FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

(Mark One)

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

For the quarterly period ended               March 31, 2006
                               -----------------------------------------------
                                                    OR

[X]  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                                     22-2332039
--------------------------------------------------------------------------------
(State or other jurisdiction of          (I.R.S. Employer Identification No.)
 incorporation or organization)

       Suite 1300, 1105 N. Market Street, Wilmington, Delaware 19899-8985
      --------------------------------------------------------------------
               (Address of principal executive offices) (Zip Code)

                                 (302) 427-7599
      --------------------------------------------------------------------
              (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
   ---------    ----------

     Indicate by check mark whether the registrant is an  accelerated  filer (as
defined in Rule 12b-2 of the Exchange Act.)
Yes         No    X
   --------    ----------

     Indicate  by check as to whether  the  registrant  is a shell  company  (as
defined in Exchange Act Rule 12b-2).
Yes         No    X
   --------    ----------

                     APPLICABLE ONLY TO CORPORATE ISSUERS:

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

            Class                     Outstanding at May 19, 2006
------------------------------        ---------------------------
Common Stock, $ 2.00 par value             11,367,487 Shares


<PAGE>


                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.

                                    FORM 10-Q

                                QUARTERLY REPORT
                    for the Three Months ended March 31, 2006
                                   (Unaudited)


                                TABLE OF CONTENTS

                                                                         PAGE
PART I. FINANCIAL INFORMATION

     Item 1. Financial Statements:

     Consolidated Balance Sheets
              as of March 31, 2006 and December 31, 2005..................1-2

     Consolidated Statements of Operations
              for the Three Months ended
              March 31, 2006 and 2005.....................................3

     Consolidated Statement of Stockholders' Equity
              for the Three Months ended March 31, 2006...................4

     Consolidated Statements of Cash Flows
              for the Three Months ended
              March 31, 2006 and 2005.....................................5

Notes to Consolidated Financial Statements................................6-27

     Item 2. Management's Discussion and Analysis of
                Financial Condition and Results of Operations.............28-39

     Item 3. Quantitative and Qualitative Disclosures About Market Risk...40

     Item 4.  Controls and Procedures.....................................40

PART II. OTHER INFORMATION

     Item 6. Exhibits ....................................................41

SIGNATURES................................................................42

CERTIFICATIONS............................................................43


<PAGE>
                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                   AS OF MARCH 31, 2006 AND DECEMBER 31, 2005

                                     ASSETS
<TABLE>
                                                                                            March 31,
                                                                                              2006                   December 31,
                                                                                           (UNAUDITED)                  2005
                                                                                   ---------------------------    ------------------
<CAPTION>
<S>                                                                             <C>                            <C>
 CURRENT ASSETS:
        Cash and Cash Equivalents                                               $                     785,088  $          1,846,239
        Accounts Receivable                                                                           228,356               218,087
        Prepaid Expenses                                                                            2,492,636             1,697,034
        Other Current Assets                                                                          216,952               524,200
        Assets of Discontinued Operations                                                               1,672               401,672
                                                                                   ---------------------------    ------------------
             TOTAL CURRENT ASSETS                                                                   3,724,704             4,687,232
                                                                                   ---------------------------    ------------------


 VESSELS, EQUIPMENT & LIVESTOCK:
        Vessel - Palm Beach Princess - under Capital Lease                                         17,500,000            17,500,000
        Vessel - Big Easy - under Capital Lease                                                    20,305,348            20,305,348
        Equipment                                                                                   3,574,213             3,334,079
        Leasehold Improvements                                                                        918,999               988,625
        Vessel Not Placed in Service - Royal Star                                                   3,033,406             3,007,216
                                                                                   ---------------------------    ------------------
                                                                                                   45,331,966            45,135,268
        LESS: Accumulated Depreciation and Amortization                                             4,995,216             4,024,434
                                                                                   ---------------------------    ------------------
             TOTAL VESSELS, EQUIPMENT & LIVESTOCK- NET                                             40,336,750            41,110,834
                                                                                   ---------------------------    ------------------


 OTHER ASSETS:
        Notes Receivable                                                                           14,278,651            14,278,651
        Vessel Deposits - Related Parties                                                           9,726,377             9,726,377
        Deposits and Other Assets - Related Parties                                                 4,393,180             4,541,125
        Deposits and Other Assets - Non-Related Parties                                             1,955,458             1,734,756
        Spare Parts Inventory                                                                         960,155             1,032,603
                                                                                   ---------------------------    ------------------
             TOTAL OTHER ASSETS                                                                    31,313,821            31,313,512
                                                                                   ---------------------------    ------------------


 TOTAL ASSETS                                                                   $                  75,375,275  $         77,111,578
                                                                                   ===========================    ==================
</TABLE>

 See Notes to Consolidated Financial Statements.

                                        1
<PAGE>

                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                   AS OF MARCH 31, 2006 AND DECEMBER 31, 2005

                      LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
                                                                                            March 31,
                                                                                              2006                   December 31,
                                                                                           (UNAUDITED)                  2005
                                                                                   ---------------------------    ------------------
<CAPTION>
<S>                                                                             <C>                            <C>
 CURRENT LIABILITIES:
        Accounts Payable                                                        $                   7,979,021  $          7,310,568
        Accrued Expenses                                                                            4,809,574             4,648,932
        Short-Term Debt                                                                             1,981,411             1,677,784
        Vessel Lease Payable - Current Portion                                                     10,113,989             5,225,061
        Deferred Interest - Short-Term                                                                516,792               510,423
        Short-Term Debt - Related Parties                                                             521,255               531,353
        Liabilities of Discontinued Operations                                                        408,200               405,802
                                                                                   ---------------------------    ------------------
             TOTAL CURRENT LIABILITIES                                                             26,330,242            20,309,923
                                                                                   ---------------------------    ------------------

 LONG-TERM LIABILITIES:
        Vessel Lease Payable - Long Term Portion                                                   21,030,280            24,530,380
        Long-Term Debt - Net of Current Portion                                                     2,351,908             2,549,321
        Deferred Interest - Long-Term                                                               1,108,821             1,239,609
        Long-Term Advances From Related Parties                                                       196,164               653,571
                                                                                   ---------------------------    ------------------
             TOTAL LONG-TERM LIABILITIES                                                           24,687,173            28,972,881
                                                                                   ---------------------------    ------------------

 DEFERRED INCOME                                                                                    1,541,473             1,559,388

 COMMITMENTS AND CONTINGENCIES                                                                              -                     -


 STOCKHOLDERS' EQUITY:
        Series A Preferred Stock, $100 Par Value,
           Authorized 500,000 Shares, 362,844
           Issued and Outstanding                                                                  36,284,375            36,284,375
        Series B Convertible Preferred Stock, $10 Par Value,
           Authorized 500,000 Shares, 500,000
           Issued and Outstanding                                                                   5,000,000             5,000,000
        Common Stock, $2 Par Value, Authorized 25,000,000 Shares,
          12,282,564,  Issued and Outstanding                                                      24,565,125            24,565,125
        Capital in Excess of Par                                                                   22,955,882            22,462,582
        (Deficit) (subsequent to June 30, 1993,
           date of quasi-reorganization)                                                          (65,531,457)          (61,585,158)
                                                                                   ---------------------------    ------------------
                                                                                                   23,273,925            26,726,924
        LESS:
           Treasury Stock, 915,077 Shares                                                            (457,538)             (457,538)

                                                                                   ---------------------------    ------------------
             TOTAL STOCKHOLDERS' EQUITY                                                            22,816,387            26,269,386
                                                                                   ---------------------------    ------------------


 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                     $                  75,375,275  $         77,111,578
                                                                                   ===========================    ==================
</TABLE>

 See Notes to Consolidated Financial Statements.

                                        2
<PAGE>



                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
               FOR THE THREE MONTHS ENDED MARCH 31, 2006 AND 2005
                                   (Unaudited)
<TABLE>
                                                                                                  Three Months Ended
                                                                                                       March 31,
                                                                                   -------------------------------------------------
                                                                                               2006                      2005
                                                                                   ---------------------------    ------------------
<CAPTION>
<S>                                                                             <C>                            <C>
OPERATING REVENUES:
        Gaming                                                                  $                   7,853,325  $          8,489,580
        Fare                                                                                          961,016             1,076,323
        On Board                                                                                      428,032               599,464
        Other                                                                                         151,223               115,618
                                                                                   ---------------------------    ------------------
        NET OPERATING REVENUES                                                                      9,393,596            10,280,985
                                                                                   ---------------------------    ------------------

 OPERATING COSTS AND EXPENSES:
        Gaming                                                                                      3,207,918             2,592,901
        Fare                                                                                          794,972             1,247,296
        On Board                                                                                      242,451               286,832
        Maritime & Legal Expenses                                                                   2,760,359             1,813,085
        General & Administrative Expenses                                                             855,612               306,958
        General & Administrative Expenses - Parent                                                    607,864               420,196
        Ship Development Costs - Big Easy                                                                   -             1,109,310
        Ship Development Costs - Royal Star                                                           385,956                12,336
        Equine Costs                                                                                        -               149,362
        Development Costs - Other                                                                      73,074               211,969
        Depreciation & Amortization                                                                 1,055,418               556,495
        Loss on Impairment of Assets                                                                  400,000               100,000
                                                                                   ---------------------------    ------------------
        TOTAL OPERATING COSTS AND EXPENSES                                                         10,383,624             8,806,740
                                                                                   ---------------------------    ------------------

 OPERATING INCOME (LOSS)                                                                             (990,028)            1,474,245

 OTHER INCOME (EXPENSE):
        Interest and Financing Expenses                                                            (1,984,440)             (639,424)
        Interest and Financing Expenses - Related Party                                              (550,965)             (259,702)
        Cost of Options Granted for financing                                                        (493,300)                    -
        Interest Income                                                                                   649                 9,493
        Interest Income Related Parties                                                                71,785                69,505
                                                                                   ---------------------------    ------------------
        TOTAL OTHER INCOME (EXPENSE)                                                               (2,956,271)             (820,128)
                                                                                   ---------------------------    ------------------

 INCOME (LOSS) BEFORE TAX PROVISION                                                                (3,946,299)              654,117
         Income Tax Expense (Benefit)                                                                       -                 5,000
                                                                                   ---------------------------    ------------------

 NET INCOME (LOSS)                                                              $                  (3,946,299) $            649,117

 NET BASIC INCOME PER COMMON SHARE                                              $                       (0.35) $               0.06
                                                                                   ===========================    ==================

 NET DILUTED INCOME PER COMMON SHARE                                            $                       (0.35) $               0.06
                                                                                   ===========================    ==================


 WEIGHTED AVERAGE COMMON
    SHARES OUTSTANDING - Basic                                                                     11,367,487            10,567,487
                                                                                   ===========================    ==================

 WEIGHTED AVERAGE COMMON
    SHARES OUTSTANDING - Diluted                                                                   11,367,487            11,221,096
                                                                                   ===========================    ==================
</TABLE>

 See Notes to Consolidated Financial Statements.


                                        3
<PAGE>


                   INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                   FOR THE THREE MONTHS ENDED MARCH 31, 2006

<TABLE>
                                                           Series A             Series B Convertible
                                                           Preferred                  Preferred                 Common
                                                    ----------------------  -------------------------  -------------------------
                                                     Number of               Number of                  Number of
                                                     Shares       Amount     Shares         Amount      Shares          Amount
                                                    ---------  -----------  ------------  -----------  ------------  -----------
<CAPTION>
<S>                                                  <C>      <C>             <C>        <C>            <C>         <C>
BALANCE - DECEMBER 31, 2005                          362,844  $ 36,284,375    500,000    $ 5,000,000    12,282,564  $ 24,565,125

   Options Issued as Compensation
Net (Loss) for the Three Months Ended March 31, 2006

                                                    ---------  -----------  ------------  -----------  ------------  -----------
BALANCE - MARCH 31, 2006                             362,844  $ 36,284,375    500,000    $ 5,000,000    12,282,564  $ 24,565,125
                                                    =========  ===========  ============  ===========  ============  ===========
</TABLE>

<TABLE>
                                                                Capital                         Treasury
                                                               in Excess                          Stock
                                                              of Par          (Deficit)          At Cost        Total
                                                          --------------   --------------    ------------   -------------
<CAPTION>
<S>                                                    <C>               <C>              <C>             <C>
BALANCE - DECEMBER 31, 2005                            $     22,462,582  $   (61,585,158) $     (457,538) $   26,269,386

   Options Issued as Compensation                               493,300                                          493,300
Net (Loss) for the Three Months Ended March 31, 2006                          (3,946,299)                     (3,946,299)

                                                          --------------   --------------    ------------   -------------
BALANCE - MARCH 31, 2006                               $     22,955,882  $   (65,531,457) $     (457,538) $   22,816,387
                                                          ==============   ==============    ============   =============
</TABLE>

See Notes to Consolidated Financial Statements.

                                        4
<PAGE>


                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
               FOR THE THREE MONTHS ENDED MARCH 31, 2006 AND 2005
<TABLE>
                                                                                                  Three Months Ended
                                                                                                       March 31,
                                                                                   -------------------------------------------------
                                                                                              2006                       2005
                                                                                   ---------------------------    ------------------
<CAPTION>
<S>                                                                             <C>                            <C>
 CASH FLOWS FROM OPERATING ACTIVITIES:
        INCOME (LOSS) BEFORE DISCONTINUED OPERATIONS                            $                  (3,946,299) $            649,117
        Adjustments to reconcile income (loss) to net cash (used in)
            provided by operating activities:
        Depreciation and Amortization                                                               1,055,418               556,495
        Compensation for Options Granted                                                              493,300                     -
        Impairment of Assets                                                                          400,000               100,000
        (Decrease) in Deferred Income                                                                 (17,915)                    -
        Changes in Operating Assets and Liabilities -
           (Increase) Decrease in Accounts Receivable                                                 (10,269)               67,299
           (Increase) Decrease in Other Assets                                                        307,248              (111,801)
           (Increase) in Prepaid Expenses                                                            (795,602)             (886,180)
           Increase in Accounts Payable and Accrued Expenses                                        2,392,521             2,870,614
                                                                                   ---------------------------    ------------------
        CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES BEFORE
           DISCONTINUED OPERATIONS                                                                   (121,598)            3,245,544
        CASH PROVIDED BY DISCONTINUED OPERATING ACTIVITIES                                              2,400                 2,400
                                                                                   ---------------------------    ------------------
        NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES                                          (119,198)            3,247,944
                                                                                   ---------------------------    ------------------

 CASH FLOWS FROM INVESTING ACTIVITIES:
     Purchase and Improvements of Big Easy - Related Party                                                  -            (5,634,313)
     Purchase and Improvements of Royal Star                                                                -              (305,426)
     Advances -  Related Party                                                                        147,945                     -
     Capital Expenditures                                                                            (242,956)             (911,261)
     Decrease in Other Investment Activity - Related Party                                                                   53,256
     (Increase) Decrease in Other Investment Activity                                                (221,038)              148,552
                                                                                   ---------------------------    ------------------
        NET CASH (USED IN) INVESTING ACTIVITIES                                                      (316,049)           (6,649,192)
                                                                                   ---------------------------    ------------------

 CASH FLOWS FROM FINANCING ACTIVITIES:
     Funds Received from PDS Notes & Other Lenders                                                    124,883             2,850,000
     Proceeds from Related Party Loans                                                                      -               725,158
     Advances (Paid) Received (to) From Related Parties                                              (683,097)                    -
     Principal Payments on Short Term Notes                                                           (41,311)               (9,262)
     Principal Payments on Long Term Notes                                                            (26,715)             (286,127)
     Decrease in Balances Due to/from Discontinued Subsidiaries                                         2,400               (21,238)
                                                                                   ---------------------------
        CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES
          BEFORE DISCONTINUED FINANCING ACTIVITIES                                                   (623,840)            3,258,531
        CASH (USED IN) DISCONTINUED FINANCING ACTIVITIES                                               (2,400)               (2,400)
                                                                                   ---------------------------    ------------------
        NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES                                          (626,240)            3,256,131
                                                                                   ---------------------------    ------------------

 NET (DECREASE) IN CASH AND CASH EQUIVALENTS                                                       (1,061,487)             (145,117)
           LESS CASH AND CASH EQUIVALENTS  FROM
             DISCONTINUED OPERATIONS                                                                      336
        CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD                                        1,846,239             1,640,895
                                                                                   ---------------------------    ------------------

        CASH AND CASH EQUIVALENTS AT END OF THE PERIOD                          $                     785,088  $          1,495,778
                                                                                   ===========================    ==================

        Supplemental Disclosures of Cash Flow Information:
        Cash paid during the period for:
        Interest                                                                $                       8,276  $          1,440,262
        Income Taxes                                                            $                           -  $            256,517
</TABLE>
   Supplemental Schedule of Non-Cash Investing and Financing Activities:
   During the Three Months ended March 31, 2006, the PDS interest expense
     for the period in the amount of $1,563,479 was added to the short
     term principal balance of the respective leases.


See Notes to Consolidated Financial Statements.


                                       5
<PAGE>


<PAGE>


                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

(1) BASIS OF PRESENTATION

     The  accompanying  consolidated  financial  statements  have been  prepared
assuming   International    Thoroughbred   Breeders,   Inc.   and   subsidiaries
(collectively, the "Company") will continue as a going concern.

     The Company has recorded  recurring losses from operations of $6.8 million,
$1.9 million,  $12.2 million and $3.9 million during the fiscal years ended June
30, 2004 and 2005, for the six months ended December 31, 2005, and for the three
months ended March 31, 2006  respectively.  These losses and the lack of working
capital have caused us to be unable to comply with certain of our debt covenants
and the Company has been unable to make its required debt service payments since
December,  2005. On March 22 , 2006 we entered into a Forbearance Agreement with
our lender which waived prior defaults and permits us to defer making payment on
our debt and certain  equipment leases until June, 2006,  except for an interest
payment of $572,400 and an equipment lease payment of $113,500 which were due on
May 1, 2006. The May 1, 2006 payment has not been made as of May 22, 2006 due to
the  Company's  lack of funds.  As of May 22,  2006,  we are in  default  of the
Forbearance  Agreement and all Obligations can automatically  become immediately
due and payable,  including all  obligations  under the leases without notice or
demand,  provided  that the Lender may  rescind  such  acceleration  in its sole
discretion.  We are  negotiating  with  our  lender  to waive  or  extend  these
payments.  Based  upon the  Company's  historical  operating  performance  it is
difficult to predict the Company's ability to remain in compliance with the debt
covenants. The uncertainty about the Company's ability to generate adequate cash
flow to service  its debt and meet its debt  covenants  raises  doubt  about the
Company's ability to continue as a going concern.

