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

                                    FORM 10-K

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

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

For the fiscal year ended June 30, 2004

                                       OR

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

For the transition period from ________ to ________.

                           Commission File No. 0-9624

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

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

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

                                 (302) 427-7599
       ------------------------------------------------------------------
              (Registrant's telephone number, including area code)

Securities registered pursuant to Section 12 (b) of the Act:  None
Securities registered pursuant to Section 12 (g) of the Act:  Common Stock,
                                                              par value $2.00


Indicate by check mark whether registrant: (1) has filed all reports required to
be filed by section 13 or 15(d) of the  Securities  Exchange  Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes X No__

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

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

The  aggregate   market  value  of  the   registrant's   common  stock  held  by
non-affiliates  of the  registrant  as of September  30, 2004 was  approximately
$6,885,000.  Shares of common stock held by each executive  officer and director
and by each  person who owns 10% or more of our  outstanding  common  stock have
been excluded since such persons may be deemed affiliates. This determination of
affiliate  status  is not  necessarily  a  conclusive  determination  for  other
purposes.

     As of October 13, 2004,  there were  10,565,204  outstanding  shares of the
     registrant's common stock.



<PAGE>


                                TABLE OF CONTENTS


                                     PART I

Item 1.   Business                                                         1
Item 2.   Properties                                                      14
Item 3.   Legal Proceedings                                               15
Item 4.   Submission of Matters to a Vote of Security Holders             15

                                     PART II

Item 5.   Market for the Registrant's Common Equity, Related
          Stockholder Matters and Issuer Purchases of Equity Securities   16
Item 6.   Selected Financial Data                                         17
Item 7.   Management's Discussion and Analysis of Financial Condition
          and Results of Operations                                       18
Item 7A.  Quantitative and Qualitative Disclosures about Market Risk      30
Item 8.   Financial Statements and Supplementary Data                     30
Item 9.   Changes in and Disagreements with Accountants on Accounting
          and Financial Disclosure                                        69
Item 9A.  Controls and Procedures                                         69
Item 9B.  Other Information                                               70

                                    PART III

Item 10.  Directors and Executive Officers of the Registrant              71
Item 11.  Executive Compensation                                          74
Item 12.  Security Ownership of Certain Beneficial Owners and Management
          and Related Stockholder Matters                                 76
Item 13.  Certain Relationships and Related Transactions                  78
Item 14.  Principal Accountant Fees and Services                          80


                                     PART IV

Item 15.  Exhibits and  Financial Statement Schedules                     81


<PAGE>


           CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

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

          o    general economic and business conditions;
          o    competition;
          o    execution of our new business strategy;
          o    changes in laws regulating our industry;
          o    fluctuations  in  quarterly  operating  results  as a  result  of
               seasonal and weather considerations;
          o    events  directly or indirectly  relating to our business  causing
               our stock price to be volatile; and
          o    delays or  cost-overruns  in  connection  with  refurbishing  and
               refitting a second vessel which we plan to place in service.


<PAGE>


                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.

                                     PART I

Item 1. Business.

     General

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

     To that end, as of April 30,  2001,  we  acquired,  by a bareboat  charter,
operations  of an offshore  gaming  vessel,  the M/V Palm Beach  Princess.  This
vessel sails twice daily from the Port of Palm Beach,  Florida and,  once beyond
the state territorial  water's limit,  engages in a casino gaming business.  The
business  of  operating  the  cruise  vessel  includes  a variety  of  shipboard
activities,  including dining,  music and other  entertainment as well as casino
gaming.  We are expanding that  business,  to which end we entered into a second
operating  agreement  with the Port of Palm Beach District on December 18, 2003,
for the  berthing of a second  vessel,  and, on July 6, 2004,  we entered into a
bareboat  charter for a second vessel,  the Empress II. After  refurbishing  and
retrofitting that vessel, we expect to place the Empress II in service also from
the Port of Palm Beach.

     Current Operations

     The Palm Beach  Princess and,  effective  July 7, 2004,  the Empress II are
chartered by us from Palm Beach  Maritime  Corporation  (formerly MJQ Corp.) and
Palm Beach Empress,  Inc., two  corporations  which are controlled by Francis W.
Murray, our Chairman and Chief Executive Officer. See "PDS Transactions" below.

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

     We operate The Palm Beach Princess for fourteen cruises weekly,  that is, a
daytime  and an evening  cruise  each day.  Each  cruise is of five to six hours
duration.  During  each  cruise,  the  Palm  Beach  Princess  offers  a range of
amenities  and services to her  passengers,  including a full  casino,  sit-down
buffet dining, live musical shows, discotheque,  bars and lounges, swimming pool
and  sundecks.  The casino  occupies  15,000  square feet aboard the ship and is
equipped with approximately 425 slot machines, all major table games (blackjack,
dice, roulette and poker), and a sports wagering book.

     As charterer of the vessel,  we are responsible for maintaining the vessel,
all machinery,  boilers and other  equipment on the vessel,  and are responsible
for making all necessary repairs.

                                       1
<PAGE>


We are responsible  for all expenses of operations,  including all taxes payable
in respect thereof. As charterer,  we have the use of all equipment on board the
vessel at the time it was delivered to us, and are  responsible  for re-delivery
of the  vessel  and  equipment  at the end of the  charter  period  in the  same
condition as when we received it,  ordinary wear and tear excepted.  We are also
responsible  for replacing any items of equipment  that need to be replaced and,
to the extent  equipment may be leased,  we are  responsible  for all rental and
other  obligations  under the  applicable  leases  (including  rental  and other
obligations  of Palm Beach Maritime  Corporation  during the term of the charter
under equipment leases in place at inception of our charter). We are to keep all
insurance in place for the vessel and equipment. Palm Beach Maritime Corporation
conductes  for us  certain  administrative  functions.  All costs  incurred  are
reimbursed by us to Palm Beach Maritime Corporation.

     The Empress II is a smaller vessel than the Palm Beach Princess,  being 201
feet long and 4,178  gross  tons.  The  Empress II is  registered  in the United
States.  It was originally  built in 1993.  The vessel will be  refurbished  and
refitted for our use as an ocean going casino cruise ship, and is expected to be
placed in service during the fiscal year ending June 30, 2005. Once such work is
complete,  the Empress II will have a passenger capacity of approximately  1,100
persons for coastal voyages,  and will comply with the highest  standards of the
United States Coast Guard  regulations  as applicable to ships of its class.  It
will be  subject to safety and health  inspections  by the United  States  Coast
Guard and the  Florida  Department  of Public  Health.  Upon  completion  of the
improvements,  expected to be in early January  2005,  the casino space on board
the vessel will occupy  approximately  30,000  square  feet.  We will offer full
casino services (slot machines and major table games), dining, a sports wagering
book,  simulcasting,  bars and lounges. As with the Palm Beach Princess,  gaming
will be permitted only outside of the state's territorial water's limit.

     2003 Chapter 11 Case

     Effective  April 30, 2001, we entered into our first bareboat  charter with
Palm  Beach  Maritime  Corporation,  owner of the vessel  Palm  Beach  Princess,
pursuant  to which we  chartered  the Palm  Beach  Princess  for the  purpose of
operating a casino  cruise  business  from the Port of Palm Beach,  Florida.  In
order to obtain the bareboat  charter,  we entered into a letter of intent as of
April 30, 2001, and then concluded a Master Settlement  Agreement dated February
22,  2002,  with the Chapter 11 Trustee for the  Bankruptcy  Estate of Robert E.
Brennan (the "Brennan  Trustee"),  Palm Beach Maritime  Corporation  and others,
including Francis W. Murray, our Chairman,  who was at that time also a director
and  officer  of  Palm  Beach  Maritime  Corporation.   (See  Item  13,  Certain
Relationships and Related Transactions.)

     In accordance with the Master Settlement  Agreement,  through a subsidiary,
we entered into a Purchase and Sale  Agreement  which  provided for our purchase
from  the  Brennan  Trustee  of the  promissory  note  of  Palm  Beach  Maritime
Corporation in the original  principal amount of $12 million,  secured by a ship
mortgage against the Palm Beach Princess (the "Ship Mortgage  Obligation").  The
purchase  price  payable  by us for  the  Ship  Mortgage  Obligation  (including
interest  accrued  thereon)  was $13.75  million.  We also  entered into a Stock
Purchase  Agreement  with the  Brennan  Trustee,  pursuant to which we agreed to
repurchase  2,235,000  shares of our  common  stock  controlled  by the  Brennan
Trustee  plus any  additional  shares of our common stock over which the Brennan
Trustee might  subsequently  obtain control.  With such additional  shares,  the
number of our shares to be repurchased  eventually totaled  3,678,145,  all at a
purchase price of $.50 per share (aggregate purchase price of $1,839,072.50).

     Our  transaction  with the Brennan  Trustee,  including  our  agreement  to
purchase the Ship Mortgage Obligation, was an opportunity which arose out of the
Brennan  Trustee's  claims against Palm Beach Maritime  Corporation  and others,
including Mr. Murray, alleging that Palm Beach Maritime Corporation had received
a loan (the Ship Mortgage  Obligation)  from an entity which, in turn,  received
funds from offshore  trusts created by Robert E. Brennan (the  Company's

                                       2

<PAGE>


former  chairman).  The Brennan  Trustee  acquired the Ship Mortgage  Obligation
through a settlement of litigation  which the Brennan  Trustee  brought  against
those  offshore  trusts.  We learned  of the  opportunity  to  acquire  the Ship
Mortgage  Obligation  and of the  opportunity to acquire,  at least  temporarily
(through the bareboat charter), the vessel and Palm Beach Maritime Corporation's
casino cruise  business,  through Mr. Murray's  connection as a director of Palm
Beach Maritime Corporation.

     We began  making  payments  of the  purchase  price  for the Ship  Mortgage
Obligation effective April 30, 2001, in monthly  installments of $250,000.  Such
monthly  installments  continued  under  the  terms  of the  Purchase  and  Sale
Agreement  through July 31, 2002, at which time a $9.75 million  balloon payment
was to be due. We obtained  extensions of the maturity date (in consideration of
our payment of substantial  extension fees to the Brennan Trustee) until January
6, 2003.  On January 3, 2003, we did not have the funds to complete the purchase
by January 6, 2003 and the  Brennan  Trustee  denied our  request  for a further
extension  of the January 6, 2003 due date.  Therefore,  on January 3, 2003,  in
order to  protect  our  invested  deposits  and  operation  of the  vessel,  our
subsidiary  filed a  voluntary  petition  for  relief  under  Chapter  11 of the
Bankruptcy  Code.  Palm Beach Maritime  Corporation,  the entity which owned the
vessel, also filed for relief under Chapter 11 of the Bankruptcy Code.

     The  Chapter 11 cases  were  brought by ITG  Vegas,  Inc.,  our  subsidiary
operating the Palm Beach Princess,  and Palm Beach Maritime  Corporation,  which
was owned by our Chairman  and Chief  Executive  Officer  Francis W. Murray (ITG
Vegas,  Inc. and Palm Beach  Maritime  Corporation  are  hereinafter  called the
"Debtors") in the United States  Bankruptcy  Court for the Southern  District of
Florida,  Palm Beach Division (the "Bankruptcy  Court"), In re: ITG Vegas, Inc.,
Case No. 03-30038.  The Chapter 11 cases did not cover the parent company,  ITB,
nor any other of ITB's  subsidiaries.  ITG Vegas,  Inc.  continued to operate as
"debtor-in-possession"  under the  jurisdiction  of the Bankruptcy  Court and in
accordance  with the applicable  provisions of the Bankruptcy Code and orders of
the Bankruptcy Court. Our bareboat charter of the Palm Beach Princess  continued
on a month to month basis throughout the Chapter 11 cases.

     On September 12, 2003, the Bankruptcy  Court issued an order confirming the
Amended  Joint  Chapter 11 Plan of  Reorganization  (the "Plan") in the Debtors'
Chapter 11 cases. The Plan was a plan of reorganization  under Chapter 11 of the
Bankruptcy Code which was jointly proposed by the Debtors.

     On the effective date of the Plan, October 15, 2003 (the "Effective Date"),
all claims, debts, liens, security interests and encumbrances of and against the
Debtors and against all property of their respective  bankruptcy estates,  which
arose before  confirmation were discharged,  except as otherwise provided in the
Plan or confirmation order. Post-confirmation,  each of the Debtors continued as
reorganized debtors.

     The Plan included the following principal features:

     1. On the Effective Date, all Allowed Administrative Expense Claims and all
Allowed  Priority Tax Claims and Allowed  Priority  Non-Tax  Claims were paid in
full (to the extent not already paid).

     2. All pre-petition non-insider (non-affiliate), non-insured unsecured debt
of the Debtors was paid in two installments,  one-half on the Effective Date and
one-half  (with  interest  thereon at 8% per year from the  Effective  Date) six
months after the Effective Date.

                                       3
<PAGE>

     3. All non-insider  claims covered by insurance were entitled to payment in
accordance  with the  insurance  coverages.  There are no  policy  limits on the
Debtors'  liability  coverages  and the holders of these claims were required to
pursue  the  insurance  proceeds  for  payment,   except  with  respect  to  the
deductible, for which the Debtors remained obligated.

     4. The Debtors'  principal  creditor,  the Brennan Trustee,  was to receive
payment  in full of all  obligations  over a period not to exceed  three  years.
Significantly,  the Debtors'  obligations  to the Brennan  Trustee were combined
with the parent  company's  (ITB's)  indebtedness to the Brennan Trustee arising
out of the stock  repurchase,  for all of which the Debtors and ITB were jointly
and severally liable. All of the obligations to the Brennan Trustee were secured
by a ship mortgage against the Palm Beach Princess vessel and security interests
in all of the other assets of the Debtors.

     5.  The  payment  obligations  to  the  Brennan  Trustee  consisted  of the
following:

        (a) The balance of the purchase price that had been payable by ITG Vegas
for the purchase of the Ship Mortgage Obligation, in the amount of $9,750,000;

        (b) The balance of our indebtedness to the Brennan Trustee in respect of
our repurchase of stock in the principal amount of $1,511,035.70 (which included
interest accrued to December 13, 2002),  plus interest thereon from December 13,
2002 until the Effective Date;

        (c) A new  obligation of ITB for the purchase of an  additional  450,000
shares of our stock from the Brennan Trustee, at $0.50 per share, or $225,000.

     The amounts  described in  subparagraphs  (a), (b) and (c) are collectively
called the "Payment Obligations".  A forbearance fee of $350,000 also accrued to
the Brennan  Trustee on the Effective  Date,  of which  $100,000 was paid on the
Effective  Date and the balance  ($250,000)  was due on the earliest to occur of
the date the Payment  Obligation is paid in full,  the third  anniversary of the
Effective  Date,  or any  date on which  ITG  Vegas  shall  have  monetized  its
receivable from OC Realty, LLC, an affiliate of our Chairman and CEO.

     The Payment Obligation accrued interest at 12% per annum.  Monthly payments
of $400,000 were required to be made to the Brennan Trustee, to be applied first
to interest accrued and then to principal.  In addition, the Brennan Trustee was
entitled  to payment of a Stay Bonus in the amount of  $200,000  if the  Payment
Obligation  was not paid in full within 12 months after the Effective  Date, and
an additional  $100,000 if the Payment Obligation was not paid in full within 24
months  after the  Effective  Date.  Beginning  with ITG  Vegas'  2004  internal
accounting year (commencing December 29, 2003) and annually  thereafter,  75% of
ITG Vegas' Free Cash Flow (as defined in the Plan) for the period was to be paid
to the Brennan  Trustee as a Sweep  Payment,  to be applied first to accrued and
unpaid interest, then to principal on the Payment Obligation,  and thereafter to
any unpaid Forbearance Fee and Stay Bonuses.

     6. Restrictions were imposed under the Plan on ITG Vegas making payments to
affiliated  entities,  including  ITB.  Payments of  indebtedness  to affiliated
entities of ITG Vegas  generally were  subordinated  to the prior payment of all
liabilities to the Brennan Trustee, and intercompany advances and transfers from
ITG Vegas to affiliated  entities generally were prohibited,  except that, if no
default existed in the obligations to the Brennan Trustee, (i) $50,000 per month
could be paid by ITG Vegas to Palm Beach Maritime  Corporation in respect of the
bareboat charter fee for use of the Palm Beach Princess vessel and (ii) $100,000
per month  was  permitted  to be paid by ITG  Vegas to ITB  under a Tax  Sharing
Agreement  between them. ITB entered into a Tax Sharing Agreement with ITG Vegas
effective on the Effective  Date,

                                       4
<PAGE>


pursuant to which ITG Vegas was to compensate  ITB for the tax savings  realized
as a result of ITG Vegas's  inclusion in ITB's  consolidated  group of companies
for federal income tax purposes, in an amount up to $100,000 per month, provided
that no such  payments  were  permitted  to be made if any  default  existed  in
respect of the obligations to the Brennan Trustee.

     The maximum  amount of funds  permitted to be upstreamed by ITG Vegas to us
was $100,000 per month under the Tax Sharing Agreement (and,  beginning in 2005,
25% of ITG Vegas' annual Free Cash Flow, as defined).

     For further information about the Payment Obligations, the covenants of ITB
and the  Debtors,  and other  terms  agreed to among  the  Debtors,  ITB and the
Brennan Trustee, reference is made to the Amended Plan of Reorganization,  which
is an exhibit to this Report.

     By reaching the foregoing  consensual plan of  reorganization  by agreement
with the  Brennan  Trustee,  the  Debtors  avoided  the  costs  and  delays of a
contested  confirmation hearing with their largest creditor and developed a Plan
which was believed to be (and has proven to be) feasible.  With the consummation
of  the  PDS  Transactions   described  below,  all  of  our  and  the  Debtors'
indebtedness to the Brennan Trustee was paid in full.

     On July 17, 2004,  the  Bankruptcy  Court issued a final decree closing the
Debtors' Chapter 11 cases.

     PDS Transactions

        Overview: On July 7, 2004, Palm Beach Maritime Corporation ("PBMC"), its
affiliate Palm Beach Empress, Inc. ("PBE"), the Company and our subsidiaries ITG
Vegas and ITG Palm  Beach,  LLC closed on the $23 million  transaction  with PDS
Gaming  Corporation,   a  publicly  held  company  located  in  Las  Vegas.  The
transactions were structured as a sale/leaseback by PBMC and PBE,  although,  as
to $20 million of the $23  million  total,  it is  effectively  equivalent  to a
secured loan against the Palm Beach Princess and Empress II vessels.  Of the $23
million,  $14 million  was  advanced to Palm Beach  Maritime  Corporation  by an
affiliate of PDS as purchase  price in purchasing the Palm Beach  Princess.  The
PDS affiliate  leased and  chartered the Palm Beach  Princess back to Palm Beach
Maritime  Corporation and Palm Beach Empress,  Inc., which then subchartered the
vessel to our subsidiary,  ITG Vegas, Inc. Another $6 million of the $23 million
was advanced for the benefit of Palm Beach Maritime  Corporation  and Palm Beach
Empress,  Inc. for the purchase and retrofitting of the vessel Empress II, which
vessel PDS (through an affiliate)  leased and  chartered to Palm Beach  Maritime
Corporation and Palm Beach Empress, Inc., who, in turn, subchartered the Empress
II vessel to ITG Vegas, Inc. and a new wholly-owned subsidiary of ITG Vegas, ITG
Palm Beach, LLC ("ITG Palm Beach"). The remaining $3 million of funding from PDS
is for ITG Vegas and ITG Palm Beach's  lease of gaming  equipment for use on the
Palm Beach Princess and Empress II vessels.

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

     Such  sale-leaseback and ensuing  subcharters  accomplished our purposes of
acquiring, by means of the Empress II subcharter,  a second vessel which we plan
to  operate  from  the  Port of  Palm  Beach,  and  also  paying  off all of our
indebtedness to the Brennan Trustee.  We had been attempting to obtain financing
for the purchase of the Empress II for several months, but were


                                       5
<PAGE>


unable to obtain  financing on our own since all  potential  lenders  required a
mortgage against the Palm Beach Princess, which was owned by Palm Beach Maritime
Corporation.  Palm Beach Maritime Corporation was willing to utilize its vessel,
the Palm Beach  Princess,  to obtain  funds to acquire  the  Empress II and then
subcharter  the  Empress  II and Palm Beach  Princess  to ITG Vegas and ITG Palm
Beach on a long term basis.

     The investment in and operation of the Empress II required  retiring all of
our debt to the Brennan  Trustee,  due to the negative  covenants  governing our
indebtedness to the Brennan Trustee. Palm Beach Maritime Corporation was willing
to utilize  proceeds from its sale of the Palm Beach  Princess to pay off all of
our indebtedness to the Trustee, which resulted in termination of our investment
in the Ship Mortgage  Obligation held by the Brennan  Trustee.  In its place, we
(through ITG Vegas) have options to acquire the Palm Beach  Princess and Empress
II  vessels on terms  which will  credit  our  investment  in the Ship  Mortgage
Obligation against the option exercise prices for the vessels.

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

     Also at  Closing,  Cruise I entered  into a Bareboat  Charter and Option to
Purchase (the "Princess  Charter") and a Master Lease  Agreement  (together with
Lease Schedule No. 1 thereto,  the "Princess Master Lease") to charter and lease
the Palm Beach Princess to PBMC and PBE for a period of five years.  The charter
hire/rent  payable by PBMC and PBE is $178,500 per month for the first 12 months
(equivalent to interest only on a capital lease  obligation of $14,000,000)  and
$391,762.80 for the remaining term (amortizing the capital lease obligation over
the next four years) of the  Princess  Charter.  In  addition,  PBMC and PBE are
required  to make  annual  cash flow sweep  payments  (equivalent  to  mandatory
principal  prepayments)  (the "Cash Flow Sweep") if the EBITDAR (earnings before
interest, taxes, depreciation, amortization and rents) from the operation of the
Palm Beach Princess and the Empress II ("EBITDAR") is less than  $10,000,000 per
year.  Any Cash Flow Sweep  payments to be made under the Princess  Charter will
ultimately  be made by ITG Vegas and ITG Palm  Beach  (as the  operators  of the
Princess), as described below.

     The Princess Charter includes an option for PBMC to purchase the Palm Beach
Princess at the end of the term and is structured  such that the monthly charter
hire payments under the Princess  Charter will reduce the purchase price for the
Palm  Beach  Princess  to zero in five  years  (assuming  there  are no  payment
defaults) and title will  automatically  pass to PBMC at (or, if Cash Flow Sweep
payments are made, before) the end of the term of the Princess Charter.

     PBMC  and  PBE  entered  into  a   Sub-Bareboat   Charter  (the   "Princess
Sub-Charter") at Closing to charter the Palm Beach Princess to ITG Vegas and ITG
Palm Beach for the same five year period.  ITG Vegas will operate the  Princess,
with ITG Palm Beach  having  joined in the

                                       6
<PAGE>

Sub-Bareboat  Charter in order to be jointly and severally liable with ITG Vegas
for charter hire thereunder.  The charter hire payable by ITG Vegas and ITG Palm
Beach to PBMC and PBE  under  the  Princess  Sub-Charter  is  $50,000  per month
($600,000 per year) plus one percent (1%) of the gross operating revenues of the
Palm Beach Princess.  Under the Princess Sub-Charter,  PBMC granted to ITG Vegas
and ITG Palm Beach an option to purchase  PBMC's right to acquire the Palm Beach
Princess at the end of the term,  for an exercise  price equal to the  appraised
value of the Palm Beach Princess,  $17,500,000,  to which certain amounts are to
be  credited  as  described   below  (the  "Princess   Purchase   Option").   As
consideration  for the Princess  Purchase Option,  ITG Vegas will make Cash Flow
Sweep  payments  on the same  terms as PBMC and PBE are  required  to make  such
payments  under the Princess  Charter (and  effectively  will make such payments
directly  to Cruise I on behalf of PBMC and PBE to the extent any such  payments
are due). As further  consideration for the Princess Purchase Option,  ITG Vegas
and ITG Palm Beach are to make  payments of $178,500  per month for the first 12
months  and  $391,762.80  for  the  remaining  four-year  term  of the  Princess
Sub-Charter  (i.e., the same amounts as the charter hire payable by PBMC and PBE
under the Princess Charter) (the "Princess Additional  Payments").  If ITG Vegas
and ITG  Palm  Beach  fail to make any  Cash  Flow  Sweep  payment  or  Princess
Additional  Payment when due, PBMC may terminate the Princess  Purchase  Option.
Upon exercise of the Princess Purchase Option, ITG Vegas and ITG Palm Beach will
be  entitled to credits  against the  exercise  price of the  Princess  Purchase
Option for (i) ITG Vegas'  investment  of  $7,244,000  in the Ship Mortgage Note
(except to the extent  credited  toward  payment of the  exercise  price for the
purchase  option on the  Empress  II under the  Empress  Sub-Charter,  described
below),  plus (ii) the  aggregate  amount of all Cash Flow Sweep  payments  made
under  the  Princess  Sub-Charter,  plus  (iii)  the  portion  of  the  Princess
Additional  Payments  made for the 13th month through the 60th month of the term
of the Princess Sub-Charter which would be considered principal payments if such
Additional  Payments  were  payments  of  principal  and  interest  on a loan of
$14,000,000  amortized over 48 months at an interest rate of 15.3%. In addition,
the exercise  price of the Princess  Purchase  Option may be offset by any debts
owing by PBMC to ITG Vegas and/or ITG Palm Beach.

