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

                                   ----------

                                   FORM 10-Q

                                   ----------
          (Mark One)

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

               For the quarterly period ended September 30, 1998

                                       OR

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

                                   ----------

                       For the transition period from     to


                         Commission file number 0-9624

                    International Thoroughbred Breeders, Inc.
             (Exact name of registrant as specified in its charter)

                                    Delaware
                        (State or other jurisdiction of
                         incorporation or organization)

                                   ----------

                                   22-2332039
                      (I.R.S. Employer Identification No.)


                  P.O. Box 1232, Cherry Hill, New Jersey 08034
                    (Address of principal executive offices)
                                   (Zip Code)

                                 (609) 488-3838
              (Registrant's telephone number, including area code)


             (Former name, former address and former fiscal year, if
                          changed since last report.)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the last 90 days. Yes|X| No


                      APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of the close of the latest practicable date.


                  Class               Outstanding at November 13, 1998
      Common Stock, $ 2.00 par value            13,978,104 Shares

================================================================================
<PAGE>
                   INTERNATIONAL THOROUGHBRED BREEDERS, INC.

                                    FORM 10-Q

                                QUARTERLY REPORT
                  for the Three Months ended September 30, 1998
                                   (Unaudited)


                                TABLE OF CONTENTS

                                                                 Page
                                                                 ----
PART I. FINANCIAL INFORMATION

      Item 1. Financial Statements:

                 Consolidated Balance Sheets
                  as of September 30, 1998 and June 30, 1998.....1-2

                 Consolidated Statement of Stockholders' Equity
                  for the Three Months ended September 30, 1998....3

                 Consolidated Statements of Operations
                  for the Three Months ended
                  September 30, 1998 and 1997......................4

                 Consolidated Statements of Cash Flows
                  for the Three Months ended
                  September 30, 1998 and 1997......................5

                 Notes to Consolidated Financial Statements.....6-22

      Item 2. Management's Discussion and Analysis of
              Financial Condition and Results of Operations....23-27

PART II. OTHER INFORMATION

      Item 6. Exhibits and Reports on Form 8-K ...................28

SIGNATURES .......................................................29


<PAGE>


                   INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                   AS OF SEPTEMBER 30, 1998 AND JUNE 30, 1998

                                     ASSETS

                                                    September 30,
                                                        1998         June 30,
                                                     (UNAUDITED)       1998
                                                     -----------       ----
CURRENT ASSETS:
  Cash and Cash Equivalents ..................... $     604,110 $     213,795
  Reserve Escrow Deposits .......................     8,473,296    10,460,881
  Accounts Receivable ...........................        36,991        36,838
  Prepaid Expenses ..............................       233,808       322,313
  Other Current Assets ..........................       261,732       325,756
  Net Assets of Discontinued Operations - Current    12,757,568    12,235,217
                                                     ----------    ----------
       TOTAL CURRENT ASSETS .....................    22,367,505    23,594,800
                                                     ----------    ----------


NET ASSETS OF DISCONTINUED OPERATIONS - Long Term    45,461,904    45,626,944
                                                     ----------    ----------

PROPERTY HELD FOR SALE ..........................    47,384,425    47,434,670
                                                     ----------    ----------

LAND, BUILDINGS AND EQUIPMENT:
  Land and Buildings ............................       214,097       214,097
  Equipment .....................................       799,516       814,927
                                                        -------       -------
                                                      1,013,613     1,029,024
  LESS: Accumulated Depreciation and Amortization       307,988       308,162
                                                        -------       -------

       TOTAL LAND, BUILDINGS AND EQUIPMENT, NET .       705,625       720,862
                                                        -------       -------


OTHER ASSETS:
  Deposits and Other Assets .....................         3,172         3,172
  Deferred Financing Costs, Net .................     2,109,664     2,872,453
                                                      ---------     ---------
       TOTAL OTHER ASSETS .......................     2,112,836     2,875,625
                                                      ---------     ---------


TOTAL ASSETS ....................................  $118,032,295  $120,252,901
                                                   ============  ============



See Notes to Consolidated Financial Statements.


                                       1
<PAGE>


                   INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES


                           CONSOLIDATED BALANCE SHEETS
                   AS OF SEPTEMBER 30, 1998 AND JUNE 30, 1998

                      LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>

                                                                 September 30,
                                                                     1998            June 30,
                                                                  (UNAUDITED)          1998
                                                                  -----------          ----
<CAPTION>
CURRENT LIABILITIES:
<S>                                                              <C>             <C>
  Accounts Payable ............................................  $     389,648   $     278,786
  Accrued Expenses ............................................      4,588,537       4,852,328
  Current Maturities of Long-Term Debt ........................     55,138,950      55,208,426
                                                                    ----------      ----------
       TOTAL CURRENT LIABILITIES ..............................     60,117,135      60,339,540
                                                                    ----------      ----------


COMMITMENTS AND CONTINGENCIES .................................           --              --


STOCKHOLDERS' EQUITY:
   Series A Preferred Stock, $100.00 Par Value,
     Authorized 500,000 Shares, Issued and Outstanding,
     362,481 and 362,480 Shares, Respectively .................     36,248,075      36,247,975
   Common Stock, $2.00 Par Value, Authorized 25,000,000 Shares,
    Issued and Outstanding, 13,978,104 and 13,978,099 Shares,
     Respectively .............................................     27,956,207      27,956,197
   Capital in Excess of Par ...................................     25,878,114      25,878,224
   (Deficit) (subsequent to June 30, 1993,
      date of quasi-reorganization) ...........................    (32,131,819)    (30,132,368)
                                                                   -----------     -----------
        TOTAL .................................................     57,950,577      59,950,028
   LESS: Deferred Compensation, Net ...........................         35,417          36,667
                                                                   -----------     -----------
        TOTAL STOCKHOLDERS' EQUITY ............................     57,915,160      59,913,361
                                                                    ----------      ----------


TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ....................  $ 118,032,295   $ 120,252,901
                                                                 =============   =============
</TABLE>



See Notes to Consolidated Financial Statements.


                                       2
<PAGE>

                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                  FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>


                                                                      Preferred              Common
                                                                      ---------              ------
                                                                      Number of              Number of
                                                                      Shares       Amount    Shares         Amount
                                                                      ------       ------    ------         ------
<CAPTION>
<S>                                                                   <C>     <C>          <C>         <C>
BALANCE - JUNE 30, 1998 ...........................................   362,480 $36,247,975  13,978,099  $27,956,197

   Shares Issued for Fractional Exchanges With Respect to the
      One-for-twenty Reverse Stock Split effected on March 13, 1992         1         100           5           10
   Amortization of Deferred Compensation Costs ....................        --        --          --           --
   Net (Loss) for the Three Months Ended September 30, 1998 .......        --        --          --           --

                                                                      ------- -----------  ----------  -----------
BALANCE - SEPTEMBER 30, 1998 ......................................   362,481 $36,248,075  13,978,104  $27,956,207
                                                                      ------- -----------  ----------  -----------
</TABLE>


<TABLE>


                                                                       Capital        Retained
                                                                       in Excess       Earnings     Deferred
                                                                         of Par        (Deficit)   Compensation   Total
                                                                         ------        ---------   ------------   -----
<CAPTION>
<S>                                                                   <C>            <C>            <C>        <C>
BALANCE - JUNE 30, 1998 ...........................................   $ 25,878,224   $(30,132,368)  $(36,667)  $ 59,913,361

   Shares Issued for Fractional Exchanges With Respect to the
      One-for-twenty Reverse Stock Split effected on March 13, 1992           (110)          --         --             --
   Amortization of Deferred Compensation Costs ....................           --             --        1,250          1,250
   Net (Loss) for the Three Months Ended September 30, 1998 .......           --       (1,999,452)      --       (1,999,452)
                                                                      ------------   ------------   --------   ------------
BALANCE - SEPTEMBER 30, 1998 ......................................   $ 25,878,114   $(32,131,819)  $(35,417)  $ 57,915,160
                                                                      ------------   ------------   --------   ------------
</TABLE>


        See Notes to Consolidated Financial Statements.


                                      3
<PAGE>



                   INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES


                      CONSOLIDATED STATEMENTS OF OPERATIONS
             FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997


                                                          Three Months Ended
                                                             September 30,
                                                             -------------
                                                         1998            1997
                                                         ----            ----
EXPENSES:
  General & Administrative Expenses ..............  $  1,312,576   $  2,062,952
  Interest Expense ...............................     1,782,270      1,783,100
  Interest Income ................................      (132,461)      (209,604)
  Amortization of Financing Costs ................       763,789        761,204
  El Rancho Property Carrying Costs ..............       415,982        372,494

(LOSS) FROM CONTINUING OPERATIONS                      ----------     ----------
   BEFORE DISCONTINUED OPERATIONS ................    (4,142,156)    (4,770,146)

INCOME FROM DISCONTINUED OPERATIONS
  Income from operations of discontinued
    racetrack operations (less applicable income
    taxes of $62,000 and $50,115) ................     2,142,704      1,726,264
             -------     -------                       ---------      ---------

NET (LOSS) .......................................  $ (1,999,452)  $ (3,043,882)
                                                    ============   ============

BASIC PER SHARE DATA:

(LOSS) BEFORE DISCONTINUED OPERATIONS ............  $      (0.29)  $      (0.34)

INCOME FROM DISCONTINUED OPERATIONS ..............          0.15           0.12
                                                            ----           ----

NET (LOSS) .......................................  $      (0.14)  $      (0.22)
                                                    ============   ============

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING .......    13,978,100     13,978,067
                                                      ==========     ==========


See Notes to Consolidated Financial Statements.


                                       4
<PAGE>



                   INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
             FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
<TABLE>

                                                                               Three Months Ended
                                                                                   September 30,
                                                                                   -------------
                                                                               1998            1997
                                                                               ----            ----
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                        <C>           <C>
  (LOSS) FROM CONTINUING OPERATIONS .....................................  $(4,142,156)  $(4,770,146)
                                                                           -----------   -----------
  Adjustments to reconcile (loss)  to net cash (used)
    provided by operating activities:
          Income from discontinued racetrack operations .................    2,142,704     1,726,264
          Depreciation and Amortization .................................      781,018     1,190,808
          Compensation for Options Granted ..............................            0       797,138
          Changes in Assets and Liabilities -
             (Increase) in Restricted Cash and Investments ..............            0      (369,260)
             (Increase) in Accounts Receivable ..........................         (153)     (884,788)
             Decrease (Increase) in Other Assets ........................       64,024       (36,920)
             Decrease in Prepaid Expenses ...............................       88,505       220,675
             (Decrease) Increase in Accounts and Purses Payable
              and Accrued Expenses ......................................      (97,564)      993,984
             Increase in Deferred Revenue ...............................            0     1,182,669
                                                                            ----------
        CASH (USED IN) CONTINUING OPERATING ACTIVITIES ..................   (1,163,623)

        CASH PROVIDED BY DISCONTINUED OPERATING ACTIVITIES ..............      681,340
                                                                              --------     ---------
        NET CASH (USED) PROVIDED BY OPERATING ACTIVITIES ................     (482,283)       50,424
                                                                              --------     ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Development of El Rancho Property ...................................            0       (53,139)
    Deposits on New Mexico Racetrack Options ............................            0      (600,000)
    Capital Expenditures ................................................         (741)     (302,090)
    (Increase) in Other Investments .....................................            0       (33,657)
                                                                          ------------
        CASH (USED IN) CONTINUING INVESTING ACTIVITIES ..................         (741)
        CASH (USED IN) DISCONTINUED INVESTING ACTIVITIES ................      (18,762)
                                                                               -------      --------
        NET CASH (USED IN) INVESTING ACTIVITIES .........................      (19,503)     (988,886)
                                                                               -------      --------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Deferred Financing Costs ............................................            0       (21,545)
    Escrow Deposits Utilized ............................................    1,987,585     1,604,952
    Decrease in Balances Due From Discontinued Subsidiaries..............    1,779,273             0
    Principal Payments on Short Term Notes ..............................      (69,475)     (503,277)
    Principal Payments on Long Term Notes ...............................            0      (136,871)
                                                                            ----------
        CASH PROVIDED BY CONTINUING FINANCING ACTIVITIES ................    3,697,383
        CASH (USED IN) DISCONTINUED FINANCING ACTIVITIES ................   (1,956,840)
                                                                            ----------     ---------
        NET CASH PROVIDED BY FINANCING ACTIVITIES .......................    1,740,543       943,259
                                                                            ----------     ---------

NET INCREASE IN CASH AND CASH EQUIVALENTS ...............................    1,238,757         4,797
     LESS CASH AND CASH EQUIVALENTS
     FROM DISCONTINUED OPERATIONS .......................................     (848,442)         --
   CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
     FROM CONTINUING OPERATIONS .........................................      213,795     3,784,895
                                                                               -------     ---------

   CASH AND CASH EQUIVALENTS AT END OF PERIOD ...........................  $   604,110   $ 3,789,692
                                                                           ===========   ===========

   Supplemental Disclosures of Cash Flow Information:
           Cash paid during the period for:
           Interest .....................................................  $ 1,824,856   $ 1,848,987
           Income Taxes .................................................  $         0   $   100,000
</TABLE>

Supplemental Schedule of Non-Cash Investing and Financing Activities:

     During the three months ended  September 30, 1998, the Company  recorded an
unrealized gain of $10,840 on trading securities.