     The  Company is pursuing  several  initiatives  intended  to  increase  its
liquidity.  As  discussed  in Note 13, the  Company  temporarily  suspended  the
operation of the Big Easy.  We will  continue to incur  expenses to maintain the
vessel in wet storage;  however,  those amounts will be substantially  less than
when we were preparing the vessel for service and while operating the vessel.

     The Company is seeking refinancing,  has liquidated its equine holdings and
may be forced to sell other Company assets. We are also exploring  opportunities
to profitably deploy the Big Easy or consider selling this vessel.  Absent asset
sales,  refinancing or the profitable deployment of the Big Easy, we will not be
able to make the payment  which was due on our May 1, 2006 and our debt  service
payments  beginning on June 1, 2006. No assurances can be given that the Company
will be successful in these endeavors prior to June 1, 2006 or thereafter.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     (A) Nature of Operations -  International  Thoroughbred  Breeders,  Inc., a
Delaware corporation ("ITB" and together with its subsidiaries,  the "Company"),
was incorporated on October 31, 1980. Its principal  operating  subsidiary,  ITG
Vegas,  Inc. ("ITG Vegas") is currently  engaged in an entertainment  cruise and
casino  ship  business  under a  bareboat  charter  of the vessel M/V Palm Beach
Princess (the "Palm Beach Princess").  The Palm Beach Princess performs fourteen
cruises weekly from the Port of Palm Beach,  Florida,  that is, a daytime and an
evening  cruise each day. Each cruise is of five to six hours  duration.  During
each cruise, the Palm Beach Princess offers a range of amenities and services to
her passengers,  including a full casino,  sit- down buffet dining, live musical
shows,  discotheque,  bars and lounges,  swimming pool and sundecks.  The casino
occupies  approximately  15,000 square feet aboard the ship and is equipped with
approximately 425 slot machines, 29 table games, including blackjack,  craps and
roulette, 7 poker tables, and a sports wagering book.

     Using the funding provided by the PDS Transactions (see Note 4) and working
capital,   our  subsidiary,   ITG  Palm  Beach,  LLC  ("ITGPB"),   began  making
alterations,  retrofits and  improvements  to a second vessel,  the Big Easy, to
prepare it for use as a casino  cruise ship.  After  numerous  delays  caused by
start up problems

                                       6
<PAGE>

                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

and hurricane  Wilma, we began limited regular  passenger  service also from the
Port of Palm  Beach,  Florida on  November  12,  2005.  On  February  1, 2006 we
indefinitely  suspended operations of the Big Easy after two and one half months
of  operations  because the Coast  Guard  removed the  vessel's  Certificate  of
Inspection until the installation of an insulating  bulkhead was completed.  The
February 1, 2006 Coast Guard  decision was the latest in a series of  unforeseen
business  circumstances which limited  management's ability to introduce the Big
Easy to the market and necessitated the suspension of Big Easy commercial cruise
operations indefinitely due to disappointing operating results.

     (B)  Principles of  Consolidation  - The accounts of all  subsidiaries  are
included in the consolidated financial statements.  All significant intercompany
accounts and transactions have been eliminated in consolidation.

     (C)  Classifications  - Certain prior years' amounts have been reclassified
to conform with the current years' presentation.

     (D) Revenue Recognition - Casino revenue consists of gaming winnings net of
losses. Net income is the difference between wagers placed and winning payout to
patrons and is recorded  at the time wagers are made.  The vast  majority of the
wagers  are in the form of cash;  although,  to a  limited  extent,  we do grant
credit to our customers.  Fare revenues  consist of admissions to our vessel and
are  recognized  as earned.  On board  revenues  consist  primarily of ancillary
activities  aboard  the  vessel  such as the sale of food and  beverages,  cabin
rental,  gift shop,  spa  activities  and skeet  shooting.  These  revenues  are
recognized on the date they are earned.

     (E)  Accounting  Periods - The  subsidiaries  which  operate the Palm Beach
Princess  and the Big Easy end their  quarterly  accounting  periods on the last
Sunday of each quarter. These end of the week cut offs create more comparability
of the Company's  quarterly  operations,  by generally having an equal number of
weeks (13) and week-end days in each quarter. During the quarter ended March 31,
2006,  these  accounting  periods ended on April 2, 2006 as compared to April 3,
2005 in the quarter ended March 31, 2005.  Since our accounting  periods consist
of a 4-4-5 week quarter, from time to time an additional week is included in the
first  period to adjust our period ends to more  closely  match a calendar  year
end. For example, the period ended March 31, 2005 contained 14 weeks compared to
the 13 weeks of the period ended March 31, 2006.

     (F) Spare Parts  Inventory - Spare parts  inventory  consists of  operating
supplies,  maintenance materials and spare parts. The inventories are carried at
cost.  It is necessary  that these parts be readily  available so that the daily
cruise  operations are not cancelled due to mechanical  failures.  The inventory
was purchased  from Palm Beach Maritime  Corporation  ("PBMC") at a time when we
were operating the Palm Beach Princess under a bare boat charter with PBMC. PBMC
is owned by Mr.  Francis W. Murray.  Fair value of this inventory was determined
by  actual  invoice  prices  and  estimates  made  by the  Palm  Beach  Princess
engineers.

     (G) Deferred  Financing Costs - Deferred  financing costs that are incurred
by the  Company  in  connection  with  the  issuance  of Debt are  deferred  and
amortized to interest expense over the life of the underlying indebtedness using
the straight-line method.

     (H)  Depreciation and Amortization - Depreciation of property and equipment
were computed by the  straight-line  method at rates  adequate to allocate their
cost or  adjusted  fair  value  in  accordance  with U.  S.  generally  accepted
accounting   principles  over  the  estimated  remaining  useful  lives  of  the
respective assets.  Amortization  expense includes the write off of major vessel
repairs and  maintenance  work completed at dry dock period.  These expenses are
written  off during a two year period  following  the dry dock  period.  For the
three months ended March 31, 2006 and 2005,  the  amortized  expense was $84,635
and $46,709, respectively.

                                        7

<PAGE>

                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

     As a result of the PDS  transactions  (see  Footnote  4) we are leasing the
vessel  M/V  Palm  Beach   Princess  and  the  Big  Easy  under   capital  lease
arrangements.  The Company began depreciating the M/V Palm Beach Princess during
our  previous  fiscal year end of June 30, 2005 and began  depreciating  the Big
Easy when it was  placed in  service  on October  18,  2005.  Financing  fees in
connection  with the PDS  financings,  are being  amortized over the life of the
loans. For the three months ended March 31, 2006 and 2005, the amortized expense
associated with these finance costs was $73,457 and $24,344, respectively .

     Long-lived assets and certain identifiable intangibles held and used by the
Company are reviewed for impairment  whenever events or changes in circumstances
warrant  such a  review.  The  carrying  value of a long-  lived or  amortizable
intangible asset is considered  impaired when the anticipated  undiscounted cash
flow from such asset is  separately  identifiable  and is less than its carrying
value.  In that  event,  a loss is  recognized  based on the amount by which the
carrying value exceeds the fair value of the asset.  Losses on long-lived assets
to be disposed of are  determined in a similar  manner,  except that fair values
are reduced for the cost of  disposition.  Beginning  with fiscal years starting
after December 15, 2001, SFAS 142 requires an annual  impairment review based on
fair value for all intangible assets with indefinite lives.

     (I) Net Assets of Discontinued  Operations - At March 31, 2006 and December
31, 2005,  the  remaining  net assets and  liabilities  of Garden State Park and
Freehold  Raceway were  classified as "Assets of Discontinued  Operations."  and
"Liabilities of Discontinued Operations."

     (J) Recent Accounting Pronouncements

     In July  2002,  the  FASB  issued  SFAS  No.  148,  "Accounting  for  Costs
Associated with Exit or Disposal Activities".  This statement requires companies
to recognize  costs  associated  with exit or disposal  activities when they are
incurred  rather than at the date of a commitment  to an exit or disposal  plan.
Management has recognized the costs incurred  associated  with the suspension of
the Big Easy  operations on February 1, 2006 in our quarter ended March 31, 2006
and future carrying costs will be recognized as incurred.

     In  December,  2004,  the FASB issued  Statement  No. 123  (revised  2004),
"Stock-Based Payment" (SFAS 123R). This statement replaces SFAS 123, "Accounting
for Stock-Based  Compensation",  and supersedes APB Opinion No. 25,  "Accounting
for Stock Issued to  Employees"  (APB 25). SFAS 123R is now effective for public
companies for the first interim or annual  reporting  period of the registrant's
first fiscal year  beginning on or after June 15, 2005. In  accordance  with the
new rule,  the  Company  will begin to  expense  the cost of  employee  services
received in exchange for an award of equity  instruments based on the grant-date
fair value of the award,  effective July 1, 2005. Until July 1, 2005 the Company
accounted for stock option grants using the intrinsic-value method in accordance
with APB 25. Under the intrinsic-value method, because the exercise price of the
stock  options  granted  was equal to or greater  than the  market  price of the
underlying  stock  on the  date  of  the  grant,  no  compensation  expense  was
recognized.  No options were  granted  during the three month period ended March
31, 2006.

     (K) Income Taxes - The Company has adopted the  provisions  of Statement of
Financial  Accounting  Standards No. 109,  "Accounting  for Income Taxes" ("SFAS
109").  SFAS 109 requires a company to recognize  deferred tax  liabilities  and
assets  for the  expected  future  tax  consequences  of  events  that have been
recognized  in its  financial  statements  or tax  returns.  Under this  method,
deferred  tax  liabilities  and assets are  determined  based on the  difference
between the  financial  statement  carrying  amounts and tax basis of assets and
liabilities. Deferred tax assets and liabilities are adjusted for the effects of
changes in tax laws and rates on the date of enactment. The Company has provided
a valuation  reserve  against the full amount of the net operating  loss benefit
because in the  opinion of  management  based  upon the  earning  history of the
Company, it is more likely than not that the benefits will not be realized.

                                        8

<PAGE>


                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

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

     (M) Concentrations of Credit Risk - Financial instruments which potentially
subject  the  Company  to  concentrations  of  credit  risk  are  cash  and cash
equivalents.  The Company places its cash  investments  with high credit quality
financial  institutions  and  currently  invests  primarily  in U.S.  government
obligations that have maturities of less than 3 months. The amount on deposit in
any one institution that exceeds  federally  insured limits is subject to credit
risk.

     (N)  Use  Of  Estimates  -  The  preparation  of  financial  statements  in
conformity with generally accepted accounting  principles requires management to
make estimates and  assumptions  that affect the reported  amounts of assets and
liabilities and disclosure of contingent  assets and liabilities at the dates of
the  financial  statements  and the  reported  amounts of revenues  and expenses
during the reporting periods. Actual results could differ from those estimates.

     (O)  Deferred  Income - The gain  from the sale of our  Garden  State  Park
property on  November  28, 2000 in the amount of  $1,439,951  has been  deferred
until  such  time as the note  receivable  on the sale  has been  collected.  In
connection  with the PDS  Transaction  we have  deferred the gain on the sale of
equipment of $101,522 over the term of the equipment lease.

     (P) Net Income per Common  Share - Basic  earnings per share is computed as
net income  available to common  shareholders  divided by the  weighted  average
number of common shares outstanding during the quarter. When applicable, diluted
earnings per share reflects the potential  dilution that could occur from common
shares issuable through stock options and warrants  utilizing the treasury stock
method.  Diluted  earnings per share is calculated by using the weighted average
number of common shares outstanding adjusted to include the potentially dilutive
effect of these occurrences.

     (Q) Goodwill - Through the purchase of Leo Equity,  we purchased the assets
and  operations  of GMO Travel which was a 100% owned  subsidiary of Leo Equity.
GMO Travel provides reservations and travel services for our Palm Beach Princess
subsidiary and other non-ship related travel activities. Travel services for the
Palm Beach Princess  include  reservations  and travel services for its numerous
foreign  employees and our customers,  some of which rely on air travel to reach
our location.  The goodwill  recorded in the amount of $193,946  represents  the
fair value of GMO Travel based on its  discounted  cash flows and the  synergies
and cost savings  gained by the Palm Beach  Princess.  The Company  accounts for
goodwill in accordance with Statement of Financial Accounting Standards ("SFAS")
No. 142,  "Goodwill and Other  Intangible  Assets".  In accordance with SFAS No.
142,  amortization  of  goodwill  is not  required.  Goodwill is tested at least
annually for  impairment by comparing  the fair value of the recorded  assets to
their carrying  amount.  If the carrying amount of the goodwill exceeds its fair
value, an impairment loss is recognized.

(3)  UNREGISTERED SALES OF EQUITY SECURITIES

     On July 13, 2005 the Company began accepting subscriptions for the purchase
of shares of the  Company's  Series B  Convertible  Preferred  Stock,  par value
$10.00 per share (the "Series B Preferred Stock").  The subscriptions for Series
B  Preferred  Stock  have  been  received  by the  Company  as part of a private
offering of 500,000  shares of its Series B Preferred  Stock,  at a subscription
price of $15.00 per share.  As of December  28,  2005 the  Company had  accepted
subscriptions for the purchase of 295,033 shares of Series B Preferred Stock and
had received approximately $4 million in net cash proceeds. On December 29, 2005
our  Chairman,  Francis  W.  Murray,  purchased  all of the  remaining  Series B
Preferred  Stock which had not  previously  been sold in the  private  offering,
amounting to 204,966  shares of Series B Preferred  Stock,  on the same terms as
theprivate  offering.  We sold the  Series B  Preferred  Stock to Mr.  Murray in
payment of $3,074,500 of debt which

                                       9

<PAGE>

                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

the Company had owed to Mr. Murray, this amount has not been included in the net
cash proceeds amount of $4 million as indicated above.

     Subscribers  also  received  warrants for the purchase of 1.2 shares of the
Company's  common stock for each share of Series B Preferred Stock purchased (an
aggregate of 600,000 shares of the Company's  common stock based on purchases of
all 500,000  shares of the Series B Preferred  Stock).  The exercise price under
each  such  warrant  is $3.25  per  common  share,  and the  warrants  issued to
purchasers of the Series B Preferred  Stock are  exercisable for a term of three
(3) years beginning one year after issuance.

     The Series B Preferred  Stock will  automatically  be converted into common
stock upon the effective  date of a Registration  Statement  covering the common
shares issuable upon conversion which was filed with the Securities and Exchange
Commission on December 30, 2005. The initial conversion price is $2.00 per share
of common stock,  declining by $.02 for each full calendar quarter elapsing from
July 1, 2005 to the date on which the conversion  shall occur.  Upon conversion,
each share of Series B Preferred Stock will be converted into a number of shares
of common stock determined by dividing the subscription price, $15.00 per share,
by the conversion price then in effect.  If the registration  statement  becomes
effective  during the quarter ended June 30, 2006, the conversion  price will be
$1.94 and the  outstanding  Series B Preferred  Stock will be  convertible  into
3,865,980 shares of additional new common shares.

     Pursuant to the Subscription Agreement, the Company also agreed to increase
the size of its Board of Directors from four to seven  members,  and to fill two
of those  vacancies  with one person to be  designated  by MBC  Global,  LLC, an
Illinois limited  liability  company which has served as a financial  advisor to
the Company, and a second person to be designated by another group of purchasers
of the  Series  B  Preferred  Stock.  As of the date  hereof,  the  Company  has
increased  the size of its  Board  to  seven  members  and  expects  to fill the
vacancies thereby created in due course.

     The  majority of the net  proceeds of the sale of Series B Preferred  Stock
was used for working  capital of the subsidiary  companies which operate the Big
Easy and the Palm Beach Princess, and a portion of the proceeds was used for the
Parent Company operating expenses.

(4)  PDS TRANSACTION

     Since July 2004, ITB and several of its subsidiaries, along with Palm Beach
Maritime  Corporation ("PBMC") and Palm Beach Empress,  Inc. ("PBE"),  companies
owned or controlled by Francis W. Murray,  completed several financial and lease
transactions  with PDS  Gaming  Corporation  ("PDS"),  a publicly  held  company
located in Las Vegas, along with several of its affiliated companies. On July 7,
2004,  January 5, 2005 and April 5, 2005 we closed on various  transactions with
PDS. On June 30, 2005 the  Company and several of its  subsidiaries,  along with
companies controlled by Francis W. Murray, borrowed $29,313,889 to refinance the
approximately $27 million in existing PDS debts, with approximately $2.3 million
of add-on financing being provided.  We have been operating under the vessel and
equipment leases and financing arrangements consummated on July 7, 2004, January
5, 2005, April 5, 2005, June 30, 2005,  September 1, 2005,  December 9, 2005 and
March 22, 2006 transactions. Below is a summary of those transactions.

     (A) On July 7, 2004 PBMC and its  affiliate  company,  PBE, the Company and
our  subsidiaries  ITG Vegas and ITG Palm  Beach,  LLC  closed on a $23  million
transaction  with PDS. The transactions  were structured as a sale/leaseback  by
PBMC and PBE,  although,  as to $20  million of the $23  million  total,  it was
effectively equivalent to a secured loan against the Palm Beach Princess and the
Big Easy  vessels.  Of the $23  million,  $14 million was advanced to PBMC by an
affiliate of PDS as purchase  price in purchasing the Palm Beach  Princess.  The
PDS affiliate leased and chartered the Palm Beach Princess back to PBMC and PBE,
which then subchartered the vessel to our subsidiary, ITG Vegas, Inc. Another $6
million of the $23 million

                                       10

<PAGE>

                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

was advanced  for the benefit of PBMC and PBE for the purchase and  retrofitting
of the vessel Big Easy,  which  vessel PDS  (through  an  affiliate)  leased and
chartered to PBMC and PBE, who, in turn, subchartered the Big Easy vessel to ITG
Vegas, Inc. and a new wholly-owned  subsidiary of ITG Vegas, ITG Palm Beach, LLC
("ITG Palm  Beach").  The  remaining  $3 million of funding  from PDS is for ITG
Vegas and ITG Palm Beach's  lease of gaming  equipment for use on the Palm Beach
Princess and Big Easy vessels.

