or malicious  damage  against this or any other vessel or
its cargo by any person, body or State whatsoever,  revolution, civil war, civil
commotion or the  operation of  international  law, nor be exposed in any way to
any risks or penalties  whatsoever  consequent upon the imposition of Sanctions,
nor carry  any goods  that may in any way  expose  her to any risks of  seizure,
capture,  penalties  or any other  interference  of any kind  whatsoever  by the
belligerent or fighting powers or parties or by any Government or Ruler.

(b) The Vessel to have  liberty to comply  with any orders or  directions  as to
departure, arrival, routes, ports of call, stoppages,  destination,  delivery or
in any other wise  whatsoever  given by the Government of the nation under whose
flag the Vessel sails or any other  Government or any person (or body) acting or
purporting to act with the  authority of such  Government or by any committee or
person having under the terms of the war risks insurance on the Vessel the right
to give any such orders or directions.

(c) In the event of outbreak of war (whether  there be a  declaration  of war or
not)  between  any two or more of the  countries  as stated in Box 31,  both the
Owners and the Charterers shall have the right to cancel this Charter, whereupon
the  Charterers  shall  redeliver  the Vessel to the Owners in  accordance  with
Clause 14, if she has cargo on board after discharge thereof at destination,  or
if debarred  under this  Clause from  reaching or entering it at a near open and
safe port as  directed by the  Owners,  or if she has no cargo on board,  at the
port at which she then is or if at sea at a near open and safe port as  directed
by the Owners.  In all cases hire shall  continue to be paid in accordance  with
clause l0 and except as aforesaid  all other  provisions  of this Charter  shall
apply until redelivery.

(d) If in compliance  with the provisions of this Clause  anything is done or is
not done, such not to be deemed a deviation.

24.  Commission

The Owners to pay a  commission  at the rate  indicated in Box 32 to the Brokers
named in Box 32 on any Hire paid under the  Charter  but in no case less than is
necessary to cover the actual  expenses of the Brokers and a reasonable  fee for
their work. If the full Hire is not paid owing to breach of Charter by either of
the parties the party liable  therefor to indemnify  the Brokers  against  their
loss of commission.

Should the parties  agree to cancel the  Charter,  the Owners to  indemnify  the
Brokers  against any loss of commission  but in such case the  commission not to
exceed the brokerage on one year's Hire.

25.  Law and Arbitration

This  Charter  shall be governed by the law of the country  agreed in Box 33 (if
Box 33 is not filled in,  English Law shall apply).  Any dispute  arising out of
this Charter shall be referred to  arbitration  in London or at the place agreed
in Box 34, as the case may be, the dispute being settled by a single  Arbitrator
to be  appointed  by the parties  hereto.  If the parties  cannot agree upon the
appointment of the single Arbitrator



the dispute shall be settled by three  Arbitrators,  each party  appointing  one
Arbitrator,  the third being appointed by the Arbitrators of the parties. If the
Arbitrators  fail to agree on the  appointment  of the  third  Arbitrator,  such
appoint  shall be made by The Baltic and  International  Maritime  Conference in
Copenhagen.  If either of the appointed  Arbitrators  refuses or is incapable of
acting, the party who appointed him shall appoint a new Arbitrator in his place.

If one party fails to appoint an  Arbitrator  - either  originally  or by way of
substitution  - for two  weeks  after  the  other  party  having  appointed  his
Arbitrator has sent the party making  default notice by mail,  cable or telex to
make the appointment,  The Baltic and International  Maritime  Conference shall,
after  application from the party having appointed his Arbitrator,  also appoint
an Arbitrator on behalf of the party making default.

The award rendered by the Arbitration  Court shall be final and binding upon the
parties and may if  necessary  be  enforced by the Court or any other  competent
authority in the same manner as a judgment in the Court of Justice.



                      "BARECON A" Standard Bareboat Charter

                                     PART IV
                             HIRE/PURCHASE AGREEMENT
       (Optional, only to apply if expressly agreed and stated in Box 35)

26.      [Intentionally Deleted]

27.      [Intentionally Deleted]

28.      [Intentionally Deleted]

29.      [Intentionally Deleted]

30.      [Intentionally Deleted]

31.      [Intentionally Deleted]

32.      [Intentionally Deleted]





                      "BARECON A" Standard Bareboat Charter

                                     PART IV
                             HIRE/PURCHASE AGREEMENT
       (Optional, only to apply if expressly agreed and stated in Box 35)


         Additional Clauses

33.  This  Charter  may be  terminated  prior to the end of the  Charter  period
     stated in Box 20 in the  event  that a  definitive  Purchase  Agreement  as
     referred to in that certain Letter of Intent dated May 4, 2001 by and among
     the  Owners,  International  Thoroughbred  Breeders,  Inc.,  and  Donald F.
     Conway,  Chapter  Eleven  Trustee  for the  Bankruptcy  Estate of Robert E.
     Brennan ( herein the "Trustee") is not executed  between the Charterers and
     the Trustee on or before May 31, 2001, or in the event that the  Charterers
     shall  default  in the  performance  of their  obligations  under  the said
     Purchase Agreement between the Charterers and the Trustee.  In the event of
     such default by the Charterers,  the Trustee,  in accordance with the terms
     of the said Purchase  Agreement,  shall have the right, among other things,
     to cause the  termination of this Charter upon notice to the Owners and the
     Charterers.

34.  Upon  delivery  of the  Vessel by the Owners to the  Charterers  under this
     Charter,  the Owners shall  continue to conduct  certain  operations of the
     Vessel  until  such  time as the  Charterers  shall  have  applied  for and
     obtained any and all permits,  licenses,  and/or registrations necessary or
     desirable in  connection  with the  Charterers'  acting as operators of the
     Vessel. Such applications shall include, but shall not be limited to, those
     for Federal water pollution certification,  registration under the Gambling
     Devices Act,  registration  for Florida  sales tax,  and Florida  alcoholic
     beverages   licensing.   The  Charterers  shall   diligently   pursue  such
     applications.








                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                                   EXHIBIT 21


     The  following   table   indicates  the   subsidiaries   of   International
Thoroughbred  Breeders,  Inc.  and their  states of  incorporation.  All of such
subsidiaries are wholly owned.

                                                            State of
Name                                                      Incorporation
----                                                      -------------

Atlantic City Harness, Inc.                                 New Jersey

Circa 1850, Inc.                                            New Jersey

Garden State Race Track, Inc.                               New Jersey

GSRT, LLC                                                   New Jersey

Holdfree Racing Association                                 New Jersey

International Thoroughbred Breeders Management, Inc.        New Jersey

International Thoroughbred Gaming Development Corporation   New Jersey

ITG - Brazil, Inc.                                          Delaware

ITG - Venezuela, Inc.                                       Delaware

Olde English Management Co., Inc.                           New Jersey

Orion Casino Corporation                                    Nevada

Palm Beach Princess, Inc.                                   Delaware


                                       66