     During the three  months  ended  September  30,  1997,  the Company  issued
options to purchase  300,000  shares of Common Stock at a fair value of $786,000
to three of the Company's directors.

See Notes to Consolidated Financial Statements.


                                       5
<PAGE>


                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

(1)       BASIS OF PRESENTATION

     Prior to June 30,  1998,  the Company  determined  to sell its  racetracks.
Accordingly,  the  operating  results of the  racetrack  subsidiaries  have been
segregated  and  reported  as  discontinued  operations  for each of the periods
presented.  Additionally,  on July 2,  1998 the  Company  entered  into an asset
purchase  agreement  to sell the real  property  and related  assets at Freehold
Raceway and to lease the real  property and related  assets of Garden State Park
for  $100,000  per  year  over a period  of  seven  years,  subject  to  various
approvals. The purchase price for Freehold Raceway is $45 million, consisting of
$33 million in cash and a seven-year noncontingent promissory note in the amount
of $12 million,  with an additional $10 million in contingent  promissory  notes
becoming  effective upon, among other things, New Jersey's approval of off-track
betting  facilities or telephone account  pari-mutuel  wagering on horse racing.
Further  adjustments  could be made to increase  the  purchase  price if certain
additional  regulatory  gaming changes are approved in New Jersey in the future.
If the  Company  accepts  a  superior  proposal  prior  to the  closing  of this
agreement,  it will be obligated to pay $1 million to terminate this  agreement,
if the initial purchaser does not exercise its right of first refusal.

     The  accompanying  unaudited  consolidated  financial  statements have been
prepared in accordance with generally accepted accounting principles for interim
financial  information and with the  instructions to Form 10-Q and Rule 10-01 of
Regulation  S-X.  Accordingly,  they do not include all of the  information  and
footnotes  required by generally  accepted  accounting  principles  for complete
financial statements. In the opinion of management,  all adjustments (consisting
of normal recurring accruals)  considered necessary for a fair presentation have
been included.  Operating  results for the three months ended September 30, 1998
are not  necessarily  indicative  of the results  that may be  expected  for the
fiscal year ended June 30, 1999. The unaudited consolidated financial statements
should be read in conjunction  with the  consolidated  financial  statements and
footnotes  thereto included in the Company's Form 10-K for the fiscal year ended
June 30, 1998.

     The  accompanying  consolidated  financial  statements  have been  prepared
assuming   International    Thoroughbred   Breeders,   Inc.   and   subsidiaries
(collectively,  the "Company") will continue as a going concern. As discussed in
Note 5, the Company is in violation of several non-financial loan covenants with
its major  lender.  Accordingly,  payments  could be demanded  immediately.  The
Company is continuing discussions with this lender as to the grant of waivers or
other  remedies  that  could  be  reached  in  connection  with  the  litigation
settlement described below. Additionally, the Company is considering alternative
financing sources.  However,  there can be no assurance that the Company will be
successful in such endeavors.

     The Company has sustained losses of  approximately  $18.3 million and $17.4
million  during  fiscals  1998  and  1997,  respectively,  and  a  net  loss  of
approximately  $2 million for the three months  ended  September  30, 1998.  The
Company  believes its projected cash flows from its current  operations  will be
sufficient until February 1999, and there can be no assurances beyond that date.
These  projections  do not  reflect  the impact of its  default  under the above
mentioned  credit facility or the effects of the above  mentioned  litigation or
settlement.

     The Company and certain of its directors and  stockholders  are involved in
various legal  proceedings,  as more fully described in Note 7. On July 2, 1998,
the Company entered into a Stipulation  and Agreement of Compromise,  Settlement
and  Release  ("Delaware   Stipulation")  to  resolve  the  pending  stockholder
derivative  litigation in the Delaware Court of Chancery.  The  settlement  (the
"Delaware  Settlement")  is subject to number of conditions,  including  without
limitation,  Delaware court approval (which was issued on October 6, 1998),  the
consent of the Company's  primary  lender and the grant of certain  approvals by
the U.S.  bankruptcy courts. The Delaware Settlement will result in, among other
things,  the Company's  purchase from NPD, Inc. ("NPD"),  a company owned by the
Company's  Chief Executive  Officer and the Company's  Chairman of the Board, of
approximately  2.9 million shares of the Company's  Common Stock, the retirement
of  approximately  2.1 million shares of the Company's Common Stock owned by Las
Vegas  Entertainment  Network,  Inc.  ("LVEN")  and the  termination  of various
agreements. There can be no assurance that conditions to the Delaware Settlement
will be satisfied and thus,  that a final  settlement  will be achieved.  In the
event  the  Delaware  Settlement  is  not  consummated,  it is not  possible  to
determine with any precision the probable  outcome of the pending  litigation or
the amount of  liability,  if any, and the  resultant  effects on the  Company's
financial position, results of operations

                                        6


<PAGE>


                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

or cash flows.

         The  financial  statements  do not include any  adjustments  that might
result from the outcome of these uncertainties.

         In  connection  with the proposed  sale and/or  lease of the  Company's
racetrack operations,  the Company is considering the acquisition of one or more
operating businesses.

(2)      DISCONTINUED OPERATIONS

         Prior to June 30, 1998, the Company  determined to sell its racetracks.
On July 2,  1998,  the  Company  announced  that it had  entered  into an  asset
purchase  agreement  to sell the real  property  and related  assets at Freehold
Raceway and to lease the real  property and related  assets of Garden State Park
for a seven year period. (See Note 1).

         The discontinued operations are summarized as follows:

                                                Three Months Ended September 30,

Discontinued Racetrack Operations:                          1998         1997
                                                        -----------  -----------

  Revenue .......................................     $  14,305,381  $14,542,287
                                                         ----------  -----------

  Expenses:

      Cost of Revenues:

         Purses .......................................   4,050,649    4,061,104

         Operating Expenses ...........................   6,456,240    6,906,399

         Depreciation & Amortization ..................     419,017      415,515

      General & Administrative Expenses ...............     971,848    1,158,902

      Interest Expenses ...............................     202,923      223,988
                                                         ----------  -----------

                 Total Expenses .......................  12,100,677   12,765,908
                                                         ----------  -----------

Income From Discontinued Racetrack
  Operations Before Taxes .............................   2,204,704    1,776,379

      Income Tax Expense ..............................      62,000       50,115
                                                         ----------  -----------

Net Income From Discontinued
   Racetrack Operation ................................ $ 2,142,704  $ 1,726,264
                                                         ==========  ===========


                                        7


<PAGE>


                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)



         The net assets of the  operations  to be  disposed  of  included in the
accompanying  consolidated balance sheet as of September 30, 1998 consist of the
following:

                                            Freehold    Garden State
                                            Raceway        Park
Classified As:                              Current      Non-Current
                                           ----------   ------------

Current Assets .........................$   4,568,851 $ 5,935,043

Land, Building and Equipment, Net ......   22,096,497  45,867,633

Other Assets ...........................    2,923,040     225,081
                                           ----------  ----------

         Total Assets ..................   29,588,388  52,027,757
                                           ----------  ----------


Current Liabilities ....................    5,315,022   6,190,373

Long-Term Debt, Net of Current Portion .   11,515,799     375,480
                                           ----------  ----------

Total Liabilities ......................   16,830,821   6,565,853
                                           ----------  ----------

   Net Assets of Discontinued Operations$  12,757,567 $45,461,904
                                           ==========  ==========


         The Company  anticipates  realizing a gain in connection with a sale of
the Freehold  net assets.  Such gain will be deferred and applied as a reduction
of the  carrying  value  of the  Garden  State  Park  net  assets.  The  Company
anticipates  that the ultimate  disposition of the Garden State Park net assets,
after  application  of anticipated  Freehold gain,  will result in a recovery in
excess of such adjusted amount.

         Cash flows from  discontinued  operations  for the three  months  ended
September 30, 1998 consist of the following:

Cash Flows From Discontinued Operating Activities:

Income ..........................................................   $ 2,142,704
                                                                    -----------

Adjustments to reconcile income to net cash provided by
    discontinued operating activities

      Depreciation and Amortization .............................       419,017

      Changes in Assets and Liabilities:

                Decrease in Restricted Cash
                       and Investments ..........................      (270,884)

                Decrease in Accounts Receivable .................      (898,956)

                Decrease in Other Assets ........................         4,746

                Decrease in Prepaid Expenses ....................       138,764

                Decrease in Accounts and Purses Payable and
                   Accrued Expenses .............................       961,945

                Increase in Deferred Revenue ....................       326,708
                                                                    -----------

Net Cash Provided by Discontinued Operating
            Activities (Excluding Income) .......................       681,340
                                                                    -----------


                                        8


<PAGE>


                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)



Cash Flows From Discontinued Investing Activities:

          Capital Expenditures ................................         (15,701)

          (Decrease) in Other Investments .....................          (3,061)
                                                                    -----------

          Net Cash (Used In) Discontinued Investing
            Activities ........................................         (18,762)
                                                                    -----------



Cash Flows from Discontinued Financing Activities:

          Principal Payments on Short Term Notes ..............         (70,115)

          Decrease in Balances Due To Parent Company ..........      (1,779,273)

          Principal Payments on Long Term Notes ...............        (107,452)
                                                                    -----------

          Net Cash (Used In) Discontinued
                Financing Activities ..........................      (1,956,840)
                                                                    -----------



          Net Increase in Cash and Cash Equivalents
              From Discontinued Operations ....................         848,442

                Cash and Cash Equivalents at Beginning
                  of Year From Discontinued Operations ........       3,166,904
                                                                    -----------
                Cash and Cash Equivalents at End of
                  Period From Discontinued Operations .........     $ 4,015,346
                                                                    ===========


(3)      PROPERTY HELD FOR SALE

         Property Held for Sale - On July 2, 1998, the Company  entered into the
Delaware  Stipulation and as part of the Delaware  Stipulation,  the Company has
provided for the sale of the El Rancho  Property.  As of June 30,  1998,  the El
Rancho  Property  has  been  reclassified  to  "Property  held for  Sale"  after
recording  an  impairment  charge  during the fourth  quarter of Fiscal  1998 of
approximately  $3,430,000 to adjust it to fair value,  after taking into account
the estimated fair value of the reversion of the LVEN shares.  In the absence of
a public market for the Company's  Common Stock,  management  has determined the
estimated  fair  value of the  Common  Stock to be the  anticipated  book  value
attributable  to the Common  Stock  after  taking  into  account  the  estimated
operating results until the disposition of the racetrack  operations  assumed to
occur on December 31,  1998,  the  disposal of the  racetrack  assets and the El
Rancho Property, and other transactions contemplated in the Delaware Settlement.
There can be no assurance that all of these  transactions  will occur or if they
will occur at the estimated amounts.