     All of the outstanding capital stock of PBMC is owned by Francis W. Murray,
our  Chairman  and Chief  Executive  Officer.  PBMC owns 50% of the  outstanding
capital stock of PBE. The remaining 50% of the outstanding  capital stock of PBE
is owned by Raymond  Parello and has been pledged to us to secure  certain debts
owed to us as described below under "Prior Operations - Sale of Las Vegas Note."

     Sale-Leaseback of the Princess. Prior to the closing of the PDS Transaction
(the  "Closing"),  the Palm Beach Princess was owned by PBMC.  PBMC was indebted
under the Ship Mortgage  Obligation in a principal  amount of  $12,000,000  plus
accrued  interest,  the  Brennan  Trustee  was the  holder of the Ship  Mortgage
Obligation,  and our  subsidiary,  ITG Vegas,  had agreed to  purchase  the Ship
Mortgage   Obligation  for  a  purchase  price  of  $13,750,000  (the  "Purchase
Obligation")  in order to obtain  rights to operate the vessel  under a bareboat
charter. In addition, we were indebted to the Brennan Trustee in connection with
our repurchase of 3,678,145  shares of our common stock (the "ITB  Obligation").
As of  Closing  of the first PDS  transaction  on July 7,  2004,  the  aggregate
outstanding   amount  of  the  Purchase   Obligation   and  ITB  Obligation  was
$7,916,451.71,  for all of  which  PBMC,  ITG  Vegas  and ITB were  jointly  and
severally  liable.  At the  Closing,  Cruise  Holdings  I, LLC  ("Cruise  I"), a
subsidiary of PDS Gaming Corporation ("PDS"),  purchased the Palm Beach Princess
from PBMC for  $14,000,000,  $7,916,451.71 of which was paid by PBMC directly to
the Brennan Trustee to satisfy the Purchase Obligation and the ITB Obligation.

     Also at July 7, 2004,  Cruise I entered into a Bareboat  Charter and Option
to Purchase (the "Princess Charter") and a Master Lease Agreement (together with
Lease Schedule No. 1 thereto,  the "Princess Master Lease") to charter and lease
the Palm Beach Princess to PBMC and PBE for a period of five years.  The charter
hire/rent payable by PBMC and PBE was $178,500 per month for the first 12 months
and $391,762.80 for the remaining term.

     The Princess Charter included an option for PBMC to purchase the Palm Beach
Princess at the end of the term and is structured  such that the monthly charter
hire payments under the Princess Charter would reduce the purchase price for the
Palm Beach Princess to zero in five years and title would  automatically pass to
PBMC at the end of the term of the Princess Charter.

     PBMC and PBE entered into a Sub-Bareboat  Charter to charter the Palm Beach
Princess  to ITG Vegas and ITG Palm  Beach  for the same five year  period.  The
charter  hire  payable by ITG Vegas and ITG Palm Beach to PBMC and PBE under the
Princess  Sub-Charter was $50,000 per month ($600,000 per year) plus one percent
(1%) of the gross  operating  revenues  of the Palm  Beach  Princess.  Under the
Princess Sub-Charter,  PBMC granted to ITG Vegas and ITG Palm Beach an option to
purchase PBMC's right to acquire the Palm Beach Princess at the end of the term,
for an exercise price equal to the appraised  value of the Palm Beach  Princess,
$17,500,000,  to which certain amounts, including principal payments made by ITG
Vegas on the PDS lease of the Palm Beach  Princess  were to be credited  against
the purchase price.

     Acquisition  of the Big  Easy.  On  March  1,  2004,  PBE  entered  into an
agreement to purchase the Big Easy from Empress Joliet Corporation at a purchase
price of  $3,800,000.  At  Closing,  PBE  assigned  to Cruise  Holdings  II, LLC
("Cruise II"), a subsidiary of PDS and affiliate of Cruise I, all of its rights,
title  and  interest  in and to the  Big  Easy  Sale  Agreement,  and the sum of
$6,000,000  was  deposited  in a blocked  account to be used to pay costs of the
alterations,  retrofit and improvements of the Big Easy. Such deposit was funded
to the extent of $2,880,652 by ITG Vegas.

                                       11

<PAGE>

                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

     Also at Closing,  Cruise II entered  into a Bareboat  Charter and Option to
Purchase (the "Big Easy  Charter")  and a Master Lease  Agreement to charter and
lease the Big Easy to PBMC and PBE for a period of five years.  The charter hire
was $82,695 for the first 12 months and $171,702.54 for the remaining term.

     The Big Easy Charter included an option for PBE to purchase the Big Easy at
the end of the term and was structured the same as the Princess  Charter in that
the monthly payments of charter hire under the Big Easy Charter would reduce the
purchase  price for the Big Easy to zero and title would  automatically  pass to
PBE.

     PBMC and PBE also  entered into a  Sub-Bareboat  Charter to charter the Big
Easy to ITG Vegas and ITG Palm Beach for a five year  period.  The charter  hire
payable  by ITG Vegas and ITG Palm  Beach  under  the Big Easy  Sub-Charter  was
$100,000  per month ($1.2  million per year) plus one percent  (1%) of the gross
operating revenues of the Big Easy. Under the Big Easy Sub-Charter,  PBE granted
to ITG Vegas and ITG Palm Beach an option to purchase PBE's right to acquire the
Big Easy at the end of the term,  for an exercise  price equal to the  appraised
value of the Big Easy, to be determined following  commencement of operations of
the Big Easy, to which certain amounts were to be credited.

     Lease of Gaming Equipment. At Closing, ITG Vegas and ITG Palm Beach entered
into a Master Lease,  together with three Lease Schedules (the "Gaming Equipment
Lease"),  to lease certain new and used gaming equipment from PDS for use on the
two vessels.  A portion of the  equipment was  previously  owned and used by ITG
Vegas on the  Princess  and was sold to PDS at Closing,  for  $500,000  and then
leased  back  pursuant to a Gaming  Master  Lease.  Each  Schedule of the Gaming
Equipment Lease had a term of three years. Aggregate rent during fiscal 2005 for
all  gaming  equipment  was  approximately  $1.4  million  per year  under  this
agreement.  ITG Vegas and ITG Palm Beach have an option to  purchase  the leased
equipment  at the end of the term for a purchase  price equal to the fair market
value of the equipment at such time.

     (B)  On  January  5,  2005,  Royal  Star  Entertainment,   LLC  ("RSE"),  a
wholly-owned  indirect subsidiary of ITB, borrowed $2,850,000 from PDS. The Loan
was evidenced by the Note and was to be repaid on January 17, 2006.  Interest on
the Loan was payable monthly at a rate of 10% per annum. At closing,  RSE paid a
closing  fee to the  lender in an amount  equal to  $78,375,000  or 2.75% of the
principal  amount  of the  Note.  The  proceeds  of the loan  were  used to make
improvements  to the vessels Royal Star and Big Easy.  Also at the closing,  RSE
entered into an equipment  lease with PDS providing for the lease by RSE of slot
machines to be located on the vessel Royal Star. The term of the Lease was three
years,  with rental  payments of $11,879 per month for the first four months and
$95,351.73 for the next thirty-two months. RSE paid a closing fee of $57,020.74,
and a security deposit in the amount of $95,351.73.

     (C) On April 5, 2005,  ITB and certain of its  subsidiaries,  together with
PBMC,  PBE,  Francis W. Murray and Francis X. Murray,  executed and delivered as
joint and several  co-borrowers,  a promissory note payable to PDS in the amount
of  $4,350,000.  The  note  evidenced  a loan  made by PDS to the  Company,  the
proceeds  of which were  placed in escrow in order to obtain the  release of the
vessel the Big Easy from dry dock.  The $4.35  million note bore interest at 20%
per annum, until June 30, 2005 when it was refinanced.  As further consideration
to PDS, ITG Vegas,  Inc. and ITG Palm Beach, LLC entered into a three-year lease
of an additional  $1.5 million of gaming  equipment.  Rental payments under such
lease were $50,000 per month for 36 months.

     (D) On June 30, 2005,  the Company,  together  with its  subsidiaries,  ITG
Vegas, Inc. ("ITGV"), ITG Palm Beach, LLC ("ITGPB"),  International Thoroughbred
Gaming Development  Corporation  ("ITGD") and Riviera Beach  Entertainment,  LLC
("RBE")  and Royal Star  Entertainment,  LLC  ("RSE"),  entered  into a Loan and
Security  Agreement  with PDS as lender,  pursuant to which ITGV,  RBE,  RSE and
ITGPB  (collectively,  the "Borrowers"),  borrowed  $29,313,889 to refinance the
approximately  $27 million in existing debts (whether in the form of loans, ship
leases or ship  charters)  to PDS,  with  approximately  $2.3  million of add-on
financing

                                       12

<PAGE>

                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

being  provided.  The  maturity of all of the new  indebtedness  will be July 1,
2009.  Our  overall  annual  interest  rate on the new PDS loan is 17% until ITG
Vegas'  EBITDA  exceeds $17 million on an  annualized  basis,  at which time the
interest rate will be 15.5%.  Funding was  completed on July 18, 2005  following
the satisfaction of certain  conditions,  including the execution,  delivery and
recording of ship mortgages and all other closing documents.

     In accounting for the add-on financing, we applied guidance as set forth in
EITF  96-19,  "Debtor's  Accounting  for a  Modification  of  Exchange  of  Debt
Instruments".  We  believe  this  add-on  financing  was a  modification  of the
existing debt rather than an  extinguishment  of the old debt. The present value
of the cash flows  required to fund the new debt has not  increased by more than
10%.  Therefore,  in accordance with EITF 96-19 the new debt has been treated as
an  exchange  or  modification  of the debt.  We did not write off any  deferred
financing costs which were on the books at that time.

     Equipment  leases  taken  during our fiscal  year ended June 30,  2005 will
remain the same and the terms of the  equipment  leases and the loans,  taken in
January and April will be extended until July 1, 2009.

     Effective August 1, 2005 monthly  interest and principal  payments were due
in the amount of  approximately  $1,100,000  during the first 2 years,  with the
remaining  monthly  payments  decreasing  slightly.  The  terms  of the new loan
require the  Company to  maintain an EBITDA of $7.5  million for the nine months
ending  October 2, 2005,  $10.5 million for the twelve months ending  January 1,
2006, increasing to $12 million for the twelve months ending October 1, 2006. If
these levels are not maintained or if we should not be in compliance  with other
various loan covenants we will be in default of the loan.

     Under the Loan and  Security  Agreement  signed on June 30,  2005 with PDS,
upstream  payments by the  Borrowers to the Company were limited to $150,000 per
month plus amounts of ITG Vegas'  income tax savings  attributed to inclusion in
the Parent Company tax return.

     As a condition  to entering  into the PDS  Transaction,  PDS  required  the
Company,  International  Thoroughbred Gaming Development  Corporation ("ITGDC"),
PBMC and PBE to guaranty  performance  of certain of the PDS  Transactions.  The
Company,  ITGDC and PBMC and PBE entered  into a Guaranty  Agreement  and Pledge
Agreements guaranteeing the obligations of the borrowers.

     The PDS  indebtedness  is secured by mortgages  on the Royal Star,  the Big
Easy and the Palm Beach  Princess,  an assignment of our  promissory  note dated
November 29, 2000 payable by Realen-Turnberry/Cherry  Hill, LLC in the principal
amount of $10 million,  an assignment of our promissory note, dated May 1, 2002,
payable by OC Realty in the principal amount of $2,021,176, and stock in certain
of our subsidiaries.

     In connection with this  refinancing,  PBMC, an affiliate 100% owned by our
Chairman and CEO, Francis W. Murray, acquired all of the membership interests of
Cruise Holdings I, the owner of the casino cruise ship Palm Beach Princess,  and
PBE,  an  affiliate  50% owned by Mr.  Murray,  acquired  all of the  membership
interests  of Cruise  Holdings  II, the owner of the casino  cruise ship the Big
Easy. As a result,  the Bareboat Charters between PBMC and Cruise I, and PBE and
Cruise II, respectively,  terminated, and, in place of the sub-Bareboat Charters
by ITGV and ITGPB,  these  subsidiaries  charter the  vessels  from Cruise I and
Cruise II under substantially the same economic terms as had applied under their
previous sub-Bareboat Charters in effect on July 7, 2004.

     (E) Placement Fee Agreement

     On September 1, 2005 the Company  entered  into a Placement  Fee  Agreement
with PDS Gaming Corporation.  In consideration of PDS providing $29.3 million in
funding and lease  agreements to the Company

                                       13

<PAGE>

                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

during our prior fiscal year ended June 30, 2005,  ITB agreed to pay a Placement
fee of $750,000 for such funding.  The agreement was verbally  agreed to between
the  parties  during  the  period of our  negotiations  with PDS  Gaming,  which
resulted in the  additional  loan proceeds given to the Company in the amount of
$2,158,166 and a potential  agreement  wherein PDS would loan an additional $3.2
million  in the fall of 2005,  which  loan was never  completed.  ITB has made a
deposit of $50,000  and the balance was to be paid  monthly  beginning  March 1,
2006 with monthly payments of $58,333, without interest, until February 1, 2007.
The Placement Fee  Agreement  also  permitted the Company to cancel an equipment
lease it had  signed  with PDS on April 5,  2005.  The  original  amount  of the
equipment lease was $1.5 million. Under the Placement Fee Agreement, the Company
was  permitted  to cancel the lease  after  paying the  $250,000  rental for the
period to the date of  cancellation,  the  equipment was returned to PDS and the
Placement Fee Agreement was put in place of the equipment  lease.  Subsequently,
on December 29, 2005 PDS Gaming  agreed to accept the  Company's  common  stock,
valued at $2 per share, in full payment of the placement fee.

     (F) Deferral of Principal Payments on PDS Financing

     The Loan and  Security  Agreement  signed on June 30,  2005  permitted  the
Company to defer the  principal  portion of its  scheduled  payments of up to $3
million,  providing the Company meets certain  conditions.  In order to conserve
working capital the Company began deferring  principal payments of approximately
$450,000  on  September  1, 2005  through  December  1,  2005.  This  action was
necessary  due to the continued  delays in receiving the necessary  approvals to
begin operating the Big Easy and the Company's  current negative working capital
position.

     (G) December 2005 Transactions

     In December  2005,  the Company  borrowed from and issued a note payable in
the amount of $535,744 to PDS Gaming in order to cover our required debt service
interest payment on December 10, 2005. See Note 10.

     (H) On October 30, 2005, we breached our loan agreements because we did not
meet the minimum EBITDA covenants and beginning January 10, 2006 through March ,
we were in default of our loan  agreements  for not  making  the  principal  and
interest  payments due under the vessel leases for the three month period.  As a
result,  the interest rate on the loans increased an additional 2.5% or to 19.5%
retroactive  to November 1, 2005.  With the additional  interest rate,  interest
payments due on the leases is approximately $500,000 per month.

     (I) Forbearance Agreement

     On March 23, 2006,  International  Thoroughbred Breeders Inc, together with
certain  of its  subsidiaries  (the  Company)  and  certain  companies  owned or
controlled by Francis W. Murray,  our CEO, (all being the same  companies  which
entered into the Loan and Security  Agreement  with PDS Gaming  Corporation  and
certain  of its  subsidiaries  on June  30,  2005)  entered  into a  Forbearance
Agreement  effective  March 22,  2006  with PDS  Gaming  Corporation.  Under the
Agreement  the Lender has agreed not to enforce its rights and remedies  against
the  Borrower's  due to their  being in default on several  loan  covenants  and
payment obligations.  The Agreement permits the Company to defer the payments on
our loan and equipment lease payments until June 1, 2006.  However,  an interest
only  payment on the loan in the amount of $572,400  was due May 1, 2006,  along
with an equipment  lease payment of $113,500.  As of May 22, 2006 these payments
have not been made and we are negotiating with our lender to waive or extend the
payment and the  forbearance  terms. A fee of $165,796 was charged by the lender
for the Forbearance Agreement.  This fee has been added to the outstanding lease
balances. Additionally, the Company will pay the lenders a fee of $331,592 which
fee is deferred  until the sale or refinance  of  collateral  or final  maturity
which  ever  occurs  first,  and the  Company  will pay  costs and  expenses  of
approximately $150,000. As of May 22, 2006, we are in default of the Forbearance
Agreement and all

                                       14

<PAGE>

                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

obligations can automatically become immediately due and payable,  including all
obligations under the leases without notice or demand,  provided that the Lender
may rescind such acceleration in its sole discretion.

     Under the  Agreement,  upstream  payments  to the parent  company are being
permitted in the approximate amount of $19,000 per week. To date, the lender has
permitted the upstream of funds to continue  despite our not making the required
May 1, 2006 payment.

     Under the  Forbearance  Agreement  the EBITDA  requirements  will be waived
until the 12 month  period  ending July 2, 2006 at which time the  Company  must
meet an EBITDA requirement of $11,100,000.  Additionally, if the EBITDA is under
$17 million the interest rate will be approximately 20% on the debt.

     We have also agreed to deliver the Second Cherry Hill Note to the lender as
additional  collateral.  This note has a face value of approximately $35 million
but is recorded on our books for $4.3 million.

     During the Forbearance  Period the lender has agreed to discuss  amendments
to  each  of the  Loan  Documents  with  the  credit  parties,  at the  lender's
discretion.

     During the  forbearance  period the  Company is to use its best  efforts to
sell or  refinance  the Big Easy  Vessel and reduce  the loan  balance  with the
proceeds from such a transaction. We do not expect to be able to make the May 1,
2006 or the June 1, 2006 payment if such a  transaction  is not  completed or if
future terms are not re-negotiated.

(5)  DESCRIPTION OF LEASING ARRANGEMENTS

     As  mentioned  in the  footnote 4 above,  the  Company  and  several of its
subsidiaries  have entered into charter  transactions  for two vessels and lease
transactions for equipment placed on three vessels.

     The charter for the Palm Beach Princess, which is currently in service, has
been  accounted  for as a capital  lease.  Principal  payments on the Palm Beach
Princess  portion  of the loan ($14  million)  will  reduce  the  capital  lease
purchase  liability  and the interest  portion of each  monthly  payment will be
expensed.  Depreciation  expense  will be recorded  for the Palm Beach  Princess
using an  estimated  useful life of 20 years.  Charter  hire fees of $50,000 per
month plus 1% of gross  revenues of the Palm Beach  Princess have been accounted
for as additional interest payments on the capital lease and will be expensed as
incurred.  The lease for the gaming  equipment  currently aboard the vessels and
the lease for new gaming equipment will be accounted for as an operating lease.