     Acquisition  of the  Empress  II. On March 1,  2004,  PBE  entered  into an
agreement to purchase the vessel known as the M/V Empress II (the  "Empress Sale
Agreement")  from Empress Joliet  Corporation at a purchase price of $3,800,000.
The Empress II requires approximately  $8,500,000 of alterations,  retrofits and
improvements  to prepare it for use as a casino cruise ship, a portion of which,
in the amount of  $2,880,652,  will be paid for by ITG Vegas.  At  Closing,  PBE
assigned to Cruise  Holdings  II, LLC ("Cruise  II"),  a  subsidiary  of PDS and
affiliate  of Cruise I, all of its  rights,  title  and  interest  in and to the
Empress Sale  Agreement,  and the sum of  $6,000,000  was deposited in a blocked
account to be used to pay costs of the alterations, retrofit and improvements of
the Empress. Such deposit was funded to the extent of $2,880,652 by ITG Vegas.

     Also at Closing,  Cruise II entered  into a Bareboat  Charter and Option to
Purchase (the "Empress  Charter") and a Master Lease  Agreement  (together  with
Lease Schedule No. 1 thereto,  the "Empress  Master Lease") to charter and lease
the Empress II to PBMC and PBE for a period of five years.  The charter  hire is
$82,695 for the first 12 months  (equivalent  to  interest  only on a $6 million
capital lease obligation) and $171,702.54 for the remaining term (amortizing the
capital lease  obligation over the next four years) of the Empress  Charter.  In
addition,  PBMC and PBE are  required to make  annual  Cash Flow Sweep  payments
(equivalent  to mandatory  prepayments  of principal)  based on the EBITDAR from
operations of the Palm Beach  Princess and Empress II as described in respect of
the Princess Charter above.

     The Empress  Charter  includes an option for PBE to purchase the Empress II
at the end of the term and is  structured  the same as the  Princess  Charter in
that the monthly  payments of

                                       7
<PAGE>

charter hire under the Empress  Charter  will reduce the purchase  price for the
Empress  II to zero  (assuming  there are no  payment  defaults)  and title will
automatically  pass to PBE at (or, if Cash Flow Sweep payments are made, before)
the end of the term of the Empress Charter.

     PBMC  and PBE  also  entered  into a  Sub-Bareboat  Charter  (the  "Empress
Sub-Charter")  at Closing to  charter  the  Empress II to ITG Vegas and ITG Palm
Beach for a five year period. ITG Palm Beach will operate the Empress,  with ITG
Vegas  having  joined in the  Sub-Bareboat  Charter in order to be  jointly  and
severally  liable with ITG Palm Beach for charter hire  thereunder.  The charter
hire  payable by ITG Vegas and ITG Palm Beach under the Empress  Sub-Charter  is
$100,000  per month ($1.2  million per year) plus one percent  (1%) of the gross
operating revenues of the Empress II. Under the Empress Sub-Charter, PBE granted
to ITG Vegas and ITG Palm Beach an option to purchase PBE's right to acquire the
Empress II at the end of the term,  for an exercise price equal to the appraised
value of the Empress,  to be determined upon the retrofitting and  refurbishment
of the Empress  II, to which  certain  amounts  are to be credited as  described
below (The "Empress Purchase Option"). As consideration for the Empress Purchase
Option,  ITG Vegas will make Cash Flow Sweep  payments on the same terms as PBMC
and PBE are  required  to make such  payments  under the  Empress  Charter  (and
effectively will make such payments  directly to Cruise II on behalf of PBMC and
PBE to the extent any such payments are due). As further  consideration  for the
Empress  Purchase  Option,  ITG Vegas and ITG Palm Beach are to make payments of
$82,695 per month for the first 12 months and $171,702.54 for the remaining term
of the Empress  Sub-Charter  (i.e., the same amounts as the charter hire payable
by PBMC and PBE under the Empress Charter) (the "Empress Additional  Payments").
If ITG Vegas and ITG Palm Beach  fail to make any  Empress  Additional  Payments
when due, PBE may terminate the Empress  Purchase  Option.  Upon exercise of the
Empress  Purchase  Option,  ITG Vegas and ITG Palm  Beach  will be  entitled  to
credits  against the exercise price of the Empress  Purchase  Option for (i) ITG
Vegas's  investment  in the Ship  Mortgage  Note (except to the extent  credited
toward payment of the exercise  price for the purchase  option on the Palm Beach
Princess under the Princess Sub-Charter, described above), plus (ii) the amounts
of costs for the retrofit and  improvements  to the Empress II which are paid by
ITG Vegas or ITG Palm  Beach plus  (iii) the  aggregate  amount of all Cash Flow
Sweep payments made under the Empress Sub-Charter,  plus (iv) the portion of the
Empress  Additional  Payments  made for the 13th month through the 60th month of
the term of the Empress Sub-Charter which would be considered principal payments
if such Additional Payments were payments of principal and interest on a loan of
$6,000,000  amortized over 48 months at an interest rate of 16.54%. In addition,
the  exercise  price of the Empress  Purchase  Option may be offset by any debts
owing by PBMC to ITG Vegas and/or ITG Palm Beach.

     Lease of Gaming Equipment. At Closing, ITG Vegas and ITG Palm Beach entered
into a Master Lease,  together with three Lease Schedules (the "Gaming Equipment
Lease"),  to lease certain new and used gaming equipment from PDS for use on the
two vessels.  A portion of the  equipment was  previously  owned and used by ITG
Vegas on the Princess and was sold to PDS at Closing, for $500,000,  pursuant to
a Warranty Bill of Sale and Transfer  Agreement and then leased back pursuant to
the Gaming Master Lease.  Each Schedule of the Gaming Equipment Lease has a term
of three years from the time the  equipment  under that Schedule is delivered to
and  accepted  by ITG Vegas and ITG Palm  Beach.  Aggregate  rent for all gaming
equipment  will be  approximately  $1.4 million per year. ITG Vegas and ITG Palm
Beach have an option to purchase the leased equipment at the end of the term for
a purchase  price equal to the fair market  value of the  equipment at such time
(less,  to the extent any items of equipment  were replaced  during the previous
12-month period,  the excess of the  then-current  book value of the replacement
equipment over the book value of the old equipment at the time of replacement).

     Guaranty  Agreements.  As a condition to entering into the PDS Transaction,
PDS required the Company,  ITG Vegas,  ITG Palm Beach,  PBMC and PBE to guaranty
performance

                                       8
<PAGE>

of certain of the PDS  Transactions.  The Company,  ITG Vegas and ITG Palm Beach
entered into Guaranty  Agreements  guarantying  the  obligations of PBMC and PBE
under the Princess Charter,  Princess Master Lease,  Empress Charter and Empress
Master  Lease.  The  Company,  PBMC and PBE  entered  into a Guaranty  Agreement
guarantying  the  obligations  of ITG Vegas and ITG Palm Beach  under the Gaming
Equipment Lease.

     Additional Security. As security for the performance by ITG Vegas under the
Guaranty Agreements  described above and the Princess and Empress  Sub-Charters,
ITG Vegas entered into a Collateral  Assignment of the Maritime  Office  Complex
Lease and Operating  Agreement and Other Lease as well as a Leasehold  Mortgage,
pursuant to which it assigned as collateral to Cruise I and Cruise II its rights
under its lease for space, and its operating rights, at the Port of Palm Beach.

     Limitation on Upstream  Payments to the Corporation.  Upstream  payments by
ITG Vegas to the Company are limited under the Princess  Sub-Charter and Empress
Sub-Charter. If the "YTD Result" (defined as 10/12ths of annualized EBITDAR from
operation of the two vessels) is greater  than  $8,000,000  at the end of any of
the first three fiscal  quarters or EBITDAR from operation of the two vessels is
greater than  $8,000,000 at the end of any fiscal year, and if ITG Vegas and ITG
Palm Beach have made all payments due under the Princess Sub-Charter and Empress
Sub-Charter,  ITG  Vegas  may  make  (i) tax  sharing  payments  to the  Company
(payments  equal to the federal  income tax savings to ITG Vegas  resulting from
its  inclusion  in the  Company's  consolidated  group for  federal  income  tax
purposes)  including any tax sharing payments previously deferred as a result of
limitation under the Princess Sub-Charter or Empress Sub-Charter, and (ii) other
payments to the Company in an amount which,  together with charter hire payments
in excess of $100,000 per month to PBMC and PBE for the two  vessels,  shall not
exceed $200,000 per month (a "Restricted  Payment").  If ITG Vegas is prohibited
from making any Restricted  Payment for any month,  once such payments are again
allowed,  such Restricted Payment may be made to the Company;  provided that the
total amount of Restricted  Payments  (i.e.  payments other than the tax sharing
payments and $100,000 per month in bare boat charter  fees) paid by ITG Vegas to
the Company, PBMC and PBE in any twelve-month period may not exceed $2,400,000.

     Prior Operations

     In April of 1998,  our Board of Directors  authorized  the  exploration  of
strategic opportunities for our business, including a possible merger or sale of
all of our racetrack and hotel assets.  The Board ultimately decided that a sale
of our assets was the preferred  alternative.

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

     On  May  22,  2000,  through  our  wholly-owned  subsidiary,  Orion  Casino
Corporation,  we closed on the sale of the non-operating  former El Rancho Hotel
and Casino in Las Vegas, Nevada to Turnberry/Las Vegas Boulevard,  LLC. The sale
price was $45 million and was paid by: (i) previous  cash  deposits  totaling $2
million; and (ii) the balance of the sale price paid in cash at the closing. The
proceeds  from the El Rancho  sale  were  principally  used by us to reduce  the
outstanding  balances  on our loan from  Credit  Suisse  First  Boston  Mortgage
Capital LLC to $14.7  million and to purchase a promissory  note of the buyer in
the amount of $23 million (the

                                       9
<PAGE>

"Las Vegas Note"),  secured by the rights to 100% of the  distributable  cash of
the buyer in the event of a default,  which was convertible at our option into a
33 1/3% equity interest in the buyer.  The interest  payable under such note was
dependent  upon,  and payable solely out of, the buyer's net cash flow available
for  distribution to its equity owners.  After the equity investors in the buyer
have received total distributions  equal to their capital  contributions plus an
agreed  upon  return  on  their  invested  capital,  the  next  $23  million  of
distributable  cash was to be paid to us. We were thereafter to receive payments
under the Las Vegas  Note equal to 33 1/3% of all  distributable  cash until the
maturity date,  which was to occur on the thirtieth  anniversary of our purchase
of the Note. We elected to defer the gain on the sale of the real property until
such time that  collectability,  under the $23  million  Las Vegas Note could be
determined.  On June 16, 2004,  we sold the Las Vegas Note,  as described  below
under "Sale of Las Vegas Note."

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

     Under the $10  million  Cherry  Hill Note,  the  interest  payable  will be
dependent  upon,  and payable solely out of, the buyer's net cash flow available
for  distribution to its equity owners.  After the equity investors in the buyer
have received aggregate  distributions equal to their capital contributions plus
an agreed  upon  return  on their  invested  capital,  the next $10  million  of
distributable cash will be paid to us. We will thereafter receive payments under
the  Cherry  Hill  Note  equal to 33 1/3% of all  distributable  cash  until the
maturity date, which occurs on the fifteenth  anniversary of the issuance of the
Note. We may convert the Cherry Hill Note, at our option,  into a 33 1/3% equity
interest in  Realen-Turnberry/Cherry  Hill during the six-month  period prior to
the fifteenth  anniversary  of the issuance of the Note. If not then  converted,
the Note will be payable at maturity in an amount  equal to (i) the  difference,
if any,  between $10 million and total payments  previously made to us under the
Note  and  (ii)  33  1/3%  of  any   excess   of  the  fair   market   value  of
Realen-Turnberry/Cherry  Hill's  assets over the sum of its  liabilities  (other
than the Note) and any  unreturned  equity  investment  of its  owners.  We have
elected to defer the gain on the sale until such time that collectability  under
the $10 million Note from Realen-Turnberry/Cherry Hill can be determined.

     During June 2001, we held  auctions at which all of the personal  property,
including  equipment,  furniture,  furnishings  and art  work,  that we owned at
Garden State Park was sold for approximately $1.2 million in cash.

     Sale of Las Vegas Note

     On June 16,  2004,  we  consummated  the sale of the $23  million Las Vegas
Note.  The  purchaser of the Las Vegas Note was Cherry Hill at El Rancho LP (the
"Buyer"),  a limited  partnership  which is affiliated with the maker of the Las
Vegas Note.

     In exchange  for the Las Vegas Note,  we received  cash  payments  from the
Buyer of $2.8 million, a non-recourse loan from Turnberry  Development,  LLC, an
affiliate of the Buyer, in the amount of $5 million and a promissory note issued
by Soffer/Cherry Hill Partners, L.P. ("Cherry Hill Partners"), another affiliate
of the Buyer,  in the principal  amount of $35,842,027  (the

                                       10
<PAGE>

"Second Cherry Hill Note").  The principal amount of the Second Cherry Hill Note
equals the difference  between the unpaid  principal plus all accrued and unpaid
interest  (at 22%) under the Las Vegas Note,  less the $2.8  million in purchase
price  payments  and  $5  million  non-recourse  loan  paid  to us.  As  further
consideration,  we  received  the right to use  aircraft  owned or leased by the
Buyer  or its  affiliates,  for up to 64  hours  in  total,  which  we  value at
approximately $224,000. The consideration received by us in exchange for the Las
Vegas  Note was  negotiated  at  arms-length  with  the  Buyer  and the  Buyers'
affiliates.  To the extent  such  consideration  resulted in the sale of the Las
Vegas Note at a discount, such discount reflected,  among other things, our need
to monetize the Las Vegas Note in order to obtain working capital as a result of
the  severe,  creditor-imposed  restrictions  on the  ability  of our  operating
subsidiary, ITG Vegas, to distribute profits from its operations to us.

     We are not liable for  repayment  of the  principal  of the $5 million loan
included  in the  foregoing  consideration.  However,  we are  obligated  to pay
interest and fees on such loan aggregating $600,000 per year ($50,000 per month)
for five (5) years.

     The Second  Cherry Hill Note  received by us matures in 2015 and is similar
to the Las Vegas Note which was sold,  in that both  generally are payable prior
to maturity only from  distributable  cash of the maker.  The Las Vegas Note was
payable  prior to  maturity  from  distributable  cash of the  entity  which had
purchased,  in May of  2000,  the  real  property  (the  "El  Rancho  Property")
previously  owned by our  Orion  Casino  Corporation  subsidiary  in Las  Vegas,
Nevada,  which had been the site of the former El Rancho Hotel and Casino. Since
the maker of the Las Vegas Note has not yet finalized  plans for  development of
that property,  the time at which we might have received  payments under the Las
Vegas Note (had it not been sold)  remained  uncertain.  The  obligor  under the
Second  Cherry Hill Note is one of the  principal  partners in the entity  which
purchased the Garden State Park real property from our subsidiary in November of
2000,  and such obligor will only have funds with which to pay the Second Cherry
Hill Note out of its profits  from the  development  of Garden  State Park.  The
development of Garden State Park,  located in Cherry Hill, New Jersey,  has been
delayed  as a  result  of  community  opposition  to  certain  elements  of  the
development  plan, and, while we believe that the development plan is now moving
forward,  the  timing and amount of profits  there  also  remain  uncertain.  We
already hold a promissory note in the face amount of $10 million,  received from
the  purchaser  of Garden  State Park in  connection  with the sale of such real
property,  which we expect will be fully paid in time. While we expect the first
Cherry Hill Note to be fully paid, we are not optimistic  that the Second Cherry
Hill Note will be fully paid, and accordingly, we have written down on our books
the amount of the Second Cherry Hill Note  substantially  below the  $35,842,027
face amount thereof, to $4,778,651. See Note 4-A to our financial statements.

     The  Second  Cherry  Hill Note is  secured  by a pledge  of stock  owned by
Raymond  Parello,  an affiliate of the Buyer,  in the Palm Beach Empress,  Inc.,
representing  fifty  percent  (50%) of the  stock in that  company.  Palm  Beach
Empress,  Inc. is the entity formed to acquire the second vessel which,  on July
7, 2004,  was chartered to our  subsidiary  and we expect to operate that second
vessel as a casino cruise ship,  similar to the operation of the casino  "cruise
to nowhere" business  conducted by our ITG Vegas subsidiary since April of 2001.
The other fifty percent (50%) of the stock in Palm Beach Empress,  Inc. is owned
by Palm Beach Maritime  Corporation,  a corporation  owned by Francis W. Murray,
our Chairman and Chief Executive Officer. See "PDS Transactions" above.

     Significantly, Mr. Parello will have the right to acquire the Second Cherry
Hill Note from us in exchange  for his stock in Palm Beach  Empress,  Inc.  Such
"put" option held by Mr. Parello  (giving him the right to put his stock in Palm
Beach  Empress,  Inc.  to us in exchange  for the Second  Cherry Hill Note) will
effectively limit the value to us of the Second Cherry Hill Note to the value of
Mr. Parello's  one-half  interest in Palm Beach Empress,  Inc. Mr. Parello's put
right

                                       11
<PAGE>

will be exercisable upon the later to occur of (1) payment by or for the account
of Cherry Hill Partners of  $483,205.48  under the Second Cherry Hill Note,  and
(2) payment of the entire principal balance of the non-recourse loan received by
our Orion  subsidiary in the principal  amount of $5 million,  referred to above
(upon which  repayment  our  obligation to pay interest and fees of $600,000 per
year on such loan would end). Such put-option is set forth in the  Shareholders'
Agreement  among  Palm  Beach  Empress,  Inc.,  Raymond  Parello  and Palm Beach
Maritime  Corporation,  to which our Orion  subsidiary has joined solely for the
purpose of confirming its agreement to the put option.

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

     In addition, if, before July 31, 2005, there is a sale or other disposition
of the El Rancho Property,  or a sale or other  disposition of the entire direct
or indirect interest of the owner of such property,  then fifty percent (50%) of
any profit in excess of $10 million  realized on such sale also shall be paid to
us as a mandatory  prepayment of the Second Cherry Hill Note.  The July 31, 2005
deadline by which a sale of the El Rancho  Property would have to occur in order
to trigger a possible prepayment to us will be extended to January 31, 2006 if a
portion,  but less than all, of the El Rancho  Property or of the Owner's direct
or indirect ownership interest is sold before July 31, 2005.

     Employees

     As of June 30,  2004,  the Parent  Company  employed 7 full-time  corporate
executive,  administrative and clerical  personnel.  ITG Vegas employs a crew of
approximately  265 and office and management  personnel of 78 for the operations
of the Palm Beach casino business.

     Competition

     From July 1, 2001 to December 9, 2001 the M/V Palm Beach  Princess  was the
only vessel  operating a coastal gaming business from the Port of Palm Beach and
our  closest  competition  was  approximately  50 miles away in Ft.  Lauderdale,
Florida.  From  December 10, 2001 until April 29, 2002,  when it returned to its
home port of Boston  Massachusetts,  another  coastal  gaming  vessel,  the S.S.
Horizon Edge, operated from Riviera Beach Marina, which is in close proximity to
the Port of Palm Beach. This vessel was 186 feet and had a passenger capacity of
500 people. The M/V Palm Beach Princess is considerably  larger at 420 feet with
a  passenger  capacity of 850 people.  The  Horizon  Edge  operated on a similar
schedule as the Palm Beach  Princess,  that is, two five hour cruises per day, 7
days a week, however,  due to its smaller size it canceled more cruises than the
Palm Beach Princess for inclement  weather.  From June,  2002 until February 15,
2003,  the coastal  gaming vessel Texas  Treasure II (formerly the M/V Contessa)
was operating from the Port of Palm Beach in competition with the M/V Palm Beach
Princess.  This vessel is  approximately  400 feet,  was built in 1968 and has a
passenger  capacity  of  approximately  700 people.  This vessel had  previously
operated in competition  with the Palm Beach Princess from May 13, 1999 until it
discontinued operations on May 15, 2000. We may compete with other vessels which
may from time to time be located  in the port on the basis of cruise  schedules,
passenger  services,  amenities,  prices,  and  percentages  of gaming win.  Our
agreement with the Port of Palm Beach District (see Item 2 - Properties,  below)
gives us a competitive  advantage as to preferred  cruise  scheduling  times and
convenience  of passenger  parking areas.  A 300 passenger  high-speed  ferry is
scheduled  to begin  carrying  passengers  late in 2004 on daily  round trips to
Freeport, Grand Bahamas where gaming is conducted.

     There is no  assurance  that  other  competing  vessels  will not enter the
gaming  business at

                                       12
<PAGE>

the existing Port of Palm Beach, at a new and larger port facility in Palm Beach
or at another port facility in the future. As a practical matter, however, owing
to our operating and dockage  agreements with the Port of Palm Beach and City of
Riviera Beach and dock  limitations,  it will be difficult for competing vessels
to enter service at the Port of Palm Beach or the Riviera Beach City Marina.

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

     A referendum  proposal  will appear on Florida  ballots in  November,  2004
which,  if enacted  by a  majority  of voters  statewide,  will amend  Florida's
Constitution  to permit  Miami-Dade and Broward  Counties  subsequently  to hold
county-wide  referendums  on whether to authorize  slot machines at  pari-mutuel
facilities in those counties.

     Weather and Seasonal Fluctuations

     The success of our casino cruise business depends to significant  extent on
the weather conditions. In particular,  inclement weather, or the threat of such
weather,  has  a  direct  effect  on  passenger  counts,  potentially  adversely
affecting  our  revenues.  On  relatively  rare  occasions,  bad  weather or sea
conditions  may result in the  cancellation  of  cruises.  Our  business is also
subject to seasonal  fluctuations.  Our peak seasons are the late fall,  winter,
and early  spring  seasons  due to the  increased  local  population  as well as
increased  tourist  populations.   Subsequent  to  June  30,  2004,  four  major
hurricanes  severly impacted the State of Florida,  two of which directly struck
the Palm Beach area between August 13, 2004 and September 26, 2004.  During that
period, tourist travel to our area was adversely effected and the lives of local
residences were significantly  disrupted.  We cancelled 29 cruises since August,
2004 as a result of the weather, loss of utilities and damage to the surrounding
areas.

     Federal and State Regulations - Florida

     The effect of  amendments  in 1994 to the Federal  Gambling Ship Act and in
1992 to the  Federal  Johnson  Act was to  repeal  the prior  prohibition  under
Federal law of gambling  aboard  ships  performing  coastal  voyages  beyond the
jurisdiction  of state  territorial  waters  (three  miles on the United  States
Atlantic  coast),  and to permit  individual  states to enact laws regulating or
prohibiting  gambling aboard ships performing coastal voyages from ports located
in such states.  From time to time in prior years, bills have been introduced in
the Florida legislature which, if enacted, would prohibit coastal gaming cruises
from  Florida  ports.  No such  bills  have  been  enacted  and no such  bill is
currently pending.  There is a risk that the State of Florida may at some future
date regulate or prohibit the coastal cruise gaming business.  In addition,  the
Federal  government  could  determine to enact  regulations  or  prohibition  of
coastal gaming cruises.

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

                                       13
<PAGE>

newspaper, circular, poster, pamphlet, radio, telegraph, telephone or otherwise.
There can be no assurance that such bills will not be reintroduced or enacted in
the future.  There has also been  litigation  instituted in the State of Florida
against gaming cruise operators for allegedly  causing a public nuisance.  There
can be no assurance that further litigation will not be instituted in the future
which, if successful, could adversely affect the industry in which we operate.

Item 2. Properties.

     We lease office space in Wilmington, Delaware which serves as our corporate
headquarters. This lease is for one year and is renewable from year to year. Our
subsidiary,  ITB Management,  Inc.,  leases  approximately  4,000 square feet of
office   space  in  Bellmawr,   New  Jersey   which  serves  as  an   additional
administrative  office. The lease is for a two year period,  expiring on May 31,
2006,  and provides for an option to extend such term for an additional two year
period  commencing  June 1,  2006.  We also  lease,  on a month to month  basis,
approximately  200 square feet of office  space in Toms River,  New Jersey which
serves as a satellite executive office.

     Through our subsidiary,  ITG Vegas, Inc. ("ITG Vegas"),  we have negotiated
with the Port of Palm Beach  District  a new  operating  agreement  and lease of
space in a new office complex  constructed at the Port of Palm Beach adjacent to
a new cruise terminal  effective,  as modified,  on May 5, 2003. The term of the
initial lease is five years at $183,200 per year payable  monthly.  We were also
required to make  tenant  improvements  to the new space in a minimum  amount of
$333,000,  however the actual cost to make the  improvements  was  approximately
$950,000.  We will  have the  right to a credit  of up to a  minimum  amount  of
improvements required of $333,000 of construction costs against the initial term
of our five year lease.

     On August 6, 2004 we amended  the Lease and  Operating  Agreement  with the
Port of Palm Beach in order to permit our  construction  of a passenger  gangway
system  and  destination  signage on Port  property  and our  refurbishment  and
upgrading of the  passenger  cruise  terminal  facilities,  which  measures,  we
believe,  will enhance our ability to promote and market our cruise services. We
will  receive a  wharfage  credit  from the Port of Palm  Beach in the amount of
$75,000 with respect to our construction of the gangway. In addition,  we agreed
to pay the Port of Palm Beach $.50 per vehicle  parked in the passenger  parking
lot at the Port, for a minimum period of six months beyond the  commencement  of
cruise services at the Port of Palm Beach by the Empress II.