(4)      RESERVE ESCROW DEPOSITS

         At September  30,  1998,  $8,473,296  was held in various  reserve cash
escrow deposit  accounts that were  established in connection with the Company's
two-year $55 million  credit  facility with Credit Suisse First Boston  Mortgage
Capital LLC ("Credit  Suisse").  The  financing  agreement  provided for reserve
accounts to be held by LaSalle National Bank ("the Depository").  The Company is
currently in default with respect to the Credit Suisse credit  facility and as a
result,   Credit  Suisse  could  apply  any  remaining  escrow  amounts  to  any
outstanding borrowings. On the maturity date of the credit facility, any amounts
remaining  on deposit  shall,  at Credit  Suisse's  option,  be applied  against
outstanding borrowings or returned to the Company.


                                        9


<PAGE>


                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

     Interest Reserve  Account.  $10,000,000 of the loan proceeds were deposited
in a  Interest  Reserve  Account  to  fund  the  monthly  interest  due  on  the
$55,000,000 loan (approximately $588,000 per month).

     El Rancho Reserve  Account.  $3,759,615 of the loan proceeds were deposited
to reimburse the Company for expenditures in connection with the development and
carrying  costs of the El Rancho  property.  Through  September  30,  1998,  the
Company has been reimbursed $1,465,949 from this account.

     Working Capital  Account.  $760,000 of the loan proceeds were deposited for
working capital purposes. In October 1997, upon the sale of certain Garden State
property, the Company deposited an additional $1,370,122 in this account.

         Tax and Insurance  Reserve Account.  $916,898 of the loan proceeds were
deposited into a Tax and Insurance Reserve Account. Each month the Company makes
deposits  equal  to  one-twelfth,  or  approximately  $300,000,  of  the  amount
reasonably estimated by Credit Suisse to be sufficient to pay all taxes, general
and special  assessments,  water and sewer  rents and charges and other  similar
charges levied against certain of the Company's properties.

     Deferred Maintenance Account.  $500,000 of the loan proceeds were deposited
to be  used  to  reimburse  the  Company  for  maintenance  expenditures  at its
racetracks.

     Environmental  Remediation  Account.$1,000,000  of the loan  proceeds  were
deposited  to be  used  to  reimburse  the  Company  for  expenditures  made  in
connection with approved environmental remediation expenditures.

The Escrow Accounts are summarized below:

                   Account                            September 30, 1998
------------------------------------------------      ------------------

Interest Reserve ....................................$      974,471

El Rancho Reserve ...................................     2,293,666

Working Capital .....................................     2,130,121

Tax and Insurance Reserve ...........................     1,666,172

Deferred Maintenance ................................       408,866

Environmental Remediation ...........................     1,000,000
                                                          ---------

                                         Total ......$    8,473,296
                                                          =========


                                       10


<PAGE>


                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


(5)      NOTES AND MORTGAGES PAYABLE
<TABLE>

         Notes and Mortgages Payable are summarized below:

                                                September 30, 1998
                                  -----------------------------------------------------------

                                 Interest % Per Annum              Current          Long-Term
                                 ------------------------   -----------------   -------------
<CAPTION>

International Thoroughbred Breeders
Inc.:
<S>                                                              <C>            <C>
Credit Suisse First Boston (A)   LIBOR Rate plus 7%
                                 (9/30/98  rate 12.34%)          $ 55,000,000   $         -0-

Other                            Various                              138,950             -0-

Freehold  Raceway:

Kenneth R. Fisher (B)            80% of Prime (not to exceed 6%)      625,000      10,000,000
                                 (9/30/98 rate 6%)

Kenneth R. Fisher (C)            80% of Prime                         225,000       1,515,799
                                 (9/30/98 rate 6.6%)

Garden State Park:

Other                            Various                              281,314         375,480
                                                                 ------------    ------------

    Totals                                                       $ 56,270,264   $  11,891,279

Less Amounts Reclassified to:
  Net Assets of Discontinued
    Operations - Current                                              850,000      11,515,799

  Net Assets of Discontinued
    Operations - Long Term                                            281,314         375,480
                                                                 ------------    ------------

    Totals                                                       $ 55,138,950   $         -0-
                                                                 ============    ============
</TABLE>
The effective  LIBOR Rate and the Prime Rate at September 30, 1998 was 5.34% and
8.25%, respectively.

         (A) On May 23,  1997,  the Company  entered into a two-year $55 million
credit  facility  with  Credit  Suisse  secured  by a pledge of  certain  of the
personal  and real  property of the Company and its  subsidiaries  (the  "Credit
Suisse Credit  Facility").  Proceeds of this facility were used to repay in full
the Company's $30 million credit facility with Foothill Capital  Corporation and
to provide  funds for working  capital  and other  general  corporate  purposes,
including,  but  not  limited  to,  preliminary  development  of the  El  Rancho
Property. Interest under the Credit Suisse Credit Facility is payable monthly in
arrears at 7% over the London  interbank  offered rate ("LIBOR").  The scheduled
maturity  date of the  facility  is  June 1,  1999.  Of the  remaining  facility
borrowings, approximately $16.8 million was placed in escrow accounts, financing
and closing fees of $4.3 million were  incurred and $3.9 million was used by the
Company  for general  corporate  purposes  and  repayment  of certain  financial
obligations.

         The  Credit  Suisse  Credit  Facility  is  evidenced  by a  convertible
promissory  note (the "Credit Suisse Note")  pursuant to which up to $10 million
of the aggregate  principal amount can be converted,  in certain  circumstances,
including  upon the maturity date of the Credit Suisse Note upon the  prepayment
of $10 million in aggregate  principal  amount of the Credit Suisse Note or upon
acceleration  of the Credit  Suisse Note, at the option of Credit  Suisse,  into
shares of the  Company's  Common Stock at a conversion  price of $8.75 per share
(subject to  adjustment  in certain  events).  In  addition,  Credit  Suisse was
granted warrants to purchase 1,044,000 shares at an exercise price of $4.375 per
share  (subject  to  adjustment  in certain  events).  The  warrants to purchase
546,847 shares are immediately  exercisable,  have been valued at  approximately
$1.6 million and have been recorded as original issue discount. The warrants to


                                       11


<PAGE>


                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

purchase  497,153  shares  become  exercisable  at such  time as  Credit  Suisse
delivers to the Company a firm commitment for additional funding of no less than
$50 million in connection with the development of the El Rancho Property.

         Credit  Suisse also  received  232,652  shares of Common Stock upon the
conversion of a $10.5 million promissory note issued by the Company to LVEN into
Common Stock in consideration  for Credit Suisse's consent and advisory services
in  connection  with this  transaction.  Credit  Suisse has the right to receive
further shares upon the  consummation of a proposed  related  acquisition by the
Company of Casino-Co  Corporation  ("Casino-Co"),  a wholly-owned  subsidiary of
LVEN,  equal to 10% of the  stock  consideration  paid by the  Company  for such
acquisition.  The Company has granted Credit Suisse certain  registration rights
with respect to the warrants and the shares.

         The Credit  Suisse Credit  Facility also provides for both  affirmative
and  negative  covenants,  including  financial  covenants  such as tangible net
worth,  as defined in the Credit Suisse Credit  Facility.  The Company is not in
compliance with certain  non-financial  covenants.  As a result of not obtaining
waivers of these violations, this amount could be demanded immediately.

         In connection  with pending  litigation  which is currently  stayed and
will be dismissed if the Delaware Settlement is consummated,  the minority Board
members  have  challenged  the  authorization  and   enforceability  of  certain
agreements  entered into and actions taken by the Company,  including the Credit
Suisse  Credit  Facility and certain  related  agreements  and related  actions.
Consummation of the Delaware Settlement will not result in any release of claims
by the  Company  against  Credit  Suisse,  absent  any new  financing  agreement
acceptable to the Company and Credit Suisse.

         (B) On February 2, 1995, the Company entered into an agreement with the
former  owner of  Freehold  Raceway  whereby  the $12.5  million  balance of the
purchase  price of the  Freehold  Raceway  was  financed  by an  eight  (8) year
promissory  note at 80% of the  prevailing  prime rate, not to exceed 6%. Yearly
principal  and  interest  payments  during the first  five (5) years  commencing
January  1,  1996 are  based  upon a twenty  (20)  year  principal  amortization
schedule.  During each of the next three (3) years,  commencing January 1, 2001,
yearly  principal  and  interest  payments  shall be based  upon a ten (10) year
amortization  schedule. On January 1, 2003, the entire unpaid principal balance,
together with any accrued interest becomes due and payable.  The note is secured
by a mortgage on the land and buildings at Freehold Raceway.  This note has been
netted against "Net Assets of Discontinued Operations - Current" for the periods
presented.

         (C) On February 2, 1995,  the seller of  Freehold  Raceway  advanced to
Freehold Raceway  $2,584,549  towards the retirement of $5.2 million of existing
debt on Freehold  Raceway.  The seller received from Freehold  Raceway in fiscal
1995, a promissory note evidencing the  indebtedness  secured by mortgage on the
racetrack property and other collateral. Equal monthly principal installments of
$18,750  beginning  on  February  1, 1995 is paid to the  seller  together  with
accrued  interest.  Interest is calculated at 80% of the prime rate at January 1
of each year.  The note is secured by a mortgage  on the land and  buildings  at
Freehold Raceway.  This note has been netted against "Net Assets of Discontinued
Operations - Current" for the periods presented.


(6)      INCOME TAX EXPENSE

         The  Company's  income tax expense for the three month  periods  ending
September  30, 1998 and 1997 relates to New Jersey income taxes for its Freehold
Raceway operations.


(7)      COMMITMENTS AND CONTINGENCIES

                  (A) On July 2, 1998,  the Company  entered  into the  Delaware
Stipulation  to resolve the pending  stockholder  derivative  litigation  in the
Delaware  Court of Chancery.  The Delaware  Settlement is subject to a number of
conditions,  including  without  limitation,  Delaware court approval (which was
issued on October 6, 1998), the consent of the Company's  primary lender and the
grant of certain approvals by the U.S. bankruptcy courts. The Delaware

                                       12


<PAGE>


                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

Settlement  will result in,  among other  things,  the  dismissal of the pending
litigation with prejudice,  the Company's purchase from NPD of approximately 2.9
million  shares  of the  Company's  Common  Stock  for  $4.6  million  plus  the
assumption  by the  Company of NPD's $5.8  million  promissory  note now held by
Robert E.  Brennan's  Bankruptcy  Trustee and the  termination  of the Company's
option  agreement  with D&C in the amount of $600,000.  As a result,  during the
fourth   quarter  of  fiscal  1998,   the  Company  has  recorded  a  charge  of
approximately $3.7 million based on the estimated fair value of $2.50 per share.
Approximately  $3.1 million of this charge is reflected in accrued  expenses for
the periods presented.

         Upon the mailing of the settlement notice to the Company's stockholders
on July 23, 1998,  Michael C. Abraham,  Charles R. Dees,  Jr.,  Frank A. Leo and
Kenneth S. Scholl  resigned  from the  Company's  Board of  Directors.  Upon the
purchase of the NPD shares by the Company,  Anthony  Coelho,  Nunzio P. DeSantis
and  Joseph  Zappala  will  also  resign  from the  Board  and  terminate  their
employment and consulting agreements with the Company.

         The  Delaware  Settlement  also  contemplates  the  disposition  of the
Company's non-operating El Rancho hotel and casino site in Las Vegas, Nevada. Of
the  proceeds,  a minimum of $44.2  million will be used to reduce the Company's
outstanding  debt to the  Company's  primary  lender.  As  part of the  Delaware
Settlement,  LVEN will return to the Company for cancellation  approximately 2.1
million  shares of the  Company's  Common  Stock and will  terminate  all of its
contractual arrangements with the Company.

