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 December 31, 1998

                                       OR

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

           For the transition period from            to

                         Commission file number 0-9624

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

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

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


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

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

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

                      APPLICABLE ONLY TO CORPORATE ISSUERS:

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

                  Class                 Outstanding at February 12, 1999
      Common Stock, $ 2.00 par value           8,980,227 Shares

<PAGE>

                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.

                                    FORM 10-Q

                                QUARTERLY REPORT
                   FOR THE SIX MONTHS ENDED DECEMBER 31, 1998
                                   (Unaudited)

                                TABLE OF CONTENTS

                                                                     PAGE
PART I.  FINANCIAL INFORMATION

         Item 1.  Financial Statements:

                  Consolidated Balance Sheets
                         as of December 31, 1998 and June 30, 1998 ...1-2

                  Consolidated Statement of Stockholders' Equity
                         for the Six Months ended December 31, 1998 ....3

                  Consolidated Statements of Operations
                         for the Three Months and Six Months ended
                         December 31, 1998 and 1997  ...................4

                  Consolidated Statements of Cash Flows
                         for the Six Months ended
                         December 31, 1998 and 1997 ....................5

                  Notes to Financial Statements  ....................6-21

         Item 2.  Management's Discussion and Analysis of
                         Financial Condition and Results of
                         Operations ................................22-28

PART II. OTHER INFORMATION

         Item 4.  Submission of Matters to a Vote of Security
                         Holders ......................................29

         Item 6.  Exhibits and Reports on Form 8-K  ...................29

SIGNATURES        .....................................................30


<PAGE>


                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                    AS OF DECEMBER 31, 1998 AND JUNE 30, 1998

                                     ASSETS

                                                      December 31,
                                                         1998           June 30,
                                                      (UNAUDITED)         1998
                                                      -----------      ---------
CURRENT ASSETS:
        Cash and Cash Equivalents ................ $      166,344 $      213,795
        Reserve Escrow Deposits ..................      8,095,191     10,460,881
        Accounts Receivable ......................         33,294         36,838
        Prepaid Expenses .........................        175,473        322,313
        Other Current Assets .....................        238,063        325,756
        Net Assets of Discontinued
         Operations - Current                          12,228,066     12,235,217
                                                       ----------     ----------
             TOTAL CURRENT ASSETS ................     20,936,431     23,594,800
                                                       ----------     ----------


NET ASSETS OF DISCONTINUED OPERATIONS - Long Term      44,846,448     45,626,944
                                                       ----------     ----------

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

LAND, BUILDINGS AND EQUIPMENT:
        Land and Buildings .......................        214,097        214,097
        Equipment ................................        801,484        814,927
                                                        ----------     ---------
                                                        1,015,581      1,029,024
        LESS: Accumulated Depreciation
               and Amortization                           323,936        308,162
                                                        ----------     ---------

             TOTAL LAND, BUILDINGS AND
               EQUIPMENT, NET ....................        691,645        720,862
                                                          -------        -------


OTHER ASSETS:
        Deposits and Other Assets ................          3,172          3,172
        Deferred Financing Costs, Net ............      1,343,850      2,872,453
                                                        ---------      ---------
             TOTAL OTHER ASSETS ..................      1,347,022      2,875,625
                                                        ---------      ---------


TOTAL ASSETS .....................................   $115,205,971   $120,252,901
                                                     ============   ============



See Notes to Consolidated Financial Statements.

                                        1

<PAGE>



                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                    AS OF DECEMBER 31, 1998 AND JUNE 30, 1998

                      LIABILITIES AND SHAREHOLDERS' EQUITY



                                                  December 31,
                                                      1998              June 30,
                                                   (UNAUDITED)            1998
                                                   -----------      -----------
CURRENT LIABILITIES:
        Accounts Payable .....................$        311,742 $        278,786
        Accrued Expenses .....................       3,847,696        4,852,328
        Current Maturities of Long-Term Debt .      55,069,475       55,208,426
                                                    ----------       ----------
             TOTAL CURRENT LIABILITIES .......      59,228,913       60,339,540
                                                    ----------       ----------


COMMITMENTS AND CONTINGENCIES                            -                -


STOCKHOLDERS' EQUITY:
        Series A Preferred Stock, $100.00
          Par Value, Authorized 500,000
          Shares, Issued and Outstanding,
          362,481 and 362,480 Shares,
          Respectively .......................      36,248,075       36,247,975
        Common Stock, $2.00 Par Value,
          Authorized25,000,000 Shares,
          Issued and Outstanding,
          13,978,107 and 13,978,099 Shares,
          Respectively........................      27,956,213       27,956,197
        Capital in Excess of Par .............      25,878,108       25,878,224
        (Deficit) (subsequent to
          June 30, 1993,date of
          quasi-reorganization) ..............     (34,071,171)     (30,132,368)
                                                   -----------      -----------
             TOTAL ...........................      56,011,225       59,950,028
        LESS: Deferred Compensation, Net .....          34,167           36,667
                                                   -----------      -----------
             TOTAL STOCKHOLDERS' EQUITY ......      55,977,058       59,913,361
                                                    ----------       ----------


TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ...   $ 115,205,971    $ 120,252,901
                                                 =============    =============


See Notes to Consolidated Financial Statements.

                                        2

<PAGE>





                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                   FOR THE SIX MONTHS ENDED DECEMBER 31, 1998

<TABLE>

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

   Shares Issued for
      Fractional Exchanges
      With Respect to the
      One-for-twenty Reverse
      Stock Split effected
      on March 13, 1992......        1          100            8            16
   Amortization of Deferred
      Compensation Costs ....       --           --           --            --
   Net (Loss) for the
      Six Months Ended
       December 31, 1998 ....       --           --           --            --
                                ------       ------       ------       ------
BALANCE - DECEMBER 31, 1998 .  362,481 $   36,248,075   13,978,107   $27,956,213
                               ======= ==============   ==========   ===========
</TABLE>


See Notes to Consolidated Financial Statements.

<PAGE>

                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                   FOR THE SIX MONTHS ENDED DECEMBER 31, 1998

<TABLE>


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

   Shares Issued for
      Fractional Exchanges
      With Respect to the
      One-for-twenty Reverse
      StockSplit effected
      on March 13, 1992 .....           (116)           --          --              --
   Amortization of Deferred
      Compensation Costs ....           --              --         2,500           2,500
   Net (Loss) for the
      Six Months Ended
       December 31, 1998 ....           --        (3,938,803)       --        (3,938,803)
                                ------------    ------------    --------    ------------
BALANCE - DECEMBER 31, 1998 .   $ 25,878,108    $(34,071,171)   $(34,167)   $ 55,977,058
                                ============    ============    ========    ============
</TABLE>


See Notes to Consolidated Financial Statements.

                                       3
<PAGE>



                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
  FOR THE THREE MONTHS AND FOR THE SIX MONTHS ENDED DECEMBER 31, 1998 AND 1997

<TABLE>


                                                    Three Months Ended                Six Months Ended
                                                        December 31,                     December 31,
                                                        ------------                     ------------
                                                    1998            1997            1998            1997
                                                    ----            ----            ----            ----
<CAPTION>
<S>                                            <C>             <C>             <C>             <C>
EXPENSES:
        General & Administrative Expenses ..   $  1,422,746    $  2,106,656    $  2,735,322    $  4,169,608
        Interest Expense ...................      1,741,703       1,796,057       3,523,973       3,579,157
        Interest Income ....................        (80,621)       (215,233)       (213,081)       (424,837)
        Amortization of Financing Costs ....        765,813         762,776       1,529,602       1,523,980
        El Rancho Property Carrying Costs ..        203,551         201,548         619,533         574,042

(LOSS) FROM CONTINUING OPERATIONS                ----------      ----------      ----------      ----------
   BEFORE DISCONTINUED OPERATIONS ..........     (4,053,192)     (4,651,804)     (8,195,348)     (9,421,950)


INCOME FROM DISCONTINUED OPERATIONS
        Income from operations
          of discontinued racetrack
          operations (less applicable
          incometaxes of $65,500 and
          $19,722 for the three months
          ended December 31, 1998 and
          1997, respectively,
          and $127,500 and $69,837
          for the six months
          ended December 31, 1998
          and 1997, respectively) ..........      2,113,840       2,453,968       4,256,544       4,180,232
                                                  ---------       ---------       ---------       ---------

NET (LOSS) .................................   $ (1,939,352)   $ (2,197,836)   $ (3,938,805)   $ (5,241,718)
                                               ============    ============    ============    ============

BASIC PER SHARE DATA:

(LOSS) BEFORE DISCONTINUED OPERATIONS ......   $      (0.28)   $      (0.33)   $      (0.58)   $      (0.67)

INCOME FROM DISCONTINUED OPERATIONS ........           0.15            0.18            0.30            0.30
                                                   ---------       ---------       ---------       ---------
NET (LOSS) .................................   $      (0.14)   $      (0.16)   $      (0.28)   $      (0.37)
                                                ============    ============    ============    ============
WEIGHTED AVERAGE
  COMMON SHARES OUTSTANDING ................     13,978,103      13,978,076      13,978,107      13,978,064
                                                ============    ============    ============    ============
</TABLE>

See Notes to Consolidated Financial Statements.



                                        4

<PAGE>



                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
               FOR THE SIX MONTHS ENDED DECEMBER 31, 1998 AND 1997

<TABLE>

                                                                             Six Months Ended
                                                                                December 31,
                                                                        ---------------------------
                                                                            1998           1997
                                                                            ----           ----
<CAPTION>
<S>                                                                     <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:

        (LOSS) FROM CONTINUING OPERATIONS ...........................   $(8,195,348)   $(9,421,950)
                                                                        -----------    -----------
        Adjustments to reconcile (loss)  to net cash (used)
          provided by operating activities:
                Income from discontinued racetrack operations .......     4,256,544      4,180,232
                Depreciation and Amortization .......................     1,564,029      2,389,593
                Compensation for Options Granted ....................             0        808,275
                Loss on Sale of Fixed Assets ........................        32,673
                Changes in Assets and Liabilities -
                   (Increase) in Restricted Cash and Investments ....             0      2,174,908
                   (Increase) in Accounts Receivable ................         3,544       (651,336)
                   Decrease (Increase) in Other Assets ..............        87,693       (251,824)
                   Decrease in Prepaid Expenses .....................       146,840        406,934
                   (Decrease) Increase in Accounts and Purses Payable
                    and Accrued Expenses ............................      (916,311)    (1,975,138)
                   Increase in Deferred Revenue .....................             0       (936,198)
                                                                         -----------
        CASH (USED IN) CONTINUING OPERATING ACTIVITIES ..............    (3,053,009)