     Through our subsidiary,  Royal Star  Entertainment  LLC, we have negotiated
with the Port of Palm Beach District a second Operating Agreement dated December
18, 2003, as subsequently  amended.  This Operating  Agreement will permit us to
operate  the Empress II in  passenger  service  from the Cruise  Terminal at the
Port, with certain berthing and scheduling priorities.  The initial term of this
Operating  Agreement is five years from the date of  commencement of sailings by
the Empress II from the Port, with subsequent  renewal options of four and three
years.  We are required to commence  sailings on or before March 1, 2005.  Under
this Operating Agreement, we have agreed to compensate the Port of Palm Beach as
follows:

     1. From September 1, 2004 through the commencement of sailings,  dockage at
     the rate of $1.00 per foot of  overall  length  per day,  plus  $7,192  for
     accrued dockage from prior periods;

     2. From September 1, 2004 through the commencement of sailings, wharfage at
     the monthly rate of $14,000;

     3. After the  commencement  of  sailings,  dockage at the rate of $1.00 per
     foot of overall

                                       14
<PAGE>


     length per day for six months, and thereafter at the rate of $1.85 per foot
     per day;

     4. After the  commencement  of sailings,  wharfage at the rate of $3.50 per
     passenger for the first 100,000  passengers  per year,  $3.00 per passenger
     for the next 50,000  passengers per year, and $2.50 per passenger for those
     in excess of 150,000 per year; and

     5.  Commencing six months after the  commencement  of sailings,  a terminal
     operating fee of $.75 per passenger for the first 80,000  passengers during
     the first  year;  thereafter,  $1.00  per  passenger  for the first  80,000
     passengers per year, $.50 per passenger for the next 70,000 passengers, and
     $.25 per passenger for those in excess of 150,000 per year.

     Through our subsidiary Riviera Beach  Entertainment LLC, we have negotiated
with the City of Riviera Beach, Florida a Dockage Space Agreement dated February
27, 2004,  which permits us dockage at the 160 foot main dock at the City Marina
located north of the Port of Palm Beach. While the Agreement does not permit us,
absent further agreement with the City, to operate a day cruise gaming ship from
the dock,  it prohibits  the City from allowing the dock to be used by any other
day cruise gaming  operator.  The term of this Agreement is through February 28,
2005,  subject to renewal at the discretion of the City. The Agreement  provides
for our  payment to the City of  dockage  and other fees  totaling  $11,000  per
month.

Item 3. Legal Proceedings.

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

     Our  subsidiary,  ITG  Vegas,  Inc.,  successor  by  merger  to Palm  Beach
Princess, Inc., initiated proceedings under Chapter 11 of the Bankruptcy Code on
January 3, 2003 (See Item 1 under this  section and Footnote 2). That Chapter 11
case was closed on July 17, 2004.

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

     We did not submit  any  matters to a vote of  security  holders  during the
fourth quarter of fiscal year 2004.

                                       15
<PAGE>

                                     PART II


Item 5. Market for the Registrant's  Common Equity,  Related Stockholder Matters
        and Issuer Purchases of Equity Securities

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

                                                  High   Low
                                                  ----   ---
         2003
                        First Quarter             .45    .16
                        Second Quarter            .21    .16
                        Third Quarter             .18    .14
                        Fourth Quarter            .28    .15
         2004
                        First Quarter             .54    .25
                        Second Quarter           1.48    .20
                        Third Quarter            1.97   1.03
                        Fourth Quarter           1.80   1.50

     On June 30, 2004, there were approximately  30,000 holders of record of the
shares of our outstanding common stock.

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

     There were no sales of  unregistered  securities made by the Company within
the fiscal year ended June 30, 2004.

     There were no  purchases  of Common  Stock made by the  Company  during the
fourth quarter of fiscal year 2004.

                                       16
<PAGE>

Item 6 - SELECTED FINANCIAL DATA

                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES
<TABLE>
                                                                           Years Ended June 30,
                                               ---------------------------------------------------------------------------
                                                    2004           2003            2002           2001           2000
                                               -------------   ------------    ------------   ------------   -------------
<CAPTION>
<S>                                          <C>             <C>             <C>            <C>            <C>
Revenues From Operations (1)                 $   32,962,239  $  32,290,599   $  25,473,777  $   4,921,091  $      446,588

Net Income Before Loss on Impairment (1)(4)  $    3,199,970  $   5,233,826   $   1,982,603  $  (2,402,142) $   (6,980,831)

(Loss) on Impairment of Note (2)             $  (10,000,000) $           0   $           0  $           0  $            0

Net Income (Loss)                            $   (6,800,030) $   5,233,826   $   1,982,603  $  (2,402,142) $   (6,980,831)

Per Common Share - Basic and Diluted:

Net Income (Loss) Before Impairment          $         0.40  $        0.54   $        0.17  $       (0.24) $        (0.78)

Net Income (Loss)                            $        (0.86) $        0.54   $        0.17  $       (0.24) $        (0.78)

Weighted Average Number of Shares                 7,933,691      9,720,275      11,480,272      9,987,114       8,980,244
</TABLE>

<TABLE>
                                                                                June 30,
                                               ---------------------------------------------------------------------------
                                                    2004           2003            2002           2001            2000
                                               -------------   ------------    ------------   ------------   -------------
<CAPTION>
<S>                                          <C>             <C>             <C>            <C>            <C>
Working Capital (Deficiency) (3)             $      556,675  $    (428,412)  $  (2,200,346) $    (190,644) $  (17,792,740)

Total Assets                                 $   50,813,716  $  54,822,023   $  45,928,295  $  41,391,208  $   58,166,739

Long-Term Debt                               $    6,339,396  $     985,017   $           0  $     482,000  $      482,000

Stockholders' Equity                         $   30,566,037  $  37,586,067   $  33,961,313  $  31,973,710  $   33,870,852

</TABLE>

(1)  The Company  commenced  operation of a casino cruise vessel as of April 30,
     2001  which  materially  affects  the  comparability  of a  portion  of the
     information reflected in the above data.
(2)  The Company  recognized an impairment  loss in Fiscal 2004 in the amount of
     $10 million which materially  affects the comparability of a portion of the
     information reflected in the above data.
(3)  The working  capital  presentation  in Fiscal 2002 reclassed to long term a
     $750,000 deposit that was previously presented as current in Fiscal 2001.
(4)  The Company did not pay cash dividends during any of the fiscal years shown
     above.

(5)  See  Management's  Discussion  and  Analysis of  Financial  Conditions  and
     Results of Operations  and the  consolidated  financial  statements and the
     notes thereto for additional information for each of the three years in the
     period ended June 30,2004.

                                       17

<PAGE>

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

Forward-Looking Statements

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

     o    general  economic  and  business  conditions   affecting  the  tourism
          business in Florida;
     o    competition;
     o    execution of our new business strategy;
     o    changes in laws regulating the gaming industry;
     o    fluctuations  in quarterly  operating  results as a result of seasonal
          and weather considerations;
     o    events  directly or  indirectly  relating to our business  causing our
          stock price to be volatile; and
     o    delays or cost-overruns in connection with  refurbishing and refitting
          a second vessel which we plan to place in service.

Liquidity and Capital Resources

     During  fiscal 2004,  our operating  subsidiary's  Chapter 11 case severely
limited our ability to make timely  payments of obligations  owing by our parent
company to its corporate vendors and other creditors,  including its CEO, which,
in turn,  continued to affect the parent company's  ability to procure goods and
services from third parties.  On September 12, 2003, the Bankruptcy Court issued
an order confirming the Amended Joint Chapter 11 Plan of  Reorganization  in the
Chapter 11 case of our  operating  subsidiary,  ITG Vegas,  Inc. The Plan became
effective  October 15, 2003.  See Item 1 of this Report for details of the Plan.
The Plan limited  distributions by ITG Vegas to $100,000 per month to the parent
company.

     As a result of the parent  company's cash flow shortage,  in February 2004,
we  committed  to sell  our Las  Vegas  Note,  payable  by  Turnberry/Las  Vegas
Boulevard,  LLC in the original principal amount of $23 million, to an affiliate
of  Turnberry.  We received an initial  payment of $1.4 million and a $5 million
non-recourse  loan on account of such sale in February,  2004, and an additional
$1.4  million  at  closing  of the sale in June  2004.  Also,  during  the third
quarter,  Turnberry paid $466,363 in full payment of another obligation which it
had owed to us.  Such cash was used by us to pay down a  significant  portion of
the outstanding  debts of our parent company and other  subsidiaries  outside of
the Chapter 11 case.

     Operating  revenues of ITG Vegas,  derived  from its Palm Beach Casino Line
business,  were  sufficient  to pay  its  operating  expenses  and to  meet  its
obligations  for  payments of debts  under its  Chapter 11 Plan.  As of June 30,
2004, all pre-petition non-insider  (non-affiliate),  non-insured unsecured debt
of ITG Vegas  had been  paid in full and our  principal  creditor,  the  Brennan
Trustee,  was to receive payment under the Plan over three years from October of
2003,  in monthly  payments of $400,000  and  additional  sums as Stay Bonus and
Forbearance Fee, as well as prepayments  equal to 75% of Free Cash Flow from the
operations of Palm Beach Casino Line, as more fully  described in Item 1 of this
Report under the caption "2003 Chapter 11 Case". As of June 30, 2004, our parent

                                       18
<PAGE>

company had  approximately  $3.2 million in cash  remaining from the sale of the
Las Vegas Note.  However,  the  majority  of these funds were then  subsequently
placed in an account for the  improvements  to be made to the Empress II as part
of the PDS  Transaction  and the Company does not have any other source of funds
beyond the amounts permitted to be distributed to it by ITG  Vegas.($100,000 per
month as of June 30, 2004; See Discussion of PDS  Transaction  for post- June 30
changes)  The timing and amount of payments on  obligations  owing to the parent
company at June 30, 2004,  comprised primarily of the First Cherry Hill Note and
the Second Cherry Hill Note, remain unpredictable.

     The following  table sets forth,  at June 30, 2004,  amounts of contractual
obligations becoming due over the periods indicated:

<TABLE>
                                                         Year Ended June 30,
                             ----------------------------------------------------------------
                                                                                                 There-
                                 2005           2006            2007        2008       2009      after          Total
                             ------------   -------------   ---------   ----------  ----------  ---------   --------------
<CAPTION>
<S>                         <C>            <C>            <C>         <C>          <C>         <C>         <C>
Notes and Mortgages:
         Principal          $  4,679,973   $   4,095,827  $      -0-  $       -0-  $      -0-  $     -0-   $    8,775,800
          Interest               782,128         242,798         -0-          -0-         -0-        -0-        1,024,926
Deferred Interest Payments       600,000         600,000     600,000      600,000     450,000        -0-        2,850,000
Employee Contracts               722,884         327,035         -0-          -0-         -0-        -0-        1,049,919
Operating Leases                 554,777         333,144     127,163       97,169         -0-        -0-        1,112,252
Purchase Obligations             399,988          61,465      61,006       61,006      61,006    269,441          913,911
Other Long-Term Debt                 -0-         285,649         -0-          -0-         -0-        -0-          285,649
                             ------------   -------------   ---------   ----------  ----------  ---------   --------------
Total                       $  7,739,750   $   5,945,918  $  788,168  $   758,175  $  511,006  $ 269,441   $   16,012,459
                             ============   =============   =========   ==========  ==========  =========   ==============
</TABLE>

     We are in default on payment of our  indebtedness to Service America in the
principal  amount  of  $160,000,  plus  interest  accrued  of  $20,400.  We  are
attempting  to  negotiate  new terms for  payment  of this  obligation,  but the
creditor may bring an action to collect this debt.

     ITG Vegas's cash flow from operations of the vessel is seasonal. The period
July 1 to December 31 is a  seasonably  slow period for vessel  operations.  The
period from  January 1 to June 30 has been a period of  increased  activity  and
profits  for the  Palm  Beach  Casino  Line  operation.  Certain  of ITG  Vegas'
operating  costs,  including  charter fees payable to the vessel's  owner,  fuel
costs and wages,  are fixed and cannot be reduced when passage  loads  decrease.
ITG Vegas is  scheduled to place the Palm Beach  Princess in wet dock  beginning
early in January  2005.  During the period of wet dock, it is  anticipated  that
approximately  10 cruises will be lost and that  approximately  $150,000 will be
spent on routine  maintenance  items.  However,  the extent and costs of repairs
required to be done  during the wet dock  cannot  accurately  be  determined  in
advance.

                                       19
<PAGE>

     On July 7, 2004,  we closed on new  financing  with PDS  Corporation,  Palm
Beach Maritime Corporation and Palm Beach Empress, Inc., as more fully described
in Item 1 of this Report, and we prepaid in full all indebtedness to the Brennan
Trustee. The following table sets forth our contractual obligations becoming due
on a pro forma basis, as of June 30, 2004,  giving effect to the PDS Transaction
had it been closed by June 30, 2004.

<TABLE>
                                                         Year Ended June 30,
                             ----------------------------------------------------------------------
                                                                                                       There-
                                 2005           2006             2007         2008          2009        after         Total
                             ------------   -------------    ------------  -----------   -----------  ----------   -------------
<CAPTION>
<S>                        <C>            <C>             <C>             <C>          <C>           <C>     <C>  <C>
Capital Leases             $   3,134,340  $    6,761,586  $    6,761,586  $ 6,761,586  $  6,761,586  $      -0-   $  30,180,686
Charter Hire Fees              2,062,500       2,250,000       2,250,000    2,250,000     2,250,000     187,500      11,250,000
Vessel Improvements            6,000,000             -0-             -0-          -0-           -0-         -0-       6,000,000
Notes and Mortgages:
   Principal                     712,821             -0-             -0-          -0-           -0-         -0-         712,821
   Interest                       20,966             -0-             -0-          -0-           -0-         -0-          20,966
Deferred Interest Payments       600,000         600,000         600,000      600,000       450,000         -0-       2,850,000
Employee Contracts               722,884         327,035             -0-          -0-           -0-         -0-       1,049,919
Operating Leases:
   Casino Equipment              795,061       1,362,147       1,362,147          -0-           -0-         -0-       3,519,355
   Administrative & Office       554,777         333,144         127,163       97,169           -0-         -0-       1,112,252
Purchase Obligations             399,988          61,465          61,006       61,006        61,006     269,441         913,911
Other Long-Term Debt                 -0-         285,649             -0-          -0-           -0-         -0-         285,649
                             ------------   -------------    ------------  -----------   -----------  ----------   -------------
Total                      $  15,003,337  $   11,981,026  $   11,161,904  $ 9,769,761  $  9,522,592  $  456,941   $   57,895,559
                             ============   =============    ============  ===========   ===========  ==========   =============
</TABLE>

     The PDS Transaction  involved,  among other things, our chartering a second
vessel,  the  Empress  II.  We  have  committed   $2,880,652  towards  costs  of
refurbishing and  retrofitting the Empress II vessel.  Start up costs associated
with  refurbishing  and  retrofitting  the  Empress II vessel and  placing it in
service  (including  marketing  expenses and other soft costs),  are expected to
amount to approximately  $10 million,  $6 million of which has been provided for
by  means  of an  escrow  of our  $2,880,652  payment  and  proceeds  of the PDS
Transactions.  Additional amounts necessary to begin operation of the Empress II
vessel  are  expected  to be  provided  from  working  capital  of our ITG Vegas
subsidiary. ITG Vegas' ability to generate sufficient working capital with which
to pay such  costs may be  adversely  affected  by delays  or cost  overruns  in
connection with refurbishing and refitting the Empress II and by weather related
and other  uncertainties  affecting  its  operations.  As indicated by the above
table, our debt service  requirements have increased  significantly with the PDS
financing  due to the  increase  in  amounts  of debt and  rates  involved.  The
increase in the amount is attributed in part to the  arrangement for procurement
and refurbishment for a second vessel, the Empress II. We are dependent upon the
expected  additional  revenue from the  operations of the second vessel to cover
the increased financing costs.

     The four hurricanes which have impacted Florida during the six weeks ending
September 30, 2004 have adversely affected our Palm Beach Casino Line operations
during the first quarter of Fiscal 2005, and may adversely  affect our liquidity
in subsequent  quarters of Fiscal 2005, since we are dependent on cash flow from
those operations for any unforeseen or additional working capital needs.

     Outlook:

     Based on our historical  level of operations we believe that cash generated
from  operations  will  be  adequate  to  meet  our  anticipated   debt  service
requirements,  capital expenditures and working capital needs. No assurances can
be given,  however,  that our business will generate  sufficient  cash flow from
operations or that future  borrowings  will be available to enable us to service
our lease/purchase payments,

                                       20
<PAGE>

or to make anticipated capital  expenditures.  Our future operating  performance
and our  ability  to  service  our  debt  will be  subject  to  future  economic
conditions  and to  financial,  business  and other  factors,  many of which are
beyond our control.  For Fiscal 2005 results could be impacted for the following
reasons.

     During  the  first  quarter  of  Fiscal  2005 our  operating  business  was
adversely affected by four hurricanes passing over or near Florida.  We suffered
materially  from the direct  effects of  hurricanes  "Frances" and "Jeanne" that
left the area without  power,  resulting in curfews and limited food,  water and
life resources.  These two storms caused the evacuation of the population in our
area,  and the four  storms  further  affected  tourism  in the  area,  severely
reducing our pool of potential  passengers,  both local  residents and tourists.
Our daily  cruises were  cancelled  during the period of time that the hurricane
threatened the area and for short periods after.  Our first quarter results will
be negatively impacted because of the weather conditions and loss of cruises.

     On July 7, 2004 we paid off the Brennan  Trustee and entered into long term
subcharters in connection  with capital lease  transactions  for two vessels and
equipment.  As a result of these  transactions,  capital lease payments are at a
higher rate of interest  (15.3% to 16.54%) than the interest that was being paid
to the Brennan Trustee (12%).  Additionally  the debt  outstanding has increased
significantly.  Therefore our  subcharter  payments  predicated on capital lease
interest payments will be significantly  higher than the payments to the Brennan
Trustee would have been.

     Effective  July 7, 2004 we began leasing a second  vessel,  the Empress II.
The ship will need to be  refurbished  and  refitted  for use as an ocean  going
casino  cruise ship and is  expected to be placed in service in January  2005 in
time for the  beginning of our peak season.  We will continue to incur costs for
the vessel while it is being refitted.  We anticipate  operating the vessel from
the same port as the Palm Beach Princess.  It is possible that  competition from
each vessel will have an adverse effect on the combined  operations of the other
vessel.

Results of Operations for the Years Ended June 30, 2004 and 2003

     Overall

     During the year ended June 30, 2004,  the Company  reported a net (loss) of
($6,800,030)  or a (loss)  per share of ($0.86)  as  compared  to income for the
prior year of  $5,233,826  or income per share of $0.54.  During that year,  the
Company  recorded an impairment  loss in the amount of $10 million on a new note
receivable  on the Cherry Hill  property  (the Second Cherry Hill Note) taken in
exchange,  together with cash, for the sale of its note  receivable  held in the
original  amount of $23 million on the El Rancho  property.  Operationally,  the
Company's net income,  before the impairment loss, was $3,199,970 as compared to
net income for the prior year of $5,233,826, a decrease of $2,033,856.

     Operating  revenues  for the  fiscal  year ended  June 30,  2004  increased
approximately  5%, however,  total expenses before the impairment loss increased
approximately 13% due primarily to an increase in interest expense, primarily in
connection  with  interest  paid on a note for the purchase of the ship mortgage
and the purchase of treasury  stock  controlled by the Chapter 11 Trustee of the
Bankruptcy  Estate of Robert E.  Brennan.  There  were also  increased  costs of
gaming and fare expenses aboard the ship due to higher  passenger  counts and an
increase in the costs of operating the vessel.  Corporate  development costs and
amortization of leasehold improvements also increased  substantially  reflecting
the  Company's  search for  additional  business  opportunities  and  reflecting
additional improvements made to our shore facilities and aboard the ship.

                                       21
<PAGE>

     Vessel Operations for the Years Ended June 30, 2004 and 2003

  During the year ended June 30, 2004, total revenue from vessel  operations was
$32,601,396 as compared to $31,080,921 for the year ended June 30, 2003.  Gaming
revenue  increased   $1,173,701  or  4%  from  $26,354,930  in  Fiscal  2003  to
$27,528,631 in Fiscal 2004 primarily as a result of an increase in the passenger
count of 4%, and an  increase  in the number of  cruises  during the  comparable
periods.  Revenue per passenger increased slightly from $118.47 to $118.87.  Net
fare and on board income increased  $346,774 or 7% primarily  associated with an
increase in passenger  counts.  Casino  operating  expenses  which also includes
food, beverage and entertainment  expenses increased $916,017 from $7,889,140 or
30% of casino  revenue in Fiscal 2003 to $8,805,156 or 32% of casino  revenue in
Fiscal  2004  primarily  the  result of the  increased  passenger  count and the
increased number of cruises during the comparable periods.  Sales, marketing and
advertising  expenses  increased  $374,297 or 12% primarily  associated with the
increased  fare  revenue.  On board  gift  shop,  catering  and  cabin  expenses
increased  $76,958  from  $849,022 in Fiscal  2003 to  $925,980 in Fiscal  2004.
Maritime  and  maintenance  costs to operate the ship  increased  $836,065  from
$5,960,421 in Fiscal 2003 to $6,796,486 in Fiscal 2004  primarily as a result of
increases in the amortization of the dry dock maintenance  expense  performed in
Fiscal  2004  and  our  overall  increase  in  operating   costs.   Finance  and
administrative  expenses  decreased  $389,247 or 7% in Fiscal 2004 primarily the
result of a decrease in costs of $440,810  associated  with the Chapter 11 case.
Depreciation  and  amortization  expenses  increased  $488,215  from $234,499 in
Fiscal 2003 to $722,714 in Fiscal 2004 due primarily to the  amortization of the
leasehold  improvements made to our offices.  Total expenses before income taxes
for the comparable  periods increased  $2,302,305 or 9% from $23,742,058 for the
year  ended  June 30,  2003 to  $26,044,363  for the year  ended  June 30,  2004
primarily as a result of the increase in the number of passengers and the number
of cruises which  increased  operating  costs,  increases in sales and marketing
expenses  associated with increased  passenger counts.  Income before taxes from
operation  of the  vessel for the year ended  June 30,  2004 was  $6,557,033  as
compared to $7,338,863  for the year ended June 30, 2003. The ship completed 702
cruises as compared to 709 cruises  during the  corresponding  period last year.
During the year  ended  June 30,  2004 the vessel was placed in wet dock for six
(6) days.

                                       22
<PAGE>

The following is a comparative  summary of income and expenses of the Palm Beach
Princess operation for the years ended June 30, 2004 and 2003:

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

              Description                    2004         2003        Change
---- ----------------------------------  ------------  ------------   ---------
Passenger Count                              274,266       262,346       11,920
Number of Cruises                                702           709           (7)

Operating Revenue:

     Gaming                             $ 27,528,631  $ 26,354,930  $ 1,173,701

     Fare                                  7,860,536     7,676,510      184,026

     On Board                              3,666,320     3,280,563      385,757

     Less: Promotional Allowances

     Fare                                 (4,709,354)   (4,724,444)      15,090

     On Board                             (1,744,737)   (1,506,638)    (238,099)
                                         ------------  ------------   ----------
     Net Operating Revenue                32,601,396    31,080,921    1,520,475
                                         ------------  ------------   ----------

Operating Costs and Expenses:

     Gaming                                8,805,157     7,889,140      916,017

     Fare                                  3,546,153     3,171,856      374,297

     On Board                                925,980       849,022       76,958

     Maritime and Legal Expenses           6,796,486     5,960,421      836,065

     General and Administrative            3,738,114     3,732,126        5,988
     Expenses

     Interest and Financing Fees           1,109,221     1,063,646       45,575

     Professional Fees - Bankruptcy          400,538       841,348     (440,810)

     Depreciation and Amortization           722,714       234,499      488,215
                                         ------------  ------------   ----------
     Total Operating Costs and Expenses   26,044,363    23,742,058    2,302,305
                                         ------------  ------------   ----------
       Income Before Income Tax Expense $  6,557,033  $  7,338,863  $  (781,830)
                                         ============  ============   ==========


     Vessel Operations for the Three Months Ended June 30, 2004 and 2003

     During the three months ended June 30, 2004,  total net revenue from vessel
operations  was  $8,415,074 as compared to $9,170,327 for the three months ended
June 30,  2003.  The  decrease  in revenue  of  $755,253  during the  comparable
quarters  primarily  resulted from a decrease in casino gaming revenue primarily
the result of a decrease in table revenue of approximately 16% and a decrease in
slot machine income of approximately 8% during the comparable periods.  Net fare
and on board  income  increased  $6,368 as a result of the  increased  passenger
count of 2%. Casino  operating  expenses which also includes food,  beverage and
entertainment  increased $207,761 from $2,109,205 or 27% of gross casino revenue
in Fiscal 2003 to  $2,316,966  or 33% of gross  casino  revenue in Fiscal  2004.
Maritime and legal costs to operate the ship increased  $232,500 from $1,513,867
in Fiscal 2003 to $1,746,367 in Fiscal 2004. Expenses incurred in the Chapter 11
proceeding  decreased $529,438 as a result of our plan of re-organization  being
approved on September 12, 2003.  Interest and financing fees increased  $399,483
as a  result  of the  forbearance  fees on the  Trustee  Note  being  recognized
effective  October 15,  2003.  Income  before  state  income tax expense for the
fourth  quarter of  operation  in Fiscal  2004 was  $1,231,842  as  compared  to
$2,611,349  in the  comparable  quarter of Fiscal 2003, a decrease of $1,379,508
for the comparable quarters.