         The consummation of the Delaware Settlement will have a material effect
on the Commitments and Contingencies disclosed below:

         As discussed in Note 3, during  January 1996 the Company  purchased the
El Rancho Property from LVEN. The original  agreement  provided that,  following
the development of the property, LVEN would receive as additional  consideration
an interest in the  "adjusted  cash flow" in the amount of 50% for the first six
(6) years  following the opening of a casino and 25% thereafter  until such time
as LVEN has received  $160,000,000,  but only after (a) the Company recouped: 1)
the aggregate amount of cash payments applied to the purchase price; 2) payments
made under the $6.5 million note and the $10.5 million note; 3) $2 million;  and
4) any amounts  that the Company  invested in the property  after the  purchase,
together  with  interest  at eight  percent  (8%) per annum from the date of the
investment;  (b) LVEN has (i) received payment of all principal and interest, if
any, remaining  outstanding under the $6.5 million note and/or the $10.5 million
note and (ii)  recouped  $4 million  plus any amount  invested  in the El Rancho
Property after the purchase and approved by the Company,  together with interest
thereon  at a rate of 8% per  annum  from  the date of  investment;  and (c) the
Company has received an additional $2 million, together with interest thereon at
the rate of 8% per  annum  from the date of the  purchase.  This  agreement  was
amended on May 23, 1997 by the Bi-Lateral Agreement between the Company and LVEN
to limit to $35 million the  aggregate  amount for which the Company is entitled
to recover above.

         The term "adjusted cash flow," as defined, refers to cash flow from the
property  before  taxes,  less the payment of any debt  retirements  and capital
lease payments and less certain fees received or accrued for certain inital rent
or lease payments.  The Bi-Lateral Agreement,  signed in connection with the $55
million  Credit Suisse Credit  Facility,  limited the maximum debt service to be
netted against cash flow from  operation of the El Rancho  Property in computing
"adjusted cash flow" to $65 million, with a further limitation to $27 million in
the event that additional financing over the $55 million is not required for the
development of the El Rancho Property.

         Upon consummation of the Delaware Settlement,  the Company will deposit
title to the El Rancho  Property  into  escrow for a period of up to 270 days to
permit LVEN to sell the El Rancho  Property.  LVEN will have the exclusive right
to sell the El Rancho  Property until November 20, 1998, 120 days after the date
the notice of the Delaware Settlement was mailed to the Company's  stockholders,
and up to an  additional  60 days  thereafter  upon the  occurrence  of  certain
events.  Both  LVEN and the  Company  will  have the right to sell the El Rancho
Property  between  November  20,  1998 and April 19,  1999,  270 days  after the
mailing  of the  notice,  upon the  payment  of at least  $44.2  million  to the
Company.  If, within 30 days prior to end of the escrow  period,  LVEN obtains a
$44.2  million  loan  for  the  benefit  of  the  Company,   LVEN  will  have  a
non-exclusive  right to sell the El Rancho Property for an additional year, upon
the payment of $44.2  million to the Company.  On March 27,  1998,  LVEN entered
into an agreement for the sale of the El


                                       13


<PAGE>


                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

Rancho  Property for a sales price of $62,500,000.  If consummated,  the Company
would realize  proceeds of $44,200,000 as provided in the Delaware  Stipulation,
and of the remaining proceeds, $4,375,000 will be paid to an unrelated party for
a  structuring  fee,  $7,100,000  will be paid to Nunzio P.  DeSantis  (less any
amounts previously paid to him pursuant to the Delaware Stipulation), $1,000,000
will be paid to Joseph  Zappala (less $200,000 Mr. Zappala has agreed to pay the
Company in settlement of certain  compensation  issues  pursuant to the Delaware
Stipulation)  and the balance  will be paid to LVEN.  There can be no  assurance
that this contract or any other contract for the sale of the El Rancho  Property
will be consummated.

          On May 23, 1997, the original  agreement with LVEN was also amended by
a Tri-Party  Agreement  among the Company,  LVEN and Credit  Suisse  whereby the
Company is  required to acquire  Casino-Co,  whose  principal  asset is the $160
million profit  participation  note described in the preceding  paragraphs.  The
acquisition may be accomplished by the purchase of all the stock of Casino-Co or
a merger of the companies. The Company would be required to issue its stock, the
price of which will be subject to fairness opinions from independent  investment
banking firms independently representing the Company and LVEN, to: i) LVEN in an
amount  equal to 90% of the  greater of the  fairness  opinions  obtained by the
Company  and LVEN;  and to ii)  Credit  Suisse in an amount  equal to 10% of the
greater of the  fairness  opinions  obtained by the  Company  and LVEN.  If this
acquisition  is approved by the Company's  stockholders  and Board of Directors,
and completed, the Company's requirement for the sharing of cash flow, described
above, will be canceled.

         In connection  with the purchase of the El Rancho  Property,  Las Vegas
Communications  Corporation ("LVCC"), a wholly-owned subsidiary of LVEN retained
the  exclusive  right to manage  all  aspects  of the  property's  entertainment
activities.  The term of the  agreement is for ten (10) years  commencing on the
date  which  is six  (6)  months  prior  to the  projected  opening  date of the
property,  and LVCC  shall have the  option to renew the  agreement  for two (2)
consecutive five year terms.  The agreement  provides LVCC with an annual fee of
$800,000 subject to annual increases and other additional  amounts.  Pursuant to
the Bi-Lateral Agreement entered into by the Company and LVEN in connection with
the Credit Suisse Credit Facility, the parties agreed to amend the entertainment
management  agreement  to  provide  for a lease by the  Company to LVCC of space
within the El Rancho  Property  on or from which all food,  beverage  and retail
activities will be conducted  (exclusive of the mezzanine  space,  the rights to
which will be retained by the Company).
 The terms of such lease arrangement have not been finalized.

         In connection with the pending  litigation which will be dismissed with
prejudice if the Delaware Settlement is consummated,  the minority Board members
have  challenged the  authorization  and  enforceability  of certain  agreements
entered into and actions taken by the Company including the Credit Suisse Credit
Facility, and certain related agreements and related actions.

         Upon consummation of the Delaware Settlement, the Bi-Lateral Agreement,
Tri-Party  Agreement,  $160 million profit  participation note and entertainment
management agreement will be terminated.

         Effective  January  15,  1997,  the  Company  entered  into a  ten-year
employment  contract  with Nunzio P.  DeSantis,  the Company's  Chief  Executive
Officer.  The contract  provides for annual  compensation of $450,000,  adjusted
annually by increases,  if any, in certain Consumer Price Indexes.  Mr. DeSantis
will also  receive a  performance  bonus for each fiscal year during the term of
the  agreement  equal to the excess of the amount,  if any, by which the pre-tax
income of the Company exceeds $2 million, limited to an amount equal to his base
salary.  As part of his contract,  Mr. DeSantis was awarded options,  subject to
stockholder approval, to purchase 5,000,000 shares of the Company's common stock
at $4 per share.  Upon  obtaining  stockholder  approval for the awarding of the
options, the Company may need to record as compensation an expense calculated by
multiplying the number of shares covered by the option by the difference between
the  intrinsic  value of each share and the  exercise  price at the  measurement
date.  An expense  would only be  recorded  if the  exercise  price is below the
market price at the  measurement  date.  Options to purchase  500,000  shares of
Common  Stock  would be  exercisable  immediately  and  options to  purchase  an
additional  500,000  shares of Common  Stock shall  become  exercisable  on each
succeeding  anniversary  of  the  effective  date  of the  agreement,  provided,
however, that all options shall be fully vested if Mr. DeSantis resigns for good
reason (as defined in the  agreement),  resigns upon a change of control,  or is
discharged without cause. Mr. DeSantis is entitled to additional fringe benefits
including the use of a private jet in  connection  with the  performance  of his
duties. Such aircraft is operated by a


                                       14


<PAGE>


                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

Company owned by Mr.  DeSantis' son and was partially  financed by Mr.  DeSantis
and the  Chairman  of the Board of LVEN.  In the  pending  litigation,  which is
currently  stayed and will be dismissed with prejudice upon  consummation of the
Delaware   Settlement,   the  minority   Board  members  have   challenged   the
authorization and enforceability of certain agreements,  including Mr. DeSantis'
employment  agreement.  Under the terms of the Delaware Settlement,  neither the
Company  nor any of its  affiliates  are to make any  payments  to Mr.  DeSantis
except for his base salary and  automobile  allowance  and  continuation  of his
insurance benefits under the terms set forth in the employment  agreement.  Upon
consummation of the Delaware Settlement, Mr. DeSantis' employment agreement will
be terminated and his options will be canceled.

         Effective  January  15,  1997 the  Company  entered  into a  consulting
contract with Anthony Coelho, the Company's Chairman of the Board, that provides
for $10,000 per month in consulting fees on a month-to-month  basis,  $2,500 for
each director's  meeting he attends and other fringe  benefits.  As part of this
contract,  Mr. Coelho was awarded options,  subject to stockholder  approval, to
acquire 1,000,000 shares of the Company's Common Stock at $4 per share.  Options
to purchase 100,000 shares would become  exercisable  immediately and options to
purchase  an  additional   100,000  shares  would  become  exercisable  on  each
succeeding  anniversary of the effective  date of the agreement.  Upon obtaining
stockholder approval for the awarding of these options, the Company will need to
record an  expense  calculated  by using the fair  value of the  options at that
date. In the pending litigation, which is currently stayed and will be dismissed
with prejudice upon consummation of the Delaware Settlement,  the minority Board
members  have  challenged  the  authorization  and   enforceability  of  certain
agreements,  including Mr. Coelho's consulting agreement. Under the terms of the
Delaware  Settlement,  neither the Company nor its subsidiaries shall pay to Mr.
Coelho  more than  $10,000 per month as  consulting  fees and payment of regular
directors fees and upon  consummation of the Delaware  Settlement,  Mr. Coelho's
consulting agreement will be terminated and his options will be canceled.

         On January 15, 1997, the Company obtained a commitment for a $5,000,000
revolving  line of credit  from Mr.  DeSantis.  The line of credit  has not been
drawn upon and it is unlikely  that it will be utilized in the future.  The line
of credit is a subject of the pending litigation,  which is currently stayed and
will be dismissed with prejudice upon  consummation of the Delaware  Settlement.
Upon  consummation  of the  Delaware  Settlement,  the  line of  credit  will be
terminated.

         (B) The Company has entered into lease agreements for certain equipment
and  maintenance  contracts at Garden State Park and  Freehold  Raceway.  Two of
these  agreements  are based upon the daily average of the total amount  wagered
and number of live  racing  days at the  Company's  racetracks.  Minimum  rental
payments for the next five years are based on  projected  racing  dates.  During
July  1997,  the  Company  executed  an  agreement  to  lease  office  space  in
Albuquerque,  New Mexico for a five year period,  expiring on July 31, 2002. The
lease  provides  for a monthly rent of  approximately  $10,000 when the space is
fully  occupied.  In connection  with this lease,  the Company has  sub-leased a
portion of the premises to AutoLend Group Inc. ("AutoLend"),  a company in which
Nunzio P. DeSantis is the Chairman,  President  and  principal  stockholder  and
Anthony Coelho is a director,  for $600 per month. The sublease is terminable on
30 days written  notice.  In connection  with the pending  litigation,  which is
currently stayed and will be dismissed with prejudice if the Delaware Settlement
is consummated, the minority Board members have challenged the authorization and
enforceability of certain agreements,  including the Albuquerque lease. However,
upon  consummation of the Delaware  Settlement,  the  Albuquerque  lease will be
assumed by AutoLend.

