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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