                                       23
<PAGE>

The following is a comparative summary of income and expenses of the Palm Beach
Princess operation for the three months ended June 30, 2004 and 2003:

                                             Three Months Ended
                                                   June 30,
                                         ---------------------------------------

              Description                    2004          2003         Change
---- ----------------------------------  ------------    ----------  -----------
Passenger Count                               73,741        71,959        1,782
Number of Cruises                                182           182            0

Operating Revenue:

     Gaming                             $  7,095,835   $ 7,857,455  $  (761,620)

     Fare                                  2,083,435     2,077,412        6,023

     On Board                              1,031,555       946,831       84,724

     Less: Promotional Allowances

     Fare                                 (1,290,525)    1,243,497)     (47,028)

     On Board                               (505,226)     (467,874)     (37,352)
                                         ------------    ----------  -----------

     Net Operating Revenue                 8,415,074     9,170,327    (755,253)
                                         ------------    ----------  -----------

Operating Costs and Expenses:

     Gaming                                2,316,966     2,109,205      207,761

     Fare                                  1,018,526       788,895      229,631

     On Board                                236,773       231,210        5,563

     Maritime and Legal Expenses           1,746,367     1,513,867      232,500

     General and Administrative              934,462       990,835     (56,373)
     Expenses

     Interest and Financing Fees             696,585       297,102      399,483

     Professional Fees - Bankruptcy           11,780       541,218     (529,438)

     Depreciation and Amortization           221,774        86,646      135,128
                                         ------------    ----------  -----------

     Total Operating Costs and Expenses    7,183,233     6,558,978      624,255
                                         ------------    ----------  -----------

       Income Before Income Tax Expense $  1,231,841   $ 2,611,349  $(1,379,508)
                                         ============    ==========  ===========

Results of Operations for the Years Ended June 30, 2003 and 2002

     Overall

     Revenue  for the  year  ended  June  30,  2003  increased  $5,816,822  from
$25,473,777  in Fiscal 2002 to  $31,290,599 in Fiscal 2003 primarily as a result
of increased  gaming  revenues  generated by the Palm Beach Princess  operations
during the comparable  periods.  Operating  expenses  increased  $1,429,392 from
23,626,965 in Fiscal 2002 to  $25,056,357 in Fiscal 2003 primarily the result of
an increase in Palm Beach Princess operating costs during the comparable periods
and costs in the  amount of  $841,348  associated  with the  bankruptcy  filing,
partially offset by a decrease in development  costs and a decrease in corporate
general and administrative  expenses during the comparable periods. With respect
to Other Income (Expense),  interest expense increased  primarily as a result of
increased financing costs incurred during Fiscal 2003 primarily  associated with
extension  fees  charged by the Brennan  Trustee in the 1st and 2nd  quarters of
Fiscal  2003and  interest  charges in the 3rd and 4th  quarter of Fiscal 2003 in
connection with our liabilities to the Brennan Trustee.

     During the year ended June 30, 2003,  our net income was $5,233,826 or $.54
per share on weighted average outstanding shares of 9,720,275 as compared to net
income for the comparable period in prior fiscal year of $1,982,603 or $0.17 per
share on  weighted  average  outstanding  shares of  11,480,272.  The  change of
$3,251,223  was primarily  the result of the increased  revenues and expenses as
discussed above.

                                       24
<PAGE>

Vessel Operations for the Years Ended June 30, 2003 and 2002

     During the year ended June 30, 2003,  total revenue from vessel  operations
was  $31,080,921  as compared to  $25,473,777  for the year ended June 30, 2002.
Gaming revenue  increased  $5,792,173 or 28% from  $20,562,757 in Fiscal 2002 to
$26,354,930 in Fiscal 2003 primarily as a result of an increase in the passenger
count,  an increase  in the average  revenue  amount by each  passenger,  and an
increase in the number of cruises during the comparable periods. Net fare and on
board income  decreased  $185,028 or 4% primarily  associated  with  competitive
pricing  related to the ship  competing with another gaming vessel for a portion
of  operations in Fiscal 2003.  Casino  operating  expenses  which also includes
food, beverage and entertainment  expenses increased $741,839 from $7,147,301 or
35% of casino  revenue in Fiscal 2002 to $7,889,140 or 30% of casino  revenue in
Fiscal  2003  primarily  the  result of the  increased  passenger  count and the
increased number of cruises during the comparable periods.  Sales, marketing and
advertising  expenses increased $237,373 or 8% from $2,934,483 in Fiscal 2002 to
$3,171,856 in Fiscal 2003 primarily  associated  with the increased  competition
discussed  above.  On board gift shop,  catering  and cabin  expenses  decreased
$22,871 from  $871,893 in Fiscal 2002 to $849,022 in Fiscal  2003.  Maritime and
maintenance  costs to operate the ship  decreased  $191,229  from  $6,151,650 in
Fiscal  2002 to  $5,960,421  in Fiscal  2003  primarily  as a result of dry dock
maintenance  performed  in the prior  fiscal  year.  Finance and  administrative
expenses  increased  $2,509,998 or 75% in Fiscal 2003  primarily the result of a
$600,000  increase in accrued employee bonus  compensation  costs related to our
full calendar year of operation,  $869,760 in financing fees,  costs of $841,348
associated  with  the  bankruptcy  filing  and a  decrease  in  other  operating
expenses.  Total  expenses  before  income  taxes  for  the  comparable  periods
increased $3,275,111 or 16% from $20,466,948 for the year ended June 30, 2002 to
$23,742,058  for the year  ended  June 30,  2003  primarily  as a result  of the
increase in the number of passengers  and the number of cruises which  increased
operating  costs,  increases in sales and  marketing  expenses  associated  with
competition  and  the  increases  in  finance  and  administrative  expenses  as
discussed  above.  Income before taxes from operation of the vessel for the year
ended June 30, 2003 was  $7,338,863 as compared to $5,006,829 for the year ended
June 30, 2002.  Out of the 711 scheduled  cruises during the year ended June 30,
2003, two (2) were cancelled for weather or mechanical  difficulties as compared
to Fiscal 2002 where out of 710  scheduled  cruises,  thirteen (13) cruises were
cancelled for weather or mechanical difficulties. During the year ended June 30,
2003 the vessel was placed in wet dock for five (5) days, whereas the vessel was
placed in dry dock for six (6) days in fiscal 2002.

                                       25
<PAGE>

The following is a comparative  summary of income and expenses of the Palm Beach
Princess operation for the years ended June 30, 2003 and 2002:

                                                       Years Ended
                                                         June 30,
                                         --------------------------------------
              Description                    2003           2002       Change
---------------------------------        ------------  ------------  ----------
Passenger Count                              262,346       232,803       29,543
Number of Cruises                                709           697           12

Operating Revenue:

     Gaming                             $ 26,354,930  $ 20,562,757  $ 5,792,173

     Fare                                  7,676,510     7,827,892     (151,382)

     On Board                              3,280,563     2,853,438      427,125

     Less: Promotional Allowances

     Fare                                 (4,724,444)   (4,628,503)     (95,941)

     On Board                             (1,506,638)   (1,141,807)    (364,831)
                                         ------------  ------------  -----------
     Net Operating Revenue                31,080,921    25,473,777    5,607,144
                                         ------------  ------------  -----------

Operating Costs and Expenses:

     Gaming                                7,889,140     7,147,301      741,839

     Fare                                  3,171,856     2,934,483      237,373

     On Board                                849,022       871,893      (22,871)

     Maritime and Legal Expenses           5,960,421     6,151,650     (191,229)

     General and Administrative            3,738,126     3,049,318      682,808
     Expenses

     Interest and Financing Fees           1,063,646       193,887      869,759

     Professional Fees - Bankruptcy          841,348             0      841,348

     Depreciation and Amortization           234,499       118,416      116,083
                                         ------------  ------------  -----------
     Total Operating Costs and Expenses   23,742,058    20,466,948    3,275,110
                                         ------------  ------------  -----------
       Income Before Income Tax Expense $  7,338,863  $  5,006,829  $ 2,332,034
                                         ============  ============  ===========

Vessel Operations for the Three Months Ended June 30, 2003 and 2002

     During the three months ended June 30, 2003,  total net revenue from vessel
operations  was  $9,170,327 as compared to $6,643,834 for the three months ended
June 30,  2002.  The  increase in revenue of  $2,526,493  during the  comparable
quarters  primarily resulted from an increase in casino gaming revenue primarily
the result of an increase in the  passenger  count of 12% and an increase in the
average revenue per passenger during the comparable periods of 17%. Net fare and
on board income decreased $19,796 as a result of various promotional activities.
Casino operating  expenses which also includes food,  beverage and entertainment
increased $229,866 from $1,879,339 or 28% of gross casino revenue in Fiscal 2002
to $2,109,205 or 27% of gross casino revenue in Fiscal 2003.  Maritime and legal
costs to operate the ship  decreased  $14,317 from  $1,528,184 in Fiscal 2002 to
$1,513,867  in  Fiscal  2003.  Finance  and  administrative  expenses  increased
$442,589  or 52% in Fiscal 2003  primarily  the result of an increase in accrued
employee  bonus  compensation  costs  related  to  our  full  calendar  year  of
operation,  an increase  in  financing  fees and a decrease  in other  operating
expenses. Costs of $541,218 associated with the bankruptcy filing also increased
expenses.  Income  before  state  income tax  expense  for the forth  quarter of
operation  in Fiscal  2003 was  $2,611,349  as  compared  to  $1,331,711  in the
comparable  quarter of Fiscal 2002, an increase of $1,279,638 for the comparable
quarters.

                                       26
<PAGE>

The following is a comparative  summary of income and expenses of the Palm Beach
Princess operation for the three months ended June 30, 2003 and 2002:

                                                   Three Months Ended
                                                        June 30,
                                          ------------------------------------

              Description                     2003        2002        Change
----------------------------------------  ----------- -----------  -----------

Passenger Count                               71,959      61,338       10,621
Number of Cruises                                182         176            6

Operating Revenue:

     Gaming                              $ 7,857,455 $ 5,311,166  $ 2,546,289

     Fare                                  2,077,412   2,140,410      (62,998)

     On Board                                946,831     771,097      175,734

     Less: Promotional Allowances

     Fare                                 (1,243,497) (1,276,700)      33,203

     On Board                               (467,874)   (302,139)    (165,735)
                                          ----------- -----------  -----------
     Net Operating Revenue                 9,170,327   6,643,834    2,526,493
                                          ----------- -----------  -----------

Operating Costs and Expenses:

     Gaming                                2,109,205   1,879,339      229,866

     Fare                                    788,895     795,071       (6,176)

     On Board                                231,210     208,027       23,183

     Maritime and Legal Expenses           1,513,867   1,528,184      (14,317)

     General and Administrative              990,835     711,529      279,306
     Expenses

     Interest and Financing Fees             297,102     133,819      163,283

     Professional Fees - Bankruptcy          541,218           0      541,218

     Depreciation and Amortization            86,646      56,154       30,492
                                          ----------- -----------  -----------
     Total Operating Costs and Expenses    6,558,978   5,312,123    1,246,855
                                          ----------- -----------  -----------
       Income Before Income Tax Expense  $ 2,611,349 $ 1,331,711  $ 1,279,638
                                          =========== ===========  ===========

Other Information - Risk Factors

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

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

     Substantially  all of our revenues are currently derived from our operation
of the M/V Palm Beach Princess.  Certain of our operating  costs,  including the
charter fee payable to the vessel's owner,  fuel costs and wages,  are fixed and
cannot be reduced  when  passenger  loads  decrease or when rising fuel or labor
costs cannot be fully passed through to customers. Passenger and gaming revenues
earned from the vessel must be high enough to cover such expenses. While we have
generated  sufficient  revenues  from the M/V  Palm  Beach  Princess  to pay its
expenses,  there  is no  guarantee  that we will be able to  continue  to  cover
operating  expenses of that business as well as the new  increased  monthly debt
service and charter payments associated with the PDS Transaction and our failure
to do so could have materially adverse consequences.  (See Item I, Liquidity and
Capital Resources section above)

                                       27
<PAGE>

Revenues from our investments in real estate developments are uncertain.

     We hold two notes,  one in the face  amount of $10  million and a second in
the face amount of  approximately  $35  million,  which we have  written down to
approximately  $4 million  based on estimated  fair value,  payable  solely from
distributable  cash  generated  by the  purchaser's  development  or sale of the
former Garden State Park racetrack in Cherry Hill, New Jersey.  We could receive
less than the face amount of the $10  million  note and less than the book value
of the Second  Cherry  Hill Note.  The times and amounts of all  payments  under
these  notes  are  uncertain  and  depend  entirely  upon the  profitability  of
Turnberry's development (or resale) of the subject real property.

We face competition to our gaming operations.

     We currently  compete with a variety of other  vacation  activities  in and
around Palm Beach,  Florida,  including short-term cruises,  resort attractions,
sporting and other recreational activities.  We also expect competition in other
areas  surrounding  Palm Beach in the future.  Within fifty miles of the Port of
Palm Beach,  there are a number of smaller  marinas that are capable of handling
other coastal gaming  vessels,  although any such vessels  necessarily  would be
substantially smaller than the Palm Beach Princess. Our operations could compete
directly  with  the  other  Palm  Beach  vessels  and in the  future  we  expect
competition  to increase  as new gaming  operators  enter our  market,  existing
competitors  expand  their  operations,  gaming  activities  expand in  existing
jurisdictions and gaming is legalized in new jurisdictions.

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

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

     Under Federal law,  individual states are permitted to regulate or prohibit
coastal gaming. The state of Florida does not currently regulate coastal gaming.
However,  from  time to time in prior  years,  legislation  has been  introduced
which, if enacted, would prohibit the coastal gaming business. There is the risk
that Florida may at some future date regulate the coastal gaming business.  Such
regulation could adversely harm our business.

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

                                       28
<PAGE>

We are subject to non-gaming regulations.

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

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

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

Weather and other conditions could seriously disrupt our operations.

     Our gaming  operations  are  subject  to unique  risks,  including  loss of
service  because of  casualty,  mechanical  failure,  extended or  extraordinary
maintenance  requirements,  flood, hurricane or other severe weather conditions.
Our vessel  faces  additional  risks from its movement and the movement of other
vessels  on  waterways.  Palm  Beach,  Florida  is  subject  to  severe  storms,
hurricanes and occasional flooding.  As a result of such weather conditions,  as
well as the ordinary or extraordinary maintenance requirements of our vessel, if
we are unable to operate our vessel,  our results of operations  will be harmed.
During the first  quarter of Fiscal 2005 our  operating  business was  adversely
affected by four hurricanes passing over or near Florida. We suffered materially
from the direct effects of hurricanes  "Frances" and "Jeanne" that left the area
without power,  resulting in curfews and limited food, water and life resources.
These two storms caused the  evacuation of the  population in our area,  and the
four storms further affected tourism in the area,  severely reducing our pool of
potential passengers,  both local residents and tourists. Our daily cruises were
cancelled during the period of time that the hurricanes  threatened the area and
for short periods thereafter. The loss of our vessel from service for any period
of time has  adversely  effected  and could in the future  adversely  affect our
revenues.

We depend on our management to execute our business plan.

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

                                       29
<PAGE>

We experience quarterly fluctuations in operating results.

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

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

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

Terrorist Attacks of September 11, 2001.

     The  terrorist  attacks  of  September  11,  2001  adversely  impacted  our
operations  and  affected our ability to borrow to  refinance  our debts.  These
attacks as well as any similar  attacks  and/or  future  security  alerts,  both
nationally  and  locally,  could  have a material  adverse  effect on our future
operations.

There may be delays or cost overruns in readying the Empress II.

     We are  committed to  refurbishing,  refitting and placing into service the
Empress  II  vessel,  expected  to cost $10  million  or $4 million in excess of
amounts  escrowed  for  such  purpose.  (See  Item  I,  "Liquidity  and  Capital
Resources.") We are dependent upon operating  revenues to pay such excess costs.
Delays in commencing  Empress II operations will adversely  affect our cash flow
from  operating  results  and cost  overruns  could  jeopardize  our  ability to
complete the necessary work.

Item 7A Quantitative and Qualitative Disclosures about Market Risk.

     Not Applicable

Item 8 Financial Statements and Supplemental Data.


                        INDEX TO FINANCIAL STATEMENTS


                Report of Independent Public Accountants .....31
                Balance Sheets ...............................32
                Statements of Operations .....................34
                Statements of Stockholders' Equity ...........35
                Statements of Cash Flow ......................36

                                       30
<PAGE>

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders of
International Thoroughbred Breeders, Inc.
Wilmington, Delaware


     We  have  audited  the   accompanying   consolidated   balance   sheets  of
International  Thoroughbred Breeders,  Inc. and subsidiaries as of June 30, 2004
and 2003 and the related  consolidated  statements of operations,  stockholders'
equity and cash flows for each of the three years ended June 30, 2004,  2003 and
2002. These  consolidated  financial  statements are the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
consolidated financial statements based on our audit.

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

     In our opinion,  the consolidated  financial  statements  referred to above
present  fairly,   in  all  material   respects,   the  financial   position  of
International  Thoroughbred  Breeders,  Inc. and its subsidiaries as of June 30,
2004 and 2003 and the results of their  operations  and their cash flows for the
three years ended June 30, 2004, 2003 and 2002 in conformity with U.S. generally
accepted accounting principles.



               STOCKTON BATES, LLP



Philadelphia, Pennsylvania
August 20, 2004

                                       31
<PAGE>

                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                          AS OF JUNE 30, 2004 AND 2003

                                     ASSETS


                                                               June 30,
                                                       -------------------------
                                                           2004         2003
                                                       -----------   -----------
CURRENT ASSETS:
     Cash and Cash Equivalents                       $  7,508,632  $  6,123,641
     Accounts Receivable                                  223,411       193,689
     Prepaid Expenses                                     738,504       488,414
     Other Current Assets                                 153,625       390,458
     Assets of Discontinued Operations                    400,835       399,785
                                                       -----------   -----------
     TOTAL CURRENT ASSETS                               9,025,007     7,595,987
                                                       -----------   -----------


PLANT & EQUIPMENT:
     Leasehold Improvements - Port of Palm Beach          944,371       953,110
     Equipment                                          2,186,345     1,278,175
     Vessel Not Placed in Service - Royal Star          1,321,494             0
                                                       -----------   -----------
                                                        4,452,210     2,231,285
     LESS: Accumulated Depreciation and Amortization      916,186       306,494
                                                       -----------   -----------

     TOTAL PLANT & EQUIPMENT - NET                      3,536,024     1,924,791
                                                       -----------   -----------



OTHER ASSETS:
     Notes Receivable                                  14,778,651    33,000,000
     Mortgage Contract Receivable - Related Party      13,750,000             0
     Deposit on Mortgage Contract Receivable                    0     4,000,000
     Deposits and Other Assets - Related Parties        8,410,940     6,687,266
     Deposits and Other Assets - Non-Related Parties      334,975       535,239
     Spare Parts Inventory                                978,119     1,078,740
                                                       -----------   -----------
     TOTAL OTHER ASSETS                                38,252,685    45,301,245
                                                       -----------   -----------


TOTAL ASSETS                                         $ 50,813,716  $ 54,822,023
                                                       ===========   ===========



See Notes to Consolidated Financial Statements.

                                       32
<PAGE>

                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                          AS OF JUNE 30, 2004 AND 2003

                      LIABILITIES AND STOCKHOLDERS' EQUITY


                                                              June 30,
                                                      -------------------------
                                                          2004         2003
                                                      ------------  ----------
CURRENT LIABILITIES:
     Accounts Payable                               $   1,104,721  $  2,264,498
     Accrued Expenses                                   2,169,197     2,341,209
     Short-Term Debt                                    4,186,012     2,934,330
     Deferred Interest - Short-Term                       514,440             0
     Short-Term Debt - Related Parties                    183,164       183,164
     Liabilities of Discontinued Operations               310,798       301,198
                                                      ------------   ----------
     TOTAL CURRENT LIABILITIES                          8,468,332     8,024,399
                                                      ------------   ----------

LONG-TERM LIABILITIES:
     Long-Term Debt - Net of Current Portion            4,095,827             0
     Deferred Interest - Long-Term                      1,957,920             0
     Long-Term Debt - Related Parties                     285,649       985,017
                                                      ------------   ----------
     TOTAL LONG-TERM LIABILITIES                        6,339,396       985,017
                                                      ------------   ----------

DEFERRED INCOME                                         5,439,951     8,226,540

COMMITMENTS AND CONTINGENCIES                               -             -


STOCKHOLDERS' EQUITY:
     Series A Preferred Stock, $100 Par Value,
      Authorized 500,000 Shares, 362,489
      Issued and Outstanding                           36,248,875    36,248,875
     Common Stock, $2 Par Value, Authorized
      25,000,000 Shares, Issued, 11,480,279, and
      Outstanding,7,802,134 and 8,252,133,
      respectively                                     22,960,557    22,960,555
     Capital in Excess of Par                          20,191,982    20,191,984
     (Deficit) (subsequent to June 30, 1993,
     date of quasi-reorganization)                    (46,989,638)  (40,189,608)
                                                      ------------   ----------
                                                       32,411,776    39,211,806
     LESS:
     Treasury Stock, 3,678,146 and 3,228,146
      Shares, respectively, at Cost                    (1,839,073)   (1,614,073)
     Deferred Compensation, Net                            (6,666)      (11,666)
                                                      ------------   ----------
     TOTAL STOCKHOLDERS' EQUITY                        30,566,037    37,586,067
                                                      ------------   ----------


TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY          $  50,813,716  $ 54,822,023
                                                      ============   ==========



See Notes to Consolidated Financial Statements.

                                       33
<PAGE>
                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                FOR THE YEARS ENDED JUNE 30, 2004, 2003 AND 2002




<TABLE>
                                                                   June 30,
                                                 ------------------------------------------
                                                     2004           2003           2002
                                                 ------------   ------------   ------------
<CAPTION>
<S>                                            <C>            <C>            <C>
OPERATING REVENUES:
     Gaming                                    $  27,528,631  $  26,354,929  $  20,562,757
     Fare                                          3,151,182      2,952,066      3,199,389
     On Board                                      1,921,583      1,773,926      1,711,631
     Other                                           360,843        209,678              0
                                                 ------------   ------------   ------------
       NET OPERATING REVENUES                     32,962,239     31,290,599     25,473,777
                                                 ------------   ------------   ------------

OPERATING COSTS AND EXPENSES:
     Gaming                                        8,805,157      7,889,140      7,147,301
     Fare                                          3,868,705      3,381,534      2,934,483
     On Board                                        925,980        849,022        871,893
     Maritime & Legal Expenses                     6,796,486      5,960,421      6,151,650
     General & Administrative Expenses             3,719,601      4,121,811      3,296,116
     General & Administrative Expenses - Parent    1,658,761      1,452,047      2,147,414
     ITG Vegas Bankruptcy Costs                      417,454        841,348              0
     Development Costs                               700,580        306,952        933,814
     Depreciation & Amortization                     739,871        254,082        144,294
                                                 ------------   ------------   ------------
       TOTAL OPERATING COSTS AND EXPENSES         27,632,595     25,056,357     23,626,965
                                                 ------------   ------------   ------------

OPERATING INCOME                                   5,329,644      6,234,242      1,846,812
                                                 ------------   ------------   ------------

OTHER INCOME (EXPENSE):
     (Loss) on Impairment of Note Receivable     (10,000,000)             0              0
     Interest and Financing Expenses              (2,247,992)    (1,338,649)      (306,773)
     Interest Income                                  79,320         81,039        124,789
     Interest Income Related Parties                 247,785        342,226        350,833
     Other Income                                     19,713         60,468        106,192
                                                 ------------   ------------   ------------
       TOTAL OTHER INCOME (EXPENSE)              (11,901,174)      (854,916)       275,041
                                                 ------------   ------------   ------------


INCOME (LOSS) BEFORE TAX PROVISION                (6,571,530)     5,379,326      2,121,853
     Less: Income Tax Expense                        228,500        145,500        139,250
                                                 ------------   ------------   ------------

NET INCOME (LOSS)                              $  (6,800,030) $   5,233,826  $   1,982,603
                                                 ============   ============   ============


NET BASIC AND DILUTED INCOME (LOSS)
   PER COMMON SHARE                            $       (0.86) $        0.54  $        0.17
                                                 ============   ============   ============

WEIGHTED AVERAGE COMMON
   SHARES OUTSTANDING                              7,933,691      9,720,275     11,480,272
                                                 ============   ============   ============
</TABLE>


See Notes to Consolidated Financial Statements.