         (C) Garden  State Park has granted the  exclusive  right to operate all
food and retail  services and to sell or rent all food products and  merchandise
sold or rented at the racetrack  facility to Service  America  Corporation.  The
term of the agreement is for the 15 year period  terminating  during March 2000.
Service  America agreed to invest  $7,000,000 in the concession  premises at the
racetrack facility. As of September 30, 1998, the Company is contingently liable
for approximately  $800,000,  the  undepreciated  value of the equipment Service
America installed at the track, if this agreement were to be terminated.  At the
end of the agreement or upon termination,  Garden State Park would take title to
such equipment.

         (D) The New Jersey Division of Gaming Enforcement ("DGE") has conducted
an investigation  of the Company and its directors and significant  stockholders
in connection with Garden State Park's and Freehold  Raceway's licenses with the
Casino Control Commission  ("CCC") and the Racing  Commission.  The DGE issued a
report to the CCC in September 1998 in which it objected to the qualification of
the one director who did not file an application and


                                       15


<PAGE>


                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

requested  hearings  for three  stockholders.  The director and one of the three
stockholders have requested hearings with the CCC and if the Delaware Settlement
is  consummated,  the other two  stockholders  will no  longer  be  required  to
qualify.  The DGE also  reserved the right to continue its  investigation  as to
additional directors in the event the Delaware Settlement is not consummated. As
a  result  of such  report  and  subject  to the  consummation  of the  Delaware
Settlement,   the  CCC  and/or  the  Racing  Commission  may  undertake  further
proceedings which could potentially jeopardize the Company's racing licenses and
ability to conduct business with any casino licensees, including simulcasting to
Atlantic City casinos.

         LEGAL PROCEEDINGS

         On or about  September  10, 1997,  three actions were filed in Delaware
Chancery Court in and for New Castle County (the"Delaware Chancery Court"), each
of  which  named  the  Company  as a  nominal  defendant  and one of  which  was
subsequently dismissed (collectively, the "Delaware Actions"). Additionally, two
actions  were filed in New  Jersey  naming  the  Company as a nominal  defendant
(collectively,  the "New Jersey  Actions"),  one of which is a derivative action
filed on or about February 24, 1998 in the United States  District Court for the
District  of New Jersey (the "New Jersey  District  Court"),  and the other is a
purported  class action filed on or about July 15, 1998 in the Superior Court of
New Jersey (the "New Jersey  Superior  Court").  As described  more fully below,
pursuant  to the terms of the  Delaware  Stipulation  dated July 2,  1998,  upon
satisfaction of certain  conditions set forth in the Delaware  Stipulation,  the
Delaware Actions are to be fully and finally  dismissed with prejudice,  and the
parties  are to provide  mutual  releases  of all claims  related to the actions
thereunder  (the "Delaware  Settlement").  See "Delaware  Settlement."  Further,
pursuant to a memorandum of  understanding  entered into on August 18, 1998 (the
"New Jersey  Memorandum"),  upon  satisfaction  of certain  conditions,  the New
Jersey  Actions are to be fully and finally  dismissed with  prejudice,  and the
parties  are to provide  mutual  releases  of all claims  related to the actions
thereunder (the "New Jersey Settlement"). See "New Jersey Settlement."

Mariucci, et al. v. DeSantis, et al.

         The first Delaware Action, captioned John Mariucci,  Robert J. Quigley,
Charles R. Dees, Jr., James J. Murray,  Francis W. Murray, Frank A. Leo, and The
Family  Investment  Trust  (Henry  Brennan as Trustee)  v.  Nunzio P.  DeSantis,
Michael  Abraham,  Anthony  Coelho,  Kenneth W.  Scholl and Joseph  Zappala  and
International  Thoroughbred  Breeders,  Inc.,  C.A.  No.  15918NC  ("Mariucci"),
alleged,  among other  things,  that (i) NPD had  breached  the terms of the NPD
Acquisition  Agreement by failing to fund a line of credit,  (ii) as a result of
such breach,  the resignations of Messrs.  Mariucci,  James Murray and Keonemund
from the Board were  ineffective and (iii) Messrs.  DeSantis,  Coelho,  Abraham,
Scholl and Zappala (the "New Directors") were misusing the assets of the Company
for their personal benefit.  The Mariucci complaint sought an order (a) pursuant
to Section 225 of the Delaware General Corporation Law, determining that (1) the
New Directors were never validly appointed or elected to the Board and (2) Frank
Koenemund,  John Mariucci and James Murray,  notwithstanding  their resignations
upon the NPD  Acquisition,  were  directors  of the Company  (the  "Section  225
Claims") and (b) preserving the status quo pending a final  adjudication  of the
Section 225 Claims.  On September  18,  1997,  the  plaintiffs  filed an amended
complaint.  On September  26, 1997,  the New  Directors  and the Company filed a
motion to dismiss,  or in the  alternative to strike  allegations of the amended
complaint.  The Delaware Chancery Court granted the motion to dismiss by opinion
dated October 14, 1997. The time for appeal of the Delaware Chancery Court Order
has expired and no appeal has been taken by the plaintiffs.

Quigley, et al. v. DeSantis, et al.

     The second Delaware Action,  captioned Robert J. Quigley, Frank A. Leo, and
The Family  Investment  Trust (Henry  Brennan as Trustee) v. Nunzio P. DeSantis,
Michael Abraham,  Anthony Coelho,  Kenneth W. Scholl, Joseph Zappala,  Joseph A.
Corazzi and Las Vegas Entertainment Network, Inc. and International Thoroughbred
Breeders,  Inc., C.A. No. 15919NC  ("Quigley"),  is a derivative suit brought by
two then Directors  (Messrs.  Quigley and Leo) and the Family  Investment  Trust
(collectively, the "Quigley Plaintiffs") which alleges, among other things, that
the New Directors have breached their fiduciary  duties to the Company,  usurped
corporate  opportunities belonging to the Company and incorrectly stated minutes
of Board meetings to omit material  discussions.  The Quigley  complaint alleges
that the New Directors entered into certain  agreements on behalf of the Company
in violation of the "super-majority"  voting provisions of the Company's By-laws
and their fiduciary duty to the Company, including but not limited to, the


                                       16


<PAGE>


                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

Credit Suisse loan agreement, the Tri-Party Agreement, the Bi-Lateral Agreement,
the D&C option  agreement,  Mr.  DeSantis'  employment  agreement and consulting
agreements with Messrs.  Coelho and Zappala.  The Quigley  complaint seeks (i) a
declaratory  judgement  that (a) certain  actions taken by the New Directors are
null and void and (b) the  "super-majority"  By-law  provisions  remain  in full
force and effect,  (ii)  recision of certain  actions taken by the New Directors
and  (iii)  damages  as a result of the  allegedly  unauthorized  and  allegedly
unlawful  conduct of the defendants.  On November 7, 1997, the New Directors and
the Company  filed  answers to the  Quigley  complaint  denying all  allegations
contained in the Quigley complaint.

         On  November  18,  1997,  the  Company  filed  an  amended  answer  and
counterclaim (the "Counterclaim")  against Messrs.  Quigley, Leo, Francis Murray
and Dees (collectively, the "Counterclaim Defendants"). The Counterclaim alleges
that the  Counterclaim  Defendants  have breached  their  fiduciary  duty to the
Company by (i) adopting,  and  subsequently  refusing to recognize the repeal of
certain  "super-majority" By-law provisions in order to aid Brennan in retaining
control  of the  Company's  business  affairs  and  jeopardizing  the  Company's
licenses and  registrations,  (ii)  interfering  in the Company's  hiring of new
independent  auditors  thereby  causing  the  Company  to be  delinquent  in its
required  filings  with the SEC and  causing  the  suspension  of trading in the
Company's stock on AMEX, (iii) using corporate funds for their personal uses and
(iv) usurping corporate  opportunities  properly  belonging to the Company.  The
Counterclaim seeks injunctive relief enjoining the Counterclaim Defendants from,
among other things, interfering in the Company's day-to-day business operations,
the   establishment  of  a  constructive   trust  over  certain  assets  of  the
Counterclaim  Defendants,  a  declaratory  judgement  that the  "super-majority"
voting  provisions  have been  repealed  and  money  damages.  The  Counterclaim
Defendants  filed an answer to the  Counterclaim on January 12, 1998 denying all
of the material  allegations  and, in addition,  Mr. Murray  asserted a wrongful
discharge and seeks monetary damages.

         Subsequent to the scheduling of the Director  Litigation for trial, the
parties  reached  an  agreement  in  principle  to settle the  litigation  which
resulted  in the  Delaware  Stipulation.  As  described  more fully  below under
"Delaware  Settlement,"  upon  satisfaction  of the  conditions set forth in the
Delaware  Stipulation,  the  Director  Litigation  will  be  fully  and  finally
dismissed with  prejudice,  and the parties will provide mutual  releases of all
claims related to such action.
See "Delaware Settlement."

Rekulak v. DeSantis, et al.

     The third Delaware  Action  captioned  James Rekulak v. Nunzio P. DeSantis,
Michael Abraham,  Anthony Coelho,  Kenneth W. Scholl,  Joseph Zappala, Las Vegas
Entertainment Network, Inc. and Joseph A. Corazzi and International Thoroughbred
Breeders,  Inc.,  C.A. No.  15920  ("Rekulak"),  is a  derivative  suit which in
essence  repeats the  allegations  contained in the Quigley  complaint and seeks
similar  relief.  The Rekulak  action was  consolidated  with the Quigley action
pursuant to a stipulation and order dated January 13, 1998.

     The  trustee  of  Brennan's  Bankruptcy  Estate,  as well as the SEC,  have
participated  to a limited  extent in discovery in the litigation of the Quigley
and Rekulak actions.

         As  described  more  fully  below  under  "Delaware  Settlement,"  upon
satisfaction  of the  conditions  set  forth in the  Delaware  Stipulation,  the
Rekulak action will be fully and finally dismissed with prejudice. See "Delaware
Settlement."

Rekulak v. DeSantis, et al.

         On or about  October 8, 1997,  James  Rekulak  filed a complaint in the
Delaware  Chancery Court  captioned  Rekulak v. DeSantis,  et al., CA No. 15978,
which  purports to be a complaint  under  Section  225 of the  Delaware  General
Corporation  Law  and  contains  substantive   allegations  that  are  virtually
identical to those in the complaint in the Mariucci action  described above. The
plaintiff  in this action  sought to have his  complaint  consolidated  with the
complaint  in the  Mariucci  action  and  represented  to the Court  that he was
willing to be bound by the Delaware  Chancery  Court's  decision on  defendants'
motion to dismiss the Mariucci  action.  As set forth above, the Mariucci action
was dismissed by the Delaware  Chancery  Courts  opinion dated October 14, 1997,
and  thereafter,  this action was dismissed with prejudice by a stipulation  and
order dated February 9, 1998.


                                       17


<PAGE>


                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)




Delaware Settlement

         The  Quigley  and  Rekulak  actions,  and  the NPD  and  Green  actions
described  more fully below,  are  currently at a standstill as the parties have
entered  into  the  Delaware   Stipulation  to  settle  such  litigation.   Upon
consummation of the Delaware  Settlement,  the Quigley,  Rekulak,  NPD and Green
actions are to be fully and finally  dismissed with  prejudice,  and the parties
are to provide mutual releases of all claims related to the actions.

         Upon the satisfaction of certain conditions to the Delaware Settlement,
the Company  will  purchase  for $4.6  million  cash and the  assumption  by the
Company of the $5.8 million note issued by NPD and held by Brennan's  Trustee in
Bankruptcy, the approximately 2.9 million shares of the Company's stock owned by
NPD. Simultaneous with such purchase, all contracts (including option grants and
employment and consulting  agreements)  between the Company,  Messrs.  DeSantis,
Coelho,  Zappala,  Scholl and Abraham, will be canceled, and effective upon such
purchase,  Messrs.  DeSantis,  Coelho and Zappala will resign from the Company's
Board. Messrs.  Scholl,  Abraham, Leo and Dees resigned from the Company's Board
on July 23, 1998 upon the mailing of the Delaware  Stipulation  to the Company's
stockholders.