     The  transaction  described in Note 4 also  included the charter of the Big
Easy and a lease for gaming  equipment  aboard that  vessel.  As a result of the
June 30, 2005 PDS  transaction,  we have accounted for the Big Easy charter as a
capital  lease.  Principal  payments on the Big Easy  portion of the PDS loan of
$12.6 million will reduce the capital lease purchase  liability and the interest
portion of each monthly payment will be expensed.  The transaction  described in
note 4 also permits the Company to purchase the Big Easy for the appraised value
of the vessel which shall be determined  upon the refitting and  refurbishing of
the vessel. The Company has determined the value of the Big Easy by capitalizing
the total of: 1) the costs it had incurred for  improvements  it had made to the
Big Easy; and 2) all payments required under the PDS Gaming loans.

     The  transaction  described  in  Note  4(B)  included  a lease  for  gaming
equipment  aboard the vessel,  Royal Star.  The gaming  equipment  lease will be
accounted for as an operating lease.

                                       15

<PAGE>

                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

     Vessels,  plant and  equipment  at March 31,  2006  include  the  following
amounts for capitalized leases:

Vessel, Palm Beach Princess                  $           17,500,000

Vessel, Big Easy                                         20,305,348
                                                  -----------------
Less: allowance for depreciation                         (2,451,077)
                                                  -----------------
Capital Leases                               $           35,354,271
                                                  =================

     The following is a schedule by years of future minimum lease payments under
capital leases together with the present value of the net minimum lease payments
as of March 31, 2006:

Period ending March 31,
                         2006                $           12,815,689
                         2007                             8,255,653
                         2008                             8,019,852
                         2009                            13,372,335
                                                  -----------------
Total minimum lease payments                 $           42,463,529
Less: amount representing interest                      (13,319,260)
                                                  -----------------
Present value of net minimum lease payment   $           31,144,269
                                                  =================

The following is a schedule of lease liabilities due to PDS at March 31, 2006:
<TABLE>
                                                                                      March 31, 2006
                                                               ------------------------------------------------------------
Vessel                                                            Short-Term            Long-Term               Total
----------------------------------------------------------     ----------------     ------------------     ----------------
<CAPTION>
<S>                                                        <C>                   <C>                    <C>
Palm Beach Princess                                        $          6,908,395  $           7,540,273  $        14,448,668
Big Easy                                                              3,205,594              9,990,007           13,195,601
Royal Star                                                              676,452              2,232,085            2,908,537
                                                                ----------------     ------------------     ----------------
Amount due to PDS for vessels                                        10,790,441             19,762,365           30,552,806

Less: Royal Star Note shown in Notes Payable (See Note 9)              (676,452)            (2,232,085)          (2,908,537)
Fair Market Valuation - Palm Beach Princess                                   -              3,500,000            3,500,000
                                                                ----------------     ------------------     ----------------
Total Short and Long Term Vessel Leases Payable            $         10,113,989  $          21,030,280  $        31,144,269
                                                               ================     ==================     ================
</TABLE>

(6) NOTES RECEIVABLE

     (A)  Original Cherry Hill Note

     A portion of the proceeds  from the sale on November 30, 2000 of our Garden
State Park property in Cherry Hill, New Jersey, to Realen-Turnberry/Cherry Hill,
LLC ("Realen")  was paid in the form of a promissory  note in the face amount of
$10 million (the  "Note.")  Under the Note,  the interest  rate will be adjusted
from time to time since the interest  actually  payable will be dependent  upon,
and payable solely out of, the buyer's net cash flow available for  distribution
to its equity owners ("Distributable  Cash"). After the buyer's equity investors
have received aggregate  distributions equal to their capital contributions plus
an agreed  upon  return  on their  invested  capital,  the next $10  million  of
Distributable Cash will be paid to us. We will thereafter receive payments under
the Note equal to 33 1/3% of all Distributable Cash until the maturity date,

                                       16

<PAGE>

                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

which occurs on the 15th anniversary of the issuance of the Note. We may convert
the  promissory  note, at our option,  into a 33 1/3% equity  interest in Realen
during the six month period prior to the 15th anniversary of the issuance of the
Note. If not then  converted,  the Note will be payable at maturity on said 15th
anniversary  in an  amount  equal to (i) the  difference,  if any,  between  $10
million and total payments previously made to us under the Note and (ii) 33 1/3%
of any excess of the fair market  value of  Realen's  assets over the sum of its
liabilities  (other than the Note) and any unreturned  equity  investment of its
owners.

     Fair value and the  collectability of this note was determined by financial
statements and financial projections by the developer of the property.  Now that
a large  portion of the mixed use  project is about to open we believe  that the
future  projections  of cash  flow  from  the  project,  along  with  historical
financial  statements  provided  by the  developer  and prices  obtained  on the
re-sale  of  portions  of the  property  give us a basis  on  which  to  develop
assumptions  which  continue to indicate a fair value based on  discounted  cash
flows in excess of the carrying value.

     (B)  Second Cherry Hill Note

     A portion  of the  proceeds  from the sale of the  non-operating  former El
Rancho  Hotel and  Casino in Las Vegas to  Turnberry/Las  Vegas  Boulevard,  LLC
("Turnberry")  on May 22, 2000 was used by us to purchase a  promissory  note of
the buyer in the face amount of $23,000,000 (the "Las Vegas Note").  On June 16,
2004,  the  Company  sold the Las Vegas Note to Cherry Hill at El Rancho LP (the
"Buyer"),  a limited  partnership  which is affiliated with the maker of the Las
Vegas Note.

     In exchange for the Las Vegas Note, the Company received cash payments from
the Buyer of $2.8 million, a non-recourse loan from Turnberry Development,  LLC,
an  affiliate of the Buyer,  in the amount of $5 million and a  promissory  note
issued by Soffer/Cherry  Hill Partners,  L.P. ("Cherry Hill Partners"),  another
affiliate of the Buyer,  in the  principal  amount of  $35,842,027  (the "Second
Cherry Hill Note").  The principal amount of the Second Cherry Hill Note equaled
the unpaid principal plus all accrued and unpaid interest (at 22%) under the Las
Vegas Note,  less the $2.8  million in purchase  price  payments  and $5 million
non-recourse loan paid to the Company.

     The Company is not liable for  repayment of the principal of the $5 million
loan,  however,  the Company is  obligated to pay interest and fees on such loan
aggregating $600,000 per year ($50,000 per month) for five (5) years. Due to our
negative  cash  position,  we have not made the $50,000 per month  payment since
January 2005.

     The Second Cherry Hill Note received by the Company  matures in 2015 and is
similar to the Las Vegas Note which was sold,  in that it  generally  is payable
prior to maturity only from distributable cash of the maker. The maker under the
Second  Cherry Hill Note is one of the  principal  partners in the entity  which
purchased  the Garden  State Park real  property  from a Company  subsidiary  in
November of 2000,  and such  obligor  will only have funds with which to pay the
Second Cherry Hill Note out of its profits from the  development of Garden State
Park. The development of Garden State Park,  located in Cherry Hill, New Jersey,
was  delayed as a result of  community  opposition  to certain  elements  of the
development  plan, and, while the Company  believes that the development plan is
now moving forward, the timing and amount of profits there remain uncertain. The
Company  already  holds a  promissory  note in the face  amount of $10  million,
received from the purchaser of Garden State Park in connection  with the sale of
such real property,  which the Company expects will be fully paid in time. While
the  Company  expects  that  $10,000,000  note  to be  fully  paid,  it was  not
optimistic   that  this  Second  Cherry  Hill  Note  will  be  fully  paid,  and
accordingly,  during the fiscal  years  ended June 30, 2004 and 2005 the Company
wrote down the Second Cherry Hill Note on its books to $4,278,651.

     The  Second  Cherry  Hill Note is  secured  by a pledge  of stock  owned by
Raymond  Parello,  an  affiliate  of the  Buyer,  in Palm Beach  Empress,  Inc.,
representing fifty percent (50%) of the stock in that company. Palm

                                       17

<PAGE>


                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

Beach  Empress,  Inc. is the entity  formed to acquire the Big Easy,  the second
vessel  which is  chartered  to a  subsidiary  of the  Company.  The other fifty
percent  (50%) of the stock in Palm  Beach  Empress,  Inc.  is owned by PBMC,  a
corporation owned by Francis W. Murray, the Company's Chief Executive Officer.

     Mr. Parello will have the right to acquire the Second Cherry Hill Note from
the Company in exchange  for his stock in Palm Beach  Empress,  Inc.  Such "put"
option held by Mr. Parello  (giving him the right to put his stock in Palm Beach
Empress,  Inc.  to the  Company  in  exchange  for the  Cherry  Hill  Note) will
effectively limit the value to the Company of the Second Cherry Hill Note to the
value of Mr.  Parello's  one-half  interest  in Palm  Beach  Empress,  Inc.  Mr.
Parello's put right will be  exercisable  upon the later to occur of (1) payment
by or for the account of Cherry Hill  Partners of  $483,205.48  under the Second
Cherry  Hill Note,  and (2)  repayment  of the entire  principal  balance of the
non-recourse loan received by our Orion subsidiary in the principal amount of $5
million, referred to above (upon which repayment the Company's obligation to pay
interest and fees of $600,000 per year on such loan would end).  Such put option
is set forth in the  Shareholders'  Agreement  among Palm Beach  Empress,  Inc.,
Raymond  Parello and PBMC, to which our Orion  subsidiary  has joined solely for
the purpose of  confirming  its  agreement  (as holder of the Second Cherry Hill
Note) to the put option.

     In the event Mr. Parello  receives any dividends or other  distributions on
or proceeds from any sale of his shares in Palm Beach  Empress,  Inc.,  the same
will be applied as a mandatory prepayment of the Second Cherry Hill Note.

     Fair  value  and the  collectability  of the  Second  Cherry  Hill Note was
determined by 1) assessing  the present value of the Big Easy vessel,  since 50%
of the stock in the  company  which owns it (PBE) is pledged as security of this
note; 2) and the present value of a $483,000 payment due us from the sale of the
El Rancho property.  When the fair value of this note was originally computed we
assumed  50% of the  value  of the Big  Easy to be  $5,000,000,  based  upon the
estimated value of the Big Easy at the time.

(7)  DEPOSITS AND OTHER ASSETS - NON RELATED PARTIES

     The  following  items  are  classified  as  deposits  and  other  assets  -
non-related parties:

                                            March 31, 2006   December 31, 2005
                                            --------------   -----------------
Long-Term Prepaid Loan Costs - Net of
amortization in the amount of ($655,337)
and ($362,424), respectively               $    1,153,540    $     1,411,976

Port Lease Rights                                 250,000            250,000

Other Misc. Assets                                358,072             72,780
                                            --------------    --------------
         Total                             $    1,761,612    $     1,734,756
                                            ==============    ==============

(8)  VESSEL DEPOSITS AND DEPOSITS AND OTHER ASSETS - RELATED PARTIES

     (A)  Vessel Deposits - Related Parties

     Beginning  on July 7, 2004,  we entered into  Sub-Bareboat  Charters of the
vessels Palm Beach  Princess  and Big Easy with  entities  (Palm Beach  Maritime
Corporation  and Palm Beach Empress,  Inc.) owned or controlled by our Chairman,
Francis W. Murray.  Pursuant to our June 30, 2005 refinancing and  restructuring
of the PDS transactions, we now charter the vessels, Palm Beach Princess and Big
Easy directly from Cruise Holdings I and Cruise Holdings II, respectively, which
companies are owned by Palm Beach Maritime  Corporation  and Palm Beach Empress,
Inc. Pursuant to the new charters, we pay Cruise Holdings I and Cruise

                                       18

<PAGE>

                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

Holdings II, as owners of the vessels, charter fees of $50,000 per month for the
Palm Beach  Princess  and  $100,000  per month for the Big Easy,  plus 1% of our
gross revenues from  operation of those  vessels.  We have the right to purchase
either or both vessels, at our option, for $17.5 million in the case of the Palm
Beach Princess  (representing  its appraised value at the time of $17.5 million)
and for fair market value (to be determined by appraisal) in the case of the Big
Easy. Once we pay off the loans against the Palm Beach Princess and Big Easy, we
will be entitled to  substantial  credits  against  the  purchase  prices of the
vessels:  a $14 million  credit in the case of the Palm Beach  Princess and a $6
million credit in the case of the Big Easy,  representing the original principal
amounts of the July 2004 sale - leaseback  transactions involving those vessels;
as well as credits for our  investment  in the net Ship  Mortgage  Obligation of
approximately  $7.2 million which can be applied to the purchase price of either
vessel;  and a  credit  for  the  portions  of the  costs  of  refurbishing  and
retrofitting  the Big Easy in excess of $6 million  which we paid,  amounting to
approximately $14 million,  that can be applied to the purchase price of the Big
Easy.

     (B)  Deposits and Other Assets - Related Parties:

                                                        March 31,   December 31,
                                                          2006         2005
                                                      -----------   -----------
Loans to the Ft Lauderdale Project (OC Realty, LLC) $   2,769,989 $   2,769,989
Accrued Interest on Loans to the Ft. Lauderdale
 Project (OC Realty, LLC)                               1,618,740     1,577,190
Goodwill on Purchase of GMO Travel                        193,946       193,946
Advances to PBMC                                            4,351           -0-
                                                      -----------   -----------
Total Deposits and Other Assets - Related Parties   $   4,587,026 $   4,541,125
                                                      ===========   ===========

(9)  ACCOUNTS PAYABLE AND ACCRUED EXPENSES

     (A)  The following  table  represents  the aging of accounts  payable as of
          March 31, 2006 and December 31, 2005.
<TABLE>
                       Total        Current     31-60 Days    61-90 Days   Over 91 Days
                     ----------     -------     ----------    -----------  ------------
<CAPTION>
<S>               <C>             <C>          <C>            <C>           <C>
March 31, 2006    $   7,979,021   $ 1,171,891  $    651,075   $    899,275  $   5,256,780

December 31, 2005 $   7,310,568   $   599,387  $  1,216,245   $  1,244,204  $   4,250,732
</TABLE>


     (B)  Accrued  expenses  consisted of the following as of March 31, 2006 and
          December 31, 2005

                                  March 31, 2006  December 31, 2005
                                  --------------  -----------------
Trade Payables                  $      2,308,181 $        1,673,635
Payroll and Related Obligations        1,303,634          1,819,604
Interest                                 770,014            725,272
Various State Taxes                       88,340             91,016
Prior State Tax Audit                    339,405            339,405
                                    ------------  -----------------
Total                           $      4,809,574 $        4,648,932
                                    ============  =================


                                       19

<PAGE>

                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

(10) NOTES AND MORTGAGES PAYABLE

     Notes and  Mortgages  Payable  are  summarized  below.  The  capital  lease
transactions with PDS other than the Royal Star loan are carried under lease
liabilities (See Note 4).
<TABLE>
                                                               March 31, 2006                        December 31, 2005
                                          Interest %    -----------------------------------    -----------------------------------
                                          Per Annum        Current            Long-Term           Current            Long-Term
                                          ----------    --------------    -----------------    --------------    -----------------
<CAPTION>
International Thoroughbred Breeders,
Inc.:

<S>                                          <C>      <C>               <C>                 <C>                <C>
PDS Gaming (A)                                   20%  $        541,102  $               -0- $         541,102  $               -0-
Francis X. Murray (B)                             8%           459,164                  -0-           459,164                  -0-
William H. Warner (B)                            12%            37,000                  -0-            37,000                  -0-
MBC Global (C)                                    9%           200,000                  -0-           200,000                  -0-
Westminister Investments (C)                      9%           150,000                  -0-           150,000                  -0-
Ryan Moore Trust (C)                              9%            25,000                  -0-            25,000                  -0-
James B. Moore Trust (C)                          9%            25,000                  -0-            25,000                  -0-
Other                                        Various             5,797                  -0-            36,595                  -0-

ITG Vegas, Inc.:

PDS Gaming (D)                                 22.5%           676,452            2,232,085           277,625            2,456,213
Maritime Services, Corp. (E)                      9%           155,696                  -0-           166,156                  -0-
International Game Technology (F)                 8%           161,160               71,995           221,297               59,568
Others                                       Various            41,204               47,828            35,009               33,540

Garden State Park:

Service America Corporation (G)                   6%           160,000                  -0-           160,000                  -0-
                                                        --------------    -----------------    --------------    -----------------
                 Totals                               $      2,637,575  $         2,351,908 $       2,333,948  $         2,549,321

Net Liabilities of Discontinued
  Operations - Long Term                                      (160,000)                 -0-          (160,000)                 -0-
Related Party Notes                                           (496,164)                 -0-          (496,164)                 -0-
                                                        --------------    -----------------    --------------    -----------------
Totals                                                $      1,981,411  $         2,351,908 $       1,677,784  $         2,549,321
                                                        ==============    =================    ==============    =================
</TABLE>

     (A) On December 9, 2005,  the Company  executed and  delivered a promissory
note in the original principal amount of $541,102 to PDS Gaming. The proceeds of
the note were used to make several December 9, 2005 interest payments due on the
PDS  Transactions.  The interest  rate is 20% until such time as the  annualized
EBITDA for the various  vessels  operated  by the  Company  reach $20 million at
which time the interest rate will be reduced to 15%

     (B) On March 1,  2003,  we  issued a  promissory  note for a line of credit
bearing interest at 8% to Francis X. Murray. The outstanding balance on the line
of credit note at June 30, 2005 was $159,164  and accrued  interest was $29,052.
On  September  19,  2005 Mr.  Murray lent an  additional  $300,000 to the Parent
Company.  At March 31,  2006 the  outstanding  balance on the line of credit was
$459,164 and accrued  interest was $38,743.  In fiscal 2003 and fiscal 2005,  we
issued promissory notes for $24,000 and $13,000  respectively,  bearing interest
at 12% to William H. Warner,  Secretary of the Company.  The outstanding balance
is due on demand. The

                                       20

<PAGE>

                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

proceeds from both notes were used for working capital.