                                       34
<PAGE>

                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                FOR THE YEARS ENDED JUNE 30, 2004, 2003 AND 2002

<TABLE>
                                                        Preferred                   Common
                                                 ------------------------- ---------------------------
                                                 Number of                  Number of
                                                  Shares        Amount        Shares        Amount
                                                 ----------  ------------- ------------- -------------
<CAPTION>
<S>                                                <C>     <C>               <C>         <C>
BALANCE - JUNE 30, 2001                            362,487 $   36,248,675    11,480,267  $  22,960,533

  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 Income for the Year Ended June 30, 2002       ---          ---           ---            ---

                                                 ----------  ------------- -------------  -------------
BALANCE - JUNE 30, 2002                            362,488 $   36,248,775    11,480,275  $  22,960,549

  Purchase of Shares for Treasury in connection
   with REB Trustee                                 ---          ---           ---            ---
  Shares Issued for Fractional Exchanges
   With Respect to the One-for-twenty Reverse
   Stock Split effected on March 13, 1992                1            100             3              6
  Amortization of Deferred Compensation Costs       ---          ---           ---            ---
  Net Income for the Year Ended June 30, 2003       ---          ---           ---            ---

                                                 ----------  ------------- -------------  -------------
BALANCE - JUNE 30, 2003                            362,489 $   36,248,875    11,480,278  $  22,960,555

  Purchase of Shares for Treasury in connection
   with REB Trustee                                 ---          ---           ---            ---
  Shares Issued for Fractional Exchanges
   With Respect to the One-for-twenty Reverse
   Stock Split effected on March 13, 1992           ---          ---                  1              2
  Amortization of Deferred Compensation Costs       ---          ---           ---            ---
  Net(Loss)for the Year Ended June 30, 2004         ---          ---           ---            ---

                                                 ----------  ------------- -------------  -------------
BALANCE - JUNE 30, 2004                            362,489 $   36,248,875    11,480,279  $  22,960,557
                                                 ==========  ============= =============  =============
</TABLE>

<TABLE>
                                                    Capital                       Treasury     Deferred
                                                   in Excess                       Stock       Compen-
                                                     of Par         (Deficit)      At Cost      sation       Total
                                                  --------------  -------------  -----------  ----------  ------------
<CAPTION>
<S>                                              <C>             <C>           <C>          <C>         <C>
BALANCE - JUNE 30, 2001                          $   20,192,206  $ (47,406,037)$          0 $   (21,667)$  31,973,710

  Shares Issued for Fractional Exchanges
   With Respect to the One-for-twenty Reverse
   Stock Split effected on March 13, 1992                  (116)      ---           ---          ---          ---
  Amortization of Deferred Compensation Costs          ---            ---                         5,000         5,000
  Net Income for the Year Ended June 30, 2002          ---           1,982,603      ---          ---        1,982,603

                                                   -------------  -------------  -----------  ----------  ------------
BALANCE - JUNE 30, 2002                          $   20,192,090  $ (45,423,434)$          0 $   (16,667)$  33,961,313

  Purchase of Shares for Treasury in connection
   with REB Trustee                                    ---            ---        (1,614,073)     ---       (1,614,073)
  Shares Issued for Fractional Exchanges
   With Respect to the One-for-twenty Reverse
   Stock Split effected on March 13, 1992                  (106)      ---           ---          ---          ---
  Amortization of Deferred Compensation Costs          ---            ---           ---           5,001         5,001
  Net Income for the Year Ended June 30, 2003          ---           5,233,826      ---          ---        5,233,826

                                                   -------------  -------------  -----------  ----------  ------------
BALANCE - JUNE 30, 2003                          $   20,191,984  $ (40,189,608)$ (1,614,073)$   (11,666)$  37,586,067

  Purchase of Shares for Treasury in connection
   with REB Trustee                                    ---            ---          (225,000)     ---         (225,000)
  Shares Issued for Fractional Exchanges
   With Respect to the One-for-twenty Reverse
   Stock Split effected on March 13, 1992                    (2)      ---           ---          ---          ---
  Amortization of Deferred Compensation Costs          ---            ---           ---           5,000         5,000
  Net(Loss)for the Year Ended June 30, 2004            ---          (6,800,030)     ---          ---       (6,800,030)

                                                   -------------  -------------  -----------  ----------  ------------
BALANCE - JUNE 30, 2004                          $   20,191,982  $ (46,989,638)$ (1,839,073)$    (6,666)$  30,566,037
                                                   =============  =============  ===========  ==========  ============
</TABLE>


See Notes to Consolidated Financial Statements.

                                       35
<PAGE>

                   INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                FOR THE YEARS ENDED JUNE 30, 2004, 2003 AND 2002

<TABLE>

                                                                                              June 30,
                                                                         -----------------------------------------------
                                                                               2004             2003            2002
                                                                         --------------    -------------    ------------
<CAPTION>
<S>                                                                     <C>              <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
 INCOME BEFORE DISCONTINUED OPERATIONS                                  $   (6,800,030)  $    5,233,826   $   1,982,603
 Adjustments to reconcile income to net cash provided by
  operating activities:
   Depreciation and Amortization                                               739,871          254,082         144,294
   Impairment of Note                                                       10,000,000                0               0
   (Gain) on Sale of Fixed Assets                                                    0                0         (77,577)
   Changes in Operating Assets and Liabilities -
    (Increase) in Accounts Receivable                                          (29,720)        (156,010)        805,703
     Decrease (Increase) in Other Assets                                       337,454           21,247        (304,316)
    (Increase) Decrease in Prepaid Expenses                                    (26,088)        (297,773)        171,409
    (Decrease) Increase in Accounts Payable and Accrued Expenses            (1,331,785)       2,217,821        (151,167)
                                                                         --------------    -------------    ------------
 CASH PROVIDED BY OPERATING ACTIVITIES BEFORE
   DISCONTINUED OPERATIONS                                                   2,889,702        7,273,193       2,570,949
 CASH PROVIDED BY DISCONTINUED OPERATING ACTIVITIES                              9,600           14,939               0
                                                                         --------------    -------------    ------------
 NET CASH PROVIDED BY OPERATING ACTIVITIES                                   2,899,302        7,288,132       2,570,949
                                                                         --------------    -------------    ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
 Deposits on Purchase of Palm Beach Princess Mortgage                                0         (500,000)     (2,750,000)
 Purchase and Improvements of Royal Star                                    (1,321,494)               0               0
 Security Deposit on New Bareboat Charter - Related Party MJQ Corp.           (880,782)               0               0
 Proceeds from Auction of Garden State Park Fixed Assets                             0                0       1,216,481
 Refunds (Deposits) on Purchase of Additional Vessel - Majestic                300,000         (300,000)              0
 Investment in Port Lease                                                            0         (250,000)              0
 Capital Expenditures                                                         (925,347)      (1,363,809)       (480,615)
 Loans made on Development Projects                                                                            (922,751)
 (Increase) Decrease in Other Investment Activity                              (99,735)         314,846        (108,040)
 (Increase) in Other Investment Activity - Related Parties                    (712,362)               0               0
                                                                         --------------    -------------    ------------
 CASH (USED IN) INVESTING ACTIVITIES
  BEFORE DISCONTINUED INVESTING ACTIVITIES                                  (3,639,720)      (2,098,963)     (3,044,925)
 CASH PROVIDED BY DISCONTINUED INVESTING ACTIVITIES                                  0                0               0
                                                                         --------------    -------------    ------------
 NET CASH (USED IN) INVESTING ACTIVITIES                                    (3,639,720)      (2,098,963)     (3,044,925)
                                                                         --------------    -------------    ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
 Funds Received on Refinance of Note                                         7,800,000                0               0
 Proceeds from Related Party Loans                                                   0          183,164               0
 Proceeds from Bank Financing                                                        0          200,000               0
 Principal Payments on Short Term Notes                                     (5,099,519)        (248,144)       (100,000)
 Principal Payments on Long Term Debt - Related Parties                       (574,022)               0               0
 Decrease in Balances Due to/From Discontinued Subsidiaries                      8,550           17,783           9,298
                                                                         --------------    -------------    ------------
 CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
  BEFORE DISCONTINUED FINANCING ACTIVITIES                                   2,135,009          152,803         (90,702)
 CASH (USED IN) DISCONTINUED FINANCING ACTIVITIES                               (8,550)         (17,783)         (9,298)
                                                                         --------------    -------------    ------------
 NET CASH PROVIDED (USED IN) BY FINANCING ACTIVITIES                         2,126,459          135,020        (100,000)
                                                                         --------------    -------------    ------------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                         1,386,041        5,324,189        (573,976)
       LESS CASH AND CASH EQUIVALENTS  FROM
        DISCONTINUED OPERATIONS                                                 (1,050)           2,843           9,298
 CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD                        6,123,641          796,609       1,361,287
                                                                         --------------    -------------    ------------

 CASH AND CASH EQUIVALENTS AT END OF THE PERIOD                        $     7,508,632   $    6,123,641   $     796,609
                                                                         ==============    =============    ============

 Supplemental Disclosures of Cash Flow Information:
  Cash paid during the period for:
  Interest                                                             $     1,440,262   $      412,431   $      13,200
  Income Taxes                                                         $       256,517   $      118,983   $        -0-
</TABLE>

Supplemental Schedule of Non-Cash Investing and Financing Activities:
On October 15,  2003,  the  Company  issued a  promissory  note in the amount of
  $9,750,000,  reclassed  a  deposit  of  $4,000,000  and  recorded  an asset of
  $13,750,000 to record the purchase of the Ship Mortgage Obligation  associated
  with the Palm Beach Princess.
On October 15,  2003,  the  Company  issued a  promissory  note in the amount of
  $225,000 to purchase an additional 450,000 shares of its Common Stock.
On June16, 2004, the Company  recorded  deferred  interest payable in the amount
  of $2,589,240 associated with the Turnberry financing

See Notes to Consolidated Financial Statements.

                                       36
<PAGE>

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


(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     (A) Nature of  Operations - ITGV is currently  engaged in an  entertainment
cruise and casino ship business under a bareboat  charter of the vessel M/V Palm
Beach Princess (the "Palm Beach  Princess").  The Palm Beach  Princess  performs
fourteen cruises weekly, that is, a daytime and an evening cruise each day. Each
cruise is of five to six hours  duration.  During  each  cruise,  the Palm Beach
Princess offers a range of amenities and services to her passengers, including a
full casino, sit-down buffet dining, live musical shows,  discotheque,  bars and
lounges,  swimming pool and  sundecks.  The casino  occupies  15,000 square feet
aboard the ship and is equipped with approximately 425 slot machines,  all major
table games (blackjack, dice, roulette and poker), and a sports wagering book.

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

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

     (D) Spare Parts  Inventory - Spare parts  inventory  consists of  operating
supplies,  maintenance materials and spare parts. The inventories are carried at
icost.  It is necessary that these parts be readily  available so that the daily
cruise operations are not cancelled due to mechanical failures.

     (E)  Depreciation and Amortization - Depreciation of property and equipment
were computed by the  straight-line  method at rates  adequate to allocate their
cost or  adjusted  fair  value  in  accordance  with U.  S.  generally  accepted
accounting   principles  over  the  estimated  remaining  useful  lives  of  the
respective  assets.  Amortization  expense  consists  of the  write off of major
vessel repairs and maintenance  work normally  completed at dry dock in the fall
of each year.  These expenses are written off during a one year period following
the dry dock period.  For the years ended June 30, 2004 and 2003,  the amortized
expense was $125,179 and $55,650, respectively.

     Long-lived assets and certain identifiable intangibles held and used by the
Company are reviewed for impairment  whenever events or changes in circumstances
warrant  such a  review.  The  carrying  value of a  long-lived  or  amortizable
intangible asset is considered  impaired when the anticipated  undiscounted cash
flow from such asset is  separately  identifiable  and is less than its carrying
value.  In that  event,  a loss is  recognized  based on the amount by which the
carrying value exceeds the fair value of the asset.  Losses on long-lived assets
to be disposed of are  determined in a similar  manner,  except that fair values
are reduced for the cost of  disposition.  Effective  January 4, 2002,  SFAS 142
requires  an annual  impairment  review  based on fair value for all  intangible
assets with indefinite  lives.  The Company  performed an impairment test of its
intangible  assets  with  indefinite  lives  during  the  fiscal  year  2004 and
concluded that there was no impairment beyond the $10 million impairment loss on
the Second Cherry Hill Note. (See Note 4.)

     (F) Net Assets of Discontinued  Operations - At June 30, 2004 and 2003, the
remaining net assets and  liabilities of Garden State Park and Freehold  Raceway
were classified as either "Assets of Discontinued Operations" or "Liabilities of
Discontinued Operations."

                                       37
<PAGE>

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


     (G) Recent  Accounting  Pronouncements  - In January  2003,  the  Financial
Accounting Standards Board ("FASB") issued Interpretation No. 46 ("FIN") No. 46,
"Consolidation of Variable Interest Entities". In December 2003, the FASB issued
FIN No. 46  (Revised)  ("FIN  46-R") to address  certain  FIN 46  implementation
issues. This interpretation requires that the assets,  liabilities,  and results
of operations of a Variable  Interest  Entity ("VIE") be  consolidated  into the
financial  statements of the enterprise  that has a controlling  interest in the
VIE. The provisions of this  interpretation  were effective  immediately for all
arrangements  entered into with new VIEs  created  after  January 31, 2003,  and
became  effective  during the period ended March 31, 2004 for any VIE created on
or before January 31, 2003. Based upon our review, we do not believe we have any
such entities or arrangements that would require disclosure or consolidation.

     In March,  2003, the Emerging  Issues Task Force  published Issue No. 00-21
"Accounting for Revenue  Arrangements with Multiple  Deliverables" (EITF 00-21).
EITF  00-21  addresses  certain  aspects  of  the  accounting  by a  vendor  for
arrangements under which it performs multiple revenue generating  activities and
how to determine  whether such an arrangement  involving  multiple  deliverables
contains more than one unit of accounting  for purposes of revenue  recognition.
The  guidance in this Issue is  effective  for revenue  arrangements  entered in
fiscal periods beginning after June 15, 2003. The adoption of EITF 00-21 on July
1, 2003 did not have any impact on our financial statements.

     (H) Revenue Recognition - Casino revenue consists of gaming winnings net of
losses. Net income is the difference between wagers placed and winning payout to
patrons and is recorded  at the time wagers are made.  The vast  majority of the
wagers are in the form of cash and we do not grant credit to our  customers to a
significant  extent.  Fare revenues  consist of admissions to our vessel and are
recognized  as  earned.   On  board  revenues  consist  primarily  of  ancillary
activities  aboard  the  vessel  such as the sale of food and  beverages,  cabin
rental,  gift  shop,  spa  facility  and  skeet  shooting.  These  revenues  are
recognized on the date they are earned.

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

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

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

     (L)  Use  Of  Estimates  -  The  preparation  of  financial  statements  in
conformity with generally accepted accounting  principles requires management to
make estimates and  assumptions  that affect the reported  amounts of assets and
liabilities and disclosure of contingent  assets and liabilities at the dates of

                                       38
<PAGE>

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


the  financial  statements  and the  reported  amounts of revenues  and expenses
during the reporting periods. Actual results could differ from those estimates.

     (M)  Deferred  Income - The gain  from the sale of our  Garden  State  Park
property on  November  28, 2000 in the amount of  $1,439,951  has been  deferred
until such time as the note  receivable  on the sale has been  collected.  Other
amounts included in Deferred Income are  fees/charges to Leo Equity Group,  Inc.
in the amount of  $3,000,000  and to Palm Beach  Maritime  Corp.  (formerly  MJQ
Corp.) in the amount of $1,000,000 in connection with the final  settlement with
the Brennan Trustee. These amounts have been deferred until the first quarter of
Fiscal 2005 when we received  payment for these  charges.  The  deferred  income
recorded as of June 30, 2003 on the gain from our sale of the El Rancho property
on May 22, 2000 in the amount of  $2,786,589  was  deferred  until June 16, 2004
when it was used to offset, in part, the loss recorded on the Second Cherry Hill
Note.

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

     Income (Loss) per common share is computed by dividing net (loss) income by
the weighted average number of shares of common stock  outstanding.  On December
13, 2002,  and on October 15, 2003 the Company  purchased  3,228,146 and 450,000
shares  respectively  of its Common  Stock  from the  Brennan  Trustee  and have
accounted  for the  transaction  on the cost method of  accounting  for treasury
stock.  Options and  warrants to purchase  3,611,500  shares of Common  Stock at
various prices per share,  for the year ended June 30, 2004 were not included in
the  computation  of  diluted  loss per share as their  effect  would  have been
anti-dilutive  due to the net loss  reported.  Options and  warrants to purchase
4,046,500  shares of Common  Stock at various  prices  per share,  for the years
ended June 30,  2003 and 2002 were not  included in the  computation  of diluted
income per share  because the exercise  price of those options and warrants were
above market value at that time.

(2) ITG VEGAS, INC. CHAPTER 11 PLAN OF REORGANIZATION

     On January 3, 2003, ITG Vegas, Inc. ("ITG Vegas"), our subsidiary operating
the Palm Beach  Princess,  and Palm Beach Maritime  Corp.("PBMC")  (formerly MJQ
Corp.), which owns the Palm Beach Princess vessel, an entity owned by Francis W.
Murray,  filed  voluntary  petitions  for relief under  Chapter 11 of the United
States  Bankruptcy Code (the "Bankruptcy  Code") in the United States Bankruptcy
Court for the Southern District of Florida, Palm Beach Division (the "Bankruptcy
Court"),  In re: ITG Vegas, Inc., Case No. 03-30038.  The petition did not cover
the Parent  company,  ITB, nor any other of ITB's  subsidiaries.  The Palm Beach
Princess continued to operate as  "debtor-in-possession"  under the jurisdiction
of the Bankruptcy Court and in accordance with the applicable  provisions of the
Bankruptcy Code and orders of the Bankruptcy Court. As described in Note 3 below
we had previously  entered into a Master  Settlement  Agreement to purchase from
the  Chapter 11 Trustee  for the  Bankruptcy  Estate of Robert E.  Brennan  (the
"Brennan  Trustee") the promissory  note of Palm Beach Maritime Corp. for $13.75
million. We did not have funds necessary to complete that purchase by January 6,
2003,  the date  required  for  payment of the balance of such  purchase  price.
Therefore,  on January 3, 2003,  in order to protect our

                                       39
<PAGE>

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


invested  deposits and operation of the vessel,  ITG Vegas  (together  with Palm
Beach Maritime  Corp) filed a voluntary  petition for relief under Chapter 11 of
the Bankruptcy Code.

     On September 12, 2003, the Bankruptcy  Court issued an order confirming the
Amended Joint Chapter 11 Plan of  Reorganization  (the "Plan") in the Chapter 11
cases of ITG Vegas, Inc. and Palm Beach Maritime Corp. (ITG Vegas, Inc. and Palm
Beach Maritime Corp.being hereinafter called the "Debtors").  The Plan is a plan
of  reorganization  under  Chapter 11 of the  Bankruptcy  Code which was jointly
proposed by the Debtors.

     As of October 15,  2003,  the  effective  date of the Plan (the  "Effective
Date"),  all claims,  debts,  liens,  security interests and encumbrances of and
against the Debtors and  against  all  property of their  respective  bankruptcy
estates, which arose before confirmation,  were discharged,  except as otherwise
provided  in the  Plan or  confirmation  order.  Post-confirmation,  each of the
Debtors continued as reorganized debtors.

     The Plan included the following principal features:

          1. On the Effective  Date, all Allowed  Administrative  Expense Claims
     and all Allowed  Priority Tax Claims and Allowed  Priority  Non-Tax  Claims
     were paid in full (to the extent not already paid).

          2. All pre-petition non-insider (non-affiliate), non-insured unsecured
     debt of the Debtors was paid in two installments, one-half on the Effective
     Date and one-half (with interest  thereon at 8% per year from the Effective
     Date) six months after the Effective Date.

          3. All  non-insider  claims  covered by  insurance  were  entitled  to
     payment in  accordance  with the insurance  coverages.  There are no policy
     limits on the Debtors' liability  coverages and the holders of these claims
     were  required to pursue the  insurance  proceeds for payment,  except with
     respect to the deductible, for which the Debtors remained obligated.

          4. The  Debtors'  principal  creditor,  the  Brennan  Trustee,  was to
     receive  payment  in full of all  obligations  over a period  not to exceed
     three years. Significantly, the Debtors' obligations to the Brennan Trustee
     were combined with the parent company's (ITB's) indebtedness to the Brennan
     Trustee arising out of the stock  repurchase,  for all of which the Debtors
     and ITB were jointly and severally  liable.  All of the  obligations to the
     Brennan  Trustee  were  secured by a ship  mortgage  against the Palm Beach
     Princess  vessel and  security  interests in all of the other assets of the
     Debtors.

          5. The payment  obligations  to the Brennan  Trustee  consisted of the
     following:

                (a) The balance of the  purchase  price that had been payable by
        ITG Vegas  for the  purchase  of the Ship  Mortgage  Obligation,  in the
        amount of $9,750,000;

                (b) The balance of our  indebtedness  to the Brennan  Trustee in
        respect  of  our  repurchase  of  stock  in  the  principal   amount  of
        $1,511,035.70  (which included  interest  accrued to December 13, 2002),
        plus interest thereon from December 13, 2002 until the Effective Date;

                (c) A new  obligation  of ITB for the purchase of an  additional
        450,000  shares  of our stock  from the  Brennan  Trustee,  at $0.50 per
        share, or $225,000.

                                       40
<PAGE>

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


          The  amounts   described  in  subparagraphs   (a),  (b)  and  (c)  are
     collectively  called  the  "Payment  Obligations".  A  forbearance  fee  of
     $350,000  also accrued to the Brennan  Trustee on the  Effective  Date,  of
     which  $100,000 was paid on the Effective  Date and the balance  ($250,000)
     was due on the  earliest to occur:  on the date the Payment  Obligation  is
     paid in full; the third  anniversary of the Effective  Date; or any date on
     which ITG Vegas shall have monetized its receivable from OC Realty, LLC, an
     affiliate of our Chairman and CEO.

          The Payment  Obligation  accrued  interest  at 12% per annum.  Monthly
     payments of $400,000 were required to be made to the Brennan Trustee, to be
     applied first to interest accrued and then to principal.  In addition,  the
     Brennan  Trustee  was  entitled to payment of a Stay Bonus in the amount of
     $200,000  if the Payment  Obligation  was not paid in full within 12 months
     after  the  Effective  Date,  and an  additional  $100,000  if the  Payment
     Obligation was not paid in full within 24 months after the Effective  Date.
     Beginning  with  ITG  Vegas'  2004  internal  accounting  year  (commencing
     December  29, 2003) and  annually  thereafter,  75% of ITG Vegas' Free Cash
     Flow (as  defined in the Plan) for the period was to be paid to the Brennan
     Trustee  as a Sweep  Payment,  to be applied  first to  accrued  and unpaid
     interest,  then to principal on the Payment  Obligation,  and thereafter to
     any unpaid Forbearance Fee and Stay Bonuses.

          6.  Restrictions  were  imposed  under  the Plan on ITG  Vegas  making
     payments to affiliated entities, including ITB. Payments of indebtedness to
     affiliated  entities of ITG Vegas generally were  subordinated to the prior
     payment  of  all  liabilities  to the  Brennan  Trustee,  and  intercompany
     advances and transfers from ITG Vegas to affiliated entities generally were
     prohibited,  except that, if no default  existed in the  obligations to the
     Brennan  Trustee,  (i) $50,000 per month could be paid by ITG Vegas to Palm
     Beach Maritime  Corporation in respect of the bareboat  charter fee for use
     of the Palm Beach Princess vessel and (ii) $100,000 per month was permitted
     to be paid by ITG Vegas to ITB under a Tax Sharing  Agreement between them.
     ITB entered into a Tax Sharing  Agreement  with ITG Vegas  effective on the
     Effective  Date,  pursuant to which ITG Vegas was to compensate ITB for the
     tax  savings  realized  as a  result  of ITG  Vegas's  inclusion  in  ITB's
     consolidated  group of companies  for federal  income tax  purposes,  in an
     amount up to  $100,000  per  month,  provided  that no such  payments  were
     permitted to be made if any default  existed in respect of the  obligations
     to the Brennan Trustee.

          The maximum amount of funds permitted to be upstreamed by ITG Vegas to
     us was $100,000 per month under the Tax Sharing  Agreement (and,  beginning
     in 2005, 25% of ITG Vegas' annual Free Cash Flow, as defined).

          For further information about the Payment  Obligations,  the covenants
     of ITB and the Debtors,  and other terms  agreed to among the Debtors,  ITB
     and  the  Brennan  Trustee,  reference  is  made  to the  Amended  Plan  of
     Reorganization, which is an exhibit to this Report.

          By  reaching  the  foregoing  consensual  plan  of  reorganization  by
     agreement  with the  Brennan  Trustee,  the  Debtors  avoided the costs and
     delays of a contested  confirmation hearing with their largest creditor and
     developed a Plan which was believed to be (and has proven to be)  feasible.
     With the consummation of the PDS  Transactions  described below, all of our
     and the Debtors' indebtedness to the Brennan Trustee was paid in full.

          On July 17, 2004, the  Bankruptcy  Court issued a final decree closing
     the Debtors' Chapter 11 cases.

                                       41
<PAGE>

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


     See Note 24, Subsequent  Events, for information on the satisfaction of the
     debt to the Brennan Trustee.