         Upon satisfaction of certain conditions to the Delaware Settlement, the
Company will deposit title to the El Rancho Property into escrow for a period of
up to 270 days to permit LVEN to sell the El Rancho Property. LVEN will have the
exclusive right to sell the El Rancho Property until November 20, 1998, 120 days
after the date the notice of the Delaware Settlement was mailed to the Company's
stockholders  and up to an additional 60 days  thereafter upon the occurrence of
certain  events.  Both LVEN and the  Company  will have the right to sell the El
Rancho Property between November 20, 1998 and April 19, 1999, 270 days after the
mailing  of the  notice,  upon the  payment  of at least  $44.2  million  to the
Company.  If, within 30 days prior to the end of the escrow period, LVEN obtains
a  $44.2  million  loan  for  the  benefit  of the  Company,  LVEN  will  have a
non-exclusive  right to sell the El Rancho Property for an additional year, upon
the payment of $44.2 million to the Company.

         Upon  consummation of the Delaware  Settlement,  certain  agreements to
which the Company is a party will be terminated,  including without  limitation,
all agreements with LVEN (including the entertainment  management  agreement and
the $160 million profit participation note), the Bi-Lateral Agreement,  the Tri-
Party  Agreement  (other than rights of thereunder),  the option  agreement with
D&C,  the  Albuquerque  lease,  Mr.  DeSantis'   employment  agreement  and  the
consulting agreements with Messrs. Coelho, Zappala and Scholl.

         Pursuant to the Delaware  Stipulation,  the Company's By-laws have been
amended to reduce the  authorized  number of directors to six, and in connection
with such reduction,  Messrs.  Abraham,  Scholl,  Dees and Leo resigned from the
Company's  Board.  Until all of the  transactions  contemplated  by the Delaware
Settlement are consummated or the Delaware Settlement is terminated according to
its terms, (a) the Company will not approve, amend or terminate any agreement or
incur any additional  liabilities,  expenses or obligations in excess of $10,000
without the prior written approval of directors Coelho and Quigley,  and (b) the
Company and its subsidiaries will not take any significant action, including any
merger,  purchase or sale of assets for $50,000 or more,  issue any  securities,
approve or amend  employment or consulting  agreements,  borrow $50,000 or more,
fill  any  vacancy  on  the  Company's  Board,   proceed  with  any  meeting  of
stockholders, declare or pay any dividend or other distribution,  consummate any
tender offer,  restructuring,  recapitalization or reorganization,  or amend the
Company's By-laws without the unanimous consent of the Company's Board.

         The Delaware  Settlement is subject to numerous  conditions,  including
without  limitation,  the Delaware Court  dismissal  order becoming  final,  the
approval of Credit Suisse or an alternative lender, and certain approvals by the
United States Bankruptcy Court handling the Brennan bankruptcy proceedings.  The
approvals  of the  Delaware  Court  and  AutoLend  Bankruptcy  Court  have  been
obtained.  The  consummation  of the Delaware  Settlement will not result in the
release by the Company of any claims against  Credit Suisse or Standard  Capital
Group.  However,  in the event that a new financing agreement is approved by the
Company and Credit  Suisse,  Credit  Suisse will obtain a release of claims from
the Company.


                                       18


<PAGE>


                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)





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 factual allegations and claims asserted in the Harris-Federal  complaint are
virtually  identical to the claims asserted in the Quigley  complaint and in the
Counterclaim asserted by the Company in the Quigley action.

         On May 4, 1998,  all defendants  filed a motion to dismiss,  or, in the
alternative,  a motion to stay the HarrisFederal  action,  pending resolution of
the Quigley action.  The New Jersey District Court has not ruled on that motion.
On May 4, 1998, the plaintiff filed an amended complaint to, among other things,
add another stockholder as an additional plaintiff.

         As described  more fully below,  pursuant to the New Jersey  Memorandum
and the satisfaction of certain conditions set forth therein, the Harris-Federal
action is to be fully and finally dismissed with prejudice,  and the parties are
to provide mutual releases of all claims related to the action.  See "New Jersey
Settlement."

Harris v. DeSantis, et al.

         The most  recent 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"),
Cam-L-5534-98,  is a purported  class action suit brought by the same plaintiffs
as the  Harris-Federal  action.  The  complaint  alleges  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.

         Prior to filing pleadings in response to the  Harris-State  complaints,
the  defendants  entered  into the New Jersey  Memorandum  pursuant to which the
Harris-State action is to be fully and finally dismissed with prejudice, and the
parties are to provide mutual releases of all claims related to the action.  See
"New Jersey Settlement."

New Jersey Settlement

         The New Jersey  Actions are  currently at a  standstill  as the parties
have  entered  into the New Jersey  Memorandum.  Subject to the  approval of the
court, the defendants and the Company will pay the aggregate sum of $150,000 for
plaintiffs'  counsel  fees and  expenses  in the New Jersey  Litigation  and any
incentive  award to  plaintiffs  Harris  and  Kaufman  would be paid out of this
$150,000   sum.   Pursuant  to  the  New  Jersey   Settlement,   following   the
implementation of the Delaware  Settlement,  the defendants will restructure the
Audit  Committee of the Company so as to facilitate the  procurement  and timely
filing of audited financial statements in the future.  Further, the Company will
take all appropriate actions necessary to promptly initiate the quotation of the
Company's Common Stock and Preferred Stock on the OTC Bulletin Board.

         Pursuant to the New Jersey  Settlement,  the  plaintiffs  agreed not to
file  objections to the Delaware  Settlement.  In addition,  pursuant to the New
Jersey Settlement,  upon consummation of the Delaware  Settlement the plaintiffs
will move for a dismissal,  with prejudice,  of the  Harris-Federal  action, and
will provide releases to the defendants and the Company and all others acting on
the  Company's  behalf  for any  claims  that were  asserted  or could have been
asserted in the  Harris-Federal  action.  For settlement  purposes only, a class
will be  certified  for  Harris-State  action  consisting  of all holders of the
Company's stock between October 13, 1997 (the date AMEX suspended trading of the
Company's  stock) and the date the Company's  stock is quoted for trading on the
OTC  Bulletin  Board.  The  plaintiffs  and the class  members  will release the
defendants  and the Company and all others acting on the  Company's  behalf from
any claims that were  asserted or could have been  asserted in the  Harris-State
action.


                                       19


<PAGE>


                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)




Other Litigation

         In November  1997,  two  separate  actions were filed in the New Jersey
District  Court against  various  directors of the Company and other  affiliated
parties.  The Company is not a party to either of these  actions,  both of which
are summarized below:

NPD, Inc. v. Quigley, et al.

         On November 18, 1997, NPD (the Company's largest  stockholder and whose
stockholders are Messrs.  DeSantis and Coelho), filed a complaint captioned NPD,
Inc. v. Robert J.  Quigley,  Francis W. Murray,  Frank A. Leo,  Charles R. Dees,
Jr.,  John  Mariucci,  Frank  Koenemund  and James J.  Murray,  C.A.  97-CV-5657
("NPD"),  in the New Jersey District Court. The complaint  alleges,  among other
things, that Messrs. Quigley,  Francis Murray, Leo and Dees, each of whom was at
the time a director of the Company,  and Messrs.  Mariucci,  Koenemund and James
Murray,  each of whom is a former  director of the Company,  conspired  with one
another and Brennan to defraud NPD by (i) approving and subsequently  concealing
from NPD the existence of the "super-majority" voting provision of the Company's
Bylaws and (ii) purporting to repeal such provision and subsequently filing suit
in an effort  to  restore  such  provision,  all of which has had the  effect of
attempting to deprive NPD of control of the Company and perpetuating the control
of Brennan and his  associates.  The NPD suit seeks  compensatory  and  punitive
damages.  On January 8, 1998,  the  defendants  served a motion to dismiss NPD's
complaint.  The NPD action is at a  standstill  as the parties have entered into
the Delaware  Stipulation.  Upon satisfaction of the conditions set forth in the
Delaware  Stipulation,  the NPD action is to be fully and finally dismissed with
prejudice,  and the parties are to provide mutual releases of all claims related
to such actions. The Company is not a party to the NPD suit.

Green v. DeSantis, et al.

         Certain  officers,  directors and affiliates of the Company are parties
to an action filed on November 30, 1997 by Robert  William  Green  ("Green"),  a
stockholder of the Company,  captioned  Robert William Green v. Nunzio DeSantis,
Joseph Corazzi,  Anthony Coelho, Las Vegas Entertainment  Network, Inc. and NPD,
Inc.,  C.A.  97-5359(JHR),  in the New  Jersey  District  Court.  The  complaint
alleges,  among other things, that the defendants have usurped certain corporate
opportunities  at the expense of the Company,  have diluted Green's  interest in
the  Company  through  the  issuance  of shares of stock and have  conspired  to
deprive him of certain  rights under an option granted to him by NPD (the "Green
Option").  Subject to  regulatory  approval,  the Green Option  grants Green the
right to purchase  approximately 50% of the shares of the Company's Common Stock
which are held by NPD. The  expiration  date of the Green Option was January 15,
1998 and  Green  did not  exercise  the  option by such  date.  Green  seeks (i)
compensatory  and punitive  damages,  (ii) an order  enjoining  defendants  from
transferring,  encumbering or alienating  the Company's  Common Stock subject to
the Green Option,  (iii) an order  declaring  the issuance of certain  shares of
Common Stock to be a nullity, and (iv) reformation of the Green Option to extend
the termination  date. This action also raises claims  substantially  similar to
those  made  in the  Quigley  action.  The  parties  to the  Green  action  have
stipulated  to take no action in the case pending  consummation  of the Delaware
Settlement.  Upon  satisfaction  of the  conditions  set  forth in the  Delaware
Stipulation,  the  Green  action  is to be  fully  and  finally  dismissed  with
prejudice,  and the parties are to provide mutual releases of all claims related
to such actions. The Company is not a party to the Green action.

         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.


(8)      DEFERRED FINANCING COSTS

          Deferred  financing  costs at September 30, 1998 include those amounts
associated  with its May 23, 1997 financing  agreement with Credit Suisse.  (See
Note 5). These costs of $6,238,731,  less amortization of $4,129,067,  are being
expensed over the two year life of the loan.  Amortization expense for the three
months ended September 30, 1998


                                       20


<PAGE>


                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

and 1997 was $763,789 and $761,204, respectively.


(9)      STOCK OPTIONS AND WARRANTS

         (A)      EMPLOYEE AND  NON-EMPLOYEE OPTIONS

         The fair value of options  issued  recognized  as  non-employee  option
costs  during the three  months  ended  September  30,  1998 and 1997 was $0 and
$797,138,   respectively.   At  September  30,  1998,   total  employee  options
outstanding  were  1,300,000 and total  non-employee  options  outstanding  were
600,000.  Options to purchase an aggregate  of 6,000,000  shares of Common Stock
have been granted,  subject to  stockholder  approval,  to the  Company's  Chief
Executive  Officer and Chairman of the Board and are not  reflected in the above
amounts. On August 21, 1997, the Company granted  non-qualified stock options to
purchase an  aggregate of 300,000  shares of Common Stock to certain  directors.
Upon consummation of the Delaware  Settlement,  options to purchase an aggregate
of 6,300,000 shares of Common Stock will be terminated. (See Note 7.)

         (B)      WARRANTS

         At September 30, 1998,  total warrants  outstanding  were 1,671,847 and
have been accounted for as deferred  financing  costs and costs  associated with
the  acquisition of the El Rancho  property.  The deferred  financing  costs are
being  amortized over the terms of the related  indebtedness.  The fair value of
the warrants issued in connection with the acquisition of the El Rancho property
has  been   capitalized  and  will  be  amortized  when  the  facility   becomes
operational;  however,  the Company has  determined  to dispose of the El Rancho
Property.