        CASH PROVIDED BY DISCONTINUED OPERATING ACTIVITIES ..........     1,120,561
                                                                         -----------    -----------
        NET CASH (USED IN) OPERATING ACTIVITIES .....................    (1,932,448)    (3,243,831)
                                                                         ----------     ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
    Proceeds from Sale of Land ......................................             0      8,449,904
    Development of El Rancho Property ...............................             0       (114,251)
    Deposits on New Mexico Racetrack Options ........................             0       (600,000)
    Capital Expenditures ............................................        (2,709)      (449,373)
    (Increase) in Other Investments .................................             0        (27,235)
                                                                         -----------
        CASH (USED IN) CONTINUING INVESTING ACTIVITIES ..............        (2,709)
        CASH(USED IN) DISCONTINUED INVESTING ACTIVITIES .............       (52,404)
                                                                         -----------    -----------
        NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES .........       (55,113)     7,259,045
                                                                         -----------    -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Deferred Financing Costs ........................................             0        (22,445)
    Escrow Deposits Utilized ........................................     2,365,690      5,661,749
    Deposits to Reserve Escrow Deposits from Land Sale ..............             0     (1,370,120)
    Decrease in Balances Due From Discontinued Subsidiaries .........     5,038,071              0
    Principal Payments on Sun Mortgage ..............................             0     (6,000,000)
    Principal Payments on Short Term Notes ..........................      (138,950)      (773,122)
    Principal Payments on Long Term Notes ...........................             0       (247,832)
                                                                         -----------
        CASH PROVIDED BY CONTINUING FINANCING ACTIVITIES ............     7,264,811
        CASH (USED IN) DISCONTINUED FINANCING ACTIVITIES ............    (6,018,205)
                                                                         -----------    -----------
        NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES .........     1,246,606     (2,751,770)
                                                                          ---------     ----------

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ................      (740,955)     1,263,444
          LESS CASH AND CASH EQUIVALENTS (USED IN)
            DISCONTINUED OPERATIONS .................................       693,504           --
        CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
          FROM CONTINUING OPERATIONS ................................       213,795      3,784,895
                                                                         -----------    -----------

        CASH AND CASH EQUIVALENTS AT END OF PERIOD .................. $     166,344 $    5,048,339
                                                                      ============= ==============

        Supplemental Disclosures of Cash Flow Information:
                Cash paid during the period for:
                Interest                                              $   3,926,622 $    3,535,751
                Income Taxes                                          $           0 $      100,000
</TABLE>

Supplemental Schedule of Non-Cash Investing and Financing Activities:

     During the six  months  ended  December  31,  1998 and  1997,  the  Company
          recorded an unrealized loss of $10,840 and $20,000,  respectively,  on
          trading securities.

     During the six months ended  December 31, 1997,  the Company issued options
          to purchase 300,000 shares of Common Stock at a fair value of $786,000
          to three of the Company's directors.

See Notes to Consolidated Financial Statements.


                                        5

<PAGE>


                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

(1)  BASIS OF PRESENTATION

     On January 28, 1999, the Company completed the sale of Freehold Raceway and
a ten acre parcel at the Garden State Park  facility and the lease of the Garden
State Park  facilities.  Prior to June 30, 1998, the Company  determined to sell
its  racetracks  and,  accordingly,  the  operating  results  of  the  racetrack
subsidiaries  have been segregated and reported as  discontinued  operations for
each of the periods presented. (See Notes 2 and 14)

     The  accompanying  unaudited  consolidated  financial  statements have been
prepared in accordance with generally accepted accounting principles for interim
financial  information and with the  instructions to Form 10-Q and Rule 10-01 of
Regulation  S-X.  Accordingly,  they do not include all of the  information  and
footnotes  required by generally  accepted  accounting  principles  for complete
financial statements. In the opinion of management,  all adjustments (consisting
of normal recurring accruals)  considered necessary for a fair presentation have
been included.  Operating results for the six months ended December 31, 1998 are
not  necessarily  indicative  of the results that may be expected for the fiscal
year ended June 30, 1999. The unaudited consolidated financial statements should
be read in conjunction with the consolidated  financial statements and footnotes
thereto  included in the Company's  Form 10-K for the fiscal year ended June 30,
1998.

     The  accompanying  consolidated  financial  statements  have been  prepared
assuming   International    Thoroughbred   Breeders,   Inc.   and   subsidiaries
(collectively,  the "Company") will continue as a going concern. As discussed in
Notes 2, 7 and 14, the  Company  has  obtained  waivers in  connection  with the
violation  of several  non-financial  loan  covenants  with its primary  lender.
However,  the remaining debt to the Company's primary lender is due June 1, 1999
unless  an  extension  is  obtained.  The  Company  is  considering  alternative
financing sources.  However,  there can be no assurance that the Company will be
successful in such endeavors.

     The Company has sustained losses of  approximately  $18.3 million and $17.4
million  during  fiscals  1998  and  1997,  respectively,  and  a  net  loss  of
approximately $4 million for the six months ended December 31, 1998. The Company
believes its projected cash flows from its current operations will be sufficient
until June 1, 1999 when the debt to the  Company's  primary  lender is due,  and
there can be no assurances beyond that date.

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

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

(2)  SALE AND LEASE OF ASSETS

     On January 28, 1999,  the Company  completed the sale of Freehold  Raceway,
the sale of a ten acre  parcel at Garden  State Park and the lease of the Garden
State Park  facilities to  subsidiaries of Greenwood  Racing,  Inc.,  which owns
Philadelphia  Park  racetrack,  the Turf  Clubs  and  Phonebet  (the  "Greenwood
Transaction").  The purchase  price was $46 million ($1 million of which will be
held in escrow to cover certain  indemnification  and other  obligations  of the
Company),  with an additional  $10 million in contingent  promissory  notes (the
"Contingent  Notes")  which  become  effective  upon,  among other  things,  New
Jersey's  approval of off-track  betting  facilities or telephone  account pari-
mutuel wagering on horse racing.  Further  adjustments could be made to increase
the purchase price if certain additional  regulatory gaming changes are approved
in New  Jersey  in  the  future.  Greenwood  Racing,  Inc.  will  guarantee  the
performance by the purchaser of all obligations  under the Contingent Notes, and
following a consummation  of a joint venture with Greenwood  Racing,  Inc., Penn
National Gaming, Inc. ("Penn National"),  (which owns Penn National Race Course,
Pocono Downs Racetrack, Charles Town Races and at least ten

                                        6

<PAGE>


                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

off-track betting parlors in  Pennsylvania),  will also guarantee the Contingent
Notes.

         The proceeds of the Greenwood  Transaction were principally used by the
Company to pay off the first lien on the assets of Freehold Raceway,  reduce the
outstanding  balance on the  Company's  loan from  Credit  Suisse  First  Boston
Mortgage  Capital LLC ("Credit  Suisse") to $30.5 million and to consummate  the
Delaware  Settlement  (See note 3). In addition,  Credit Suisse also released to
the Company  approximately  $1.475 million from its escrow  reserves for working
capital purposes. (See note 6.)

(3)  LITIGATION SETTLEMENT

         On January 28, 1999, the Company  consummated the settlement  under the
Stipulation and Agreement of Compromise,  Settlement and Release entered into on
July 2, 1998 to resolve the pending  stockholder  derivative  litigation  in the
Delaware Court of Chancery (the "Delaware Settlement").

     The Company also  consummated  the  settlement  under the  Stipulation  and
Agreement of Compromise,  Settlement and Release entered into on July 2, 1998 to
resolve the pending stockholder  derivative  litigation in the Delaware Court of
Chancery  ( the  "Delaware  Settlement").  Under the  Delaware  Settlement,  the
Company purchased from NPD, Inc. ("NPD") approximately 2.9 million shares of ITB
common stock (the "NPD Shares") for $4.6 million,  plus the assumption by ITB of
NPD's $5.8  million  promissory  note (the "NPD Note") held by Donald F. Conway,
Chapter  11  Trustee  for the  Bankruptcy  Estate  of  Robert  E.  Brennan  (the
"Bankruptcy  Trustee").  The  purchase  price for the NPD Shares was  reached in
settlement of certain claims against NPD and certain directors.  In addition, $2
million  pledged to secure the NPD Note,  plus  accrued  interest  thereon,  was
returned to AutoLend  Group,  Inc., a company in which Nunzio P. DeSantis is the
Chairman, President and principal stockholder and Anthony Coelho is a director.

     In connection with the Delaware Settlement, the Company sought the approval
of the United  States  Bankruptcy  Court for the  District  of New Jersey in the
action  captioned In re Robert E. Brennan,  Case No.  95-35502,  of the Delaware
Settlement,  including  the  Company's  purchase  of  the  NPD  Shares  and  its
assumption  of the NPD  Note.  This  approval  was  received,  and  the  Company
consummated  a  settlement  with the  Bankruptcy  Trustee,  as holder of the NPD
Shares and the NPD Note (the  "Trustee  Settlement").  Pursuant  to the  Trustee
Settlement, the Bankruptcy Trustee received (a) a pay down of the $5,808,032 NPD
Note to $3,558,032; (b) a newly executed "ITB Note" in the amount of $3,558,032,
on  substantially  the  same  terms as the NPD  Note  (except  that the ITB Note
matures on the  earlier of January  15,  2001 or the  closing of the sale of the
Company's  non-operating  El Rancho  hotel and casino site in Las Vegas,  Nevada
(the  "El  Rancho  Property")  or  of  Garden  State  Park  (the  "Garden  State
Property"));  (c) a security interest in the former NPD Shares now held pursuant
to a pledge and escrow agreement between the Company and the Bankruptcy Trustee;
(d) payment of the Bankruptcy  Trustee's expenses in connection with the Trustee
Settlement;  (e)  subordinate  interests  in the land and  collateral  on the El
Rancho Property and the Garden State Property; and (f) an escrow of the July 15,
1999 interest  payment due on the ITB Note.  Pursuant to the Trustee  Settlement
(a) the Company was able to consummate the terms of the Delaware Settlement, (b)
the Bankruptcy  Trustee executed and delivered  releases in favor of all parties
to the Delaware Settlement,  and (c) the Company received the right to defer the
payment of certain  interest  payments due under the ITB Note until the maturity
of such ITB Note.

         Upon the  consummation  of the  Delaware  Settlement,  Anthony  Coelho,
Nunzio P.  DeSantis and Joseph  Zappala  resigned  from the  Company's  Board of
Directors and terminated  their  employment and consulting  agreements  with the
Company.  The  continuing  directors  of the  Company  are Francis W. Murray and
Robert J. Quigley.

     The Delaware  Settlement  also  contemplates a potential  disposition on or
before 4/20/99 (subject to a possible extension) of the Company's  non-operating
El Rancho  hotel and casino  site in Las Vegas,  Nevada (See Notes 3 and 9a). Of
the proceeds of any such sale, a required  minimum of $44.2 million will be paid
to the Company,  which will be used to retire the Company's  outstanding debt to
Credit  Suisse.  These  can be no  assurance  that the  Company  will be able to
dispose  of the  El  Rancho  property  on  terms  contemplated  by the  Delaware
Settlement.

     As part of the Delaware Settlement,  Las Vegas Entertainment  Network, Inc.
has returned to the Company for cancellation approximately 2.1 million shares of
the  Company's   common  stock  and  has  terminated  all  of  its   contractual
arrangements with the Company.


                                        7

<PAGE>


                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

(4)  DISCONTINUED OPERATIONS

     On January 28, 1999,  the Company  completed  the sale of the real property
and  related  assets at  Freehold  Raceway  and a ten acre parcel of land at the
Garden State Park facility and the lease of the real property and related assets
of Garden State Park for a seven-year period. (See Notes 2 and 14).