     (C) On November 9, 2005, we borrowed $400,000 from four (4) private parties
and agreed to issue our promissory  notes evidencing the loans. In consideration
of the loans we also agreed to issue 3-year warrants to purchase 100,000 shares,
in the aggregate of our common stock, exercisable at $2.50 per share. The loans,
bearing interest at 9% per year, and the principal were due on December 9, 2005.
The terms of the note required the Company to issue penalty warrants on December
9, 2005 to purchase  100,000  shares of our common stock at an exercise price of
$2.50  per  share.  If the  notes  are not  paid  by the  9th day of each  month
thereafter,  we are required to issue  additional  penalty  warrants to purchase
200,000  shares  of  common  stock at the  lesser of $2.50 per share or the then
current  market price per share for each month  beginning  January 9, 2006 until
these notes are paid.  Proceeds of the loans were used to pay interest  then due
on our secured indebtedness for borrowed money to PDS Gaming Corporation.

     (D) On  January  5,  2005,  the  Company  and its  subsidiary,  Royal  Star
Entertainment,  LLC  ("RSE"),  executed and  delivered a promissory  note in the
original  principal  amount of $2,850,000  (the "Note").  The Note is secured by
RSE's Preferred Ship Mortgage. The lender and holder of the Note and Mortgage is
Cruise Holdings IV, LLC, an affiliate of PDS Gaming Corporation. At closing, RSE
paid a closing fee to the lender in an amount equal of  $78,375,000  or 2.75% of
the  principal  amount of the Note.  The  proceeds of the Loan were used to make
improvements  to the vessel  Royal Star or to the vessel Big Easy.  The Note was
originally due on January 17, 2006, however,  the PDS re-financing  completed on
June 30, 2005 extended the terms of this note to July 1, 2009. The interest rate
is 20% until such time as the annualized EBITDA for the various vessels operated
by the Company reach $17 million at which time the interest rate will be reduced
to 15%. We are currently paying a default interest rate of 22.5%

     (E) On May 20, 2005, the Company's wholly owned subsidiary, ITG Palm Beach,
LLC  ("ITGPB"),  together with an affiliate,  Palm Beach Empress,  Inc.  ("PBE")
issued a seven month  promissory note in the amount of $569,482 bearing interest
at 9% to Maritime Services Corp. for drydock retrofit services  performed on the
Big Easy.  A  payment  of  $83,813  was due and paid on June 1,  2005,  five (5)
consecutive monthly  installments of $83,813 were to be paid on the balance with
a final  Payment of $84,216  due on  December 1, 2005.  At March 31,  2006,  the
principal balance on the Maritime Services Corp. note was $155,696.

     (F) On December  22,  2003,  ITG Vegas,  Inc.  issued a  twenty-four  month
promissory  note  in  the  amount  of  $231,716  bearing  interest  at  8.5%  to
International Game Technology for the purchase of gaming equipment. A payment of
$30,000  was  paid on  delivery  of the  equipment  and 24  consecutive  monthly
installments  of $10,532.85  are to be paid on the balance.  In March 2005,  ITG
Vegas,  Inc. issued an additional  thirty month promissory note in the amount of
$387,463 bearing interest at 8.15% to International Game

Technology  for the purchase of fully  reconditioned  gaming  equipment.  Thirty
consecutive monthly installments of $14,319.49 are to be paid on the balance. At
March 31, 2006,  the principal  balance on the two notes to  International  Game
Technology  was $233,155 of which  $161,160 was classified as short term and the
balance of $71,995 was classified as long term.

     (G) In  connection  with the January 28,  1999 lease  transactions  for the
Garden State Park facility,  the Company  purchased a liquor license  located at
Garden  State  Park  owned  by an  unaffiliated  third  party,  Service  America
Corporation (the "Holder"),  for $500,000 financed by a five (5) year promissory
note at a 6% interest rate.  Yearly principal  payments of $80,000 plus interest
were due on December 28, 2002 and December 28, 2003 and have not been paid.  The
Company is continuing to negotiate new terms under this note and if unsuccessful
the  creditor  may seek to enforce  payment of the note.  In  additional  to the
principal   amount  due  of  $160,000   the  accrued  but  unpaid   interest  is
approximately $37,200 as of March 31, 2006.

                                       21

<PAGE>

                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

(11) VESSELS AND EQUIPMENT

     Vessels  owned  and/or  leased  and  equipment  consist  of the  following:
Depreciation is being computed over the estimated  remaining  useful lives using
the straight-line method.

                                   Estimated Useful   March 31,     December 31,
                                   Lives in Years       2006            2005
---------------------------------- ----------------  -----------   ------------
Leased Vessel -
 Palm Beach Princess                       20       $ 17,500,000   $ 17,500,000
Leased Vessel -
 Big Easy                                  20         20,305,348     20,305,348
Vessel Not Placed in Service -
  Royal Star                              N/A          3,033,406      3,007,216
Equipment                                5-15          3,574,213      3,334,079
Leasehold Improvements                  15-40            918,999        988,625
                                                      ----------    -----------
Totals                                                45,135,268     45,331,966

Less Accumulated Depreciation
 and Amortization                                     (4,995,216)    (4,024,434)
                                                      ----------    -----------
                                                    $ 40,336,750   $ 41,110,834
                                                      ==========    ===========

(12) RELATED PARTY DEBT

     The following schedule represents related party debt (See Note 17 - Related
Party Transactions):
<TABLE>
                                                          March 31, 2006                            December 31, 2005
                                               -------------------------------------     ---------------------------------------
                                                  Short-Term            Long-Term            Short-Term            Long-Term
                                               ----------------      ---------------     ------------------     ----------------
<CAPTION>
<S>                                          <C>                  <C>                  <C>                    <C>
Accrued Wages due to and Advances
 from Francis W. Murray                      $          521,255   $              -0-   $            531,353   $              -0-
Advances from Palm Beach Maritime Corp.
 (Francis W. Murray ownership)                              -0-              196,164                    -0-              653,571
                                               ----------------      ---------------     ------------------     ----------------
          Total Debt - Related Parties       $          521,255   $          196,164   $            531,353   $          653,571
                                               ================      ===============     ==================     ================
</TABLE>


(13) COMMITMENTS AND CONTINGENCIES

     See Note 4 for additional commitments and contingencies with respect to the
PDS Transactions.

     See Notes 12 and 17 for additional  commitments  and  contingencies  of the
Company and transactions with related parties.

     See Note 18 with respect to events and developments after March 31, 2006.

     On February 1, 2006 we indefinitely  suspended operations of the vessel the
"Big Easy" until further notice and released the Big Easy employees. The Company
has  requested an extension  from the United  States Coast Guard to complete the
installation of bulkhead  insulation  on-board the vessel because the contractor
doing the work was unavailable until mid-February 2006. However, the Coast Guard
denied  the  request.  As a result  the Coast  Guard has  removed  the  vessel's
Certificate of Inspection  until the  installation  is completed.  This work has
been substantially completed.

                                       22

<PAGE>

                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

     The vessel passed Coast Guard  approval to operate on October 11, 2005, but
because of the  continuing  effects of hurricane  Wilma,  inclement  weather and
rough seas,  mechanical  problems and our inability to meet the minimum employee
counts  per  Coast  Guard  regulations,  we did not begin  operations  until mid
November.  On February 1, 2006 we indefinitely  suspended  operations of the Big
Easy after two and one half months of  operations.  On that date the Coast Guard
had denied our request for an extension  to complete  certain work and the Coast
Guard rescinded our Certificate of Inspection until the work was completed.  The
Coast Guard's decision,  coupled with an inadequate number of on-board personnel
due to the Coast Guard administrative delays in licensing our personnel, was the
latest in a series  of  unforeseen  business  circumstances  which  had  limited
management's  ability to introduce  the Big Easy to the market and  necessitated
the suspension of Big Easy commercial cruise operations indefinitely.  We intend
to explore all of our options  including  changing the Big Easy from a U.S. to a
foreign flag vessel which would  require less  administrative  dependency on the
U.S.  Coast Guard.  Relocation of the Big Easy to a new domestic or foreign port
is being explored.

     Our vessels are subject to the provisions of the  International  Convention
on Safety of Life at Sea as Amended  ("SOLAS 74"),  which was adopted in 1974 by
the  International  Maritime  Organization,  a specialized  agency of the United
Nations that is  responsible  for measures to improve the safety and security of
international  shipping, and to prevent marine pollution from ships. SOLAS 74 is
the  current  basic  safety  standard  for all ships  engaged  in  international
service.  The Convention was substantially  amended in 1992 and 2000 in order to
upgrade  and  improve  shipboard  fire  safety  standards.  The  Amendments  are
applicable to all passenger ships engaged in  international  service,  including
retroactively  those ships such as the Palm Beach Princess that were built prior
to 1980. Under the terms of the Amendments,  full compliance by older ships with
SOLAS 74  standards  is to be  phased  in and  implemented  over the  years  and
completed no later than October 1, 2010. The Palm Beach Princess,  in compliance
with the SOLAS 74  requirements  to date, has previously  completed  substantial
upgrading and  installation  of fire sprinkler and smoke  detection  systems and
other fire safety construction  standards. By 2010 the ship must comply with the
final phase of the implementation of the SOLAS 74 Amendments, most notably being
requirements that no combustible  material be used in ships' structures and that
certain other interior  structure and space standards be met. The precise nature
and scope of necessary  work will be determined in  conjunction  with the ship's
classification  society,  Det norske Veritas. To accomplish such work may entail
substantial cost in order to remove all wood and other combustible materials now
used in the  structure  of the  Palm  Beach  Princess,  to refit  the ship  with
non-combustible  materials,  and  otherwise to upgrade  interior  structure  and
spaces.  We have not yet obtained an estimate of such cost. The Bareboat Charter
and  Option to  Purchase  Agreement  for the Palm Beach  Princess  permits us to
purchase the vessel for $17.5  million at the end of the charter  period on July
1, 2009.  We will be allowed  credits for the payments  made on the PDS lease of
$14 million,  provided such payments are made, and credits of up to $7.2 million
against  the  purchase  of the Palm Beach  Princess.  (However,  use of the $7.2
million as a credit toward the Palm Beach  Princess  purchase would decrease the
credits  allowed for the purchase of the Big Easy since the $7.2 million  credit
can be used for the  purchase  of either  vessel)  (See Note 4A) We will need to
make a determination  if it will be  economically  feasible to purchase the Palm
Beach Princess at the end of the charter period  considering the costs which may
be involved in readying the vessel for "SOLAS" requirements.

     With the sale of our  Freehold  Raceway  property  on January  28,  1999 we
assumed  full  responsibility  for the  costs  associated  with the  clean up of
petroleum  and related  contamination  caused by the  leakage of an  underground
storage  tank  which was  removed in 1990,  prior to our  purchase  of  Freehold
Raceway.  In  February  2000 the N.J.  Department  of  Environmental  Protection
approved our remedial  investigation  workplan  ("RIW").  Under the RIW numerous
test wells were  drilled  and the soil tested and  monitored  to  determine  the
extent and direction of the flow of underground  hazardous  material and reports
and conclusions of the tests were prepared for the State of New Jersey. However,
prior to obtaining a remedial action workplan from the State of New Jersey,  the
work was  stopped  due to a lack of funds  resulting  from  the  institution  of
proceedings by our subsidiary, ITGV, under Chapter 11 of the bankruptcy code. At
this time we are unable to predict the effects that such delay may cause, but it
is likely that some retesting of the wells may be necessary. Prior to the delays

                                       23

<PAGE>

                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

it was  estimated  that the cost to  remediate  the site would be  approximately
$750,000.  However,  we now  estimate  that  the  total  cost of  clean up to be
approximately  $830,000  including  costs we have already spent according to the
environmental consulting firm handling this matter. These costs include drilling
of test  wells and  monitoring,  lab  testing,  engineering  and  administrative
reports,  equipment and remediation of the site through a "pump and treat" plan.
The Company has made  payments of  approximately  $617,000  during  prior fiscal
years 2000, 2001 and 2002. As of March 31, 2006 we have accrued $211,000 for the
additional  work. It is estimated that completion of the site clean up will take
approximately  18 months from the time the work is reinstated.  The Company will
not  receive  any  insurance  reimbursement  for our  costs of this  remediation
project.

The following  table  summarizes  commitments  on  non-cancelable  contracts and
leases as of March 31, 2006.

<TABLE>
                                                         Twelve Month Period Ended March 31,
                                          -----------------------------------------------------------------   There-
                                             2007          2008          2009           2010         2011      after        Total
                                          ----------    ----------    ----------    -----------   ---------  ----------  -----------
<CAPTION>
<S>                                     <C>           <C>           <C>           <C>            <C>        <C>         <C>
Capital Leases:
   P.B. Princess - Principal & Interest $  8,197,446  $  4,274,274  $  4,985,911  $  11,770,094  $        - $         - $ 29,227,725
       Bare Boat Charter - Related Party     960,000       960,000       960,000        320,000           -           -    3,200,000
   Big Easy - Principal & Interest         4,618,243     3,981,379     3,033,942      1,602,240           -           -   13,235,804
       Bare Boat Charter - Related Party   1,200,000     1,200,000     1,200,000        400,000                            4,000,000
Notes and Mortgages:
   Principal & Interest                    2,364,352     1,092,604       995,699      1,447,862                            5,900,517
    Interest Only                            130,224                                                                         130,224
Deferred Interest Payments                   600,000       600,000       600,000                                           1,800,000
Operating Leases:
    Casino Equipment                       3,241,474     1,798,702       681,820              -           -           -    5,721,996
    Administrative & Office                  263,653       151,042        11,745          3,380           -           -      429,820
Purchase Obligations                         537,235        98,876        61,006         61,006      61,006     162,682      981,811
                                          ----------    ----------    ----------    -----------   ---------  ----------  -----------
Total                                   $ 22,112,627  $ 14,156,877  $ 12,530,123  $  15,604,582 $    61,006 $   162,682 $ 64,627,897
                                          ==========    ==========    ==========    ===========   =========  ==========  ===========
</TABLE>

(14) LEGAL PROCEEDINGS

     LIQUOR LICENSE

     In connection with the January 28, 1999 sale and lease transactions for the
Garden  State  Park  facility,  we  purchased  a  liquor  license  owned  by  an
unaffiliated third party, Service America Corporation,  for $500,000 financed by
a five (5) year promissory note at a 6% interest rate. At December 31, 2002, the
unpaid principal balance was $160,000. Yearly principal payments of $80,000 plus
interest  were due on December  28, 2002 and December 28, 2003 and have not been
paid. The Company  entered into a sale and lease  agreement for the lease of our
premises from Jan. 28, 1999 to May 29, 2001 and the sale of a 10 acre portion to
be used as an OTB facility.  Under the terms of our sale and lease agreement the
lessee/buyer  purchased  the liquor  license for $100,000  and was  obligated to
return it to us in  exchange  for a refund of the  $100,000  payment  if, at the
expiration  of the lease,  June 27,  2002,  it did not have a use for the liquor
license at the OTB facility.  During the three year period Jan. 28, 1999 to Jan.
28, 2002 no OTB facility was built and we believe the  lessee/buyer did not have
a use for the liquor license at that  property.  By the terms of the contract it
was the  Company's  position  that we had the  right to  re-acquire  the  liquor
license for $100,000 and exercised such right,  however the lessee/buyer refused
to perform.  On January 18, 2006 the Company  filed a Complaint in Camden County
Superior Court of NJ, Chancery  Division,  (Civil Action No. C-7-06) against the
defendants to protect its

                                       24

<PAGE>

                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

 interests in the license.  In May 2006 the judge ruled
against us in a bench  ruling.  It is the  Company's  intention  to appeal  this
matter.  The carrying  value of the liquor  license was $400,000 and as of March
31, 2006 we expensed off the $400,000 as a result of the preliminary ruling.

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

(15) FAIR VALUE OF FINANCIAL INSTRUMENTS

     As of March 31, 2006, in assessing the fair value of financial instruments,
the Company has used a variety of methods and  assumptions,  which were based on
estimates of market conditions and loan risks existing at that time. For certain
instruments,  including  cash  and  cash  equivalents,   investments,  non-trade
accounts  receivable and loans,  and short-term  debt, it was estimated that the
carrying amount  approximated  fair value for the majority of these  instruments
because of their  short-term  maturity.  The carrying  amounts of long term debt
approximate fair value since the Company's  interest rates  approximate  current
interest rates. On our original Cherry Hill note receivable in the amount of $10
million,  we have  elected to defer the gain on the sale and the  interest to be
accrued until such time that  collectability  can be  determined.  On our second
Cherry Hill note  receivable we recorded a $10.5 million  impairment loss during
the fiscal year ended June 30, 2004 and 2005 to reflect  the  estimated  current
market value of this note. (See Note 6-B)

(16) OPTIONS AND WARRANTS

     A.   STOCK BASED COMPENSATION

     In June 2005,  the  Company's  Board of Directors  adopted and approved the
2005 Stock Option and Award Plan (the "2005  Plan").  The 2005 Plan would permit
the grant of options to purchase  up to  1,300,000  shares of Common  Stock at a
price per share no less than 100% of the fair market  value of the Common  Stock
on the date an option is granted with respect to incentive  stock  options only.
The  price  would be no less than  110% of fair  market  value in the case of an
incentive  stock option  granted to any individual who owns more than 10% of the
total combined voting power of all classes of outstanding  stock.  The 2005 Plan
will  terminate  unless  approved  by the  shareholders  within  one year of the
Board's adoption.

     Due to the Company's  continuing  cash shortages it is highly unlikely that
we will have the funds  available to conduct a stockholder  meeting  before June
30,  2006.  Therefore  we fully  expect the 2005 Stock  Option and Award Plan to
expire  along with the options that were  granted  under that plan.  No expenses
have been  recognized for the 300,000 options which were issued on June 27, 2005
and expected to expire on June 27, 2006.

     B. ISSUANCE OF ADDITIONAL WARRANTS

     In connection  with our borrowing of $400,000 on November 9, 2005 we agreed
to issue additional  penalty warrants,  exercisable for a period of three years,
if the loan was not paid by January 9, 2006; we agreed to issue 200,000 warrants
each month at a price of the lower of $2.50,  or the market  value on the day of
issue in each month for each additional  month until the loan is paid. Our stock
price on January  9th was $2.45;  on  February  9th was $1.50;  on March 9th was
$1.25; on April 7th was $0.75 and on May 9th was $0.80. During the quarter ended
March 31, 2006, we recognized a non-cash expense for the 600,000 warrants issued
in the amount of $493,000.