(10)     RELATED PARTY TRANSACTIONS

         During the three months  ended  September  30,  1998,  the Company paid
$30,000 in  consulting  fees,  $10,000  for  director  fees,  $1,500 for an auto
allowance and $5,956 in expense  reimbursements to Anthony Coelho, the Company's
Chairman,  pursuant to an agreement  effective  January 15, 1997.  Mr.  Coelho's
consulting agreement is month to month, under which he is to be paid $10,000 per
month for ongoing consulting services,  $2,500 for each board meeting he attends
and a $500 monthly automobile  allowance.  In the pending  litigation,  which is
currently  stayed and will be dismissed with prejudice upon  consummation of the
Delaware   Settlement,   the  minority   Board  members  have   challenged   the
authorization and enforceability of certain  agreements,  including Mr. Coelho's
consulting  agreement.  Under the terms of the Delaware Settlement,  neither the
Company nor its subsidiaries shall pay to Mr. Coelho more than $10,000 per month
as consulting fees and payment of regular  directors fees and upon  consummation
of the Delaware Settlement, Mr. Coelho's consulting agreement will be terminated
and options granted to him in the consulting agreement will be canceled.

     The Company  pays Mr.  Scholl,  $10,000  per month for  ongoing  consulting
services as project manager for the El Rancho Property. Upon consummation of the
Delaware Settlement, Mr. Scholl's consulting arrangement will be terminated. Mr.
Scholl is currently  the Secretary of Casino-Co and was President and a director
of Casino-Co from March 1996 to May 19, 1997.

         The  Company  pays  $10,000  per  month  to  Mr.  Zappala  for  ongoing
consulting  services and for the first quarter of fiscal 1999,  Mr.  Zappala was
paid  $4,000  for  director  fees  and  $1,277  of  reimbursed  expenses.   Upon
consummation of the Delaware Settlement,  Mr. Zappala's  consulting  arrangement
will be terminated.

         For additional  information  regarding  related party  transactions see
Footnote16 in the consolidated  financial  statements  included in the Company's
Form 10-K for the fiscal year ended June 30, 1998.






                                       21


<PAGE>


                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)




(11)     STOCK TRADING INFORMATION

         Effective  August 7, 1998, the Company's Common Stock and its Preferred
Stock were delisted from trading on the American Stock Exchange ("AMEX") for the
failure to comply with certain  listing  criteria.  Neither the Common Stock nor
the  Preferred  Stock has been traded on AMEX since October 13, 1997 when it was
suspended  because the Company had not filed its Annual  Report on Form 10-K for
fiscal 1997 within the  Securities  and Exchange  Commission's  prescribed  time
period.  Application is being made to initiate quotation of the Common Stock and
the  Preferred  Stock on the OTC Bulletin  Board.  In the interim,  the stock is
listed for quotation on the NQB Pink Sheets.

         SUBSEQUENT EVENTS

          (A)  On November  3,1998,  New Jersey voters  approved an amendment to
               the state constitution  giving the legislature the power to enact
               laws  authorizing the specific kind,  restrictions and control of
               wagering on horse races.  The amendment will give the Legislature
               the power to respond to the changing  needs of New Jersey's horse
               racing  industry  which faces strong  competition  from New York,
               Pennsylvania,   and  Delaware   racetracks  and  other  forms  of
               gambling.


          (B)  The Company has been advised that Penn National  Gaming,  Inc., a
               Pennsylvania   corporation  which  owns,  operates  and  conducts
               wagering at  racetracks  and  off-track  wagering  facilities  in
               Pennsylvania and West Virginia,  has entered into a joint venture
               agreement  with  Greenwood  New Jersey,  Inc.,  to  purchase  the
               Company's  racing  operations.  Greenwood  New Jersey,  Inc.  had
               previously  entered into a July 2, 1998 asset purchase  agreement
               with the Company to purchase the real property and related assets
               at  Freehold  Raceway  and lease the real  property  and  related
               assets at Garden  State Park.  (See Note 2) Pursuant to the joint
               venture,  upon satisfaction of certain conditions (which include,
               without limitation,  the Company's approval New Jersey regulatory
               approvals,  Hart-Scott Rodino compliance and creditor approvals),
               Penn  National  is to acquire a 50%  interest  in  Greenwood  New
               Jersey,  Inc.  The  Company  is not a party to the joint  venture
               agreement.














                                       22


<PAGE>





ITEM 2 -  MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF  FINANCIAL  CONDITIONS  AND
     RESULTS OF OPERATIONS

 Liquidity and Capital Resources

         The Company's working capital,  as of September 30, 1998, was a deficit
of  ($37,749,630)  which  represents a decrease in the deficit of  approximately
$5,750,000 from the September 30, 1997 working capital deficit of ($43,499,328).
The  decrease  in the  deficit  was caused in part by the  re-classification  of
certain  assets and current  liabilities  in  connection  with the  discontinued
racetrack  operations,  offset by losses  incurred from  operations.  On May 23,
1997, the Company  obtained a credit facility from Credit Suisse.  This two-year
$55 million facility was secured by a pledge of certain of the personal and real
property  of the  Company and its  subsidiaries.  Proceeds of the Credit  Suisse
Credit  Facility  were used to repay in full the  Company's  $30 million  credit
facility with Foothill Capital Corporation ("Foothill") and were used to provide
funds for working capital and other general corporate purposes,  including,  but
not limited to,  preliminary  development  of the El Rancho  Property.  Interest
under the Credit Suisse Credit Facility is payable monthly in arrears at 7% over
the LIBOR. Of the remaining facility borrowings, approximately $16.8 million was
placed in various escrow accounts ( including $10 million in an interest reserve
account,  which  balance at  September  30, 1998 was  $974,471),  financing  and
closing  fees of $4.3 million were paid and $3.9 million was used by the Company
for general corporate  purposes and repayment of certain financial  obligations.
At September 30, 1998,  the interest  rate on the Credit Suisse Credit  Facility
was  12.34%.  The  Company  is  not in  compliance  with  certain  non-financial
covenants of the Credit  Suisse  Credit  Facility.  As a result of not receiving
waivers of these violations, Credit Suisse could accelerate the $55 million loan
at anytime. The loan matures June 1, 1999.

         The  Credit  Suisse  Credit  Facility  is  evidenced  by a  convertible
promissory note (the "CSFB Note") pursuant to which $10 million of the aggregate
principal  amount of the CSFB Note can be  converted  in certain  circumstances,
including on the maturity date of the CSFB Note, upon the prepayment of at least
$10  million  in an  aggregate  principal  amount  of  the  CSFB  Note  or  upon
acceleration  of the CSFB Note, at the option of Credit  Suisse,  into shares of
the Company's  Common Stock at a conversion price of $8.75 per share (subject to
adjustment in certain events).  In addition,  pursuant to the Credit Suisse loan
agreement,  Credit Suisse was granted  warrants to purchase  1,044,000 shares of
Common Stock at an exercise  price of $4.375 per share (subject to adjustment in
certain  events).  Warrants  to  purchase  546,847  shares of  Common  Stock are
immediately  exercisable and warrants to purchase 497,153 shares of Common Stock
become exercisable upon certain events.

         The net  loss  for the  three  months  ended  September  30,  1998  was
($1,999,452).  Cash flows used in operating activities amounted to approximately
$482,000. The net loss incurred by the Company includes approximately $1,200,000
of non-cash expenses during the period.

         Cash provided by financing  activities was $1,740,543  during the three
months ended  September 30, 1998,  consisting  principally of amounts drawn from
the Credit Suisse interest escrow account in the amount of $1,987,585.

         The Company's  scheduled principal payment on debt service are expected
to be  approximately  $55,514,000  during the twelve months ending September 30,
1999.  Additionally,  the  Company  may be  obligated  to  repay  an  additional
indebtedness of approximately $11,500,000 in connection with Freehold Raceway if
a sale of such facility is consummated. (See discussion below).

         Provided  Credit  Suisse does not make a demand for payment on the CSFB
Note,  and  continues to release  funds in the  interest  reserve  account,  the
Company currently estimates that the funds made available from the Credit Suisse
Credit Facility and placed in the interest reserve  account,  together with cash
generated from the Company's  operations  prior to the sale of the  discontinued
operations,  will be sufficient to finance its current  operations  and expected
expenditures and carrying costs of the El Rancho Property until February 1999.

     Prior to June 30, 1998, the Company  determined to sell its racetracks.  On
July 2, 1998 the Company  announced  that it had entered into an asset  purchase
agreement with Greenwood New Jersey, Inc. ("Greenwood"), a wholly-owned


                                       23


<PAGE>


                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                  MANAGEMENT'S ANALYSIS OF FINANCIAL CONDITIONS
              AND RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED
                               SEPTEMBER 30, 1998

subsidiary of Greenwood Racing, Inc. which owns Philadelphia Park racetrack, the
Turf Clubs and Phonebet, for the sale of the real property and related assets at
Freehold  Raceway and the lease for a period of seven years of the real property
and  related  assets  at Garden  State  Park (the  "Greenwood  Agreement").  The
Greenwood  Transaction is subject to the satisfaction of a number of conditions,
including  without  limitation,  approval  of the  Company's  stockholders,  the
receipt by the  Company of a fairness  opinion  from an  independent  investment
banker,  and the receipt by Greenwood  of approval  from  applicable  regulatory
authorities.  The purchase  price is $45 million,  consisting  of $33 million in
cash  and a  seven-year  non-contingent  promissory  note in the  amount  of $12
million,  with an additional $10 million in contingent promissory notes becoming
effective upon, among other things,  New Jersey's  approval of off-track betting
facilities or telephone account  pari-mutuel  wagering on horse racing.  Further
adjustments  could be made to increase the purchase price if certain  additional
regulatory  gaming  changes are approved in New Jersey in the future.  Greenwood
Racing,  Inc. will  guarantee the  performance  by Greenwood of all  obligations
under the notes.

         If the  Greenwood  Transaction  is not  completed by December 31, 1998,
either  party  has the  right  to  terminate.  Subject  to  various  conditions,
including Greenwoods' right of first refusal, the Company's Board has the right,
at any time prior to the closing,  to exercise its fiduciary duties and accept a
superior proposal for the sale and/or lease of Freehold Raceway and Garden State
Park.  The  Company's  Board is  continuing  to  consider  all of the  Company's
strategic  options to  maximize  stockholder  value.  Upon the sale of  Freehold
Raceway and the lease or sale of Garden State Park,  the Company  will  withdraw
from any gaming  business  regulated by the State of New Jersey.  The  Company's
Board is  considering  alternatives  for the  Company's  future,  including  the
acquisition of one or more operating businesses.

         On July 2, 1998, the Company  entered into the Delaware  Stipulation to
resolve the pending stockholder  derivative  litigation in the Delaware Court of
Chancery.  The  Delaware  Settlement  is  subject  to a  number  of  conditions,
including,  without limitation,  an agreement with Credit Suisse or an alternate
lender.  The Delaware  Settlement will result in the Company's purchase from NPD
of  approximately  2.9 million  shares of the  Company's  Common  Stock for $4.6
million,  plus the  assumption  by the Company of NPD's $5.8 million  promissory
note now held by Robert E.  Brennan's  Bankruptcy  Trustee,  the  retirement  of
approximately 2.1 million  additional shares of the Company's Common Stock owned
by LVEN,  the  resignation  of certain of the  Company's  Board  members and the
termination of various agreements. The Delaware Settlement also contemplates the
disposition  of the Company's  non-operating  El Rancho  Property.  The Delaware
Settlement  will not result in the release by the Company of any claims  against
Credit Suisse or Standard Capital Group.