(3) MORTGAGE CONTRACT RECEIVABLE - RELATED PARTY

     Effective  February 20, 2002 we entered into a Master Settlement  Agreement
with the Chapter 11 Trustee (the "Brennan Trustee") for the Bankruptcy Estate of
Robert E. Brennan. In accordance with the Master Settlement  Agreement,  through
our Palm Beach Princess,  Inc.  subsidiary  (which was merged into ITG Vegas) we
entered into a Purchase and Sale Agreement  which provides for our purchase from
the Brennan Trustee of the promissory note of Palm Beach Maritime  Corp.("PBMC")
(formerly MJQ Corp.) which is secured by a ship mortgage  against the vessel M/V
Palm Beach  Princess (the "Ship  Mortgage  Obligation")  for a purchase price of
$13.75   million.   Prior  to  the  Effective   Date  of  ITG  Vegas's  Plan  of
Reorganization  (described in Note 2 above),  Palm Beach Princess,  Inc. and its
successor by merger,  ITG Vegas,  were not obligated to complete the purchase of
the Ship  Mortgage  Obligation  and were not liable  for any  failure to pay the
purchase price - the sole express remedy of the Brennan  Trustee in the event of
a default  was to  terminate  the  Purchase  and Sale  Agreement,  keep the Ship
Mortgage Obligation and cause forfeiture of our installment  payments previously
made.  We  therefore  did not accrue the  purchase  price as a liability  on our
balance  sheet.  In  negotiating  a consensual  Chapter 11 Plan among ITG Vegas,
PBMC, the Brennan Trustee and other  creditors,  the Company agreed to be liable
for payment of the balance of the purchase price of the Ship Mortgage Obligation
(which was $9.75  million  as of the  Effective  Date of the  Plan).  The parent
company and ITG Vegas agreed to be jointly and  severally  liable for payment of
all obligations to the Brennan Trustee.  As a result,  the unpaid portion of the
purchase price of the Ship Mortgage  Obligation and interest  accrued to October
15, 2003 (which was  capitalized)  are  recorded as  liabilities  on our balance
sheet,  and the mortgage  contract  receivable  is reflected as an asset,  after
October 15, 2003.

(4) NOTES RECEIVABLE

     (A) Las Vegas Note exchanged for Second Cherry Hill Note

     A portion  of the  proceeds  from the sale of the  non-operating  former El
Rancho  Hotel and  Casino in Las Vegas to  Turnberry/Las  Vegas  Boulevard,  LLC
("Turnberry")  on May 22, 2000 was used by us to purchase a  promissory  note in
the face amount of $23,000,000  (the "Las Vegas Note").  The interest rate under
such note was to be  adjusted  from time to time  since  the  interest  actually
payable would have been  dependent  upon, and payable solely out of, the buyer's
net cash flow available for  distribution  to its equity owners  ("Distributable
Cash"). After the equity investors in the buyer had received total distributions
equal to  their  capital  contributions  plus an  agreed  upon  return  on their
invested  capital,  the next $23 million of  Distributable  Cash would have been
paid to us. We were to have  received  payments  under the note equal to 33 % of
all  Distributable  Cash until the maturity date,  which was to have occurred on
the 30th  anniversary  of our purchase of the note. We had the option to convert
the promissory  note into a 33 % equity interest in the buyer during a six month
period  beginning at the 15th  anniversary  of the issuance of the note.  If not
then converted,  the note was to be converted into a 33 % equity interest in the
buyer at the 30th anniversary of its issuance. Fair value and the collectability
of this note was determined by a real estate  appraisal  completed in July, 2003
for a bank in anticipation of financing for Turnberry.

                                       42
<PAGE>

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


     On June 16, 2004, the Company  consummated  the sale of the Las Vegas Note.
The  purchaser  of the Las  Vegas  Note was  Cherry  Hill at El  Rancho  LP (the
"Buyer"),  a limited  partnership  which is affiliated with the maker of the Las
Vegas Note.

     In exchange for the Las Vegas Note, the Company received cash payments from
the Buyer of $2.8 million, a non-recourse loan from Turnberry Development,  LLC,
an  affiliate of the Buyer,  in the amount of $5 million and a  promissory  note
issued by Soffer/Cherry  Hill Partners,  L.P. ("Cherry Hill Partners"),  another
affiliate of the Buyer,  in the  principal  amount of  $35,842,027  (the "Second
Cherry Hill Note").  The principal  amount of the Second Cherry Hill Note equals
the difference between the unpaid principal plus all accrued and unpaid interest
(at 22%)  under the Las Vegas  Note,  less the $2.8  million in  purchase  price
payments  and $5  million  non-recourse  loan paid to the  Company.  As  further
consideration, the Company received the right to use aircraft owned or leased by
the  Buyer or its  affiliates,  for up to 64 hours in total,  which the  Company
values at approximately $224,000.

     The Company is not liable for  repayment of the principal of the $5 million
loan included in the foregoing consideration.  However, the Company is obligated
to pay interest and fees on such loan aggregating $600,000 per year ($50,000 per
month) for five (5) years.

     The Second Cherry Hill Note received by the Company  matures in 2015 and is
similar to the Las Vegas Note which was sold, in that both generally are payable
prior to maturity only from  distributable cash of the maker. The Las Vegas Note
was payable  prior to maturity from  distributable  cash of the entity which had
purchased,  in May of  2000,  the  real  property  (the  "El  Rancho  Property")
previously  owned by our  Orion  Casino  Corporation  subsidiary  in Las  Vegas,
Nevada,  which had been the site of the former El Rancho Hotel and Casino. Since
the maker of the Las Vegas Note has not yet finalized  plans for  development of
that property,  the time at which the Company might have received payments under
the Las Vegas Note (had it not been sold) remained uncertain.  The obligor under
the Second Cherry Hill Note is one of the principal partners in the entity which
purchased  the Garden  State Park real  property  from a Company  subsidiary  in
November of 2000,  and such  obligor  will only have funds with which to pay the
Second Cherry Hill Note out of its profits from the  development of Garden State
Park. The development of Garden State Park,  located in Cherry Hill, New Jersey,
has been delayed as a result of community  opposition to certain elements of the
development  plan, and, while the Company  believes that the development plan is
now  moving  forward,  the  timing  and  amount of  profits  there  also  remain
uncertain. The Company already holds a promissory note in the face amount of $10
million, received from the purchaser of Garden State Park in connection with the
sale of such real  property,  which the  Company  expects  will be fully paid in
time. While the Company expects that note to be fully paid, it is not optimistic
that this  Second  Cherry  Hill Note will be fully paid,  and  accordingly,  the
Company has written  down the Second  Cherry  Hill Note  (defined  above) on its
books.  The interest  portion of the Las Vegas Note  amounting to  approximately
$20,866,000 has never been included as income on the Company's books,  therefore
the interest  capitalized  under the Second Cherry Hill Note is not subject to a
write down.  The  remaining  portion of the Second  Cherry Hill Note was written
down to $4,778,651  which will result in an impairment write off of the new note
of  $12,786,589,  recorded  in the 4th  quarter of the  Company's  June 30, 2004
fiscal year. The Company had previously  recorded  deferred income of $2,786,589
on the original sale of the El Rancho  property in May, 2000,  which amount will
be used to reduce the impairment write off to $10,000,000.

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

                                       43
<PAGE>

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


be chartered to a subsidiary of the Company,  and the Company expects to operate
that second  vessel as a casino  cruise  ship,  similar to the  operation of the
casino  "cruise to nowhere"  business  conducted by a subsidiary  of the Company
since April of 2001.  The other fifty  percent  (50%) of the stock in Palm Beach
Empress,  Inc. is owned by PBMC a  corporation  owned by Francis W. Murray,  the
Company's  Chief  Executive  Officer.  PBMC  presently  owns and  charters  to a
subsidiary of the Company the Palm Beach Princess vessel, the operation of which
is the Company's primary operating business.

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

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

     In addition, if, before July 31, 2005, there is a sale or other disposition
of the El Rancho Property,  or a sale or other  disposition of the entire direct
or indirect interest of the owner of such property,  then fifty percent (50%) of
any profit in excess of $10 million  realized on such sale also shall be paid to
us as a mandatory  prepayment of the Second Cherry Hill Note.  The July 31, 2005
deadline by which a sale of the El Rancho  Property would have to occur in order
to trigger a possible  prepayment to the Company will be extended to January 31,
2006 if a  portion,  but less than  all,  of the El  Rancho  Property  or of the
Owner's direct or indirect ownership interest is sold before July 31, 2005.

     In its  assessment  of the fair value of the Second  Cherry Hill Note,  the
Company has estimated  that its share of proceeds from the sale of the El Rancho
property prior to July 31, 2005 would generate approximately $500,000. If a sale
does not occur prior to July 31, 2005 it is  anticipated  that the Company would
take an  additional  impairment  write  down  against  the  Cherry  Hill Note of
approximately $500,000 in its fiscal year ending June 30, 2005.

     (B) Original Cherry Hill Note

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

                                       44
<PAGE>

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


  the next $10  million  of
Distributable Cash will be paid to us. We will thereafter receive payments under
the Note equal to 33 % of all Distributable  Cash until the maturity date, which
occurs on the 15th  anniversary  of the issuance of the Note. We may convert the
promissory note, at our option, into a 33 % equity interest in Realen during the
six month period prior to the 15th  anniversary  of the issuance of the Note. If
not  then  converted,  the  Note  will be  payable  at  maturity  on  said  15th
anniversary  in an  amount  equal to (i) the  difference,  if any,  between  $10
million and total payments previously made to us under the Note and (ii) 33 % of
any  excess of the fair  market  value of  Realen's  assets  over the sum of its
liabilities  (other than the Note) and any unreturned  equity  investment of its
owners.  Fair value and the collectability of this note was determined by a real
estate  appraisal  completed  in  March,  2002  for a bank  in  anticipation  of
financing for Turnberry.

     (C) Sculpture Note

     In  addition,  we sold two large  bronze  sculptures  located at the Garden
State Park  property to Realen,  in exchange  for Realen's  promissory  note due
November 30, 2002, in the principal  amount of $700,000.  The Chapter 11 Trustee
for the Bankruptcy  Estate of Robert E. Brennan (the "Brennan  Trustee") claimed
ownership of those sculptures,  and we settled the resulting litigation over the
sculptures  by agreeing  that the first  $350,000 in principal  payments made by
Realen under such note would be remitted to the Brennan  Trustee  (together with
one-half  of the  interest  paid by  Realen  under  such  note).  As part of the
settlement of the  sculpture  litigation,  the party who sold us the  sculptures
agreed to reduce the amount of our  obligation for payment of the balance of the
sculpture price (described below) by the same principal amount,  $350,000, given
up by us to the Brennan Trustee.

     On  February  20,  2004  Turnberry  paid  $466,363  to the  Company in full
satisfaction of the note plus accrued  interest due us for the sale of the horse
sculptures  at Garden  State  Racetrack.  As a result,  on March 10,  2004,  the
Company paid $176,970 in satisfaction  of the note and accrued  interest we owed
on our original purchase of the statues.

                                       45
<PAGE>

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


(5)  DEPOSITS AND OTHER ASSETS - RELATED PARTIES

The following  items are classified as Deposits and Other Assets - Related Party
Transactions (See Note 22):

                                                              June 30,
                                                    ---------------------------
                                                        2004           2003
                                                    ------------   ------------

Loans to the Ft Lauderdale Project (OC Realty, LLC) $  2,034,405   $  2,034,405

Loan Transferred from Golf Course Project to
OC Realty, LLC                                           735,584        735,584

Note Receivable from Francis W. Murray *               2,600,749      2,600,749

Deposits on new lease for M/V Palm Beach Princess
and the Empress II Palm Beach Maritime Corp.("PBMC")
(formerly MJQ Corp.)                                     880,783           -0-

Accounts Receivable from Francis W. Murray                32,751         35,099

Loans to Francis W. Murray                                93,000         93,000

Advances to PBMC                                         616,534            -0-

Advances to OC Realty, LLC                                   -0-         77,162

Accrued Interest on Loans to the Ft. Lauderdale
Project (OC Realty, LLC)                                 911,350        606,553

Accrued Interest Transferred from Golf Course
Project to OC Realty, LLC                                287,327        287,327

Accounts Receivable from Frank Leo                        24,512         23,441

Goodwill on Purchase of GMO Travel                       193,946        193,946
                                                      -----------    -----------
  Total Deposits and Other Assets - Related Parties $  8,410,941   $  6,687,266
                                                      ===========    ===========

--------------------------------------------------------------------------------
* The note receivable from Francis W. Murray is non-recourse except to his stock
in PBMC which stock was previously  owned by Michael J. Quigley and is now owned
by our CEO,  Francis W. Murray,  subject to our lien. This note was subsequently
paid in full on July 7, 2004.

(6)  DEPOSITS AND OTHER ASSETS - NON RELATED PARTIES

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

                                                   June 30,
                                           ------------------------
                                               2004         2003
                                           -----------  -----------
Port Lease Rights                        $    250,000  $   250,000

Deposit on Ship Purchase (See Note 10-D)          -0-      200,000

Other Misc. Assets                             84,975       85,239
                                           -----------  -----------
         Total                           $    334,975  $   535,239
                                           ===========  ===========

                                       46
<PAGE>

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


(7)  DISCONTINUED OPERATIONS

     On January 28, 1999, we completed the sale of the real property and certain
related assets at Freehold  Raceway and a ten-acre  parcel of land at the Garden
State Park facility. On November 30, 2000, the Company, through its wholly-owned
subsidiary,  GSRT, LLC, closed on the sale (the "Garden State  Transaction")  of
the Garden State Park  property  (the "Garden  State Park  Property")  in Cherry
Hill, New Jersey, to Realen-Turnberry/Cherry  Hill, LLC ("Realen"). The purchase
price was $30 million and was paid by: (i)  previous  cash  deposits  totaling a
$1,000,000;  (ii) a  promissory  note in the face  amount  of $10  million  (the
"Note");  and  (iii)  the  balance  of the  purchase  price  paid in cash at the
closing. The Company has elected to defer all the gain of $1,439,951 on the sale
of the property until such time that  collectability  under the $10,000,000 note
from Realen can be determined.  The gain represented the sales price of cash and
notes in excess of our cost basis.

     In connection with the January 28, 1999 sale and lease transactions for the
Garden  State  Park  facility,  we  purchased  a  liquor  license  owned  by  an
unaffiliated third party, Service America Corporation,  for $500,000 financed by
a five (5) year promissory note at a 6% interest rate. At December 31, 2002, the
unpaid principal balance was $160,000. Yearly principal payments of $80,000 plus
interest  were due on December  28, 2002 and December 28, 2003 and have not been
paid. The Company  entered into a sale and lease  agreement for the lease of our
premises from Jan. 28, 1999 to May 29, 2001 and the sale of a 10 acre portion to
be used as an OTB facility.  Under the terms of our sale and lease agreement the
lessee/buyer  purchased  the liquor  license for $100,000  and was  obligated to
return it to us in  exchange  for a refund of the  $100,000  payment  if, at the
expiration  of the lease,  June 27,  2002,  it did not have a use for the liquor
license at the OTB facility.  During the three year period Jan. 28, 1999 to Jan.
28, 2002 no OTB facility was built and the  lessee/buyer  did not have a use for
the liquor  license at that  property.  By the terms of the contract the Company
has the right to  re-acquire  the liquor  license for $100,000 and has exercised
such  right,  however  the  lessee/buyer  has  refused to  perform.  The Company
believes  it will need to take legal  action to enforce  its right to the liquor
license.

     The  net  assets  of the  operations  to be  disposed  of  included  in the
accompanying consolidated balance sheets as of June 30, 2004 and 2003 consist of
the following:

                                                           June 30,
                                                  ---------------------------
Classified As:                                        2004            2003
                                                      ----            ----
Current Assets                                   $   400,835  $      399,785

Current Liabilities                                 (310,798)       (301,197)
                                                  -----------    ------------
         Net Assets of Discontinued Operations   $    90,037  $       98,588
                                                  ===========    ============

                                       47
<PAGE>

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


     Cash flows from discontinued  operations for the years ended June 30, 2004,
2003 and 2002 consist of the following:

<TABLE>
                                                                     June 30,
                                                          -------------------------------
                                                             2004      2003        2002
                                                           -------  ---------   ---------
<CAPTION>
<S>                                                       <C>      <C>         <C>
Cash Flows From Discontinued Operating
 Activities:

    Income                                                $   -0-  $    -0-    $    -0-
                                                           -------  ---------   ---------

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

      Changes in Operating Assets and Liabilities of Discontinued
      Operations:

          Decrease (Increase) in Accounts Receivable        9,600    12,539         -0-

          Increase (Decrease) in Accounts and Purses
           Payable and Accrued Expenses                       -0-     2,400         -0-
                                                           -------  ---------   ---------
    Net Cash Provided by Discontinued Operating Activities  9,600    14,939         -0-
                                                           -------  ---------   ---------
Cash Flows from Discontinued Financing Activities:

    (Decrease) in Balances Due To/From
      Continuing Operations                                (8,550)  (17,783)     (9,298)
                                                           -------  ---------   ---------
    Net Cash (Used In) Discontinued Financing Activities   (8,550)  (17,783)     (9,298)
                                                           -------  ---------   ---------
    Net (Decrease) Increase in Cash and Cash Equivalents
     From Discontinued Operations                           1,050    (2,844)     (9,298)

      Cash and Cash Equivalents at Beginning of
       Year From Discontinued Operations                     (317)    2,527      11,825
                                                           -------  ---------   ---------
      Cash and Cash Equivalents at End of Year From
      Discontinued Operations                             $   733 $    (317)   $  2,527
                                                           =======  =========   =========
</TABLE>

(8) ACQUISITIONS AND DISPOSITIONS

     Fiscal 2004

     During the  quarter  ended  December  31, 2003 our  subsidiary,  Royal Star
Entertainment,  LLC, a Delaware limited liability company,  purchased the vessel
M/V Royal Star ("Royal  Star").  Depreciation  will not be computed on the Royal
Star until it is placed in service. (See Note 12)

     Fiscal 2003

     On October 27, 2002 the Company purchased the operating  agreement with the
Port of Palm Beach from Leo Equity  Group,  Inc.  ("Leo  Equity") for a purchase
price of $250,000  payable without  interest.  The purchase enabled us to obtain
the port lease which was then owned by Leo Equity.

     Fiscal 2002

     On July 18, 2001, we sold our condominium unit and an ownership interest in
the Ocala Jockey Club that was located in Reddick,  Florida. The sales price was
$94,000 and the proceeds after closing

                                       48
<PAGE>

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


fees and other expenses were $81,645.  A gain of $77,577 was  recognized  during
the first quarter of Fiscal 2002.

(9) INVESTMENTS

     Interest  income for the fiscal years ended June 30, 2004,  2003,  and 2002
was $79,320, $81,039, and $124,789, respectively.  Related party interest income
for the fiscal years ended June 30, 2004, 2003, and 2002 was $247,785, $342,226,
and $350,833,  respectively.  There were no realized  gains or losses  resulting
from the sale of trading securities for fiscals 2004, 2003 and 2002.

(10) LAND, BUILDINGS AND EQUIPMENT

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

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

                                        Estimated
                                          Useful                  June 30,
                                                       ------------------------
                                       Lives in Years     2004         2003
-------------------------------------- --------------  ----------  ------------

Leasehold Improvements                     15-40     $   944,371  $   953,110

Vessel Not Placed in Service -
Royal Star                                  N/A        1,321,494

Equipment                                   5-15       2,186,345    1,278,175
                                                       ----------  ------------
Totals                                                 4,452,210    2,231,285

Less Accumulated Depreciation
 and Amortization                                        916,186      306,494
                                                       ----------  ------------

                                                     $ 3,536,024  $ 1,924,791
                                                       ==========  ============

                                       49
<PAGE>

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


(11) NOTES AND MORTGAGES PAYABLE

     Notes and Mortgages Payable are summarized below:
<TABLE>
                                                              June 30, 2004            June 30, 2003
                                           Interest %   ------------------------------------------------
                                           Per Annum      Current    Long-Term     Current     Long-Term
                                       ---------------- ----------- ------------ ------------ -----------
<CAPTION>
<S>                                    <C>             <C>         <C>          <C>          <C>
International Thoroughbred Breeders,
Inc.:
--------------------------------------
Chapter 11 Trustee (the "Brennan
Trustee") for the Bankruptcy Estate of
Robert E. Brennan (A)                           11%    $ 4,038,838 $  4,024,142 $  1,511,036 $       -0-

Francis X. Murray (B)                            8%        159,164          -0-      159,164         -0-

William H. Warner (B)                           12%         24,000          -0-       24,000         -0-

Other                                       Various         25,000          -0-       25,000         -0-

MCJEM, INC. (C)                                 15%            -0-          -0-      132,000         -0-

Michael J. Quigley, III (D)                     10%            -0-          -0-      900,000         -0-

Florida Bank, N.A. (E)                 Prime + .25%            -0-          -0-      200,000         -0-

First Insurance Funding Corp                  6.95%            -0-          -0-       28,117         -0-

ITG Vegas, Inc.:
--------------------------------------
International Game Technology (F)                8%        122,174       71,685       16,709         -0-

Corporate Interiors (G)                  Prime + 2%            -0-          -0-      121,468         -0-

Garden State Park:
--------------------------------------
Service America Corporation (H)                  6%        160,000          -0-      160,000         -0-
                                                        ----------- ------------ ------------ -----------
                 Totals                                $ 4,529,176 $  4,095,827 $  3,277,494 $       -0-

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

 Net Liabilities of Discontinued
  Operations - Long Term                                  (160,000)         -0-     (160,000)        -0-

 Related Party Notes                                      (183,164)         -0-     (183,164)        -0-
                                                        ----------- ------------ ------------ -----------
Totals                                                 $ 4,186,012 $  4,095,827 $  2,934,330 $       -0-
                                                        =========== ============ ============ ===========
</TABLE>
The effective Prime Rate at June 30, 2004 was 4%.


     (A) Balance as of June 30,  2003:  On December  13, 2002 we issued a twelve
month promissory note in the amount of $1,648,403  including interest of $34,330
to the Brennan  Trustee for the  Bankruptcy  Estate of Robert E. Brennan for the
purchase of 3,228,146  shares of our common stock held or claimed by the Brennan
Trustee. The first principal payment of $137,367 was also paid on that date. The
Stock Purchase Note was secured by a security  interest in proceeds and payments
receivable under the $10 million Realen Note.

                                       50
<PAGE>

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


     Balance as of June 30, 2004: In connection with the Plan of  Reorganization
we became liable for the purchase of the Ship Mortgage  Obligation in the amount
of $9.75 million and that obligation was combined with the unpaid balance of the
Stock Purchase Note, and an additional obligation to purchase 450,000 shares for
$225,000 , plus accrued interest,  for a total amount due the Brennan Trustee of
$11,623,414  ("The Payment  Obligation").  Effective  October 15, 2003 we became
jointly  and  severally  liable  with ITG Vegas for the  payment of the  Payment
Obligation. (See Notes 2 and 24).

     (B) On March 1, 2003,  we issued a promissory  note for a line of credit up
to $225,000 bearing interest at 8% to Francis X. Murray. The outstanding balance
on the line of credit note at June 30, 2004 was  $159,164  and accrued  interest
was $16,142.  In fiscal 2003,  we issued  promissory  notes for $24,000  bearing
interest at 12% to William H. Warner,  Secretary of the Company. The outstanding
balance on the notes at June 30, 2004 was $24,000.  The proceeds from both notes
were used as working capital.

     (C) On March 10, 2004 the Company paid the amount due on the Note to MCJEM,
Inc. in full from the proceeds of the Las Vegas Note. (See Note 4.)

     (D) On January 26, 2001,  we borrowed  $1,000,000  from Michael J. Quigley,
III at an annual  interest  rate of 10%.  Principal and interest on the note was
due on or about April 25, 2001. On May 14, 2001, the loan was modified to be due
on demand.  On February  20, 2004 the Company paid in full its  indebtedness  to
Michael J.  Quigley,  III in the amount of  $1,206,850  which  included  accrued
interest.

     (E) On March 19, 2003, we issued a two month  promissory note in the amount
of  $200,000  bearing  interest  at prime plus .25% to Florida  Bank,  N.A.  The
proceeds of such note were used to fund an escrow  deposit in connection  with a
proposed  charter/purchase  of an offshore gaming vessel. The escrow deposit was
returned  to us on May 7,  2003  following  the  expiration  of the  negotiation
period, and we have satisfied the note to Florida Bank, N.A.

     (F) On December 6, 2002,  Palm Beach  Princess,  Inc.  issued a twenty-four
month  promissory  note in the  amount  of  $21,000  bearing  interest  at 8% to
International Game Technology for the purchase of gaming equipment. A payment of
$2,100  was  paid  on  delivery  of the  equipment  and 23  consecutive  monthly
installments  of  $854.80  were to be paid on the  balance.  As a result  of the
institution of proceedings by our subsidiary, ITG Vegas, under Chapter 11 of the
bankruptcy code, payments have been delayed until the effective date of the Plan
of  Reorganization  (See Note 2). On December 22, 2003, ITG Vegas, Inc. issued a
twenty-four  month promissory note in the amount of $231,716 bearing interest at
8.5% to International  Game Technology for the purchase of gaming  equipment.  A
payment of $30,000  was paid on  delivery of the  equipment  and 24  consecutive
monthly  installments  of $10,532.85 are to be paid on the balance.  At June 30,
2004,  the  principal  balance on the  International  Game  Technology  note was
$122,174.

     (G) On April 30 2003, ITG Vegas,  Inc. issued a one year promissory note in
the amount of $161,958 bearing interest at prime plus 2% to Corporate  Interiors
for the purchase of office furniture.  Monthly payments of $13,496.46 were being
paid on the note.

     (H) In  connection  with the January 28,  1999 lease  transactions  for the
Garden State Park facility,  the Company  purchased a liquor license  located at
Garden  State  Park  owned  by an  unaffiliated  third  party,  Service  America
Corporation (the "Holder"),  for $500,000 financed by a five (5) year promissory
note at a 6% interest rate.  Yearly principal  payments of $80,000 plus interest
were due on

                                       51
<PAGE>

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


December 28, 2002 and  December 28, 2003.  The payments due on December 28, 2002
and 2003 have not been made as of September 30, 2004.