<TABLE>
         The discontinued operations are summarized as follows:

                                              Three Months Ended         Six Months Ended
                                                 December 31,               December 31,
Discontinued Racetrack Operations:            1998          1997         1998          1997
                                              ----          ----         ----          ----
<CAPTION>
<S>                                       <C>           <C>           <C>           <C>
  Revenue .............................   $19,918,240   $20,643,514   $34,223,621   $35,185,801
                                          -----------   -----------   -----------   -----------
  Expenses:
      Cost of Revenues:
         Purses .......................     8,023,818     7,958,659    12,074,467    12,019,763
         Operating Expenses ...........     7,792,461     8,434,144    14,248,701    15,340,543
         Depreciation & Amortization ..       404,306       416,783       823,323       832,298
      General & Administrative Expenses     1,316,563     1,135,572     2,288,411     2,294,474
      Interest Expenses ...............       201,752       224,666       404,675       448,654
                                          -----------   -----------   -----------   -----------
                 Total Expenses .......    17,738,900    18,169,824    29,839,577    30,935,732
                                          -----------   -----------   -----------   -----------
Income From Discontinued Racetrack
Operations Before Taxes ...............     2,179,340     2,473,690     4,384,044     4,250,069
      Income Tax Expense ..............        65,500        19,722       127,500        69,837
                                          -----------   -----------   -----------   -----------
Income From Discontinued
 Racetrack Operations .................   $ 2,113,840   $ 2,453,968   $ 4,256,544   $ 4,180,232
                                          ===========   ===========   ===========   ===========
</TABLE>

                                        8

<PAGE>


                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


      The net  assets  of the  operations  to be  disposed  of  included  in the
accompanying  consolidated  balance sheet as of December 31, 1998 consist of the
following:
                                         Freehold    Garden State
                                          Raceway        Park
Classified As:                            Current     Non-Current
                                       ------------- ------------
Current Assets ........................$   4,803,947 $  2,589,251
Land, Building and Equipment, Net .....   21,915,573   45,704,977
Other Assets ..........................    2,895,392      225,644
                                       -------------  -----------
  Total Assets ........................   29,614,912   48,519,872
                                       -------------  -----------

Current Liabilities ...................    6,552,297    3,349,147
Long-Term Debt, Net of Current Portion    10,834,549      324,278
                                       -------------  -----------
Total Liabilities .....................   17,386,846    3,673,425
                                       -------------  -----------
  Net Assets of Discontinued
       Operations......................$  12,228,066 $ 44,846,447
                                        ============  ===========

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

  Cash flows from discontinued  operations for the six months ended December 31,
1998  consist  of  the  following:

Cash Flows From Discontinued Operating Activities:

Income ........................................................  $    4,256,544

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



        Depreciation and Amortization .........................         823,323

        Changes in Assets and Liabilities:

                  Decrease in Restricted Cash
                   and Investments ............................       1,932,372

                  Increase in Accounts Receivable .............      (1,872,252)

                  Increase in Other Assets ....................          (2,373)

                  Decrease in Prepaid Expenses ................         484,674

                  Increase in Accounts and
                   Purses Payable and Accrued Expenses ........         261,283

                  Decrease in Deferred Revenue ................        (506,466)
                                                                     ----------
Net Cash Provided by Discontinued
  operating Activities(Excluding Income) .......................       1,120,561
                                                                    -----------

                                        9

<PAGE>


                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

Cash Flows From Discontinued Investing Activities:
        Capital Expenditures ....................................       (49,906)

        (Increase) in Other Investments .........................        (2,498)
                                                                    -----------
        Net Cash (Used In) Discontinued Investing Activities ....       (52,404)
                                                                    -----------

Cash Flows from Discontinued Financing Activities:
        Principal Payments on Short Term Notes ..................      (140,230)

        Decrease in Balances Due To Parent Company ..............    (5,038,071)

        Principal Payments on Long Term Notes ...................      (839,904)
                                                                    -----------
        Net Cash (Used In) Discontinued Financing Activities ....    (6,018,205)
                                                                    -----------

        Net Decrease in Cash and Cash Equivalents From
          Discontinued Operations ...............................      (693,504)

              Cash and Cash Equivalents at Beginning of
               Year From Discontinued Operations.................     3,166,904
                                                                    -----------
              Cash and Cash Equivalents at End of Period
               From Discontinued Operations .....................   $ 2,473,400
                                                                    ===========

(5)  PROPERTY HELD FOR SALE

     On January 28,  1999,  the Company  consummated  the  settlement  under the
Stipulation and Agreement of Compromise,  Settlement and Release entered into on
July 2, 1998 to resolve the pending  stockholder  derivative  litigation  in the
Delaware Court of Chancery (the "Delaware  Settlement")(See  Note 3). As part of
the Delaware Stipulation, the Company has provided for the sale of the El Rancho
Property  (See Note 3). As of June 30,  1998,  the El Rancho  Property  had been
reclassified  to "Property held for Sale" after  recording an impairment  charge
during the fourth quarter of Fiscal 1998 of  approximately  $3,430,000 to adjust
it to fair value,  after  taking into  account the  estimated  fair value of the
reversion of the LVEN shares (See Note 3). In the absence of a public market for
the Company's  Common Stock,  management has determined the estimated fair value
of the Common Stock to be the anticipated book value  attributable to the Common
Stock  after  taking into  account the  estimated  operating  results  until the
disposition of the racetrack  operations,  the disposal of the racetrack  assets
and the El Rancho Property, and other transactions  contemplated in the Delaware
Settlement. (See Notes 2,3 and 14).

(6)  RESERVE ESCROW DEPOSITS

     At December 31, 1998,  $8,095,191  was held in various  reserve cash escrow
deposit accounts that were established in connection with the Company's two-year
$55 million credit facility with Credit Suisse First Boston Mortgage Capital LLC
("Credit Suisse").  The financing  agreement provided for reserve accounts to be
held by LaSalle  National Bank ("the  Depository").  On the maturity date of the
credit  facility,  any amounts  remaining on deposit shall,  at Credit  Suisse's
option, be applied against outstanding borrowings or returned to the Company. In
connection with the January 28, 1999 sale of Freehold Raceway, the sale of a ten
acre  parcel  at  Garden  State  Park and the  lease of the  Garden  State  Park
facility,  Credit Suisse  released to the Company  approximately  $1.475 million
from its escrow reserves for working capital purposes.  At January 28, 1999, the
balance in the Interest Reserve, the El


                                       10

<PAGE>


                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

     Rancho Reserve and the Income Tax Reserve  accounts  totaled $3.635 million
and the Company used $3 million to pay down debt and related  fees.(See Notes 2,
3 and 14)

The Escrow Accounts are summarized below:

        Account              December 31, 1998
-------------------------  -------------------
Interest Reserve                 $         -0-
El Rancho Reserve                    2,293,666
Working Capital                      2,130,121
Tax and Insurance Reserve            2,262,537
Deferred Maintenance                   408,867
Environmental Remediation            1,000,000
                                  ------------
                         Total   $   8,095,191
                                  ============

(7)  NOTES AND MORTGAGES PAYABLE

<TABLE>
     Notes and Mortgages Payable are summarized below:
                                                                          December 31, 1998
                                                                    ----------------------------
                                           Interest % Per Annum         Current       Long-Term
                                          ----------------------    ---------------- -----------
<CAPTION>
International Thoroughbred Breeders Inc.:

<S>                             <C>                                 <C>             <C>
Credit Suisse First Boston (A)     LIBOR Rate plus 7% (12/31/98     $  55,000,000   $        -0-
                                                   rate 12.34%)

Other                                                   Various            69,475            -0-

Freehold  Raceway:

Kenneth R. Fisher (B)           80% of Prime (not to exceed 6%)           625,000      9,375,000
                                             (12/31/98 rate 6%)

Kenneth R. Fisher (C)                              80% of Prime           225,000      1,459,549
                                           (12/31/98 rate 6.2%)
Garden State Park:

Other                                                   Various           211,199        324,278
                                                                    -------------    -----------
    Totals                                                          $  56,130,674   $ 11,158,827

Less Amounts Reclassified to:
  Net Assets of Discontinued
   Operations - Current                                                   850,000     10,834,549

  Net Assets of Discontinued
   Operations - Long Term                                                 211,199        324,278
                                                                    -------------    -----------
    Totals                                                          $  55,069,475   $        -0-
                                                                    =============    ===========
</TABLE>
The effective  LIBOR Rate and the Prime Rate at December 31, 1998 were 5.34% and
7.75%, respectively.


                                       11

<PAGE>


                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

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

     The Credit Suisse Credit Facility is evidenced by a convertible  promissory
note (the  "Credit  Suisse  Note")  pursuant  to which up to $10  million of the
aggregate principal amount can be converted, in certain circumstances, including
upon the  maturity  date of the Credit  Suisse Note upon the  prepayment  of $10
million  in  aggregate  principal  amount  of the  Credit  Suisse  Note  or upon
acceleration  of the Credit  Suisse Note, at the option of Credit  Suisse,  into
shares of the  Company's  Common Stock at a conversion  price of $8.75 per share
(subject to  adjustment  in certain  events).  In  addition,  Credit  Suisse was
granted warrants to purchase 1,044,000 shares at an exercise price of $4.375 per
share  (subject  to  adjustment  in certain  events).  The  warrants to purchase
546,847 shares are immediately  exercisable,  have been valued at  approximately
$1.6 million and have been recorded as original issue discount.  The warrants to
purchase  497,153  shares  became  exercisable  January 28, 1999,  following the
consummation  of the  Delaware  Settlement  and will been  recorded as a cost on
disposition of the Freehold Property in the amount of $1,242,883.(See Note 3)

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

     The Credit Suisse Credit  Facility also provides for both  affirmative  and
negative covenants, including financial covenants such as tangible net worth, as
defined in the Credit Suisse Credit Facility. The Company's non- compliance with
certain non-financial  covenants at December 31, 1998 were waived on January 28,
1999 in connection with the Deleware Settlement. (See Notes 3 and 14)

     On  January  28,  1999,  a  portion  of the  proceeds  from  the  Greenwood
Transaction  and  $2,500,000  held in escrow  was used to reduce  the  principal
balance on the Credit Suisse Note to $30.5 million. (See Notes 2 and 14)

     (B) On February 2, 1995,  the Company  entered into an  agreement  with the
former  owner of  Freehold  Raceway  whereby  the $12.5  million  balance of the
purchase  price of the  Freehold  Raceway  was  financed  by an  eight  (8) year
promissory note at 80% of the prevailing  prime rate, not to exceed 6%. The note
was secured by a mortgage on the land and  buildings at Freehold  Raceway.  This
note which was paid on January 28, 1999 as part of the sale of Freehold  Assets,
has been netted  against "Net Assets of  Discontinued  Operations - Current" for
the periods presented. (See Note 2)

     (C) On  February  2,  1995,  the seller of  Freehold  Raceway  advanced  to
Freehold Raceway  $2,584,549  towards the retirement of $5.2 million of existing
debt on Freehold  Raceway.  The seller received from Freehold  Raceway in fiscal
1995,


                                       12

<PAGE>


                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

a  promissory  note  evidencing  the  indebtedness  secured by  mortgage  on the
racetrack property and other collateral. This note which was paid on January 28,
1999 as part of the sale of Freehold Assets, has been netted against "Net Assets
of Discontinued Operations - Current" for the periods presented. (See Note 2)


(8)  INCOME TAX EXPENSE

     The Company's income tax expense for the three and six month periods ending
December 31, 1998 and 1997  relates to New Jersey  income taxes for its Freehold
Raceway operations.