                                       25

<PAGE>


                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

     The fair  value of the  warrants  was  estimated  on the date of each grant
using the  Black-Scholes  model utilizing the assumptions shown in the following
table:

                                March 31, 2006
                                --------------
Expected volatility                20% - 140%
Risk-free interest rate                  4.7%
Expected term                         3 Years

     In  determining  expected  volatility,  we based  the  assumptions  using a
ceiling of the  higher  prices  over the last  year.  Our stock is traded on the
"Pink Sheets" of the over-the-counter  market and our stock prices and number of
shares traded have historically been very erratic.

(17) RELATED PARTY TRANSACTIONS

     See  Footnote  4  for  related   party   transactions   regarding  the  PDS
Transaction.

     During the third  quarter of Fiscal  2001,  we invested in two  projects in
which our Chairman,  President and Chief Executive  Officer,  Francis W. Murray,
also has a pecuniary interest. In connection with one such project, the Board of
Directors  approved  advances,  as  loans,  of up to $1.5  million  to a limited
partnership  in which  Francis W.  Murray  owned,  at that  time,  an 80% equity
interest and owned the general partner, the proceeds of which were to be used to
pay costs and expenses for development of a golf course in Southern  California.
In  Fiscal  2003,  the  limited  partnership's  indebtedness  to  us,  including
principal  of $735,584  and  accrued  interest,  in the amount of  $193,957  was
assumed by OC Realty, LLC, a Florida limited liability company which is owned by
Francis W.  Murray and which owns the second real estate  project  (Ocean  Club)
described below.  Such  indebtedness was due December 31, 2004, but was extended
by the Board of Directors to December 31, 2007, and bears an interest rate of 6%
and is now  scheduled to be paid upon the  completion  of the Ocean Club.  These
balances are shown in the "Deposits and Other Assets - Related  Parties" section
of the Balance Sheet (See Footnote 8 (B)).

     In the second project,  Mr. Murray (through OC Realty) is  participating in
the  development of an oceanfront  parcel of land,  located in Fort  Lauderdale,
Florida, which has received all governmental  entitlements from the City of Fort
Lauderdale and the State of Florida to develop a 14-story  building to include a
5-story parking garage,  approximately 6,000 square feet of commercial space and
a residential  9-story tower. As of December 31, 2005, we had lent $2,034,405 in
total to the project and we have accrued interest in the amount of $1,383,233 on
the loan.  These  balances are shown in the "Deposits and Other Assets - Related
Parties"  section of the Balance  Sheet (see  Footnote 8 (B)).  These loans bear
interest  at 12% and will be  repayable  out of OC Realty's  share of  proceeds,
after payment of bank debts, generated by the sale of condominiums. We will also
have the right to receive, as participation  interest,  from available cash flow
of OC Realty, if the project is successful,  a priority return of our investment
and a priority profits interest for up to three times our investment.  Repayment
of these loans and our  participation  interest will be subject to repayment of,
first,  bank  debt of  approximately  $14  million  (at  present)  and,  second,
construction  financing  expected to amount to $25 to $30 million and third, any
capital  invested by and fees  payable to joint  venture  partners  including OC
Realty.  OC Realty's share of proceeds  thereafter will range from 22.5% to 45%.
We have assessed the  collectability of the advances made to OC Reality based on
comparable sales of like units in the marketplace which suggest demand is strong
and  prospective  sales of the project's  condominium  units will be adequate to
meet its  obligations and provide  sufficient  return to OC Realty with which to
pay OC Realty's debt to us.

                                       26

<PAGE>

                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

     Beginning  on July 7, 2004,  we entered into  Sub-Bareboat  Charters of the
vessels Palm Beach  Princess  and Big Easy with  entities  (Palm Beach  Maritime
Corporation  and Palm Beach Empress,  Inc.) owned or controlled by our Chairman,
Francis W. Murray.  Pursuant to our June 30, 2005 refinancing and  restructuring
of the PDS transactions, we now charter the vessels, Palm Beach Princess and Big
Easy directly from Cruise Holdings I and Cruise Holdings II, respectively, which
companies are owned by Palm Beach Maritime  Corporation  and Palm Beach Empress,
Inc. Pursuant to the new charters,  we pay Cruise Holdings I and Cruise Holdings
II, as owners of the  vessels,  charter  fees of $50,000  per month for the Palm
Beach  Princess and  $100,000  per month for the Big Easy,  plus 1% of our gross
revenues from operation of those vessels.  We have the right to purchase  either
or both vessels,  at our option, for $17.5 million in the case of the Palm Beach
Princess  (representing its appraised value at the time of $17.5 million and for
fair market value (to be  determined  by appraisal) in the case of the Big Easy.
Once we pay off the loans against the Palm Beach  Princess and Big Easy, we will
be entitled to substantial credits against the purchase prices of the vessels: a
$14  million  credit in the case of the Palm  Beach  Princess  and a $6  million
credit in the case of the Big Easy,  representing the original principal amounts
of the July 2004 sale - leaseback  transactions involving those vessels, as well
as  credits  for  our  investment  in  the  net  Ship  Mortgage   Obligation  of
approximately  $7.2 million which can be applied to the purchase price of either
vessel,  and a  credit  for  the  portions  of the  costs  of  refurbishing  and
retrofitting  the Big Easy in excess of $6 million  which we paid,  amounting to
approximately $14 million,  that can be applied to the purchase price of the Big
Easy.

(18) SUBSEQUENT EVENTS

     (A)  Expiration of 2005 Stock Option and Award Plan - See Note 16.

     (B)  Forbearance Agreement with PDS Gaming Corporation. See Note 4-I

     (C)  Issuance of additional Warrants. See Note 16-B

     (D)  On May 16, 2006, the Big Easy was moved form the port of Palm Beach to
          St. Petersburg, Florida for wet storage.

                                       27

<PAGE>

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

Forward-Looking Statements

     We have made  forward-looking  statements in this Form 10-Q,  including the
information  concerning possible or assumed future results of our operations and
those  preceded  by,  followed by or that include  words such as  "anticipates,"
"believes," "expects," "intends," or similar expressions.  For those statements,
we claim  the  protection  of the safe  harbor  for  forward-looking  statements
contained in the Private  Securities  Litigation  Reform Act of 1995. You should
understand that the following  important factors, in addition to those discussed
elsewhere in this document,  particularly under "Risk Factors", could affect our
future  results and could cause those  results to differ  materially  from those
expressed in our forward-looking statements:

          o    general  economic and business  conditions  affecting the tourism
               business in Florida;

          o    increased competition from new and existing forms of gaming;

          o    our  ability  to  reposition  the Big Easy in a  timely  and cost
               effective manner in the future,  or as an alternative,  sub lease
               the vessel to other parties;

          o    changes in laws regulating the gaming industry;

          o    the  timing  of the  installation  of slot  machines  in  Broward
               County's three race tracks and one jai-alai  facility as a result
               of a  referendum  approved  on March 8, 2005.  Broward  County is
               contiguous to Palm Beach County where we conduct operations;

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

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

Overview

     We lease through a bareboat  charter and operate,  through our wholly owned
subsidiary,  ITG  Vegas,  Inc.  ("ITGV"),  the  gaming  vessel,  M/V Palm  Beach
Princess.  The M/V Palm Beach  Princess  sails twice daily from the Port of Palm
Beach,  Florida.  Once beyond the state's  territorial  water  limits the vessel
engages in a casino gaming business. The business of operating the cruise vessel
includes a variety of shipboard activities, such as dining, music, casino gaming
and other entertainment.

     We also lease through a bareboat  charter and on a limited basis  operated,
through our wholly owned subsidiary,  ITG Palm Beach, LLC ("ITGBP"),  the gaming
vessel,  Big Easy. After retrofitting and refurbishing the Big Easy, this vessel
was  initially  placed into service on October 18,  2005,  also from the Port of
Palm Beach  Florida,  although we did not commence  regular  (although  limited)
operations  until November 12, 2005. The Big Easy did not meet our  expectations
and due to the operating  losses and the removal of the vessel's  Certificate of
Inspection  by the  U.S.  Coast  Guard,  on  February  1,  2006 we  indefinitely
suspended operations of the Big Easy.

     During the course of retrofitting and getting the Big Easy operational,  we
were required to raise the significant  funding needed to accomplish the goal of
making this vessel  comply with U.S.  Coast Guard  regulations  and placing this
vessel into service. We entered into various debt service agreements  throughout
Fiscal 2005, primarily with PDS Gaming ("PDS"),  which at June 30, 2005 amounted
to approximately  $29.3 million.  The loans are secured by mortgages on the Palm
Beach  Princess and the Big Easy as well as virtually  all of the assets of ITGV
and its subsidiaries,  including the vessel Royal Star in addition to pledges of
our stock in ITGV and its  subsidiaries,  and collateral  assignments of certain
promissory  notes payable to us. We, along with Palm Beach Maritime  Corporation
("PBMC") and Palm Beach Empress,  Inc.  ("PBE"),  companies  affiliated with our
Chairman, Francis W. Murray, have guaranteed the loans.

                                       28

<PAGE>

     ITGV charters the M/V Palm Beach  Princess  from Cruise  Holdings I, LLC, a
company  owned by PBMC,  for a five year period  ending  July 2009.  The charter
provides for the payment to Cruise  Holdings I, LLC of $50,000 per month plus 1%
of the  gross  operating  revenues  of the M/V Palm  Beach  Princess.  Under the
charter, ITG Vegas has the option to purchase the M/V Palm Beach Princess at the
end of the term, for an exercise  price equal to the appraised  value of the M/V
Palm Beach  Princess,  $17,500,000,  to which certain amounts are to be credited
against the purchase price.

     ITGPB  charters the Big Easy from Cruise  Holdings II, LLC, a company owned
by PBE,  for a five year period  ending  July 2009.  The  charter  provides  for
payments to Cruise  Holdings  II, LLC of $100,000 per month plus 1% of the gross
operating  revenues  of the Big Easy.  Under the Big Easy  charter,  PBE granted
ITGPB an option to purchase the Big Easy at the end of the term, for an exercise
price  equal  to  the  appraised  value  of the  Big  Easy,  which  is yet to be
determined  following the  retrofitting  and  refurbishment  of the Big Easy, to
which certain amounts are to be credited against the purchase price.

     We continue to explore other gaming  opportunities,  both  domestically and
internationally.  During our 2004 fiscal year we purchased a third  vessel,  the
M/V Royal  Star.  The Royal Star is  currently  in wet dock  storage  and we are
limited by our negative  cash position to make any further  improvements  on the
vessel.  In  the  past  we  have  explored  possible  locations  from  which  to
potentially operate the vessel, however additional financing is necessary before
we move forward with the extensive  improvements  and  outfitting  needed before
being placed in service.

Liquidity and Capital Resources

     Our cash flow from  operations is primarily  dependent  upon the cash flows
from ITG Vegas, which operates the vessel,  M/V Palm Beach Princess.  During the
three months ended March 31, 2006, the Palm Beach Princess operations  generated
approximately  $2.7  million  of cash  (net of  operating  expenses)  which  was
insufficient  for  our  consolidated  needs,  thus  we  had  to  rely  on  other
adjustments in our operations to meet our cash requirements.

     ITG Vegas' cash flow from operations is seasonal. The period from January 1
to June 30 has been a period of increased activity and revenues. The period July
1 to December 31 is a seasonably slow period for vessel  operations and a period
during  which  we have  suffered  from  hurricanes  interrupting  our  business.
Therefore,  we  normally  schedule  dry dock or wet dock vessel work during this
period,  which further  negatively  effects our operations during this six month
period. Many of ITG Vegas' operating costs,  including leasing and charter fees,
fuel costs and wages,  are fixed and cannot be  reduced  when  passenger  counts
decrease.

     During the past few fiscal quarters,  we extended the terms of our payables
and as a result,  our accounts payable and accrued expenses exceeded our cash by
approximately  $12 million as of March 31, 2006. We continued to defer  payments
on vessel and  equipment  leases,  on notes  payable and  charter  hire fees and
continue to defer the salary of our Chairman.

     Our cash flows were  negatively  impacted  by the delay in putting  the Big
Easy in full service,  caused by delays in obtaining certification for passenger
operations  pursuant to the United States Coast Guard's  Alternative  Compliance
Program.  The costs  associated with  refurbishing and retrofitting the Big Easy
for placing it in service increased substantially due to upgrades to the vessel,
expansion of our Mardi Gras- theme build out, and  improvements  required by the
Coast Guard,  further  depleting our working capital from our original  estimate
and required us to borrow additional funds which increased our interest expense.
These borrowings will continue to adversely affect our cash flows in the future.
More than 150 crew  members and other  employees  were hired and trained  during
this period and employees  who normally  worked  exclusively  for the Palm Beach
Princess spent time completing  assignments  for the Big Easy,  putting a severe
drain on our operational efforts and our cash flow during this period.

     On November 12, 2005 we placed the Big Easy vessel into  limited  scheduled
service from the Port of Palm Beach,  Florida.  The vessel  received Coast Guard
approval to operate on October 11, 2005 but because of the continuing effects of
hurricane Wilma,  inclement weather and rough seas,  mechanical problems and our
inability to meet the minimum  employee counts per Coast Guard  regulations,  we
did not begin regular, limited

                                       29

<PAGE>

operations  until mid November.  The Big Easy did not meet our  expectations and
with its  poor  performance  together  with  continuing  Coast  Guard  licensing
difficulties  we were forced to remove the Big Easy from  service on February 1,
2006 in order to conserve working capital.

     During our 2004 fiscal year, we purchased a third  vessel,  the Royal Star.
We anticipate  that the vessel will need extensive  improvements  and outfitting
costing  between $5 and $6 million  before  being  placed in service as a gaming
vessel.  The vessel had been placed in wet storage and delays in commencing  the
Royal Star operations have and will continue to adversely  affect our cash flows
because of the continuing costs of carrying the vessel.  During the three months
ending March 31, 2006, the carrying costs for the Royal Star were  approximately
$386,000 before interest expense.

     Our debt to PDS Gaming for the vessel  leases was $29.3 million on June 30,
2005, with interest rates ranging from  approximately  15.3% to 20%. We have not
made the required interest and principal payments since December 1, 2005 and the
PDS loan  balances  are  $30,552,806  as of March  31,  2006 due to the  accrued
interest  accumulating  at an interest  default rate of an  additional  2.5%. We
borrowed and additional  $535,744 to make the December 2005 interest payment. We
did not make the required debt service  payments or the equipment lease payments
to PDS from  January  through  March 2006.  On March 22, 2006 we entered  into a
Forbearance  Agreement with PDS which will defer any payments due them until May
31, 2006,  except for a payment of $686,000,  due on May 1, 2006, and permit the
upstream  of funds to the  Parent on a limited  basis.  During  the  Forbearance
Period the lender has agreed to discuss amendments to each of the Loan Documents
with the credit  parties,  at the  lender's  discretion.  After the  forbearance
period payments of interest and principal of approximately  $1.1 million will be
due each  month.  During the  forbearance  period the Company is to use its best
efforts to sell or  refinance  the Big Easy  Vessel and reduce the loan  balance
with the proceeds from such a  transaction.  We do not expect to be able to make
the May 1,  2006 and the June 1,  2006  payments  if such a  transaction  is not
completed or if future  terms are not  re-negotiated.  As of May 22,  2006,  the
Forbearance  Agreement is in default and we are  negotiating  with our lender to
waive or extend the terms of the Forbearance Agreement signed on March 22, 2006.

     The Company is seeking refinancing,  has liquidated its equine holdings and
may be forced to sell other Company assets. We are also exploring  opportunities
to  profitably  deploy  the Big Easy or the sale of this  vessel.  Absent  asset
sales,  refinancing or the profitable deployment of the Big Easy, we will not be
able to make the  payments  which  was due on May 1,  2006 and our debt  service
payments  beginning on June 1, 2006. No assurances can be given that the Company
will be successful in these endeavors prior to June 1, 2006 or thereafter.

     Our working  capital as of March 31, 2006 was a negative ($22.6 million) as
compared  to a negative  amount of ($15.6  million) at December  31,  2005.  The
decrease  in  working  capital of $ 7 million  during the past three  months was
primarily  due to the net effect of cash used to fund our  operating  losses and
increasing  the  amounts  due PDS on a short  term basis by $4.9  million  which
amount  represents the vessel and equipment  lease amounts  deferred  during the
March quarter.

     Our cash flow and negative  working capital  circumstances  worsened during
the three months ended March 31, 2006 due to:

          o    operating  losses  suffered  by the Big Easy from  January 1st to
               January  31st  due to  her  limited  sailing  schedule  in  which
               scheduled cruises were cancelled due to Coast Guard restrictions,
               mechanical problems,  high seas, or scheduling conflicts with the
               Palm Beach Princess.

          o    costs to carry  the Big Easy  after the  vessel  was taken out of
               service on February 1, 2006,

          o    costs to carry the Royal Star and

          o    expenses  paid  for  costs  of  the  Holding  Company  and  other
               developmental costs of $692,000

                                       30

<PAGE>

     The following table summarizes commitments on non-cancelable  contracts and
leases as of March 31, 2006.

<TABLE>
                                                         Twelve Month Period Ended March 31,
                                          -----------------------------------------------------------------   There-
                                             2007          2008          2009           2010         2011      after        Total
                                          ----------    ----------    ----------    -----------   ---------  ----------  -----------
<CAPTION>
<S>                                     <C>           <C>           <C>           <C>            <C>         <C>         <C>
Capital Leases:
   P.B. Princess - Principal & Interest $  8,197,446  $  4,274,274  $  4,985,911  $  11,770,094  $        -  $        -  $29,227,725
       Bare Boat Charter - Related Party     960,000       960,000       960,000        320,000           -           -    3,200,000
   Big Easy - Principal & Interest         4,618,243     3,981,379     3,033,942      1,602,240           -           -   13,235,804
       Bare Boat Charter - Related Party   1,200,000     1,200,000     1,200,000        400,000                            4,000,000
Notes and Mortgages:
   Principal & Interest                    2,364,352     1,092,604       995,699      1,447,862                            5,900,517
    Interest Only                            130,224                                                                         130,224
Deferred Interest Payments                   600,000       600,000       600,000                                           1,800,000
Operating Leases:
    Casino Equipment                       3,241,474     1,798,702       681,820              -           -           -    5,721,996
    Administrative & Office                  263,653       151,042        11,745          3,380           -           -      429,820
Purchase Obligations                         537,235        98,876        61,006         61,006      61,006     162,682      981,811
                                          ----------    ----------    ----------    -----------   ---------  ----------  -----------
Total                                   $ 22,112,627  $ 14,156,877  $ 12,530,123  $  15,604,582  $   61,006  $  162,682  $64,627,897
                                          ==========    ==========    ==========    ===========   =========  ==========  ===========
</TABLE>

Outlook;

     Based on our  historical  level of operations of the Palm Beach Princess we
believed that cash  generated from  operations  will not be adequate to meet our
anticipated  loan payment  requirements and our other working capital needs. The
Big Easy began  limited  regular  passenger  service in November  2005,  however
operations  were  suspended  on  February 1, 2006.  While we have  substantially
reduced the operating  losses for the Big Easy  effective  February 1, 2006 with
its  suspension of service,  we will continue to incur costs while the vessel is
held in wet storage along with the Royal Star.