(12) PURCHASE OF M/V ROYAL STAR

     During the  quarter  ended  December  31, 2003 our  subsidiary,  Royal Star
Entertainment,  LLC, a Delaware limited liability company,  purchased the vessel
M/V Royal Star ("Royal Star").  As of March 31, 2004 the Company has capitalized
$1,084,163 for the purchase and improvements and for legal and professional fees
in  connection  with the vessel and has  expensed  an  additional  approximately
$136,000 for administrative start-up costs. The Royal Star is a 232 foot vessel,
built in 1985 and  operates  under the flag of St.  Vincent and  Grenadines.  We
anticipate  that the vessel  will need  extensive  improvements  and  outfitting
costing  between $5 and $6 million  before  being  placed in service as a gaming
vessel.  As of June 30, 2004,  expenditures for improvements  were restricted by
the Brennan Trustee and we were required to make simultaneous  dollar for dollar
pre-payments  to the Brennan Trustee for each dollar spent on  improvements.  In
December  2003 we paid the Brennan  Trustee a prepayment  of  $1,200,000  on our
obligation to him in order to obtain his  permission to purchase the Royal Star.
Depreciation  will not be  computed  on the  Royal  Star  until it is  placed in
service.

(13) LONG TERM DEBT - RELATED PARTIES

     The following items are classified as long-term debt (See Note 22 - Related
Party Transactions):

                                                              June 30,
                                                    ----------------------------
                                                        2004           2003
                                                    -----------    -------------
Loan from Francis W. Murray                       $        -0-    $   250,000

Accrued Wages due to and Advances
  from Francis W. Murray                                   -0-        404,204

Advances from OC Realty (FWM ownership)                 36,000            -0-

Advances from Palm Beach Maritime Corp.
  (formerly MJQ Corp.) (FWM ownership)                 249,649        330,813
                                                    -----------    -----------
         Total Long Term Debt - Related Parties   $    285,649    $   985,017
                                                    ===========    ===========

(14) INCOME TAX EXPENSE

     The  Company's  income tax expense for the year ended June 30, 2004 relates
to state  income  taxes for its Palm  Beach  Princess  operations  and a Federal
Alternative  Minimum  Tax  on  the  Company's  consolidated  income  before  the
impairment  loss on the sale of the El Rancho  note.  The income tax expense for
the years ended June 30, 2003 and 2002 relates only to state income taxes on the
Palm Beach Princess operations.

     The Company has net operating loss carryforwards  aggregating approximately
117,000,000  at June 30, 2004  expiring in the years June 30, 2005  through June
30, 2022.  SFAS No. 109 requires the  establishment  of a deferred tax asset for
all deductible temporary  differences and operating loss

                                       52
<PAGE>

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


carryforwards.  Because of the uncertainty that the Company will generate income
in the future  sufficient  to fully or partially  utilize  these  carryforwards,
however,  the deferred  tax asset of  approximately  $55,600,000  is offset by a
valuation  allowance of the same amount.  Accordingly,  no deferred tax asset is
reflected in these financial statements.

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

     The Company has the following carryforwards to offset future taxable income
at June 30, 2004:

       Net Operating Loss                      Year End
          Carryforwards                    Expiration Dates
          -------------                    ----------------
          $ 11,700,000                         6/30/2005

             4,300,000                         6/30/2006

             9,000,000                         6/30/2007

            21,600,000                         6/30/2008

            70,400,000                         6/30/2009
                                           through 6/30/2015
           -----------
          $117,000,000
           ===========

(15) COMMITMENTS AND CONTINGENCIES

     See Note 2 for additional commitments and contingencies with respect to the
Chapter 11 Bankruptcy filing.

     See Note 22 for additional commitments and contingencies of the Company and
transactions with related parties.

     See Note 24 for additional  commitments  and  contingencies  of the Company
with respect to subsequent events.

     Effective December 1, 2000, we entered into a five-year employment contract
with Francis W. Murray, our Chief Executive  Officer.  The contract provides for
annual compensation of $395,000,  a $1,500 monthly automobile expense allowance,
a country club annual dues allowance and travel and entertainment reimbursements
for business expenses reasonably incurred by him in addition to participation in
various other  benefits  provided to our  employees.  As part of his  employment
contract,  Mr. Murray was awarded an option to purchase  2,000,000 shares of our
Common Stock.  On January 4, 2003, we began  deferring  payments of compensation
due to Mr.  Murray  due to a lack of funds  resulting  from the  institution  of
proceedings  by our  subsidiary  ITG Vegas,  under Chapter 11 of the  bankruptcy
code.  During the 3rd quarter all of the accrued but unpaid  wages in the amount
of $662,154 were paid to Mr. Murray.  On July 23, 2004 Mr. Murray  exercised his
option for 2,000,000 shares at an exercise price of $0.26875 per share.

                                       53
<PAGE>

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


     With the sale of our  Freehold  Raceway  property  on January  28,  1999 we
assumed  full  responsibility  for the  costs  associated  with the  clean up of
petroleum  and related  contamination  caused by the  leakage of an  underground
storage  tank  which was  removed in 1990,  prior to our  purchase  of  Freehold
Raceway.  In  February  2000 the N.J.  Department  of  Environmental  Protection
approved our remedial  investigation  workplan  ("RIW").  Under the RIW numerous
test wells were  drilled  and the soil tested and  monitored  to  determine  the
extent and direction of the flow of underground  hazardous  material and reports
and conclusions of the tests were prepared for the State of New Jersey. However,
prior to obtaining a remedial action workplan from the State of New Jersey,  the
work was  stopped  due to a lack of funds  resulting  from  the  institution  of
proceedings  by our  subsidiary,  ITG Vegas,  under Chapter 11 of the bankruptcy
code.  At this time we are unable to  predict  the  effects  that such delay may
cause, but it is likely that some retesting of the wells may be necessary. Prior
to the  delays it was  estimated  that the cost to  remediate  the site would be
approximately  $750,000.  As of June 30,  1999 we had  accrued  $362,000  and we
accrued an additional amount of approximately $388,000 during fiscal 2001 as the
scope of the project was further defined.  Such accruals were made with the help
of the environmental consulting firm engaged by the Company. These costs include
drilling  of  test  wells  and   monitoring,   lab  testing,   engineering   and
administrative  reports,  equipment and  remediation of the site through a "pump
and treat"  plan.  The  Company  has made  payments  of  approximately  $93,600,
$200,000,  and $323,000 during fiscal years 2000, 2001, 2002 respectively  which
were  charged  against  the  accrued  balances.  As of June 30, 2004 the accrued
balance was $130,398.  It is estimated that completion of the site clean up will
take  approximately  18  months  from the time  the  work is  reinstated.  It is
unlikely that the Company will receive any insurance reimbursement for our costs
of this remediation project.

     In connection with the January 28, 1999 sale and lease transactions for the
Garden  State  Park  facility,  we  purchased  a  liquor  license  owned  by  an
unaffiliated third party, Service America Corporation,  for $500,000 financed by
a five (5) year promissory note at a 6% interest rate. At December 31, 2002, the
unpaid principal balance was $160,000. Yearly principal payments of $80,000 plus
interest  were due on December  28, 2002 and December 28, 2003 and have not been
paid. The Company  entered into a sale and lease  agreement for the lease of our
premises from Jan. 28, 1999 to May 29, 2001 and the sale of a 10 acre portion to
be used as an OTB facility.  Under the terms of our sale and lease agreement the
lessee/buyer  purchased  the liquor  license for $100,000  and was  obligated to
return it to us in  exchange  for a refund of the  $100,000  payment  if, at the
expiration  of the lease,  June 27,  2002,  it did not have a use for the liquor
license at the OTB facility.  During the three year period Jan. 28, 1999 to Jan.
28, 2002 no OTB facility was built and the  lessee/buyer  did not have a use for
the liquor  license at that  property.  By the terms of the contract the Company
has the right to  re-acquire  the liquor  license for $100,000 and has exercised
such  right,  however  the  lessee/buyer  has  refused to  perform.  The Company
believes  it will need to take legal  action to enforce  its right to the liquor
license.

     Through ITG Vegas,  we have negotiated with the Port of Palm Beach District
a new operating agreement and lease of space in a new office complex constructed
at the Port of Palm  Beach  adjacent  to a new  cruise  terminal  effective,  as
modified,  May 5, 2003.  The term of the initial lease is five years at $183,200
per year payable  monthly.  We are also required to make tenant  improvements to
the new space in a minimum  amount of $333,000,  however that the actual cost to
make the improvements was  approximately  $950,000.  We will have the right to a
credit of up to the  minimum  amount of  improvements  required  of  $333,000 of
construction costs against the initial term of our five year lease.

     Through our subsidiary,  Royal Star  Entertainment  LLC, we have negotiated
with the Port of Palm Beach District a second Operating Agreement dated December
18, 2003, as subsequently

                                       54
<PAGE>

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


amended.  This  Operating  Agreement will permit us to operate the Empress II in
passenger  service from the Cruise Terminal at the Port,  with certain  berthing
and scheduling priorities.  The initial term of this Operating Agreement is five
years from the date of commencement of sailings by the Empress II from the Port,
with subsequent renewal options of four and three years.

     On August 6, 2004 we amended  the Lease and  Operating  Agreement  with the
Port of Palm Beach in order to permit our  construction  of a passenger  gangway
system  and  destination  signage on Port  property  and our  refurbishment  and
upgrading of the  passenger  cruise  terminal  facilities,  which  measures,  we
believe,  will enhance our ability to promote and market our cruise services. We
will  receive a  wharfage  credit  from the Port of Palm  Beach in the amount of
$75,000 with respect to our construction of the gangway. In addition,  we agreed
to pay the Port of Palm Beach $.50 per vehicle  parked in the passenger  parking
lot at the Port, for a minimum period of six months beyond the  commencement  of
cruise services at the Port of Palm Beach by the Empress II.

     On March 1, 2004 we entered  into a Dockage  Space  Agreement  between  the
Company  and the City of Riviera  Beach for  approximately  160 feet of concrete
dock space at the City Marina. The term is for one year for a fee of $10,000 per
month.  The  lease is  renewable  subject  to the  approval  of the  City.  This
Agreement  is intended  only for the purpose of making  available  the  assigned
space for vessels  other than a  day-cruise  gaming ship.  Further,  the Company
understands that in the event it wishes to dock a day-cruise gaming ship that it
will be required to enter into a new agreement with the City.

     In February 2003, an unrelated party deposited $200,000 to our escrow agent
on behalf of the Company for an option to charter a second  gaming  vessel which
would operate out of the Port of Palm Beach.  These funds were replaced on March
19,  2003 by a loan  obtained  from the  Florida  Bank,  N.A.  in the  amount of
$200,000.  The Company assumed a Promissory Note negotiated by Francis W. Murray
in the amount of $25,000 due on May 24, 2003.  This note was negotiated to cover
legal and  transactions  fees for the  $200,000  escrow  advance  on the  gaming
vessel.

     The following summarizes commitments on non-cancelable contracts and leases
as of June 30, 2004:
<TABLE>
                                              Year Ended June 30,
                     ---------------------------------------------------------------
                                                                                         There-
                          2005         2006          2007         2008        2009        after        Total
                     ------------   ----------    ----------   ----------   ---------   ---------   ------------
<CAPTION>
<S>                  <C>          <C>          <C>           <C>          <C>         <C>          <C>
Employee Contracts   $   722,884  $   327,035  $        -0-  $       -0-  $      -0-  $      -0-   $  1,049,919

Operating Leases         554,777      333,144       127,163       97,169         -0-         -0-      1,112,252

Casino Contracts         399,988       61,465        61,006       61,006      61,006     269,441        913,911
                     ------------   ----------    ----------   ----------   ---------   ---------   ------------
Total                $ 1,677,649  $   721,644  $    188,169  $   158,175  $   61,006  $  269,441   $  3,076,083
                     ============   ==========    ==========   ==========   =========   =========   ============
</TABLE>

LEGAL PROCEEDINGS

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

                                       55
<PAGE>

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


     Our  subsidiary,  ITG  Vegas,  Inc.,  successor  by  merger  to Palm  Beach
Princess, Inc., initiated proceedings under Chapter 11 of the Bankruptcy Code on
January 3, 2003. Such Chapter 11 case was closed on July 17, 2004. (See Note 2.)


(16) FAIR VALUE OF FINANCIAL INSTRUMENTS

     As of June 30, 2004, in assessing the fair value of financial  instruments,
the Company has used a variety of methods and  assumptions,  which were based on
estimates of market conditions and loan risks existing at that time. For certain
instruments,  including  cash  and  cash  equivalents,   investments,  non-trade
accounts  receivable and loans,  and short-term  debt, it was estimated that the
carrying amount  approximated  fair value for the majority of these  instruments
because of their  short-term  maturity.  The carrying  amounts of long term debt
approximate fair value since the Company's  interest rates  approximate  current
interest rates. On our original Cherry Hill note receivable in the amount of $10
million,  we have  elected to defer the gain on the sale and the  interest to be
accrued until such time that  collectability  can be  determined.  On our second
Cherry Hill note  receivable we have recorded a $10 million  impairment  loss to
reflect the estimated current market value of this note. (See Note 4)


(17) RETIREMENT PLANS

     Our parent  company  maintains a Retirement  Plan under the  provisions  of
section  401(k) of the Internal  Revenue  Code of 1986,  as amended (the "Code")
covering all its non-union  full time  employees who have  completed one year of
service.  The Company's basic  contribution under the plan is 4% of each covered
employee's  compensation  for such  calendar  year.  In  addition,  the  Company
contributes up to an additional 50% of the first 4% of compensation  contributed
by any  covered  employee to the plan (an  employee's  maximum  contribution  is
$12,000 factored for inflation annually).

     PBMC also  maintained a  Retirement  Plan under the  provisions  of section
401(k) of the Internal  Revenue Code of 1986,  as amended (the "Code")  covering
full time employees (approximately 265) who had completed one year of service.

     In connection with the bareboat charter agreement,  all of the employees of
our ITG Vegas  subsidiary  which  operates the Palm Beach  Princess were paid by
PBMC  until  January  1,  2004  when  they were  transferred  to ITG  Vegas.  We
reimbursed  PBMC for all of the employee  costs  incurred,  including  the costs
associated with the PBMC's 401(k) plan that covered those employees. As a result
of the Chapter 11 bankruptcy  cases filed in January 2003,  the seven  executive
and  administrative  employees of the parent company were also paid by PBMC from
that  date and were not  eligible  to  participate  in that  plan.  There may be
operational   errors  in  the  administration  of  the  plans  concerning  these
employees, as a result of which the Company may have liabilities,  the potential
amount of which has not yet been determined.

     Our expense  recorded for the fiscal  years ended June 30,  2004,  2003 and
2002, respectively, totaled $52,170, $34,021 and $40,901.

                                       56
<PAGE>

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


(18) STOCK OPTIONS AND WARRANTS

     (A) EMPLOYEE AND NON-EMPLOYEE OPTIONS

     The Company's 1994 Employees' Stock Option Plan ("Option Plan"), expired on
June 2, 2004. No options were  outstanding  under the Option Plan at the time of
expiration.

     On January 1, 2000 and October 16,  2000,  the Company  awarded  options to
purchase 5,000 and 6,500 shares  respectively  of the Company's  Common Stock to
various  employees  as part of annual  compensation.  On January  7,  2002,  Mr.
Francis W. Murray and Mr.  William H. Warner  were  awarded  options to purchase
2,000,000  and 75,000  shares,  respectively,  of the  Company's  Common  Stock,
expiring December 31, 2010, with an exercise price of $0.26875 per share.

     At a meeting of the Board of Directors of the Company  held  September  11,
2003, the Board unanimously  authorized future grants of stock options for up to
380,000 shares of common stock,  at an exercise price of $.50 per share,  to the
ITG Vegas,  Inc.  management  team,  which included 180,000 shares earmarked for
Francis  X.  Murray,  son  of  the  Company's  Chairman,  subject,  however,  to
confirmation  of ITG  Vegas'  Plan of  Reorganization  and  subject to the prior
payment  of  all   obligations  of  the  Company  to  the  Bankruptcy   Trustee.
Accordingly,  no such  options  will be issued or granted  until the  Bankruptcy
Trustee  shall  have  been  paid in full,  at which  time  the  Company  will be
authorized  (but not obligated) to grant such options  provided that the grantee
is still employed by the Company at that time.

     Also at the September 11, 2003 meeting of the Company's Board of Directors,
the Board  unanimously  authorized  the future  grant of options to  purchase an
additional  20,000 shares of common stock to Mr. Francis X. Murray,  at $.50 per
share,  subject to  confirmation  of ITG Vegas' Plan of  Reorganization  and the
prior payment of all  obligations of the Company to the Bankruptcy  Trustee.  No
such options shall be granted or issued until the Bankruptcy  Trustee shall have
been  paid in  full,  at which  time the  Company  will be  authorized  (but not
obligated) to grant such  options.  Such action was taken in order to compensate
Mr.  Francis X. Murray for his having  personally  guaranteed a loan of $300,000
for the  Company  and for his  providing  to the  Bankruptcy  Trustee a personal
guaranty for portions of the Company's obligations.

     At a meeting of the Board of  Directors of the Company held on November 18,
2003, the Board authorized the future grant of options to purchase 25,000 shares
of common stock to each non-employee  director,  Mr. James Murray and Mr. Walter
ReDavid,  at $.50 per share,  as  compensation  for their services as directors,
subject,  however, to the prior payment of all obligations of the Company to the
Bankruptcy Trustee. Accordingly, no such options will be issued or granted until
the  Bankruptcy  Trustee shall have been paid in full, at which time the Company
will be authorized  (but not obligated) to grant such options  provided that the
grantee is still serving as a director of the Company at that time.

     Also at the November 18, 2003  meeting of the Board,  the Board  authorized
the future grant of shares of common stock to each of Mr.  Francis W. Murray and
Mr.  Robert J.  Quigley as  compensation  in lieu of their  respective  deferred
salaries  upon  their  election  if they  continued  to defer  payment  of their
deferred  salary  existing on November 18, 2003.  Mr. Murray and Mr.  Quigley's,
deferred  salary  since  January  3, 2003  amounted  to  $344,865  and  $36,669,
respectively,  as of November 18, 2003. The Board also authorized payment of the
unpaid principal of a $24,000 loan to the Company by Mr. William H. Warner,  the
Company's  Secretary,  in the form of a future grant of shares. The Company will
pay the  deferred  salary to Mr.  Murray and Mr.  Quigley  and the  unpaid  loan
principal to Mr.  Warner in shares of common  stock,  valued for such purpose at
$.50 per share provided that the grantees agree to accept such

                                       57
<PAGE>

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


shares  (valued at $.50 per share) in  payment  of a portion,  specified  by the
grantee,  of the Company's  obligation to him.  Subsequent to June 30, 2004, Mr.
Murray and Mr. Quigley elected to take their then deferred salary in the form of
shares. (See Note 24 (B))

     At June 30, 2004,  total employee  options  outstanding  were 3,111,500 and
total non-employee options outstanding were 225,000. At June 30, 2004 all of the
employee and non-employee options were exercisable.

     At June 30, 2004,  total warrants  outstanding  were 275,000.  All warrants
were exercisable at June 30, 2004.

     On July 23, 2004 Mr. Murray exercised his 2,000,000  options at an exercise
price of $0.26875 per share.  The Company  issued  2,000,000  shares of Treasury
stock it held in exchange for proceeds of $537,500.

     The  following  table  contains  information  on stock  options for options
granted for the three year period ended June 30, 2004:

                                                 Stock Options
                                 ----------------------------------------------
                                                    Exercise         Weighted
                                     Number        Price Range       Average
                                    of Shares       Per Share        Price
                                 ------------- ------------------  ------------
   Outstanding at June 30, 2001    3,436,500      $0.269- $5.00       $ 1.89

   Canceled during FYE 6/02       (2,175,000)     $0.269- $5.00       $ 0.489

   Granted during FYE 6/02         2,075,000      $0.269              $ 0.269
                                 -------------
   Outstanding at June 30, 2002,
    2003 and 2004                  3,336,500      $0.269 - $5.00      $ 1.59
                                 =============


                                                       Exercise      Weighted
                                                     Price Range     Average
                                  Option shares       Per Share      Price
                                 --------------  ----------------- ------------
   Exercisable at June 30:
   2002                             3,336,500      $ 0.269 - $5.00    $ 1.59
                                 --------------  ----------------- ------------
   2003                             3,336,500      $ 0.269 - $5.00    $ 1.59
                                 --------------  ----------------- ------------
   2004                             3,336,500      $ 0.269 - $5.00    $ 1.59
                                 --------------  ----------------- ------------

                                       58
<PAGE>

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


     The following table summarizes  information about stock options outstanding
at June 30, 2004:

<TABLE>
                                                                         Ranges                      Total
                                                        ---------------------------------------  -------------
<CAPTION>
<S>                                                     <C>            <C>              <C>      <C>
Range of exercise prices                                 $0.20 - 0.50  $1.00 - 4.625      $5.00   $0.20 - 5.00
                                                        -------------  -------------    -------  -------------
Outstanding options:
--------------------
   Number outstanding at June 30, 2004                      2,281,500        755,000    300,000      3,336,500
                                                        ---------------------------------------  -------------
   Weighted average remaining contractual life (years)           6.14           1.82       2.50           5.48
                                                        ---------------------------------------  -------------
   Weighted average exercise price                               0.29           4.17          5           1.59
                                                        ---------------------------------------  -------------
Exercisable options:
--------------------
   Number outstanding at June 30, 2004                      2,281,500        755,000    300,000      3,336,500
                                                        ---------------------------------------  -------------
   Weighted average exercise price                               0.29           4.17          5           1.59
                                                        ---------------------------------------  -------------
</TABLE>

     Prior to July 1, 2002 we accounted  for all stock  option  grants under the
recognition  and measurement  provisions of APB Opinion No. 25,  "Accounting for
Stock Issued to Employees", and related Interpretations. No stock-based employee
compensation  cost is reflected in net income  before  fiscal 2003, as all stock
option  grants had an exercise  price equal or greater  than the market value of
the  underlying  common stock on the date of grant.  Effective  July 1, 2002, we
adopted  within  our  financial  statements  the  provisions  of SFAS  No.  123,
"Accounting  for  Stock-Based  Compensation"  by applying  the fair value method
prospectively  for stock options grants made on or after that date. Stock option
grants  under the 1995 Plan vest over  periods  ranging from six months to three
years. Therefore, the cost related to stock-based employee compensation included
in the determination of net income for fiscal 2003 is less than that which would
have been  recognized  if the fair value  based  method had been  applied to all
stock option  grants since the  original  effective  date of SFAS No. 123. As of
January 1, 2003,  we adopted the  provisions  of SFAS No. 148,  "Accounting  for
Stock-Based  Compensation  -  Transition  and  Disclosure".   Accordingly,   the
following table illustrates the effect on net income and net income per share if
the fair value method had been applied to all outstanding stock option grants in
each  period  including  the  options  granted to Mr.  Murray and Mr.  Warner in
January 2002.

<TABLE>
                                                                     Years Ended June 30,
                                                                     -------------------
                                                              004           2003         2002
                                                              ----          ----         ----
<CAPTION>
<S>                                                      <C>            <C>          <C>
Net Income (Loss): As Reported                           $ (6,800,030)  $ 5,233,826  $ 1,982,603
                                                           ------------   ----------   ----------
Pro Forma Net Income (Loss): Basic and Diluted           $ (6,800,030)  $ 5,233,826  $ 1,671,353
                                                           ------------   ----------   ----------
Net Income (Loss) Per Share: As Reported                 $      (0.86)  $      0.54  $      0.17
                                                           ------------   ----------   ----------
Pro Forma Net Income (Loss) Per Share: Basic and Diluted $      (0.86)  $      0.54  $      0.15
                                                           ------------   ----------   ----------
</TABLE>

     (B) WARRANTS

     During the fiscal  years ended June 30,  1996,  1997 and 1999,  the Company
issued 925,000, 746,847 and 932,153, respectively of warrants to purchase Common
Stock in connection  with  financing  activities.  During Fiscal 2002 and Fiscal
2004,  1,894,000  and  435,000  respectively  of  those  warrants  expired.  All
outstanding  warrants  are  exercisable  at June 30,  2004.  The  fair  value of
warrants  issued  during  the year  ended June 30,  1999 were  accounted  for as
financing expense.

                                       59
<PAGE>


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


     Warrants have been granted to acquire Common Stock at various prices above,
below  and at fair  market  value  at the date of  grant.  The  following  table
contains information on warrants for the three-year period ended June 30, 2004:

                                                    Warrants
                                                    --------

                                                            Exercise    Weighted
                                               Number     Price Range    Average
                                             Of Shares     Per Share      Price
                                             ---------   -------------  --------

Outstanding at June 30, 1999, 2000 and 2001  2,604,000   $2.50 - $5.25    $4.25

Expired During Fiscal 2002                  (1,894,000)  $4.375 - $5.25   $4.68
                                            ----------
Outstanding at  June 30, 2002 and 2003         710,000   $2.50 - $4.00    $3.08

Expired During Fiscal 2004                    (435,000)  $2.50            $2.50
                                            ----------
Outstanding at June 30, 2004                   275,000   $4.00            $4.00
                                            ==========

(19) DIVIDENDS

     The Company was  required to pay to the holders of the  Company's  Series A
Convertible  Preferred  Stock  ("Preferred  Stock") a cash dividend from any net
racetrack earnings, as defined, of Garden State Park. No dividends were required
for Fiscals 2003,  2002 and 2001.  Since the Company has sold Garden State Park,
no dividends will ever be paid on the Preferred Stock. The Preferred Stock has a
liquidation preference of up to its par value of $100 per share.