(9)  COMMITMENTS AND CONTINGENCIES

     (A) On July 2, 1998, the Company  entered into the Delaware  Stipulation to
resolve the pending stockholder  derivative  litigation in the Delaware Court of
Chancery.  The  Delaware  Settlement  was  subject  to a number  of  conditions,
including  without  limitation,  Delaware  court  approval  (which was issued on
October 6, 1998), the consent of the Company's primary lender (which was granted
on January 28,  1999)(See Note 3) and the grant of certain  approvals by certain
U.S.  bankruptcy  courts (which were issued on January 15,  1999).  The Delaware
Settlement  resulted  in,  among  other  things,  the  dismissal  of the pending
litigation with prejudice,  the Company's purchase from NPD of approximately 2.9
million shares of the Company's  Common Stock (NPD Shares) for $4.6 million plus
the  assumption  by the Company of NPD's $5.8  million  promissory  note held by
Robert E.  Brennan's  Bankruptcy  Trustee and the  termination  of the Company's
option  agreement  with D&C Gaming Inc..  (See Notes 3 and 14) During the fourth
quarter of fiscal  1998,  the Company  recorded a charge of  approximately  $3.7
million based on the estimated fair value of $2.50 per share for the purchase of
the approximate 2.9 million shares of the Company's Common Stock.  Approximately
$3.1  million of this charge is  reflected  in accrued  expenses for the periods
presented.

     Upon the mailing of the settlement notice to the Company's  stockholders on
July 23,  1998,  Michael C.  Abraham,  Charles R.  Dees,  Jr.,  Frank A. Leo and
Kenneth S. Scholl  resigned  from the  Company's  Board of  Directors.  Upon the
purchase of the NPD shares by the Company on January 28, 1999,  Anthony  Coelho,
Nunzio P. DeSantis and Joseph  Zappala  resigned  from the Board and  terminated
their employment and consulting agreements with the Company.

         The Delaware  Settlement also  contemplates a potential  disposition of
the El Rancho Property. As previously reported, the Delaware Settlement requires
that a minimum  of $44.2  million  of the  proceeds  of such sale be paid to the
Company,  which  will use such  amount to  retire  its  outstanding  debt to the
Company's  primary lender.  There can be no assurance that any such  disposition
will occur.(See Note 3).

     As part of the Delaware Settlement,  Las Vegas Entertainment  Network, Inc.
has returned to the Company for cancellation approximately 2.1 million shares of
the Company's  common stock (the "LVEN  Shares"),  and has terminated all of its
contractual arrangements with the Company.

     As a result  of the  cancellation  of the  2,093,868  LVEN  Shares  and the
2,904,016 NPD shares being repurchased by the Company, the number of outstanding
shares of the Company's common stock was reduced to 8,980,227 shares.

     Upon consummation of the Delaware  Settlement,  the Company deposited title
to the El Rancho  Property  into escrow for a period of up to 270 days to permit
LVEN to sell the El Rancho Property. LVEN had the exclusive right to sell the El
Rancho  Property  until November 20, 1998, 120 days after the date the notice of
the Delaware Settlement was mailed to the Company's stockholders.  Both LVEN and
the Company have the right to sell the El Rancho Property  between  November 20,
1998 and April 19, 1999,  270 days after the mailing of the notice,  for a sales
price resulting in a payment of at least $44.2 million to the Company.


                                       13

<PAGE>


                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

If,  within 30 days  prior to end of the  escrow  period,  LVEN  obtains a $44.2
million  loan for the  benefit of the  Company,  LVEN will have a  non-exclusive
right to sell the El Rancho Property for an additional year, upon the payment of
$44.2 million to the Company.  On March 27, 1998, LVEN entered into an agreement
for the sale of the El Rancho  Property  for a sales  price of  $62,500,000.  If
consummated,  the Company would realize  proceeds of  $44,200,000 as provided in
the Delaware Settlement, and of the remaining proceeds,  $4,375,000 will be paid
to an unrelated party for a structuring  fee,  $7,100,000 will be paid to Nunzio
P. DeSantis  (less any amounts  previously  paid to him pursuant to the Delaware
Settlement),  $1,000,000  will be paid to  Joseph  Zappala  (less  $200,000  Mr.
Zappala  has agreed to pay the  Company in  settlement  of certain  compensation
issues  pursuant to the  Delaware  Stipulation)  and the balance will be paid to
LVEN. There can be no assurance that this contract or any other contract for the
sale of the El Rancho Property will be consummated.

     (B) The Company  entered into lease  agreements  for certain  equipment and
maintenance  contracts at the Garden State Park  facility and Freehold  Raceway.
Two of these  agreements  were based upon the daily  average of the total amount
wagered  and number of live  racing days at the  Company's  racetracks.  Minimum
rental  payments for the next five years were based on projected  racing  dates.
These  lease  agreements  were  transferred  as  part  of  the  sale  and  lease
transactions  completed on January 28, 1999. In connection  with the January 28,
1999 transactions,  the Company purchased the undepreciated balance of equipment
located at Garden State Park and a liquor license owned by an unaffiliated third
party, Service America Corporation, for $500,000 ($100,000 of which will be paid
by the  lessee).  During July 1997,  the Company  executed an agreement to lease
office space in Albuquerque, New Mexico for a five year period, expiring on July
31, 2002.  The lease provided for a monthly rent of  approximately  $10,000 when
the  space is fully  occupied.  In  connection  with  this  lease,  the  Company
sub-leased  a portion of the  premises to AutoLend  Group Inc.  ("AutoLend"),  a
company in which Nunzio P.  DeSantis is the  Chairman,  President  and principal
stockholder  and  Anthony  Coelho  is a  director,  for  $600  per  month.  Upon
consummation  of the Delaware  Settlement on January 28, 1999,  the  Albuquerque
lease was assumed by AutoLend. (See Notes 2 and 14)

     In connection with the Greenwood  Transaction  (See Note 2), Mr. Richard E.
Orbann, Vice President of Racing Operations of the Company, and the Company have
entered into an agreement  terminating Mr. Orbann's employment with the Company.
Such  termination  will be effective upon Mr. Orbann entering into an employment
agreement with affiliates of Greenwood Racing, Inc.


     LEGAL PROCEEDINGS

     On or about  September  10,  1997,  three  actions  were filed in  Delaware
Chancery Court in and for New Castle County (the"Delaware Chancery Court"), each
of  which  named  the  Company  as a  nominal  defendant  and one of  which  was
subsequently dismissed (collectively, the "Delaware Actions"). Additionally, two
actions  were filed in New  Jersey  naming  the  Company as a nominal  defendant
(collectively,  the "New Jersey  Actions"),  one of which is a derivative action
filed on or about February 24, 1998 in the United States  District Court for the
District  of New Jersey (the "New Jersey  District  Court"),  and the other is a
purported  class action filed on or about July 15, 1998 in the Superior Court of
New Jersey (the "New Jersey  Superior  Court").  As described  more fully below,
pursuant  to the terms of the  Delaware  Stipulation  dated July 2,  1998,  upon
satisfaction of certain  conditions set forth in the Delaware  Stipulation,  the
Delaware  Actions  were fully and  finally  dismissed  with  prejudice,  and the
parties provide mutual releases of all claims related to the actions  thereunder
(the "Delaware  Settlement").  (See Note 3 and "Delaware  Settlement."  Further,
pursuant to a memorandum of  understanding  entered into on August 18, 1998 (the
"New Jersey  Memorandum"),  upon  satisfaction  of certain  conditions,  the New
Jersey  Actions are to be fully and finally  dismissed with  prejudice,  and the
parties  are to provide  mutual  releases  of all claims  related to the actions
thereunder (the "New Jersey Settlement"). See "New Jersey Settlement."


                                       14

<PAGE>


                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


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

     Robert J. Quigley,  Frank A. Leo , and The Family  Investment  Trust (Henry
Brennan as Trustee) v. Nunzio P.  DeSantis,  Michael  Abraham,  Anthony  Coelho,
Kenneth W. Scholl, Joseph Zappala, Joseph A. Corazzi and Las Vegas Entertainment
Network, Inc. and International  Thoroughbred  Breeders,  Inc., C.A. No. 15919NC
("Quigley"), is a derivative suit brought by two then Directors (Messrs. Quigley
and  Leo)  and  the  Family   Investment  Trust   (collectively,   the  "Quigley
Plaintiffs") which alleged,  among other things, that the New Directors breached
their fiduciary duties to the Company, usurped corporate opportunities belonging
to the Company and incorrectly stated minutes of Board meetings to omit material
discussions.  The Quigley  complaint alleged that the New Directors entered into
certain agreements on behalf of the Company in violation of the "super-majority"
voting  provisions  of the  Company's  By-laws and their  fiduciary  duty to the
Company,  including  but not limited to, the Credit Suisse loan  agreement,  the
Tri-Party Agreement,  the Bi-Lateral  Agreement,  the D&C option agreement,  Mr.
DeSantis' employment agreement and consulting agreements with Messrs. Coelho and
Zappala.  The Quigley  complaint  sought (i) a  declaratory  judgement  that (a)
certain  actions  taken  by the New  Directors  were  null  and void and (b) the
"super-majority"  By-law  provisions  remain  in full  force  and  effect,  (ii)
recision of certain  actions  taken by the New  Directors and (iii) damages as a
result of the  allegedly  unauthorized  and  allegedly  unlawful  conduct of the
defendants. On November 7, 1997, the New Directors and the Company filed answers
to the  Quigley  complaint  denying  all  allegations  contained  in the Quigley
complaint.

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


                                       15

<PAGE>


                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


     Subsequent to the  scheduling  of the Director  Litigation  for trial,  the
parties  reached an agreement  in  principle to settle the Quigley  action which
resulted in the Delaware  Settlement (See Note 3). As described more fully below
under "Delaware  Settlement,"  upon  satisfaction of the conditions set forth in
the  Delaware  Stipulation,  the Director  Litigation  will be fully and finally
dismissed with  prejudice,  and the parties will provide mutual  releases of all
claims related to such action. See "Delaware Settlement."

Rekulak v. DeSantis, et al.

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

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

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

Delaware Settlement

     The Quigley and Rekulak  actions,  and the NPD and Green actions  described
more fully below were in accordance with the Delaware  Settlement,  the Quigley,
Rekulak,  NPD and Green  actions  are to be fully  and  finally  dismissed  with
prejudice. (See Note 3 and 9a).


                                       16

<PAGE>


                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


Harris v. DeSantis, et al.