     We will need additional funds to meet our working capital deficiency,  debt
service needs and operating  losses.  However we have no present  commitments to
obtain such necessary  funds. The failure to obtain such funds on a timely basis
may require us to curtail operations, sell assets (such as the Royal Star or our
Note Receivable on the Cherry Hill Property) or cease  operations,  and may lead
to default in our debt service payments, which could lead to foreclosures on the
vessels.

     No assurances can be given that our business will generate  sufficient cash
flow from operations or that future borrowings will be available to enable us to
service our  lease/purchase  and loan  payments or to make  anticipated  capital
expenditures.  Our future operating performance and our ability to make payments
under our leases and other debts will be subject to future  economic  conditions
and to financial,  business, weather and other factors, many of which are beyond
our control.

Critical Accounting Policies and Estimates

     Financial  Reporting  Release No. 60 requires  all  companies  to include a
discussion of critical  accounting policies or methods and estimates used in the
preparation  of  financial  statements.  We prepare our  Consolidated  Financial
Statements in conformity with accounting  principles  generally  accepted in the
United States. Certain of our accounting policies, including the estimated lives
assigned to our assets, asset impairment,  and the calculation of our income tax
liabilities,  require  that  we  apply  significant  judgment  in  defining  the
appropriate  assumptions for calculating  financial estimates.  By their nature,
these judgments are subject to an inherent degree of uncertainty.  Our trends in
the industry and information  available from other outside sources,  are used as
appropriate.  There can be no assurance that actual results will not differ from
our estimates.  Note 2 to the Consolidated  Financial  Statements  describes the
significant accounting policies we have selected for use in the

                                       31

<PAGE>

preparation of our financial statements and related disclosures.  We believe the
following to be the most critical accounting estimates and assumptions affecting
our reported amounts and related disclosures.

Notes Receivable

     Statement  of  Financial  Accounting  Standards  No.  114,  "Accounting  by
Creditors for Impairment of a Loan" as amended,  requires  management  judgments
regarding the future  collectability of notes receivable and the underlying fair
market  value of  collateral.  As a result of the sale of the Garden  State Park
Racetrack  property in Cherry Hill NJ, and the sale of the non-operating  former
El Rancho Hotel and Casino in Las Vegas,  NV, portions of the proceeds from each
sale were paid in the form of  promissory  notes.  During the fiscal  year ended
June 30, 2004 we sold the note  receivable we held on the Las Vegas, NV property
for cash and other future  benefits  including a second note payable solely from
profits of the Cherry  Hill,  NJ property  (Second  Cherry  Hill  Note).  We had
previously  received a note  receivable  from the sale of the Garden  State Park
property in the amount of $10 million  (original Cherry Hill Note) and together,
these notes are  classified on the Balance Sheet as Long Term Notes  Receivables
in the amount of $14,278,651 as of December 31, 2005.  Estimates are required to
be used by management to assess the  recoverability of our notes receivable.  We
regularly  review our  receivables to determine if there has been any decline in
value. These reviews require management  judgments that often include estimating
the outcome of future events and determining whether factors exist that indicate
impairment has occurred. We evaluate financial balance sheets, earnings and cash
forecasts of the Cherry Hill developer. Our returns on the Cherry Hill Notes are
subject  to  debt  incurred  by  the  property  and  the   developer's   capital
contributions  that precede the debt owed to us. Our returns are also subject to
factors  affecting  the  profitability  and  saleability  of  the  project.  Our
assumptions,  estimates  and  evaluations  are  subject to the  availability  of
reliable data and the  uncertainty  of  predictions  concerning  future  events.
Accordingly,  estimates  of  recoverable  amounts  and  future  cash  flows  are
subjective   and  may  not   ultimately  be  achieved.   Should  the  underlying
circumstances  change, the estimated  recoverable  amounts and future cash flows
could change by a material amount.

     When making our impairment  review for the year ended June 30, 2004 for the
Note Receivable on the Las Vegas property we determined that after this note was
transferred  to the Cherry Hill property (the Second Cherry Hill Note) a portion
of it should be impaired by $12,786,589 (or a net of $10,000,000  when offset by
$2,786,589 of deferred gain on the sale of the Las Vegas  property) based on the
collectability  of the  note  since  we  already  held a note in the  amount  of
$10,000,000 on that same property.  Additionally  during the year ended June 30,
2005 an  additional  impairment  charge of $500,000  was  recorded on the Second
Cherry Hill Note because projected future events did not materialize.

Valuation of Vessels and Vessel Deposits - Related Parties

     We charter vessels, the Palm Beach Princess and the Big Easy, directly from
companies  owned or  controlled  by our  Chairman  and CEO.  The charter and PDS
Gaming loan  agreement for the Palm Beach  Princess has been  accounted for as a
capital lease. In accordance with our lease and purchase  agreement for the Palm
Beach  Princess we have the right to purchase the vessel for  $17,500,000 at the
end of the lease term, and up to $14 million of principal payments to be made by
us and  allocable to the Palm Beach  Princess  debt will be credited  toward the
purchase price.  The carrying value of the Palm Beach Princess of $17,500,000 is
less than the fair value  appraisal  on the  vessel.  The charter and PDS Gaming
loan  agreement for the Big Easy has also been accounted for as a capital lease.
In accordance with our lease and purchase agreement for the Big Easy we have the
right to purchase the Big Easy for the appraised value of the vessel which would
be determined upon the refitting and refurbishing of the vessel. The Company has
determined the capital lease value of the Big Easy by capitalizing the total of:
1) the costs it had incurred for  improvements  it had made to the Big Easy; and
2) all payments required under the PDS Gaming loans.

     The Company has credits in the amount of $9,726,377  which are available to
use against the purchase costs for the vessels.  See footnote 8 to our financial
statements with respect to the credits which are available  against the purchase
costs of the  vessels.  Should the Company  elect not to purchase  one or either
vessel at the end of the lease,  the Company could lose some or all of the value
of the credits unless other terms are negotiated with the owner of the vessels.

                                       32

<PAGE>

Results of Operations for the Three Months Ended March 31, 2006 and 2005

     The  following  are the most  important  factors and trends that affect our
operating   performance  and  the  comparability  of  historical  results,  both
currently and in the future:

     We are  currently  dependent  upon  operating  revenues from the Palm Beach
Princess to pay the wet dock storage, interest, debt service and equipment lease
costs of the Big Easy and the  Royal  Star.  Big Easy  operational  losses  have
adversely  affected  our cash flow.  We could  face  significant  challenges  in
managing and  integrating  the combined  operations  of the Big Easy and the M/V
Palm Beach  Princess  should we  relocate  the Big Easy to a  different  port or
reinstate its operation in Palm Beach.  Any future  integration  of the Big Easy
operation will require  dedication of management  resources that may temporarily
divert attention from our day-to-day business.

     After  receiving  proceeds  of  $2.3  million  in  June  2005,   subsequent
additional  PDS debt  financing and with accrued  interest on the unpaid monthly
payments, we have approximately $30.6 million of indebtedness outstanding to PDS
as of March 31,  2006.  We have been unable to make the  required  monthly  debt
service  payments  required  under the PDS loans  since  December  2005 and have
borrowed  additional funds in order to make interest payments due under the debt
agreement.  We have extended  payment terms of our accounts  payable in order to
conserve working capital.  This action could jeopardize the  relationships  with
our  vendors  and we may be forced to find  alternative  sources for some of our
suppliers and professional advisors,  further disrupting our operations.  We may
incur additional indebtedness in the future. Our level of indebtedness will have
several significant effects on our future operations, including the following:

          o    we will be  required  to use the  majority  of our cash flow from
               operations  for the payment of any  principal  or interest due on
               our  outstanding  indebtedness  or may  need  additional  working
               capital in addition to our cash flow for payment of principal and
               interest due;

          o    our  outstanding  indebtedness  and  leverage  will  increase the
               impact of  negative  changes in  general  economic  and  industry
               conditions, as well as competitive pressures; and

          o    the level of our  outstanding  debt may  effect  our  ability  to
               obtain   additional   financing  for  working  capital,   capital
               expenditures or general corporate purposes.

     If we cannot generate sufficient cash flow from operations in the future to
service our debt, we may, among other things be forced to:

          o    seek additional financing in the debt or equity markets;

          o    refinance or restructure all or a portion of our indebtedness; or

          o    sell selected assets.

     These  measures  might  not be  sufficient  to  enable  us to  service  our
indebtedness.  In addition,  any financing,  refinancing or sale of assets might
not be available on economically favorable terms.

     On March 8, 2005 the citizens of Broward County  approved a referendum that
will  amend  Florida's  constitution  to permit  slot  machines  at  pari-mutuel
facilities  in Broward  County.  Currently  there are three race  tracks and one
jai-alai  facility in the County.  Broward  County is  contiguous  to Palm Beach
County in which we conduct  operations.  In a special  session in early December
2005, the Florida  legislature  passed legislation which would permit 1,500 slot
machines  at each of the four (4)  pari-mutuel  facilities  in  Broward  County.
Neither the timing of the  installation of the slot machines,  nor the impact to
our Company,  can be predicted at this time. Over the past few years,  there has
been an attempt to legalize gaming throughout the State of Florida. It is likely
that the gaming  industry  will  continue  to pursue  legalization  of gaming in
Florida,  and we believe that the legalization of gaming in Florida could have a
material adverse impact on our operations.

                                       33

<PAGE>

     Since our accounting periods consist of a 4-4-5 week quarter,  from time to
time an  additional  week is included  in the first  period to adjust our period
ends to more closely  match a calendar  year end. For example,  the period ended
March 31, 2005  contained 14 weeks  compared to the 13 weeks of the period ended
March 31, 2006.

                                       34

<PAGE>

     Consolidated

     The table below separately  identifies and compares the revenues,  expenses
and net  income  before  taxes of our  vessels  and other  operating  subsidiary
companies as shown on the  Consolidated  Statement of  Operations  for the three
months  ended March 31, 2006 as  compared  to the three  months  ended March 31,
2005.

<TABLE>
                                         Three Months Ended                                       Three Months Ended
                                           March 31, 2006                                          March 31, 2005
                          ------------------------------------------------------ --------------------------------------------------
                           Palm Beach       Big        Holding Co &                Palm Beach       Big       Holding Co &
                           Princess         Easy       Other Subs      Total       Princess         Easy     Other Subs    Total
                              ($)           ($)            ($)         ($)            ($)          ($)          ($)        ($)
                          ------------- ------------ ------------- ------------- ------------- ------------ ----------- -----------
<CAPTION>
<S>                         <C>          <C>           <C>           <C>           <C>          <C>          <C>         <C>
Operating Revenues:

  Gaming                     7,790,587       62,739             -     7,853,326     8,489,580            -           -    8,489,580
  Fare                         954,684        6,332             -       961,016     1,076,323            -           -    1,076,323
  On Board                     418,614        9,418             -       428,032       599,464            -           -      599,464
  Other                              -            -       151,222       151,222             -            -     115,618      115,618
                          ------------- ------------ ------------- ------------- ------------- ------------ ----------- -----------
                   Total     9,163,885       78,489       151,222     9,393,596    10,165,367            -     115,618   10,280,985
                          ------------- ------------ ------------- ------------- ------------- ------------ ----------- -----------

Operating Costs and Expenses:

 Gaming                      2,338,677      869,241             -     3,207,918     2,592,901            -           -    2,592,901
 Fare                          599,192       86,804       108,976       794,972     1,145,362            -     101,934    1,247,296
 On Board                      220,734       21,717             -       242,451       286,832            -           -      286,832
 Maritime & Legal            1,803,439      956,920             -     2,760,359     1,813,085            -           -    1,813,085
 G & A Expenses                514,981      329,282       598,140     1,442,403       306,958            -     420,196      727,154
 Development Costs                   -            -        94,147        94,147             -    1,109,311     212,002    1,321,313
 Royal Star
     Development Costs               -            -       385,956       385,956             -            -      12,336       12,336
Equine Dev Costs                     -            -             -             -             -            -     149,328      149,328
Impairment of Assets                 -            -       400,000       400,000             -            -     100,000      100,000
Dep & Amort                    641,435      411,104         2,879     1,055,418       552,222            -       4,273      556,495
                          ------------- ------------ ------------- ------------- ------------- ------------ ----------- -----------
                   Total     6,118,458    2,675,068     1,590,098    10,383,624     6,697,360    1,109,311   1,000,069    8,806,740
                          ------------- ------------ ------------- ------------- ------------- ------------ ----------- -----------

Operating Income (Loss)      3,045,427   (2,596,579)   (1,438,876)     (990,028)    3,468,007   (1,109,311)   (884,451)   1,474,245

Other Income (Expense):

  Interest &
  Financing Expenses          (840,636)    (895,657)     (248,147)   (1,984,440)     (563,398)            -    (76,026)    (639,424)

  Interest &
  Financing Expenses - RP     (241,460)    (300,000)       (9,505)     (550,965)     (259,702)            -           -    (259,702)

  Warrant Expense                    -            -      (493,300)     (493,300)             -            -           -           -

  Interest Income                  649            -             -           649         9,493            -           -        9,493

  Interest Income - RP          64,541            -         7,244        71,785        62,178            -       7,327       69,505
                          ------------- ------------ ------------- ------------- ------------- ------------ ----------- -----------
                   Total    (1,016,906)  (1,195,657)     (743,708)   (2,956,271)     (751,429)            0    (68,699)    (820,128)
                          ------------- ------------ ------------- ------------- ------------- ------------ ----------- -----------
Income (Loss) Before Tax     2,028,521   (3,792,236)   (2,182,584)   (3,946,299)    2,716,578   (1,109,311)   (953,150)     654,117
                          ============= ============= ============  ============ ============= ============ =========== ===========
</TABLE>

     Revenues  decreased $987,389 primarily as a result of the net effect of the
revenues generated by the Palm Beach Princess  decreasing by $1 million,  offset
in part by the Big Easy revenues generated during the month of January 2006. The
period  ended March 31,  2005  included  an  additional  week as compared to the
period ended March 31, 2006.

                                       35

<PAGE>

     Operating  expenses  increased  approximately  $2  million,  or  24%,  from
$8,806,740 in the three months ended March 31, 2005 to  $10,876,924 in the three
months ended March 31, 2006 primarily the result of:

o    an increase in the operating costs for the Big Easy of  approximately  $2.7
     million for the quarter as compared to the prior year when we only incurred
     start-up costs during the comparative quarter of $1.1 million;

o    an increase in the  carrying  costs for our Royal Star vessel of  $373,620,
     which vessel has been in wet dock storage since its purchase.  The increase
     was primarily  caused by the payments we are making on the gaming equipment
     placed  aboard the vessel in January 2005 whereas last year the payments on
     the equipment were interest only and classified as an interest expense;

o    an increase in Depreciation  and  Amortization  of $498,923  primarily as a
     result of depreciation being recorded on the Big Easy;

o    an increase in the Parent Company administrative expense of $66,722;

o    the  impairment of the liquor license in the amount of $400,000 as compared
     to an impairment of a note  receivable in the amount of $100,000 during the
     comparative quarter last year; offset by

o    a decrease in operating expenses for the Palm Beach Princess of $330,000;

o    a decrease  in equine  operating  costs of  $150,000  because  the  Company
     terminated its equine operations on December 31, 2005; and

o    a decrease in other  development  costs of  $140,000  since the Company was
     forced to reduce its costs in search for new gaming opportunities.

     The  Operating  (loss)  for the  three  months  ended  March  31,  2006 was
($990,028) as compared to income of  $1,474,245  for the  comparative  period of
last year.

     Other expenses  increased by  approximately  $2.1 million as a result of an
increase in the interest and financing expense due to: 1) the higher debt levels
on the  vessel  leases;  2) higher  interest  rates as a result  of the  penalty
interest  incurred on the $30 million  loan from PDS; 3) a $165,800  forbearance
fee; 4) interest for the Big Easy being  capitalized  during its  reconstruction
period for the quarter  ended March 31, 2005;  and 5)an increase in the costs of
warrants granted for financing in the amount of $493,300.

     The Net (Loss) for the three months  ended March 31, 2006 was  ($3,946,299)
or ($0.35) per share as compared to income of $649,117 or $.06 per share for the
three months ended March 31, 2005.

     For the three  months  ending  March 31, 2006 the (loss)  before  interest,
taxes,  depreciation and amortization and an impairment loss,  (Adjusted EBITDA)
was $465,390 as compared to Adjusted EBITDA of $2,130,740 for the  corresponding
period. The decrease in Adjusted EBITDA of $1.7 million was primarily due to the
losses sustained in the three months ended March 31, 2006 as detailed above. See
the  reconciliation of Adjusted EBITDA to net income for the three month periods
ended March 31st below.

Reconciliation of Non-GAAP Measures to GAAP

     Adjusted  EBITDA or  earnings  before  interest,  taxes,  depreciation  and
amortization  and unusual  items is not a measure of  performance  or  liquidity
calculated in accordance with generally accepted accounting  principles.  EBITDA
information  is  presented  as  a  supplemental  disclosure  because  management
believes  that it is a widely  used  measure of such  performance  in the gaming
industry. In addition, management uses Adjusted EBITDA as the primary measure of
the  operating  performance  of its  operations,  including  the  evaluation  of
operating  personnel.  Adjusted EBITDA should not be construed as an alternative
to operating income, as an

                                       36

<PAGE>


indicator of the Company's operating  performance,  or as an alternative to cash
flows from  operating  activities,  as a measure of  liquidity,  or as any other
measure  of  performance   determined  in  accordance  with  generally  accepted
accounting principles. The Company has significant uses of cash flows, including
capital  expenditures,  interest  payments,  taxes,  lease  and  debt  principal
repayments,  which are not reflected in Adjusted EBITDA. It should also be noted
that other gaming companies that report EBITDA  information may calculate EBITDA
in a different  manner  than the  Company.  A  reconciliation  of the  Company's
Adjusted EBITDA and unusual items to net income (GAAP), is shown below.