         The timing of the events  stated above cannot be estimated at this time
(however, it is expected that the racetrack properties will be sold or leased by
June 30, 1999) and will materially affect the liquidity of the Company. When the
sale and lease of the racetrack  properties  occurs as outlined above, a portion
of cash  proceeds  from the  Greenwood  Transaction  and  sale of the El  Rancho
Property will be used to reduce the Company's outstanding debt; the Company does
not know how much,  if any, of such  proceeds  will be  available to the Company
after repayment of its debt. Due to the materiality of these outstanding events,
the timing and the proceeds to be received from the asset sales,  and the timing
of the consummation of the Delaware Settlement, it is impossible to estimate the
liquidity  needs of the  Company at this time.  In the event the Company and its
lenders are unable to agree upon  satisfactory  terms,  the Company will need to
complete a financing arrangement with an alternative lender in order to complete
the anticipated  Delaware  Settlement and to provide  liquidity  beyond February
1999.

         The accompanying  financial statements have been prepared assuming that
the Company will continue as a going concern.  As discussed in Footnote 1 to the
consolidated  financial statements,  the Company is in violation of several loan
covenants with its major lender, is party to various legal proceedings and their
proposed  settlements,  and has sustained a loss of approximately  $18.3 million
for the year ended June 30, 1998 and a loss of approximately  $2,000,000 for the
three months ended  September  30, 1998,  all of which raise  substantial  doubt
about its ability to continue as a going concern.  Management's  plans in regard
to these matters are also described in Footnote 1 to the consolidated  financial
statements. The consolidated financial statements do not include any adjustments
that might result from the outcome of these uncertainties.


                                       24


<PAGE>


                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                  MANAGEMENT'S ANALYSIS OF FINANCIAL CONDITIONS
              AND RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED
                               SEPTEMBER 30, 1998


Seasonality and Effect of Inclement Weather

         Because  horse  racing is  conducted  outdoors,  a number of  variables
contribute to the  seasonality of the business,  most  importantly  the weather.
Weather  conditions,  particularly  during the winter  months,  sometimes  cause
cancellations of races or severely curtail  attendance,  which reduces both live
racing and simulcast wagering at on-site and off-site facilities.

         In addition,  a  disproportionate  amount of the  Company's  revenue is
received  during the period  September  through May of each year because  Garden
State Park and Freehold  Raceway  conduct  only  simulcast  receiving  (not live
racing) during the summer months.  As a result,  the Company's  revenue has been
the greatest in the second and third quarters of its fiscal year.

Inflation

         To date,  inflation  has not had a  material  effect  on the  Company's
operations.

Impact of Year 2000 on the Company's Systems

         The year 2000 issue is the result of computer  programs  being  written
using two digits  rather  than four to define  the  applicable  year,  which may
result in systems  failures and  disruptions  to  operations at January 1, 2000.
Management  is in the  process  of  determining  whether  all  of the  Company's
accounting  and  operational  systems are year 2000  compliant.  The Company has
initiated formal  communications with its suppliers of the racetrack pari-mutuel
computer  systems to determine  the extent to which the Company is vulnerable to
those third parties'  failure to remediate  their own Year 2000 issue.  Although
there can be no assurance,  management does not expect the costs associated with
any  required  conversions  of  systems  to ensure  year 2000  compliance  to be
significant and expects to be Year 2000 compliant by its fiscal 1999 year end.


Results of Operations for the Three Months Ended September 30, 1998 and 1997

         Prior to June 30, 1998, the Company  determined to sell its racetracks.
On July 2, 1998, the Company entered into the Greenwood Agreement.  Accordingly,
the operating  results of the racetrack  subsidiaries  have been  segregated and
reported as discontinued operations for each of the periods presented.  Also, on
the same date,  the Company  entered  into the  Delaware  Stipulation  to settle
certain  pending  litigation.  Among  other  actions,  the  Delaware  Settlement
contemplates the disposition of the El Rancho Property.

          For the  first  quarter  of  Fiscal  1999,  The  Company's  loss  from
continuing  operations was  ($4,142,156)  as compared to a loss from  continuing
operations for the  comparable  period in prior fiscal year of  ($4,770,146),  a
decrease in the loss of  $627,990.  This  decrease  in the loss from  continuing
operations was primarily the result of a decrease in general and  administrative
expenses  primarily  as a result of  non-employee  option  expense  of  $795,858
recognized  in the prior fiscal  year's  first  quarter,  partially  offset by a
decrease in interest income and an increase in amortization of finance costs and
casino carrying costs in the comparable quarters.

         Income  from  discontinued  operations  was  $2,142,704  for the  first
quarter of Fiscal 1999 as compared to income from  discontinued  operations  for
the first quarter of Fiscal 1998 of $1,726,264,  an increase of $416,440. During
the first quarter of Fiscal 1999, revenue from racetrack  operations at Freehold
Raceway and Garden State Park  decreased  by an  aggregate of $236,905  from the
comparable prior fiscal quarter and racetrack  operating  expenses  decreased by
$665,229  during the same  period,  primarily as a result of a decrease in wages
and benefits and outside services at the two facilities.
See the separate results for Garden State Park and Freehold Raceway below.

         During the first  quarter of Fiscal  1999,  the Company  incurred a net
loss  of  ($1,999,452)  as  compared  to a net  loss  of  ($3,043,882)  for  the
comparable  quarter in Fiscal 1998.  The decrease in net loss of $1,044,430  was
the result of those differences described above.


                                       25


<PAGE>


                   INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                  MANAGEMENT'S ANALYSIS OF FINANCIAL CONDITIONS
              AND RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED
                               SEPTEMBER 30, 1998


         The New Jersey Division of Gaming Enforcement  ("DGE") has conducted an
investigation  of the Company and its directors and significant  stockholders in
connection  with Garden State Park's and Freehold  Raceway's  licenses  with the
Casino Control Commission  ("CCC") and the Racing  Commission.  The DGE issued a
report to the CCC in September 1998 in which it objected to the qualification of
one director who did not file an  application  and requested  hearings for three
stockholders.  The director and one of the stockholders have requested  hearings
with the CCC and if the  Delaware  Settlement  is  consummated,  the  other  two
stockholders  will no longer be required to qualify.  The DGE also  reserved the
right to continue its investigation as to additional  directors in the event the
Delaware  Settlement  is not  consummated.  As a result of the DGE's  report and
subject to the  consummation of the Delaware  Settlement,  the CCC and/or Racing
Commission may undertake further  proceedings which potentially could jeopardize
the Company's  racing  licenses and ability to conduct  business with any casino
licensees,  including  simulcasting to Atlantic City casinos, which could have a
significant negative impact on the Company's operations until the racetracks are
sold or leased.

         o        Garden State Park

         Garden  State Park's  Fiscal 1999 Harness Meet began  September 4, 1998
and is scheduled to run 51 days until  December 12, 1998.  Garden State Park has
requested  approval  from  the  New  Jersey  Racing  Commission  to run a 31 day
Thoroughbred  Meet from April 9, 1999 to May 29, 1999 and a 52 day Harness  Meet
in fiscal  2000 from August 27, 1999 to December  18,  1999.  During  these race
meetings,  Garden  State Park  simulcasts  its live racing to other  racetracks,
other licensed venues and certain Atlantic City casinos.  Simulcasting  into the
racetrack from other racetracks continues throughout the year.

         During the three months ended  September 30, 1998,  Garden State Park's
revenue  of  $6,075,048   decreased  ($278,739)  from  the  $6,353,787  for  the
corresponding three month period,  primarily reflecting the effect of a decrease
in revenues generated from simulcasting to other racetracks and in live wagering
income.  Expenses decreased $475,402 or 8%. The decreased expense is principally
attributable to a decrease in wages and benefits of $80,000 or 4% as a result of
the Company's effort to cut overhead and operating costs, a reduction of outside
services during  simulcast  periods and a reduction in utilities,  insurance and
materials  and  supplies.  As a result  of the  decreased  revenues  and an even
greater decrease in expenses, Garden State Park realized net income of $859,386,
as compared to net income of  $662,723 in the same  quarter of the prior  fiscal
year.

         During the three month period  ended  September  30, 1998,  the average
live  wagering  at Garden  State  Park was  $118,000,  a 22%  decrease  from the
corresponding prior period.  During the first quarters of Fiscals 1998 and 1997,
15 and 14 days, respectively,  of live racing were conducted. During the periods
of live racing,  Garden State Park also  simulcasted  its racing signal to other
race tracks around the country.  The average simulcast  wagering at these tracks
decreased  17% over the prior  year.  During the period of live  racing and most
other days,  Garden State Park receives  simulcasts from other racetracks during
the day and evening.  The average daily  wagering on simulcasts was $285,000 for
the three months ended September 30, 1998, a 5% decrease from the  corresponding
prior period amount of $300,000.

         o        Freehold Raceway

         The  Company   conducts  its  Harness  Meet  through   Freehold  Racing
Association, Inc. ("FRA") and Atlantic City Harness, Inc. ("ACH"), the operating
companies of Freehold Raceway. The FRA Fiscal 1999 Harness Meet began August 13,
1998  and is  scheduled  to run for 99 days  thru  December  31,  1998.  ACH has
requested  approval from the New Jersey Racing Commission to run its Fiscal 1999
Harness Meet for 101 days from  January 1, 1998  through May 31,  1999.  FRA has
applied for approval  from the New Jersey  Racing  Commission  to run its fiscal
2000 Harness Meet for 91 days from August 12, 1999 through December 31, 1999.

          During the three months ended September 30, 1998,  Freehold  Raceway's
revenue was  $8,230,333,  a slight increase from the  corresponding  three month
period of the prior  year,  primarily  reflecting  the result of an  increase in
revenues from receiving simulcasting, partially offset by a decrease in revenues
resulting from a 2 day decrease in the number of live race days and decreases in
average wagering from live racing and sending  simulcasting.  Expenses decreased
$189,827 or 3% for the three months ended  September  30, 1998 when  compared to
the same  period last year,  primarily  as a result of the  Company's  continued
effort to cut overhead and operating costs. As a result of the overall increased
revenues  and  decreased  expenses,  Freehold  Raceway  realized  net  income of
$1,283,318 as compared to net

                                       26


<PAGE>


                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                  MANAGEMENT'S ANALYSIS OF FINANCIAL CONDITIONS
              AND RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED
                               SEPTEMBER 30, 1998

income of $1,063,542 in the same quarter last year.

         During the three month  period of harness  racing ended  September  30,
1998, the average live wagering at Freehold Raceway was $217,638,  a 6% decrease
from the corresponding  prior period amount of $230,573.  During the three month
period ended  September 30, 1998, 35 live days of wagering were conducted and 37
days were  conducted in the  corresponding  prior period.  During the periods of
live racing,  Freehold  Raceway also simulcasted its racing signal to other race
tracks  around the  country.  The average  simulcast  wagering  at these  tracks
decreased 6% over the prior year.  During  periods of live racing and most other
days,  Freehold Raceway receives simulcasts from other racetracks during the day
and evening. The average daily wagering on simulcasts was $325,880 for the three
months ended  September  30, 1998, a 4% increase  from the  corresponding  prior
period amount of $312,880.


                                       27


<PAGE>



                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES


                                     Part II

                                OTHER INFORMATION


Item 6.

         During the quarter ended  September 30, 1998, the registrant  filed the
following Current Reports on Form 8-K:



        Date                                       Subject Matter
----------------------         -------------------------------------------------


         July 2, 1998      Sale and lease of racetrack assets

         August 7, 1998    Delisting of the Company's Common and
                           Preferred Stock from the American Stock
                             Exchange


                                       28


<PAGE>



                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                                   SIGNATURES


         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
the  Registrant  has duly  caused  this report to be signed on its behalf by the
undersigned thereunto duly authorized.



                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.




November 13, 1998        /s/Nunzio P. DeSantis
                         Nunzio P. DeSantis, President,
                         Chief Executive Officer and Director
                         (Principal Executive Officer)



November 13, 1998         /s/William H. Warner
                          William H. Warner
                          Treasurer
                          (Principal Financial and Accounting Officer)


                                       29


<PAGE>