     The first New Jersey  Action,  filed on February 24, 1998 in the New Jersey
District Court, captioned Myron Harris,  derivatively on behalf of International
Thoroughbred  Breeders,  Inc. v. Nunzio P. DeSantis,  Anthony Coelho, Kenneth W.
Scholl,  Michael  Abraham,  Joseph  Zappala,  Frank A. Leo,  Robert J.  Quigley,
Charles  R.  Dees,  Jr.  and  Francis W.  Murray  ("Harris-Federal"),  C.A.  No.
98-CV-517(JBS),  is a derivative  suit brought by a stockholder  of the Company.
The factual allegations and claims asserted in the Harris-Federal  complaint are
virtually  identical to the claims asserted in the Quigley  complaint and in the
Counterclaims asserted by the Company in the Quigley action.

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

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


                                       17

<PAGE>


                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

Harris v. DeSantis, et al.

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

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

New Jersey Settlement

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

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

Other Litigation

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

NPD, Inc. v. Quigley, et al.

     On November 18, 1997, NPD (formally the Company's  largest  stockholder and
whose stockholders are Messrs. DeSantis and Coelho), filed a complaint captioned
NPD,  Inc. v. Robert J.  Quigley,  Francis W. Murray,  Frank A. Leo,  Charles R.
Dees, Jr., John Mariucci,  Frank Koenemund and James J. Murray,  C.A. 97-CV-5657
("NPD"),  in the New Jersey District Court. The complaint  alleged,  among other
things, that Messrs. Quigley,  Francis Murray, Leo and Dees, each of whom was at
the time a director of the Company,  and Messrs.  Mariucci,  Koenemund and James
Murray,  each of whom is a former  director of the Company,  conspired  with one
another and Brennan to defraud NPD by (i) approving and subsequently  concealing
from NPD the existence of the "super-majority" voting provision of the Company's
By-laws and (ii)  purporting to repeal such  provision and  subsequently  filing
suit in an effort to restore such provision,  all of which has had the effect of
attempting to deprive NPD


                                       18

<PAGE>


                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

of  control of the  Company  and  perpetuating  the  control of Brennan  and his
associates. The NPD suit sought compensatory and punitive damages. On January 8,
1998, the defendants served a motion to dismiss NPD's complaint. The NPD action,
in accordance  with the Delaware  Settlement  described above was dismissed with
prejudice in January, 1999.

Green v. DeSantis, et al.

     Certain officers, directors and affiliates of the Company are parties to an
action  filed  on  November  30,  1997 by  Robert  William  Green  ("Green"),  a
stockholder of the Company,  captioned  Robert William Green v. Nunzio DeSantis,
Joseph Corazzi,  Anthony Coelho, Las Vegas Entertainment  Network, Inc. and NPD,
Inc.,  C.A.  97-5359(JHR),  in the New  Jersey  District  Court.  The  complaint
alleged,  among other things,  that the  defendants  usurped  certain  corporate
opportunities  at the expense of the Company,  have diluted Green's  interest in
the  Company  through  the  issuance  of shares of stock and have  conspired  to
deprive him of certain  rights under an option granted to him by NPD (the "Green
Option").  Green sought (i)  compensatory  and punitive  damages,  (ii) an order
enjoining defendants from transferring,  encumbering or alienating the Company's
Common Stock subject to the Green Option,  (iii) an order declaring the issuance
of certain shares of Common Stock to be a nullity,  and (iv)  reformation of the
Green  Option to extend the  termination  date.  This action also raised  claims
substantially  similar to those made in the Quigley action.  The Green action in
accordance described above was dismissed with prejudice in January, 1999.

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


(10) DEFERRED FINANCING COSTS

     Deferred  financing  costs at  December  31,  1998  include  those  amounts
associated  with its May 23, 1997 financing  agreement with Credit Suisse.  (See
Note 7). These costs of $6,238,731,  less amortization of $4,894,881,  are being
expensed over the two-year life of the loan.  Amortization expense for the three
months ended December 31, 1998 and 1997 was $765,813 and $762,776, respectively.
Amortization  expense for the six months  ended  December  31, 1998 and 1997 was
$1,529,602 and $1,523,980, respectively.

     On January 28, 1999, the Company reduced its outstanding  debt with CSFB to
$30,500,000  upon the sale of Freehold Raceway and the lease of the Garden State
Park  facility.  Deferred  financing  costs will be reduced  proportionately  by
recording additional  amortization expense in the third quarter of approximately
$600,000.

(11) STOCK OPTIONS AND WARRANTS

     (A)  EMPLOYEE AND NON-EMPLOYEE OPTIONS

     The fair value of options issued  recognized as  non-employee  option costs
during the six months  ended  December  31,  1998 and 1997 was $0 and  $808,275,
respectively.  At December 31, 1998,  total employee  options  outstanding  were
1,300,000 and total non-employee  options  outstanding were 600,000.  Options to
purchase an  aggregate of  6,000,000  shares of Common Stock have been  granted,
subject to stockholder  approval,  to the Company's Chief Executive  Officer and
Chairman of the Board.  On August 21, 1997,  the Company  granted  non-qualified
stock  options to purchase an  aggregate  of 300,000  shares of Common  Stock to
certain directors.  Upon consummation of the Delaware  Settlement on January 28,
1999,  options to purchase an aggregate of 6,300,000 shares of Common Stock were
terminated. (See Note 9.)


                                       19

<PAGE>


                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


     (B)  WARRANTS

     At December 31, 1998,  total warrants  outstanding  were 1,671,847 and have
been accounted for as deferred  financing  costs and costs  associated  with the
acquisition of the El Rancho  property.  The deferred  financing costs are being
amortized  over the terms of the  related  indebtedness.  The fair  value of the
warrants issued in connection with the acquisition of the El Rancho property has
been  capitalized and will be amortized when the facility  becomes  operational;
however, the Company has determined to dispose of the El Rancho Property.

     Effective  January 28, 1999,  in  connection  with the  Approval  Agreement
between the Company and CSFB,  the Company  agreed that the warrants to purchase
497,153 shares of common stock at $4.375 shall become immediately exercisable by
CSFB.  The  fair  value  of the  warrants  of  $1,242,883  will be  recorded  in
subsequent  periods  as a  reduction  of the  gain on the  sale of the  Freehold
Racetrack.

(12) RELATED PARTY TRANSACTIONS

     During the six months ended  December 31, 1998, the Company paid $60,000 in
consulting  fees,  $15,000 for director  fees,  $3,000 for an auto allowance and
$8,227 in expense  reimbursements  to Anthony  Coelho,  the Company's  Chairman,
pursuant to an agreement  effective  January 15, 1997. Mr.  Coelho's  consulting
agreement  was month to month,  under  which he was paid  $10,000  per month for
ongoing  consulting  services,  $2,500 for each board  meeting he attended and a
$500  monthly  automobile  allowance.  Mr.  Coelho's  consulting  agreement  was
terminated and options granted to him in the consulting agreement were canceled,
effective January 28, 1999, the date of consummation.

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

     The Company paid $10,000 per month to Mr. Zappala for  consulting  services
and for the first half of Fiscal 1999,  Mr. Zappala was paid $6,000 for director
fees and  $7,027 of  reimbursed  expenses.  Upon  consummation  of the  Delaware
Settlement  on January  28,  1999,  Mr.  Zappala's  consulting  arrangement  was
terminated.

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

(13) STOCK TRADING INFORMATION

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

(14) SUBSEQUENT EVENTS

     (A) On January  28,  1999,  the Company  completed  on the sale of Freehold
Raceway and a ten acre parcel at the Garden State Park facility and the lease of
the Garden State Park  facilities to  subsidiaries  of Greenwood  Racing,  Inc.,
which  owns  Philadelphia  Park  racetrack,  the Turf  Clubs and  Phonebet  (the
"Greenwood  Transaction").  In  connection  with the  transactions,  the Company
purchased the  undepreciated  balance of equipment  located at Garden State Park
and a liquor license owned by and an unaffiliated  third party,  Service America
Corporation,  for $500,000  (100,000 of which will be paid by the lessee).  (See
Notes 2, 4,7 and 9)


                                       20

<PAGE>


                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

     (B)  On January 28, 1999, The Company also consummated the settlement under
          the  Stipulation  and Agreement of Compromise,  Settlement and Release
          entered  into on  July 2,  1998 to  resolve  the  pending  stockholder
          derivative litigation in the Delaware Court of Chancery (the "Delaware
          Settlement"). (See Notes 3, 5,7 and 9)

     (C)  On February  11,  1999,  the Company and certain of its  officers  and
          directors and former  officers and directors  received  subpoenas from
          the Securities and Exchange  Commission  requesting  certain documents
          relating to certain  transaction for the period January 1, 1997 to the
          present.  It is the  company's  intent to  cooperate  fully  with this
          request.

     (D)  Pro Forma Financials

                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                 UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEETS
                             AS OF DECEMBER 31, 1998
<TABLE>

                                               ASSETS
                                             As Reported                            As Adjusted
                                             December 31,                            Pro Forma
                                                 1998           Pro Forma             Balance
                                              (UNAUDITED)      Adjustments             Sheet
                                              -----------      -----------             -----
<CAPTION>
<S>                                      <C>                <C>            <C>   <C>
CURRENT ASSETS:
        Cash and Cash Equivalents        $       166,344    $   1,475,039  (3)   $    3,992,642
                                                               (4,600,000) (1)
                                                                7,789,915  (4)
                                                               (2,250,000) (1)
                                                                1,411,344  (7)
        Reserve Escrow Deposits                8,095,191       (3,000,000) (3)        3,620,152
                                                               (1,475,039) (3)
        Accounts Receivable                       33,294        2,261,850  (7)        2,295,144
        Prepaid Expenses                         175,473          195,000  (4)          370,473
        Note Receivable                                         1,000,000  (4)        1,000,000
        Net Assets of Discontinued
          Operations - Current                12,228,066      (14,257,169) (4)               (0)
                                                                2,029,103  (7)
        Other Current Assets                     238,063                                238,063
                                              ----------                              ---------
             TOTAL CURRENT ASSETS             20,936,431                             11,516,474
                                              ----------                             ----------

NET ASSETS OF DISCONTINUED
 OPERATIONS - Long Term                       44,846,448       (2,402,782) (4)       29,861,585
                                                                  400,000  (6)
                                                                 (400,000) (6)
                                                                1,242,883  (5)
                                                                  500,000  (3)
                                                              (14,324,964) (4)
                                             ----------                              ----------
PROPERTY HELD FOR SALE                       47,384,425        (5,234,670) (2)       42,149,755
                                             ----------                              ----------
LAND, BUILDINGS AND EQUIPMENT:
        Land and Buildings                      214,097                                 214,097
        Equipment                               801,484                                 801,484
                                             ----------                               ---------
                                              1,015,581                               1,015,581
        LESS: Accumulated Depreciation
                and Amortization                323,936                                 323,936
                                             ----------                               ---------
             TOTAL LAND, BUILDINGS AND
               EQUIPMENT, NET                   691,645                                 691,645
                                             ----------                               ---------
OTHER ASSETS:
        Deposits and Other Assets                 3,172                                   3,172
        Deferred Financing Costs, Net         1,343,850                               1,343,850
                                             ----------                               ---------
             TOTAL OTHER ASSETS               1,347,022                               1,347,022
                                             ----------                               ---------
                                         --------------    --------------        --------------
TOTAL ASSETS                             $  115,205,971   $  (29,639,490)        $   85,566,481
                                         ==============    ==============        ==============
</TABLE>

See Notes to Consolidated Financial Statements.