Reconciliation of Adjusted EBITDA to Net Income (GAAP)

                                            Three Months Ended March 31,
                                            -----------------------------
                                                 2006             2005
                                            -------------     -----------
Total Adjusted EBDITA                   $        465,390  $     2,130,740
     Depreciation & Amortization              (1,055,418)        (556,495)
     Interest & Financing Expenses            (3,028,705)        (899,126)
     Interest Income                              72,434           78,998
     Tax Benefit (Expense) on Income                               (5,000)
Net Income (Loss) before Unusual Items        (3,546,299)         749,117
                                            -------------     -----------
     Impairment Loss                            (400,000)        (100,000)
                                            -------------     -----------
Net Income (Loss)                       $     (3,946,299) $       649,117
                                            =============     ===========


     Vessel Operations

     Palm Beach Princess

     During the current period net operating  revenue from vessel operations was
$9,163,885  as compared to  $10,165,367.  The  decrease in revenue of $1 million
during the  comparable  quarters is due to comparing  the 13 weeks of operations
during 2006 to 14 weeks of  operations  during 2005.  The  operating  subsidiary
which operates the Palm Beach Princess ends its quarterly  accounting  period on
the last Sunday of each quarter.  These end of the week cut offs normally create
more comparability of the Company's quarterly  operations by generally having an
equal number of weeks (13) and weekend days in each quarter. Periodically,  this
system  necessitates  a 14 week  quarter.  The March 31, 2005 quarter was such a
quarter,  therefore,  the number of cruises,  revenues and expenses reported for
the first Fiscal quarter of last year included one additional week of operations
as compared to the first  quarter of 2006.  The average  revenue per week during
the first quarter ended March 31, 2006 was $704,914 compared to $726,098 for the
first quarter of 2005. This was a result of a slight decrease in the revenue per
passenger from $118.00 to $115.90.

     Casino   operating   expenses  which  also  includes  food,   beverage  and
entertainment  decreased  $254,224 from $2,592,901 or 30.5% of casino revenue in
2005 to  $2,338,677  or 30% of casino  revenue in 2006  primarily  the result of
dividing costs, many of which are fixed by their nature, over reduced revenues.

     During the month of January 2006, a portion of the employee  costs normally
incurred by the Palm Beach Princess for  operational and  administrative  salary
expenses were  allocated to the Big Easy start up operation.  These  allocations
were made to more accurately  reflect the cost of preparing the Big Easy for use
as a casino gaming vessel.  Approximately  $161,465 of salaries allocated to the
Big Easy were  expensed as  operating  costs during the three months ended March
31,  2006 as  compared  to  approximately  $295,000  of salary  costs  that were
expensed and $60,000 of salaries  which were  capitalized  as part of the vessel
costs during the three months ended March 31, 2005.  This  allocation  should be
taken into consideration when comparing  operating results from year to year for
the Palm Beach Princess.

     Sales,  marketing and advertising  expenses  decreased $546,170 or 48%. The
amounts incurred for

                                       37

<PAGE>

marketing and advertising  decreased because the Company did not have sufficient
funds to spend due to our negative cash  position.  Maritime and legal  expenses
remained substantially unchanged.

     Administrative  expenses  increased  $208,023  which  reflects  in part the
decrease in the  allocation of salaries to the Big Easy since the allocation was
only done for one month in the current year.

     Finance expenses increased $265,477 as a result of the higher interest rate
due to default  interest being charged and a forbearance fee recorded during the
quarter.  Depreciation and amortization  increased $89,213 from $552,222 for the
three  months  ended March 31 2005 to $641,435  for the three months ended March
31, 2006.

     The income  before  income tax expense for the three months ended March 31,
2006 was $2,028,521 as compared to income before income tax of $2,716,578 in the
comparable three month period of 2005.

     The Palm  Beach  Princess  performs  fourteen  cruises  weekly,  that is, a
daytime  and an evening  cruise  each day.  Each  cruise is of five to six hours
duration.  During  each  cruise,  the  Palm  Beach  Princess  offers  a range of
amenities  and services to her  passengers,  including a full  casino,  sit-down
buffet dining, live musical shows, discotheque,  bars and lounges, swimming pool
and  sundecks.  The casino  occupies  15,000  square feet aboard the ship and is
equipped with approximately 400 slot machines, all major table games (blackjack,
dice, roulette and poker), and a sports wagering book.

     The following is a  comparative  summary of income and expenses of the Palm
Beach  Princess  operation  for the 13 weeks  ended April 2, 2006 and for the 14
weeks ended April 3, 2005:

                                          Three Months Ended
                                        April 2,       April 3,
             Description                 2006            2005         Change
    --------------------------------   ----------     -----------   -----------
Passenger Count                            79,071          86,148       (7,077)
Number of Cruises                             179             196          (17)
Average Number of Passengers
  per Cruise                                  442             440            2
Net Revenue per Passenger            $     115.90   $      118.00  $     (2.10)

Revenue:
    Gaming                           $  7,790,587   $   8,489,580  $ (698,993)
    Fare                                2,450,167       2,680,977    (230,810)
    On Board                            1,109,233       1,151,464     (42,231)
    Less: Promotional Allowances
    Fare                               (1,495,483)     (1,604,654)     109,171
    On Board                             (690,619)       (552,000)    (138,619)
                                       ----------     -----------   ----------
    Net Operating Revenue               9,163,885      10,165,367   (1,001,482)
                                       ----------     -----------   ----------
Expenses:
    Gaming                              2,338,677       2,592,901     (254,224)
    Fare                                  599,192       1,145,362     (546,170)
    On Board                              220,734         286,832      (66,098)
    Maritime and Legal Expenses         1,803,439       1,813,085       (9,646)
    Administrative                        514,981         306,958      208,023
    Finance Expenses - Net              1,016,906         751,429      265,477
    Depreciation and Amortization         641,435         552,222       89,213
                                       ----------     -----------   ----------
Total Expenses                          7,135,364       7,448,789     (313,425)
                                       ----------     -----------   ----------
    Income Before Income
     Tax Expenses                    $  2,028,521   $   2,716,578  $  (688,057)
                                       ==========     ===========   ==========

                                       38

<PAGE>

     Big Easy

     The  United  States  Coast  Guard  issued the Big Easy her  Certificate  of
Inspection on October 11, 2005,  following an extensive and unexpected  delay in
receiving  such   certification.   The  vessel's   first   official   cruise  to
international  waters was October 18,  2005.  Due to the  approaching  Hurricane
Wilma,  the vessel was  ordered  out of the Port for safe  haven  following  her
afternoon cruise on October 19, 2005.  Hurricane Wilma struck Florida on October
24,  2005.  Due to the damages  caused by  Hurricane  Wilma and vessel  schedule
conflicts,  the Big Easy was unable to sail commercially until November 6, 2005.
The unexpected  delay in receiving the vessels'  Certificate of Inspection,  and
the  subsequent  delays,  damage and  inconveniences  caused by Hurricane  Wilma
immediately  following the maiden voyage had a compounding adverse effect on the
Company's  ability to retain  personnel.  As a result,  the Company  experienced
greater than normal  attrition  of Big Easy  personnel,  particularly  those who
carried Coast  Guard-issued  Merchant Marine cards (i.e. also known as z-cards).
These are  issued by the Coast  Guard and serve as  required  documentation  for
those working on US flagged  vessels to fill Coast Guard mandated muster station
requirements).   As  the  number  of  Merchant  Marine  card  personnel   became
increasingly inadequate, it became increasingly difficult for management to meet
muster station  requirements,  often forcing the  cancellation of many sailings,
particularly in December and January.  The Coast Guard stopped issuing  Merchant
Marine cards suddenly and unexpectedly  sometime in October,  2005.  Adverse sea
conditions in November and December were  generally  unfavorable  for commercial
sailing and were a contributing  factor to several missed sailings.  As a result
of these numerous  challenges the vessel was able to make only nineteen sailings
in November;  twenty-four sailings in December and eight sailings in January. On
January  31,  2006 the Coast Guard  denied the  Company's  request to provide an
extension to complete certain mandated work and removed the vessels' Certificate
of  Inspection.  On January 31,  2006,  approximately  one  hundred  Coast Guard
Merchant Marine card applications  relating to the Big Easy remained unprocessed
by the Coast Guard for twelve weeks or longer.

     We were having challenges  attracting  customers to the Big Easy, given her
inconsistent schedule of sailings.  The initial delay in receiving a Certificate
of Inspection and subsequent  inconsistencies  in scheduling caused  significant
negative cash flow and made advertising and promotional  efforts  difficult from
both a financial and practical  planning  perspective.  The lack of a consistent
commercial service schedule caused  insignificant  customer support resulting in
negative  results.  On February 1, 2006 we  suspended  operations  indefinitely.
During the three month period  ending  March 31, 2006 the Big Easy  sustained an
operational loss of approximately $3.8 million.

     See the  breakdown of the Big Easy revenues and expenses for the quarter in
the consolidated section of Management's Discussion.

Inflation

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


                                       39

<PAGE>

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The Company is not subject to material interest rate risk, foreign currency
exchange rate risk,  commodity price risk or other relevant market rate or price
risks.

ITEM 4. CONTROLS AND PROCEDURES

Controls and Procedures

     We maintain  disclosure controls and procedures that are designed to ensure
that  information  required  to be  disclosed  in our  Exchange  Act  reports is
recorded,  processed,  summarized and reported within the time periods specified
in the SEC's  rules and forms,  and that such  information  is  accumulated  and
communicated to our management,  including our chief executive officer and chief
financial officer, as appropriate,  to allow timely decisions regarding required
disclosure.  In designing and evaluating the disclosure controls and procedures,
management  recognized  that any  controls  and  procedures,  no matter how well
designed and operated,  can provide only  reasonable  assurance of achieving the
desired control objectives, and management necessarily was required to apply its
judgment in evaluating the  cost-benefit  relationship of possible  controls and
procedures.

     As of the  end of the  period  covered  by this  report,  we  completed  an
evaluation,  under the supervision and with the participation of our management,
including  our chief  executive  officer  and chief  financial  officer,  of the
effectiveness  of the  design  and  operation  of our  disclosure  controls  and
procedures.  Based on the  foregoing,  our  chief  executive  officer  and chief
financial  officer  concluded  that  the  Company's   disclosure   controls  and
procedures were effective.

     There have not been any significant changes that occurred during the fiscal
quarter  ended March 31,  2006 in the  Company's  internal  controls or in other
factors that could significantly affect these controls subsequent to the date of
their evaluation.

                                       40

<PAGE>

                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES


                                     Part II

                                OTHER INFORMATION


ITEM 6. EXHIBITS

Exhibit                        Description of Exhibit
-------                        ----------------------

31.1 CEO  Certification   pursuant  to  rule  13a-14(a)  and  15d-14(a)  of  the
     Securities Exchange Act of 1934

31.2 CFO  Certification   pursuant  to  rule  13a-14(a)  and  15d-14(a)  of  the
     Securities Exchange Act of 1934

32   CEO & CFO  Certification  pursuant to 18 U.S.C.  Section  1350,  As Adopted
     Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


                                       41

<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.


May 22, 2006         /s/Francis W. Murray
                     ---------------------------------------------------------
                     Francis W. Murray, President, Chief Executive Officer and
                     Chief Financial Officer

                                       42

<PAGE>


                                                                    Exhibit 31.1

             CEO CERTIFICATION PURSUANT TO RULE 13A-14 AND 15D-14 OF
                     THE SECURITIES AND EXCHANGE ACT OF 1934

I, Francis W. Murray, certify that:

     1.   I have reviewed this  quarterly  report on Form 10-Q of  International
          Thoroughbred Breeders;

     2.   Based on my  knowledge,  this  quarterly  report  does not contain any
          untrue  statement of a material  fact or omit to state a material fact
          necessary to make the statements  made, in light of the  circumstances
          under which such  statements were made, not misleading with respect to
          the period covered by this quarterly report;

     3.   Based on my knowledge,  the financial statements,  and other financial
          information  included in this quarterly report,  fairly present in all
          material respects the financial  condition,  results of operations and
          cash flows of the registrant as of, and for, the periods  presented in
          this quarterly report;

     4.   The registrant's  other certifying  officers and I are responsible for
          establishing  and maintaining  disclosure  controls and procedures (as
          defined in Exchange  Act Rules  13a-14 and 15d-14) for the  registrant
          and we have:

          a)   designed such  disclosure  controls and procedures to ensure that
               material  information  relating to the registrant,  including its
               consolidated  subsidiaries,  is made known to us by others within
               those  entities,  particularly  during  the  period in which this
               quarterly report is being prepared;

          b)   evaluated  the  effectiveness  of  the  registrant's   disclosure
               controls and  procedures as of a date within 90 days prior to the
               filing date of this quarterly report (the "Evaluation Date"); and

          c)   presented  in this  quarterly  report our  conclusions  about the
               effectiveness of the disclosure  controls and procedures based on
               our evaluation as of the Evaluation Date;

     5.   The registrant's other certifying officers and I have disclosed, based
          on our most recent  evaluation,  to the registrant's  auditors and the
          audit  committee  of  registrant's  board  of  directors  (or  persons
          performing the equivalent functions);

          a)   all  significant  deficiencies  in the  design  or  operation  of
               internal  controls which could adversely  affect the registrant's
               ability to record,  process,  summarize and report financial data
               and have  identified for the  registrant's  auditors any material
               weaknesses in internal controls; and

          b)   any fraud,  whether or not material,  that involves management or
               other employees who have a significant  role in the  registrant's
               internal controls; and

     6.   The  registrant's  other  certifying  officers and I have indicated in
          this quarterly report whether or not there were significant changes in
          internal controls or in other factors that could significantly  affect
          internal   controls   subsequent  to  the  date  of  our  most  recent
          evaluation,   including   any   corrective   actions  with  regard  to
          significant deficiencies and material weaknesses.

Date: May 22, 2006     /s/Francis W. Murray
                       ----------------------------------
                       Chairman/Chief Executive Officer/Chief Financial Officer


                                       43

<PAGE>

                                                                    Exhibit 31.2



             CFO CERTIFICATION PURSUANT TO RULE 13A-14 AND 15D-14 OF
                     THE SECURITIES AND EXCHANGE ACT OF 1934

I, Francis W. Murray, certify that:

     1.   I have reviewed this  quarterly  report on Form 10-Q of  International
          Thoroughbred Breeders;

     2.   Based on my  knowledge,  this  quarterly  report  does not contain any
          untrue  statement of a material  fact or omit to state a material fact
          necessary to make the statements  made, in light of the  circumstances
          under which such  statements were made, not misleading with respect to
          the period covered by this quarterly report;

     3.   Based on my knowledge,  the financial statements,  and other financial
          information  included in this quarterly report,  fairly present in all
          material respects the financial  condition,  results of operations and
          cash flows of the registrant as of, and for, the periods  presented in
          this quarterly report;

     4.   The registrant's  other certifying  officers and I are responsible for
          establishing  and maintaining  disclosure  controls and procedures (as
          defined in Exchange  Act Rules  13a-14 and 15d-14) for the  registrant
          and we have:

          a)   designed such  disclosure  controls and procedures to ensure that
               material  information  relating to the registrant,  including its
               consolidated  subsidiaries,  is made known to us by others within
               those  entities,  particularly  during  the  period in which this
               quarterly report is being prepared;

          b)   evaluated  the  effectiveness  of  the  registrant's   disclosure
               controls and  procedures as of a date within 90 days prior to the
               filing date of this quarterly report (the "Evaluation Date"); and

          c)   presented  in this  quarterly  report our  conclusions  about the
               effectiveness of the disclosure  controls and procedures based on
               our evaluation as of the Evaluation Date;

     5.   The registrant's other certifying officers and I have disclosed, based
          on our most recent  evaluation,  to the registrant's  auditors and the
          audit  committee  of  registrant's  board  of  directors  (or  persons
          performing the equivalent functions);

          a)   all  significant  deficiencies  in the  design  or  operation  of
               internal  controls which could adversely  affect the registrant's
               ability to record,  process,  summarize and report financial data
               and have  identified for the  registrant's  auditors any material
               weaknesses in internal controls; and

          b)   any fraud,  whether or not material,  that involves management or
               other employees who have a significant  role in the  registrant's
               internal controls; and

     6.   The  registrant's  other  certifying  officers and I have indicated in
          this quarterly report whether or not there were significant changes in
          internal controls or in other factors that could significantly  affect
          internal   controls   subsequent  to  the  date  of  our  most  recent
          evaluation,   including   any   corrective   actions  with  regard  to
          significant deficiencies and material weaknesses.

Date: May 22, 2006      /s/Francis W. Murray
                        -------------------------------------------------------
                        Chairman/Chief Executive Officer/Chief Financial Officer


                                       44

<PAGE>


                                                                      Exhibit 32

                CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
                      AS ADOPTED PURSUANT TO SECTION 906 OF
                         THE SARBANES-OXLEY ACT OF 2002

     In  connection  with the  filing  of the  Quarterly  Report on Form 10-Q of
International  Thoroughbred Breeders,  Inc. (the "Company") for the three months
ended March 31, 2006 as filed with the Securities and Exchange Commission on the
date hereof (the "Report"), I, Francis W. Murray, Chief Financial Officer of the
Company,  hereby certify pursuant to 18 U.S.C.  ss.1350,  as adopted pursuant to
Section  906 of the  Sarbanes-Oxley  Act  of  2002,  that,  to  the  best  of my
knowledge:

     (1) The Report fully  complies  with the  requirements  of Section 13(a) or
Section 15(d) of the Securities Exchange Act of 1934; and

     (2)  The  information  contained  in the  Report  fairly  presents,  in all
material  respects,  the  financial  condition  and results of operations of the
Company.



/s/ Francis W. Murray
------------------------------
Name: Francis W. Murray
Title: Chief Financial Officer
May 22, 2006

                                       45

<PAGE>