                 UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEETS
                             AS OF DECEMBER 31, 1998

                      LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>

                                                    As Reported                           As Adjusted
                                                    December 31,                           Pro Forma
                                                       1998          Pro Forma              Balance
                                                    (UNAUDITED)     Adjustments              Sheet
                                                    -----------     -----------              -----
<CAPTION>
<S>                                            <C>               <C>               <C> <C>
CURRENT LIABILITIES:
        Accounts Payable ......................$       311,742   $   3,173,260     (7) $    3,485,002
        Accrued Expenses ......................      3,847,696      (3,147,992)    (1)      2,768,940
                                                                        87,328     (7)
                                                                     1,981,908     (7)
        Current Maturities of Long-Term Debt ..     55,069,475     (22,000,000)    (4)     30,569,475
                                                                    (2,500,000)    (3)
                                                    ----------                             ----------
             TOTAL CURRENT LIABILITIES ........     59,228,913                             36,823,417
                                                    ----------                             ----------

DEFERRED INCOME                                              0         459,801     (7)        459,801

LONG-TERM DEBT, Net of Current Portion ........              0       5,808,032     (1)      3,558,032
                                                                    (2,250,000)    (1)
COMMITMENTS AND CONTINGENCIES .................           --                                   --

STOCKHOLDERS' EQUITY:
        Series A Preferred Stock, $100.00
           Par Value...........................     36,248,075                             36,248,075
        Common Stock, $2.00 Par Value..........     27,956,213      (4,187,736)    (2)     23,768,477
        Capital in Excess of Par ..............     25,878,108      (1,046,934)    (2)     26,074,057
                                                                     1,242,883     (5)
        (Deficit) (subsequent to
            June 30, 1993,
            date of quasi-reorganization) .....    (34,071,171)                           (34,071,171)
                                                   -----------                            -----------
             TOTAL ............................     56,011,225                             52,019,438
                                                   -----------                            -----------
        LESS: Treasury Stock ..................                     (7,260,040)    (1)     (7,260,040)
        LESS: Deferred Compensation, Net ......        (34,167)                                34,167
                                                   -----------                            -----------
             TOTAL STOCKHOLDERS' EQUITY .......     55,977,058                             44,725,231
                                                   -----------                            -----------
                                                   -----------     -----------            -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ....  $ 115,205,971   $ (29,639,490)         $  85,566,481
                                                 =============    =============         =============

</TABLE>

See Notes to Consolidated Financial Statements.


       UNAUDITED PRO FORMA ADJUSTED CONSOLIDATED STATEMENTS OF OPERATIONS
                   FOR THE SIX MONTHS ENDED DECEMBER 31, 1998
<TABLE>

                                           As Reported
                                          Six Months Ended                    As Adjusted
                                            December 31,     Pro Forma         Company
                                               1998         Adjustments       Pro Forma
                                               ----         -----------       ---------
<CAPTION>
<S>                                        <C>           <C>             <C>  <C>
EXPENSES:
        General & Administrative Expenses  $  2,735,322  $                    $ 2,735,322
        Interest Expense ................     3,523,973    (1,583,260)   (8)    1,940,713
        Interest Income .................      (213,081)       96,461    (8)     (116,620)
        Amortization of Financing Costs .     1,529,602      (520,634)   (8)    1,008,968
        El Rancho Property Carrying Costs       619,533       619,533

(LOSS) FROM CONTINUING OPERATIONS          ------------   -----------         -----------
   BEFORE DISCONTINUED OPERATIONS .......  $ (8,195,348)  $(2,007,433)        $(6,187,716)


BASIC PER SHARE DATA:
(LOSS) BEFORE DISCONTINUED OPERATIONS ...  $     (0.59)                       $     (0.68)
                                             ==========                         =========
WEIGHTED AVERAGE
  COMMON SHARES OUTSTANDING .............    13,978,103                         8,981,019
                                             ==========                         =========
</TABLE>


       UNAUDITED PRO FORMA ADJUSTED CONSOLIDATED STATEMENTS OF OPERATIONS
                        FOR THE YEAR ENDED JUNE 30, 1998
<TABLE>

                                                        As Reported                     As Adjusted
                                                          June 30,       Pro Forma         Company
                                                            1998        Adjustments       Pro Forma
                                                            ----        -----------       ---------
<CAPTION>
<S>                                                     <C>            <C>              <C>
EXPENSES:
        General & Administrative Expenses ............  $ 11,615,972   $                $ 11,615,972
        (including legal fees of $3,306,877,
         $896,729, and $637,229,
         respectively, and the estimated
         charge in connection with the
         repurchase of the NPD shares of
         $3,748,000 for the 1998 year)
        Interest Expense .............................     7,084,968    (3,183,977) (7)    3,900,991
        Interest Income ..............................      (689,092)      310,957  (7)     (378,135)
        Amortization of Financing Costs ..............     3,053,583    (1,041,472) (7)    2,012,111
        El Rancho Property Carrying Costs ............       974,167                         974,167
        Impairment Loss on El Rancho Property ........     3,429,251                       3,429,251

(LOSS) FROM CONTINUING OPERATIONS                       ------------                    ------------
   BEFORE DISCONTINUED OPERATIONS ....................  $(18,700,940)                  $(15,516,963)

  AND EXTRAORDINARY ITEM

BASIC PER SHARE DATA:
(LOSS) BEFORE DISCONTINUED OPERATIONS ................  $      (1.34)                    $     (1.73)
                                                          ==========                       =========
WEIGHTED AVERAGE
  COMMON SHARES OUTSTANDING ..........................    13,978,086                       8,981,002
                                                          ==========                       =========
</TABLE>

See Notes to Consolidated Financial Statements.

(1)  In connection with the Delaware Settlement, the Company purchased 2,904,016
     shares from NPD, Inc. and assumed the NPD Note of $5,808,032 due to the REB
     Bankruptcy  Trustee.  The Company recorded  Treasury Stock in the amount of
     $7,260,040.  In addition,  the Company paid $2,250,000 against the original
     NPD Note and  negotiated  a new note  under  similar  payment  terms in the
     amount of $3,558,032.

                            Debit                    Credit
Treasury Stock      $           7,260,040    $
Cash                                                     4,600,000
Cash                                                     2,250,000
Note Payable - REB                                       5,808,032
Note Payable - REB              2,250,000
Accrued Expenses                3,147,992
                    ----------------------    ---------------------
                    $          12,658,032    $          12,658,032
                    ======================    =====================


(2)  As part of the Delaware Settlement,  Las Vegas Entertainment  Network, Inc.
     has  returned  to the Company for  cancellation  approximately  2.1 million
     shares  of  the  Company's  common  stock  (the  "LVEN  Shares"),  and  has
     terminated  all of its  contractual  arrangements  with the Company.  These
     shares were valued by the Company at $2.50 per share, based on management's
     estimate of their fair market value as of the filing of the Company's  most
     recent Form 10-K.

                              Debit          Credit
Common Stock               $  4,187,736    $
Capital in Excess of Par      1,046,934
Property Held for Sale                       5,234,670
                          -----------------------------
                           $  5,234,670    $ 5,234,670
                           =============    ===========

(3)  In connection  with the January 28, 1999 sale of certain assets of Freehold
     Raceway,  the sale of a ten acre parcel at Garden  State Park and the lease
     of the Garden State Park  facility,  Credit Suisse  released to the Company
     approximately  $1.475 million from its escrow  reserves for working capital
     purposes and used $3 million to pay down debt and related expenses.

                                   Debit             Credit
Current Maturities of LTD    $     2,500,000    $
Deferred Gain on Disposition         500,000
Cash & Cash Equivalents            1,475,039
Reserve Escrow Deposits                              1,475,039
Reserve Escrow Deposits                              3,000,000
                             ---------------     --------------
                             $     4,475,039    $    4,475,039
                             ================    ==============

<PAGE>

(4)  Pro forma  adjustment  to record  the sale of  certain  assets of  Freehold
     Raceway and the sale of a ten-acre  parcel of land at the Garden State Park
     facility.

                                   Debit          Credit
Cash & Cash Equivalents      $     7,789,915    $
Prepaid Expenses                     195,000
Note Receivable                    1,000,000
Net Assets of Discontinued
Operations - Current                              14,257,169
Net Assets of Discontinued
Operations - Long-Term                             2,402,782
Current Maturities of LTD         22,000,000
Deferred Gain on Disposition                      14,324,964
                             ----------------    ------------
                             $    30,984,915    $ 30,984,915
                             ===============    ============


(5)  In connection  with the Approval  Agreement  between the Company and Credit
     Suisse First  Boston,  the Company has agreed that the warrants to purchase
     497,153 shares of common stock at $4.375 per share shall become immediately
     exercisable.  The fair value of these  warrants shall be used to reduce the
     Deferred Gain on Disposition of certain assets of the Freehold Raceway.


                                 Debit              Credit
Deferred Gain on Disposition  $  1,242,883
  Capital in Excess of Par                        $ 1,242,883


(6)  In  connection  with the sale of the ten acre  parcel of land of the Garden
     State Park  facility and the lease of the Garden State Park  facility,  the
     Company  purchased  certain  operating assets for consideration of $500,000
     (with a credit due from the buyer of $100,000) at closing.

                                Debit              Credit
Net Assets of Discontinued
Operations - Long-Term      $   400,000
Net Assets of Discontinued
Operations - Long-Term                           $ 400,000


<PAGE>


(7)  To reclassify the remaining net assets and liabilities of Freehold  Raceway
     which were not sold in the January 28, 1999 asset sale.

                                 Debit            Credit
Cash                        $    1,411,344    $
Accounts Receivable              2,261,850
Accounts Payable                                  3,173,260
Accrued Expenses                                  1,981,908
State Taxes Payable                                  87,328
Deferred Income                                     459,801
Net Assets of Discontinued
Operations - Current             2,029,103
                            ---------------    -------------
                            $    5,702,297    $   5,702,297
                            ===============    =============

(8)  For both the year ended June 30, 1998 and the six months ended December 31,
     1998, the pro forma  adjustments  eliminate the effects on interest income,
     interest  expense  and  the   amortization  of  deferred   financing  costs
     associated  with the Credit Suisse debt repaid in connection  with the sale
     of certain  assets of  Freehold  Raceway  and the sale of a ten acre parcel
     land at the Garden State Park facility.

<PAGE>
                                       21

<PAGE>


                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                  MANAGEMENT'S ANALYSIS OF FINANCIAL CONDITIONS
             AND RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS
                             ENDED DECEMBER 31, 1998

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

Liquidity and Capital Resources

     The Company's  working  capital,  as of December 31, 1998, was a deficit of
($38,292,452)  which  represents  a decrease  in the  deficit  of  approximately
$4,814,000 from the December 31, 1997 working capital deficit of  ($43,106,215).
The  decrease  in the  deficit  was caused in part by the  re-classification  of
certain  assets and current  liabilities  in  connection  with the  discontinued
racetrack  operations,  offset by losses  incurred from  operations.  On May 23,
1997, the Company  obtained a credit facility from Credit Suisse.  This two-year
$55 million facility was secured by a pledge of certain of the personal and real
property  of the  Company and its  subsidiaries.  Proceeds of the Credit  Suisse
Credit  Facility  were used to repay in full the  Company's  $30 million  credit
facility with Foothill Capital Corporation ("Foothill") and were used to provide
funds for working capital and other general corporate purposes,  including,  but
not limited to,  preliminary  development  of the El Rancho  Property.  Interest
under the Credit Suisse Credit Facility is payable monthly in arrears at 7% over
the LIBOR. Of the remaining facility borrowings, approximately $16.8 million was
placed in various escrow accounts  (including $10 million in an interest reserve
account),  financing and closing fees of $4.3 million were paid and $3.9 million
was used by the Company for general corporate  purposes and repayment of certain
financial  obligations.  At December 31, 1998,  the interest  rate on the Credit
Suisse Credit Facility was 12.08%.  At December 31, 1998, the Company was not in
compliance  with certain  non-financial  covenants of the Credit  Suisse  Credit
Facility,  however on January 28, 1999,  Credit Suisse waived those  violations.
The loan matures  June 1, 1999  unless,  under  certain  conditions,  a one year
extension is granted.

     The Credit Suisse Credit Facility is evidenced by a convertible  promissory
note (the "CSFB Note") pursuant to which $10 million of the aggregate  principal
amount of the CSFB Note can be converted in certain circumstances,  including on
the maturity date of the CSFB Note,  upon the prepayment of at least $10 million
in an aggregate  principal  amount of the CSFB Note or upon  acceleration of the
CSFB Note, at the option of Credit Suisse,  into shares of the Company's  Common
Stock at a conversion price of $8.75 per share (subject to adjustment in certain
events).  In  addition,  pursuant to the Credit  Suisse loan  agreement,  Credit
Suisse was granted  warrants to purchase  1,044,000 shares of Common Stock at an
exercise  price of $4.375 per share  (subject to adjustment in certain  events).
Warrants to purchase 546,847 shares of Common Stock are immediately  exercisable
and warrants to purchase  497,153  shares of Common Stock became  exercisable on
January 28, 1999 in connection  with the Delaware  Settlement  The fair value of
the  warrants  of  $1,242,883  will  be  recorded  in  subsequent  periods  as a
reductions of the gain on the sale of the Freehold  Racetrack.  (See Notes 3 and
14)

     The net loss for the six months ended  December 31, 1998 was  ($3,938,805).
Cash flows used in operating  activities  amounted to approximately  $1,932,448.
The net loss  incurred  by the  Company  includes  approximately  $2,300,000  of
non-cash expenses during the period.

     Cash provided by financing  activities was $1,246,606 during the six months
ended December 31, 1998, consisting principally of amounts drawn from the Credit
Suisse interest escrow account in the amount of $2,365,690.

     On January 28, 1999,  the Company  completed the sale of Freehold  Raceway,
the sale of a ten acre parcel at the Garden State Park facility and the lease of
the Garden State Park  facilities to  subsidiaries  of Greenwood  Racing,  Inc.,
which  owns  Philadelphia  Park  racetrack,  the Turf  Clubs and  Phonebet  (the
"Greenwood  Transaction").  The  purchase  price was $46  million ($1 million of
which  will be  held in  escrow  to  cover  certain  indemnification  and  other
obligations  of the  Company),  with an  additional  $10  million in  contingent
promissory notes (the "Contingent Notes") which


                                       22

<PAGE>


                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                  MANAGEMENT'S ANALYSIS OF FINANCIAL CONDITIONS
             AND RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS
                             ENDED DECEMBER 31, 1998

become  effective upon, among other things,  New Jersey's  approval of off-track
betting  facilities or telephone account  pari-mutuel  wagering on horse racing.
Further  adjustments  could be made to increase  the  purchase  price if certain
additional  regulatory  gaming changes are approved in New Jersey in the future.
Greenwood  Racing,  Inc. will guarantee the  performance by the purchaser of all
obligations  under the Contingent Notes, and following a consummation of a joint
venture  with  Greenwood  Racing,   Inc.,  Penn  National  Gaming,  Inc.  ("Penn
National"),  (which owns Penn  National  Race Course,  Pocono  Downs  Racetrack,
Charles Town Races and at least ten off-track  betting parlors in Pennsylvania),
will also guarantee the Contingent Notes.

     The proceeds of the  Greenwood  Transaction  were  principally  used by the
Company to pay off the first lien on the assets of Freehold Raceway,  reduce the
outstanding  balance on the  Company's  loan from  Credit  Suisse  First  Boston
Mortgage  Capital LLC ("Credit  Suisse") to $30.5 million and to consummate  the
Delaware  Settlement  (See note 3). In addition,  Credit Suisse also released to
the Company  approximately  $1.475 million from its escrow  reserves for working
capital purposes.

     The Company  currently  estimates that the $1.475 million made available on
January 28, 1999 from the Credit Suisse Credit  Facility and the funds placed in
the various reserve accounts on that date, together with cash generated from the
Company's operations prior to the sale of the discontinued  operations,  will be
sufficient  to finance its current  operations  and  expected  expenditures  and
carrying  costs of the El Rancho  Property  until June 1, 1999.  The  Company is
considering  alternative financing sources,  however, there can be no assurances
that the Company will be successful in such endeavors.

     The  Company's  Board  is  continuing  to  consider  all of  the  Company's
strategic  options  to  maximize  stockholder  value.  The  Company's  Board  is
considering  alternatives for the Company's future, including the acquisition of
one or more operating businesses.

     On July 2, 1998,  the Company  entered  into the  Delaware  Stipulation  to
resolve the pending stockholder  derivative  litigation in the Delaware Court of
Chancery.  The  Delaware  Settlement  was  subject  to a number  of  conditions,
including  without  limitation,  Delaware  court  approval  (which was issued on
October 6, 1998), the consent of the Company's primary lender (which was granted
on January 28, 1999) and the grant of certain  approvals by the U.S.  bankruptcy
courts (which was issued on January 15, 1999). The Delaware  Settlement resulted
in, among other things,  the dismissal of the pending litigation with prejudice,
the  Company's  purchase  from NPD of  approximately  2.9 million  shares of the
Company's  Common Stock for $4.6 million plus the  assumption  by the Company of
NPD's $5.8 million  promissory  note now held by Robert E. Brennan's  Bankruptcy
Trustee.  In addition,  the settlement  also resulted in the  termination of the
Company's  option  agreement  with D&C  Gaming in the  amount of  $600,000,  the
retirement  of  approximately  2.1 million  additional  shares of the  Company's
Common Stock owned by LVEN and the resignation of certain of the Company's Board
members.  The Delaware  Settlement  also  contemplates  the  disposition  of the
Company's non-operating El Rancho Property.

     The accompanying  financial statements have been prepared assuming that the
Company  will  continue as a going  concern.  As  discussed in Footnote 1 to the
consolidated  financial  statements,   the  Company  has  sustained  a  loss  of
approximately  $18.3  million  for the year  ended  June 30,  1998 and a loss of
approximately  $4 million for the six months ended  December  31,  1998,  all of
which raise  substantial doubt about its ability to continue as a going concern.
Management's  plans in regard to these matters are also  described in Footnote 1
to the consolidated financial statements.  The consolidated financial statements
do not  include  any  adjustments  that might  result  from the outcome of these
uncertainties.



                                       23

<PAGE>


                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                  MANAGEMENT'S ANALYSIS OF FINANCIAL CONDITIONS
             AND RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS
                             ENDED DECEMBER 31, 1998

Seasonality and Effect of Inclement Weather

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

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

Inflation

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

Impact of Year 2000 on the Company's Systems

     The year 2000 issue is the result of computer  programs being written using
two digits rather than four to define the applicable  year,  which may result in
systems failures and disruptions to operations at January 1, 2000. Management is
in the  process of  determining  whether  all of the  Company's  accounting  and
operational systems are year 2000 compliant. Although there can be no assurance,
management does not expect the costs associated with any required conversions of
systems to ensure year 2000  compliance to be significant and expects to be Year
2000 compliant by its fiscal 1999 year end.

Results of Operations for the Three Months Ended December 31, 1998 and 1997

     On January 28, 1999,  the Company  completed the sale of Freehold  Raceway,
the sale of a ten acre  parcel at Garden  State Park and the lease of the Garden
State Park  facilities to  subsidiaries of Greenwood  Racing,  Inc.,  which owns
Philadelphia  Park  racetrack,  the Turf  Clubs  and  Phonebet  (the  "Greenwood
Transaction").  Accordingly, the operating results of the racetrack subsidiaries
have been  segregated  and reported as  discontinued  operations for each of the
periods  presented.  Also,  on  the  same  date,  the  Company  consummated  the
settlement  under the  Stipulation  and Agreement of Compromise,  Settlement and
Release  entered  into on  July  2,  1998 to  resolve  the  pending  stockholder
derivative  litigation in the Delaware  Court of Chancery.  Among other actions,
the Delaware Settlement contemplates the disposition of the El Rancho Property.

     For the second quarter of Fiscal 1999,  The Company's loss from  continuing
operations was ($4,053,192) as compared to a loss from continuing operations for
the comparable  period in prior fiscal year of  ($4,651,804),  a decrease in the
loss of  $598,612.  This  decrease in the loss from  continuing  operations  was
primarily  the  result of a  decrease  in general  and  administrative  expenses
primarily as a result of legal fees and employee severance costs associated with
the Delaware  Actions  recognized  in the prior fiscal  year's  second  quarter,
partially  offset  by  an  increase  in  corporate  costs  associated  with  the
information  statement  provided  to the  Company's  stockholders  in the second
quarter of fiscal 1999.

     Income from  discontinued  operations was $2,113,840 for the second quarter
of Fiscal 1999 as compared to income from discontinued operations for the second
quarter of Fiscal 1998 of $2,453,968, a decrease of $340,128.  During the second
quarter of Fiscal 1999,  revenues from racetrack  operations at Freehold Raceway
and  Garden  State  Park  decreased  by an  aggregate  of  $1,100,398  from  the
comparable prior fiscal quarter, primarily


                                       24

<PAGE>


                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                  MANAGEMENT'S ANALYSIS OF FINANCIAL CONDITIONS
             AND RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS
                             ENDED DECEMBER 31, 1998

as a result of a decrease  in  wagering  on  simulcast  and live  racing and for
Freehold Raceway a 5 day decrease in live racing.  Racetrack  operating expenses
decreased  by  $806,048  during  the same  period,  primarily  as a result  of a
decrease in purses,  taxes,  wages and benefits and outside  services at the two
facilities.  See the separate results for Garden State Park and Freehold Raceway
below.

     During the second quarter of Fiscal 1999,  the Company  incurred a net loss
of  ($1,939,352)  as compared to a net loss of  ($2,197,836)  for the comparable
quarter in Fiscal  1998.  The decrease in net loss of $258,484 was the result of
those differences described above.

Results of Operations for the Six Months Ended December 31, 1998 and 1997

     The  operating  results  of the  racetrack  subsidiaries  for the six month
periods have been segregated and reported as discontinued operations for each of
the periods  presented as a result of the decision  made by the Company prior to
June 30, 1998 to sell its racetracks.

     For the first  half of Fiscal  1999,  The  Company's  loss from  continuing
operations was ($8,195,348) as compared to a loss from continuing operations for
the comparable  period in prior fiscal year of  ($9,421,950),  a decrease in the
loss of  $1,226,602.  This decrease in the loss from  continuing  operations was
primarily  the  result of a  decrease  in general  and  administrative  expenses
primarily as a result of non-employee  option expense of $795,858  recognized in
the prior fiscal  year's first quarter and a decrease in legal fees and employee
severance  costs  associated with the Delaware  Actions  recognized in the prior
fiscal year's second quarter, partially offset by an increase in corporate costs
associated with the information statement provided to the Company's stockholders
in the second quarter of fiscal 1999 and a decrease in interest income.

     Income from  discontinued  operations  was $4,256,544 for the first half of
Fiscal 1999 as compared to income  from  discontinued  operations  for the first
half of Fiscal 1998 of $4,180,232, an increase of $76,312. During the first half
of Fiscal 1999, revenue from racetrack operations at Freehold Raceway and Garden
State Park  decreased by an aggregate of $1,337,303  from the  comparable  prior
fiscal period and racetrack  operating  expenses  decreased by $1,471,277 during
the same  period,  primarily  as a result of a decrease in  racetrack  operating
revenues and expenses as discussed  above.  See the separate  results for Garden
State Park and Freehold Raceway below.

     During the first half of Fiscal  1999,  the Company  incurred a net loss of
($3,938,805)  as  compared  to a net  loss of  ($5,241,718)  for the  comparable
quarter in Fiscal 1998. The decrease in net loss of $1,302,913 was the result of
those differences described above.

Garden State Park:

     Garden  State Park's  Fiscal 1999 Harness Meet began  September 4, 1998 and
ran 51 days until  December  12, 1998.  Garden State Park has received  approval
from the New Jersey  Racing  Commission to run a 38 day  Thoroughbred  Meet from
March 19, 1999 to May 22, 1999.  During these race  meetings,  Garden State Park
simulcasts  its live  racing to other  racetracks,  other  licensed  venues  and
certain  Atlantic  City  casinos.  Simulcasting  into the  racetrack  from other
racetracks continues throughout the year.

     During the three and six months ended December 31, 1998,  Garden State Park
realized net income of $607,769 and $1,467,155, respectively.


                                       25

<PAGE>


                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                  MANAGEMENT'S ANALYSIS OF FINANCIAL CONDITIONS
             AND RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS
                             ENDED DECEMBER 31, 1998

         Comparative  quarterly and year-to-date income at Garden State Park are
as follows:

                               Income
                   --------------------------------        Net
                     Fiscal 1999       Fiscal 1998  Increase (Decrease)
                   -------------      -------------
1st Quarter          $   859,386      $    662,723      $ 196,663

2nd Quarter              607,769           755,422       (147,653)
                    ------------      ------------      ---------
Year-to-Date         $ 1,467,155      $  1,418,145      $  49,010
                    ============      ============      =========

     During the three  months  ended  December  31,  1998,  Garden  State Park's
revenue  decreased  $662,056 or 7% to  $9,082,181  from the  $9,744,237  for the
corresponding three month period in the prior fiscal year,  primarily reflecting
the effect of a decrease in revenues  generated  from  simulcasting  to and from
other racetracks and live wagering.  Expenses  decreased  $514,403 or 8% for the
three months ended December 31, 1998.  Wages and benefits  decreased as a result
of the Company's effort to cut overhead and operating costs.  Additional savings
were  realized by  reducing  outside  services  during  simulcast  periods and a
reduction in real estate taxes, utilities, insurance and materials and supplies.
As a result of the decreased  revenues and expenses,  Garden State Park realized
income of $607,769, as compared to income of $755,422 in the same quarter of the
prior fiscal year.

     During the six months ended December 31, 1998,  Garden State Park's revenue
decreased  $940,795 or 6% to $15,157,229 from $16,098,024 for the  corresponding
six month period in the prior fiscal year, primarily reflecting again the effect
of decreased revenues generated from simulcasting and live wagering as discussed
above.  Expenses  decreased $989,805 or 6% for the six months ended December 31,
1998, primarily as a result of the cost savings for real estate taxes, wages and
benefits,  insurance,  utilities  and  outside  services.  As a  result  of  the
decreased revenues and expenses, Garden State Park realized income of $1,467,155
as compared to income of $1,418,145  during the  comparable  six month period in
the prior fiscal year.

     During the three month period of harness  racing  ended  December 31, 1998,
the average  live  wagering at Garden State Park was  $104,619,  an 18% decrease
from the  corresponding  prior period amount of $127,343.  During this period 36
live days of wagering  were  conducted  for the current year and 37 days for the
prior year. During the periods of live racing Garden State Park also simulcasted
its racing signal to other race tracks around the country. The average simulcast
wagering at these tracks  decreased 20% over the prior year.  During  periods of
live racing and most other days,  Garden  State Park  receives  simulcasts  from
other  racetracks  during the day and  evening.  The average  daily  wagering on
simulcasts was $284,904 for the three months ended December 31, 1998 as compared
to the corresponding prior period amount of $283,225.

     During the six month period of harness  racing ended December 31, 1998, the
average live  wagering at Garden State Park was $108,503 a 19% decrease from the
corresponding  prior period  amount of $133,862.  During both fiscal  periods 51
live days of wagering were  conducted.  During the periods of live racing Garden
State Park also  simulcasted  its racing  signal to other race tracks around the
country.  The average simulcast  wagering at these tracks decreased 18% over the
prior year. During periods of live racing and most other days, Garden State Park
receives  simulcasts  from  other  racetracks  during the day and  evening.  The
average  daily  wagering on  simulcasts  was  $285,042  for the six months ended
December 31, 1998, a 2% decrease from the  corresponding  prior period amount of
$291,447.


                                       26

<PAGE>


                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                  MANAGEMENT'S ANALYSIS OF FINANCIAL CONDITIONS
             AND RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS
                             ENDED DECEMBER 31, 1998

Freehold Raceway:

     The Company conducted its Harness Meet through Freehold Racing Association,
Inc. ("FRA") and Atlantic City Harness, Inc. ("ACH"), the operating companies of
Freehold  Raceway.  Freehold  Raceway races under two separate  identities.  FRA
raced 92 days from August 13, 1998 thru  December  31,  1998.  ACH will race 101
days from January 1, 1999 through May 31, 1999.

     During the three and six months ended December 31, 1998,  Freehold  Raceway
realized net income before taxes of $1,571,570 and $2,916,888, respectively.

         Comparative  quarterly and year-to-date income before taxes at Freehold
Raceway are as follows:

                        Income Before Taxes
              -----------------------------------        Net
                  Fiscal 1999        Fiscal 1998  Increase (Decrease)
                  ===========        ===========
1st Quarter   $     1,345,318  $       1,113,657  $        231,661

2nd Quarter         1,571,570          1,718,267          (146,697)
                -------------     --------------      ------------
Year-to-Date  $     2,916,888  $       2,831,924  $         84,964
                =============     ==============      ============


     During the three months ended December 31, 1998, Freehold Raceway's revenue
was  $10,836,059,  a slight  decrease when compared to the  corresponding  three
month period in the prior fiscal year. Expenses increased slightly when compared
to the same period in the prior fiscal year  primarily as a result of a $300,000
contribution  for the support of horse racing in New Jersey  partially offset by
the cost  savings  for wages and  benefits,  insurance,  utilities  and  outside
services from the  Company's  effort to cut overhead and  operating  costs.  The
decrease  in revenues  and  increase in  expenses  primarily  accounted  for the
racetrack realizing income before taxes of $1,571,570 for the three months ended
December 31, 1998 as compared to income  before taxes of  $1,718,267  during the
three months ended December 31, 1997.

     During the six months ended  December 31, 1998 Freehold  Raceway's  revenue
was $19,066,392,  a slight decrease when compared to the corresponding period in
the prior  fiscal  year.  Expenses  decreased  slightly for the six months ended
December  31, 1997 when  compared  to the same  period in the prior  fiscal year
primarily  as a result  of the  contribution  offset by  decreases  in wages and
benefits,  insurance,  utilities and outside  services as discussed  above. As a
result of decreased  revenues and expenses,  Freehold  Raceway  realized  income
before  taxes of  $2,916,888  for the first half of fiscal  1999 as  compared to
income before taxes of $2,831,924 for the first half of fiscal 1998.

     During the three month period of harness  racing  ended  December 31, 1997,
the average live  wagering at Freehold  Raceway was $197,870 a 5% decrease  from
the  corresponding  prior period amount of $208,308.  During this period 57 live
days of wagering  were  conducted  during the  current  year and 62 days for the
prior year.  During the periods of live racing Freehold Raceway also simulcasted
its racing signal to other race tracks around the country. The average simulcast
wagering at these tracks  increased 11% over the prior year.  During  periods of
live racing and most other days Freehold Raceway receives  simulcasts from other
racetracks  during the day and evening.  The average daily wagering on simulcast
was $348,887 for the three  months  ended  December 31, 1998, a slight  decrease
from the corresponding prior period amount of $350,645.



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<PAGE>


                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                  MANAGEMENT'S ANALYSIS OF FINANCIAL CONDITIONS
             AND RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS
                             ENDED DECEMBER 31, 1998

     During the six month period of harness racing ending December 31, 1998, the
average live  wagering at Freehold  Raceway was $204,304 a 6% decrease  from the
corresponding  prior period amount of $216,829.  During this period 92 live days
of wagering  were  conducted  during the current year as compared to 99 days for
the prior  year.  During  the  periods  of live  racing  Freehold  Raceway  also
simulcasted  its racing  signal to other race  tracks  around the  country.  The
average  simulcast  wagering at these  tracks  increased 5% over the prior year.
During  periods of live  racing and most other days  Freehold  Raceway  receives
simulcasts from other racetracks  during the day and evening.  The average daily
wagering on simulcast was $337,234 for the six months ended  December 31, 1998 a
9% increase from the corresponding prior period amount of $309,361.



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<PAGE>



                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                                     PART II

                                OTHER INFORMATION

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

     On December 9, 1998, 7,619,446 shares of Common Stock representing 54.5% of
the outstanding Common Stock were voted in favor of the following:

     (C)  The sale of Freehold  Raceway and a ten-acre  parcel of land at Garden
          State Park to Greenwood New Jersey.

     (D)  The lease of substantially all of the real property and related assets
          of Garden State Park.

     (E)  The disposition by sale,  exchange or otherwise of all or a portion of
          Garden  State Park in Cherry  Hill,  New Jersey and the  non-operating
          former El Rancho Hotel and Casino in Las Vegas, Nevada.

Item 6. Exhibits and Reports on Form 8-K

     The  Company  did not file any  reports  on Form  8-K with  respect  to the
quarter ended December 31, 1998.




                                       29

<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.



February 16, 1999             /s/William H. Warner
                              -------------------------------------
                              William H. Warner,
                              Treasurer
                              (Principal Financial and Accounting Officer)




                                       30

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