(20) TREASURY SHARES PURCHASED

     On December 13, 2002, the Company issued a promissory note in the amount of
$1,648,403 to purchase  3,228,146 shares of its Common Stock from the Chapter 11
Trustee for the bankruptcy  estate of Robert E. Brennan.  In connection with our
Chapter 11 Plan of  Reorganization,  effective October 15, 2003, we purchased an
additional 450,000 shares for $225,000, and the total amount of our debt for the
purchases  of stock as of October 15, 2003 was  $1,873,413  which also  includes
accrued  interest.  Such  indebtedness  was  combined  with the  obligations  to
purchase the Ship Mortgage Obligation,  and is payable over the next three years
together  with  interest  at 12% per  annum.  (See  Note 2). On July 7, 2004 the
Company paid in full the amount due under the Stock  Purchase  Agreement and the
Ship Mortgage Obligation.

(21) EXECUTIVE COMPENSATION

     Effective December 1, 2000, we entered into a five-year employment contract
with Mr. Francis W. Murray as our Chief Executive Officer. The contract provides
for  annual  compensation  of  $395,000,  a $1,500  monthly  automobile  expense
allowance,  a country club annual dues  allowance  and travel and  entertainment
reimbursements for business expenses  reasonably incurred by him, in addition to
participation  in various other benefits  provided to our employees.  As part of
his contract,  on December 28, 2000, Mr. Murray was awarded  options to purchase
2,000,0000

                                       60
<PAGE>

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


shares of our common  stock under an stock  incentive  plan which was subject to
stockholder approval.  Such options terminated in fiscal 2002 since the Plan was
not submitted for shareholder approval,  and replacement options were granted in
fiscal 2002 with an exercise price of $0.26875 per share,  expiring December 31,
2010.

     In  connection  with the  bareboat  charter with Palm Beach  Maritime  Corp
("PBMC")  (formerly  MJQ Corp.) we are  obligated  to honor  several  employment
contracts  between key  executives  and PBMC.  A contract  for Francis X. Murray
which  expired on December 31, 2003  provided for a base salary of  $290,000,and
$310,000  respectively  during  calendar years 2002 and 2003.  Additionally  the
contract  provides  for an  annual  bonus of up to 30% of the  executive's  base
salary if certain EBITDA  performance  goals are met,  membership to a golf club
and other expense  allowances.  The Company  continues to honor the terms of the
contract from year to year.

(22) RELATED PARTY TRANSACTIONS

     During the third  quarter of Fiscal  2001,  we invested in two  projects in
which our Chairman,  President and Chief Executive  Officer,  Francis W. Murray,
also has a pecuniary interest. In connection with one such project, the Board of
Directors  approved  advances,  as  loans,  of up to $1.5  million  to a limited
partnership  in which  Francis W.  Murray  owned,  at that  time,  an 80% equity
interest and owned the general partner, the proceeds of which were to be used to
pay costs and expenses for development of a golf course in Southern  California.
Mr. Murray's equity interest in the limited partnership,  indirectly through his
ownership of the general partner,  as of December 26, 2002, was 64%. At December
26, 2002,  loans of $735,584 were outstanding on such project and we had accrued
$155,945  of  interest  due on the loans.  On  December  26,  2002,  the limited
partnership's  indebtedness  to us was  assumed  by OC  Realty,  LLC,  a Florida
limited liability company which is owned by Francis W. Murray and which owns the
second real estate project  described below.  Such  indebtedness is due December
31, 2004 and bears an interest rate of 6%.

     In the second project, Mr. Murray is participating in the development of an
oceanfront  parcel  of land,  located  in Fort  Lauderdale,  Florida,  which has
received all governmental  entitlements from the City of Fort Lauderdale and the
state of Florida to develop a  14-story  building  to include a 5-story  parking
garage,  approximately  6,000 square feet of commercial  space and a residential
9-story tower.  The property had been owned by MJQ  Development,  LLC, which was
owned by Michael J. Quigley,  III until  December 26, 2002 when the property was
acquired by OC Realty,  LLC, the entity owned by Mr. Murray.  Mr. Quigley has no
relationship to Robert J. Quigley, one of our directors. OC Realty is developing
a condominium  hotel resort on the property as discussed  above.  As of June 30,
2004,  we had lent  $2,034,405 in total to MJQ  Development  and we have accrued
interest  in the amount of  $911,350 on the loan.  Upon the  acquisition  of the
property,  OC Realty assumed MJQ  Development's  indebtedness to us. These loans
bear  interest at 12% and will be  repayable  out of the first  proceeds,  after
payment of bank debts,  generated by the sale of the condominiums.  We will also
have the right to receive, as participation  interest,  from available cash flow
of OC Realty if the project is successful,  a priority  return of our investment
and a priority profits interest for up to three times our investment.  Repayment
of these loans and our  participation  interest will be subject to repayment of,
first,  bank debt of  approximately  $5.5 million (at  present)  incurred in the
purchase of the real property and, second,  construction  financing  expected to
amount to $25 to $30 million  and third,  capital  invested  by a joint  venture
partner  (which had been expected to be up to $6.5 million) plus a 15% per annum
return  thereon.  At the time the loans to MJQ  Development  were approved,  Mr.
Murray stood to receive a substantial  contingent  benefit from MJQ  Development
for his  participation  in the  project.  Fair value and  collectability  of the
original

                                       61
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                   INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


investment  of  $2,034,405  and accrued  interest  was  determined  by the joint
venture through projections evidencing our collection upon build out and sale of
the project.

     In order to raise the capital with which to proceed in the  development  of
the Ft. Lauderdale property, OC Realty has placed the Ft. Lauderdale property in
a joint venture in connection  with which the other joint venture partner was to
fund up to $6.5 million for development and receive a 50% equity  interest.  Our
loan and participation  interest will be payable out of OC Realty's 50% share of
distributions  after repayment of debt and the new investor's capital investment
and  15%  annual  return  thereon.   However,  the  joint  venture  partner  has
discontinued  its funding  for the  project.  OC Realty has loaned  funds to the
joint venture to meet its current requirements at a 20% annual interest rate. In
addition,  OC Realty is in  discussions  with third parties to replace its joint
venture partner and is considering entering into a development  agreement with a
recognized  developer to aid the  marketability  of the project,  however,  such
arrangements  will vary from the  arrangnments  cited  above  with its prior 50%
joint venture.  The Company has assessed the collectability of the advances made
to OC Reality based on comparable  sales of like units in the marketplace  which
suggest  demand is strong and  prospective  sales of the project's  inventory or
units  will  be more  than  adequate  to  meet  its  obligations  including  our
outstanding notes payable.

     Effective  April 30,  2001,  we entered  into a bareboat  charter with Palm
Beach Maritime  Corp.  ("PBMC")  (formerly MJQ Corp.),  pursuant to which we are
chartering  the vessel M/V Palm Beach  Princess  for the purpose of operating an
entertainment  casino  cruise  business  from the Port of Palm  Beach,  Florida.
Michael  J.  Quigley,  III was a  principal  of PBMC.  Francis  W.  Murray,  our
Chairman, President and Chief Executive Officer has been an officer and director
of PBMC and in October 2002, purchased the stock of PBMC. Francis X. Murray, the
son of Francis W. Murray, is President and a director of PBMC and Vice President
of our  subsidiary,  ITG Vegas,  Inc.,  which  operates  the  vessel.  Under the
bareboat charter  agreement,  in effect until July 7, 2004, we were obligated to
pay $50,000 per month as the charter  hire fee to PBMC.  All costs of  operating
the vessel  incurred by PBMC on our behalf were to be  reimbursed by us to PBMC.
In addition,  as described in Notes 3 and 11-A above, we entered into an amended
Master Settlement Agreement with the Chapter 11 Trustee of the Bankruptcy Estate
of Robert E. Brennan,  PBMC and others to purchase from the Brennan  Trustee the
Ship Mortgage  Obligation of PBMC,  having an original  balance of principal and
interest  outstanding  at April 3, 2001 of  approximately  $15.7  million  for a
purchase price of $13.75 million.  Pursuant to the Master Settlement  Agreement,
PBMC and its  officers and  directors  (including  Francis W. Murray)  exchanged
mutual  releases  with the Brennan  Trustee and others having claims to the Ship
Mortgage Obligation.

     On November 13, 2002,  the Company and PBMC signed an agreement and bill of
sale  which  transferred   maintenance   materials  and  spare  parts  inventory
previously  maintained  by PBMC to Palm Beach  Princess,  Inc.  The value of the
parts inventory sold and assigned was $1,103,125.  Payment for the inventory was
made by way of  offsets on amounts  previously  due to PBMC.  Fair value of this
inventory was determined by actual invoice prices and estimates made by the Palm
Beach Princess ship engineers.

     We entered into an  agreement to purchase all of the shares of  outstanding
stock of Leo Equity Group, Inc. Mr. Francis W. Murray had been a director of Leo
Equity Group, Inc. Closing on the Leo Equity Group, Inc. stock purchase occurred
effective October 27, 2002. As  consideration,  we agreed to reduce the exercise
price of previously granted options held by the seller, Frank A. Leo (our former
director and chairman),  to purchase  200,000  shares of our common stock,  from
$4.00 per share to $.50 per share, while  conditioning  exercise of such options
upon our first  having  consummated  the  purchase of the shares  required to be
purchased by us from the

                                       62
<PAGE>

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


Brennan Trustee under the Stock Purchase Agreement.  Due to the uncertainties at
June 30,  2003,  the  Company  did not  recorded  any  expense for the change in
exercise price.  The purpose of such  acquisition was to enable us to obtain the
lease and operating  agreement  with the Port of Palm Beach  District  which had
been owned by Leo Equity Group, Inc.

     Through  the  purchase  of Leo  Equity,  we also  purchased  the assets and
operations of GMO Travel which was a 100% owned  subsidiary  of Leo Equity.  GMO
Travel  provides  reservations  and travel  services for our Palm Beach Princess
subsidiary and other non-ship related travel activities. Travel services for the
Palm Beach Princess  include  reservations  and travel services for its numerous
foreign  employees and our customers,  many of which rely on air travel to reach
our location.  The goodwill  recorded in the amount of $193,946  represents  the
fair value of GMO Travel based on its  discounted  cash flows and the  synergies
and cost savings gained by the Palm Beach Princess.

     The  Master  Settlement  Agreement  with the  Chapter  11  Trustee  for the
Bankruptcy Estate of Robert E. Brennan (the "Brennan  Trustee") included a final
settlement  by the Brennan  Trustee with numerous  parties.  Among those parties
were Frank A. Leo, Leo Equity Group, Inc., Michael J. Quigley III and Palm Beach
Maritime Corp.("PBMC")  (formerly MJQ Corp.). During the quarter ended March 31,
2002 the Company  charged Leo Equity Group  $3,000,000  and PBMC  $1,000,000 for
their  portion of  expenses  incurred by us and a success fee for the efforts of
International   Thoroughbred  Breeders,   Inc.  in  connection  with  the  final
settlement  with the Brennan  Trustee.  Prior to our  acquisition  of Leo Equity
Group,  Inc., Leo Equity Group, Inc.  assigned to us certain  receivables in the
approximate  amount of $3 million,  including the  receivables of  approximately
$2.6 million due it from Michael J. Quigley III, in payment of this  obligation.
We have deferred all income from these  transactions  until such time as payment
is  received.  That  $2.6  million  debt  from  Mr.  Quigley  is a  non-recourse
obligation  which is payable  solely from pledged  shares of his stock in PBMC (
The "PBMC Debt"). Mr. Francis W. Murray purchased PBMC stock subject to our lien
securing  payment of the PBMC Debt.  During the first quarter of Fiscal 2005, we
received payment in full of the PBMC debt.

     On January 26, 2001, we borrowed $1,000,000 from Michael J. Quigley, III at
an annual interest rate of 10%. Principal and interest on the note was due on or
about  April 25,  2001.  On May 14,  2001,  the loan was  modified  to be due on
demand.  On February 20, 2002 Mr. Quigley released his security  interest in the
Realen note in connection with the Master Settlement Agreement.  On May 8, 2002,
we made a payment of $100,000 against the note. On February 20, 2004 the Company
paid in full its  indebtedness to Mr. Quigley in the amount of $1,206,850  which
included accrued interest.

     On July 12, 2002, we borrowed  $300,000 from Francis W. Murray at an annual
interest  rate of 6%.  During  Fiscal  2003,  we reduced  the loan to  $250,000.
Payment was made to Mr. Murray in full during the fourth quarter of Fiscal 2004.

     Francis X. Murray, Vice President of our ITG Vegas, Inc. subsidiary and son
of Francis W. Murray,  our President,  CFO and CEO agreed to loan the company up
to  $225,000  in the form of a line of  credit.  As of June 30,  2004  this loan
together with accrued interest at 8% totaled $175,306. (See Note 11-B)

     On November 1, 2002 The Company employed Tanuja Murray,  daughter-in-law of
Francis W. Murray.  Mrs. Murray holds a law degree and is acting in the capacity
of assistant to the

                                       63
<PAGE>

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


Chairman  involving  the  Company's   exploration  of  gaming  related  business
opportunities.  Mrs.  Murray  earns  $60,000 per year in addition to the regular
employee benefits paid by the Company.

     At a meeting of the Board of Directors of the Company held on June 29, 2004
the board authorized  reimbursement to Francis W. Murray for tax consequences he
would  incur as a result of the PDS  Transaction.  The  amount  and form of such
reimbursement  will be determined by the full board of directors when data as to
such tax consequences becomes available.

     On July 7,  2004,  the  Company  entered  into a  five-year  charter of two
vessels,  the Palm Beach Princess and the Empress II, under the terms  described
in Part I, Item I above under the  caption,  PDS  Transactions.  The vessels are
chartered to us by PBMC and Palm Beach Empress, Inc. Mr. Murray is sole owner of
PBMC and a 50% owner of Palm Beach Empress, Inc. (See Note 24 below.)

(23) QUARTERLY FINANCIAL DATA (UNAUDITED)

     The following  quarterly  financial  data is unaudited,  but in our opinion
includes  all  necessary  adjustments  for a fair  presentation  of the  interim
results:

<TABLE>
                                                                    Fiscal 2004
                                         ----------------------------------------------------------
                                         4th Quarter     3rd Quarter     2nd Quarter    1st Quarter
<CAPTION>
<S>                                   <C>             <C>             <C>             <C>
Revenues                              $    8,689,364  $    9,697,707  $    7,000,011  $   7,575,157

Income Before Impairment              $      212,818  $    1,765,056  $      363,036  $     859,060

Impairment (Loss)                     $  (10,000,000) $          -0-  $          -0-  $         -0-

Net Income(Loss)                      $   (9,787,182) $    1,765,056  $      363,036  $     859,060

Net Income (Loss) Per Share - Basic   $        (1.24) $         0.23  $         0.05  $        0.10

Net Income (Loss) Per Share -Diluted  $        (1.24) $         0.17  $         0.04  $        0.10
</TABLE>

<TABLE>
                                                            Fiscal 2003
                                         ----------------------------------------------------------
                                         4th Quarter     3rd Quarter     2nd Quarter    1st Quarter
<CAPTION>
<S>                                   <C>             <C>             <C>             <C>
Revenues                              $    9,073,913  $    8,890,400  $    6,907,111  $   6,419,175

Net Income                            $    2,347,240  $    1,878,471  $      595,001  $     413,114

Net Income Per Share                  $         0.21  $         0.23  $         0.06  $        0.04
</TABLE>

(24) SUBSEQUENT EVENTS

     (A) PDS Transaction

     On July 7, 2004,  the Company and its  subsidiaries  ITG Vegas,  Inc. ("ITG
Vegas") and ITG Palm Beach, LLC ("ITGPB") and its affiliates Palm Beach Maritime
Corporation  ("PBMC")  (formerly MJQ Corp.) and Palm Beach Empress,  Inc.("PBE")
closed on a series of related transactions (the "PDS Transactions")  pursuant to
which PBMC sold and then leased back

                                       64
<PAGE>


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


the casino cruise ship Palm Beach Princess ("Princess"),  PBE leased (as lessee)
the casino  cruise ship  Empress II  ("Empress"),  ITG Vegas and ITGPB  obtained
long-term  charters  to operate,  and  options to  purchase,  the  Princess  and
Empress, and PBMC, ITG Vegas and the Company were able to extinguish their joint
debts.  ITG Vegas's  investment in the Ship Mortgage Note,  described below, was
converted into an investment in the options to purchase the two vessels.

     All of the outstanding capital stock of PBMC is owned by Francis W. Murray,
the Chief Executive Officer of the Corporation. PBMC owns 50% of the outstanding
capital stock of PBE. The remaining 50% of the outstanding  capital stock of PBE
is owned by  Raymond  Parello  and has been  pledged  to the  Company  to secure
certain debts as described in the Company's  Report on Form 8-K filed on July 6,
2004.

     The following is a summary of the principal terms of the PDS  Transactions.
The summary  does not purport to be a complete  summary and is  qualified in its
entirety by reference to the documents  which were filed as exhibits to the Form
8-K filed on July 21, 2004.

     Sale-Leaseback   of  the  Princess.   Prior  to  the  closing  of  the  PDS
Transactions  (the "Closing"),  the Princess was owned by PBMC. On May 13, 1999,
PBMC issued to Cambridge  Capital Group,  Inc. a note in the original  principal
amount of  $12,000,000  (the  "Ship  Mortgage  Note"),  which  was  subsequently
acquired by Donald F. Conway,  as Chapter 11 Trustee of the Bankruptcy Estate of
Robert E. Brennan (the "Brennan Trustee"). The Ship Mortgage Note was secured by
a  Second  Naval  Mortgage  over the  Princess  (which  became a first  priority
mortgage when  obligations  secured by the first  mortgage were paid) (the "Ship
Mortgage").  Pursuant to a Purchase and Sale agreement  dated February 22, 2002,
ITG Vegas agreed to purchase the Ship  Mortgage  Note and Ship Mortgage from the
Brennan Trustee for a purchase price of $13,750,000 (the "Purchase Obligation").
In addition,  the Company was indebted to the Brennan Trustee in connection with
the  Company's  repurchase  of  3,678,145  shares of its common  stock (the "ITB
Obligation").  As of Closing,  the aggregate  outstanding amount of the Purchase
Obligation  and ITB  Obligation  was  $7,916,451.71,  for all of which PBMC, ITG
Vegas and the Company were jointly and severally liable. At the Closing,  Cruise
Holdings I, LLC ("Cruise  I"), a subsidiary of PDS Gaming  Corporation  ("PDS"),
purchased the Princess  from PBMC for  $14,000,000,  $7,916,451.71  of which was
paid by PBMC directly to the Brennan Trustee to satisfy the Purchase  Obligation
and ITB Obligation.

     Also at  Closing,  Cruise I entered  into a Bareboat  Charter and Option to
Purchase (the "Princess  Charter") and a Master Lease  Agreement  (together with
Lease Schedule No. 1 thereto,  the "Princess Master Lease") to charter and lease
the Princess to PBMC and PBE for a period of five years.  The charter  hire/rent
payable  by  PBMC  and  PBE is  $178,500  per  month  for the  first  12  months
(equivalent to interest only on a capital lease  obligation of $14,000,000)  and
$391,762.80 for the remaining term (amortizing the capital lease obligation over
the next four years) of the  Princess  Charter.  In  addition,  PBMC and PBE are
required  to make  annual  cash flow sweep  payments  (equivalent  to  mandatory
principal  prepayments)  (the "Cash Flow Sweep") if the EBITDAR (earnings before
interest, taxes, depreciation, amortization and rents) from the operation of the
Princess and the Empress ("EBITDAR") is less than $10,000,000 per year. Any Cash
Flow Sweep  payments to be made under the Princess  Charter will  ultimately  be
made by ITG Vegas and ITGPB (as the  operators  of the  Princess),  as described
below.

     The Princess  Charter  includes an option for PBMC to purchase the Princess
at the end of the term and is  structured  such that the  monthly  charter  hire
payments  under the  Princess  Charter  will reduce the  purchase  price for the
Princess to zero in five years (assuming there are no payment

                                       65
<PAGE>

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

defaults) and title will  automatically  pass to PBMC at (or, if Cash Flow Sweep
payments are made, before) the end of the term of the Princess Charter.

     PBMC  and  PBE  entered  into  a   Sub-Bareboat   Charter  (the   "Princess
Sub-Charter")  at Closing to charter the Princess to ITG Vegas and ITGPB for the
same five year period.  ITG Vegas will operate the  Princess,  with ITGPB having
joined in the  Sub-Bareboat  Charter in order to be jointly and severally liable
with ITG Vegas for charter  hire  thereunder.  The charter  hire  payable by ITG
Vegas and ITGPB to PBMC and PBE under the  Princess  Sub-Charter  is $50,000 per
month ($600,000 per year) plus one percent (1%) of the gross operating  revenues
of the Princess.  Under the Princess Sub-Charter,  PBMC granted to ITG Vegas and
ITGPB an option to purchase  PBMC's  right to acquire the Princess at the end of
the term,  for an exercise  price equal to the appraised  value of the Princess,
$17,500,000, to which certain amounts are to be credited as described below (the
"Princess Purchase Option").  As consideration for the Princess Purchase Option,
ITG Vegas will make Cash Flow Sweep  payments  on the same terms as PBMC and PBE
are required to make such payments under the Princess  Charter (and  effectively
will make such  payments  directly  to Cruise I on behalf of PBMC and PBE to the
extent any such  payments are due).  As further  consideration  for the Princess
Purchase Option,  ITG Vegas and ITGPB are to make payments of $178,500 per month
for the first 12 months and $391,762.80 for the remaining  four-year term of the
Princess Sub-Charter (i.e., the same amounts as the charter hire payable by PBMC
and PBE under the Princess Charter) (the "Princess Additional Payments"). If ITG
Vegas and ITGPB fail to make any Cash Flow Sweep payment or Princess  Additional
Payment when due, PBMC may terminate the Princess Purchase Option. Upon exercise
of the Princess Purchase Option, ITG Vegas and ITGPB will be entitled to credits
against the exercise price of the Princess  Purchase  Option for (i) ITG Vegas's
investment  of  $7,244,000  in the Ship  Mortgage  Note  (except  to the  extent
credited  toward  payment of the exercise  price for the purchase  option on the
Empress under the Empress Sub-Charter, described below), plus (ii) the aggregate
amount of all Cash Flow Sweep payments made under the Princess Sub-Charter, plus
(iii) the portion of the Princess  Additional  Payments  made for the 13th month
through the 60th month of the term of the  Princess  Sub-Charter  which would be
considered  principal  payments if such  Additional  Payments  were  payments of
principal and interest on a loan of  $14,000,000  amortized over 48 months at an
interest  rate of 15.3%.  In  addition,  the exercise  price for the  assignment
option may be offset by any debts owing by PBMC to ITG Vegas and/or ITGPB.

     Acquisition of the Empress. On March 1, 2004, PBE entered into an agreement
to  purchase  the  vessel  known  as the  M/V  Empress  II  (the  "Empress  Sale
Agreement")  from Empress Joliet  Corporation at a purchase price of $3,800,000.
The Empress  requires  approximately  $8,500,000 of  alterations,  retrofits and
improvements  to prepare it for use as a casino  cruise ship, a portion of which
in the  amount of  $2,880,652  will be paid for by ITG Vegas . At  Closing,  PBE
assigned to Cruise  Holdings  II, LLC ("Cruise  II"),  a  subsidiary  of PDS and
affiliate  of Cruise I, all of its  rights,  title  and  interest  in and to the
Empress Sale  Agreement,  and the sum of  $6,000,000  was deposited in a blocked
account to be used to pay costs of the alterations, retrofit and improvements of
the Empress. Such deposit was funded to the extent of $2,880,652 by ITG Vegas.

     Also at Closing,  Cruise II entered  into a Bareboat  Charter and Option to
Purchase (the "Empress  Charter") and a Master Lease  Agreement  (together  with
Lease Schedule No. 1 thereto,  the "Empress  Master Lease") to charter and lease
the  Empress to PBMC and PBE for a period of five  years.  The  charter  hire is
$82,695 for the first 12 months  (equivalent  to  interest  only on a $6 million
capital lease obligation) and $171,702.54 for the remaining term (amortizing the
capital lease  obligation over the next four years) of the Empress  Charter.  In
addition,  PBMC and PBE are  required to make  annual  Cash Flow Sweep  payments
(equivalent to mandatory prepayments of

                                       66
<PAGE>

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


principal)  based on the EBITDAR  from  operation of the Princess and Empress as
described in respect of the Princess Charter above.

     The Empress  Charter  includes an option for PBE to purchase the Empress at
the end of the term and is structured  the same as the Princess  Charter in that
the monthly  payments of charter hire under the Empress  Charter will reduce the
purchase price for the Empress to zero (assuming there are no payment  defaults)
and title will automatically pass to PBE at (or, if Cash Flow Sweep payments are
made, before) the end of the term of the Empress Charter.

     PBMC  and PBE  also  entered  into a  Sub-Bareboat  Charter  (the  "Empress
Sub-Charter")  at Closing to  charter  the  Empress to ITG Vegas and ITGPB for a
five year period.  ITGPB plan to operate the Empress as a casino cruise business
from the Port of Palm Beach,  with ITG Vegas having  joined in the  Sub-Bareboat
Charter in order to be jointly and severally  liable with ITGPB for charter hire
thereunder.  The charter  hire  payable by ITG Vegas and ITGPB under the Empress
Sub-Charter  is $100,000 per month ($1.2 million per year) plus one percent (1%)
of the gross operating revenues of the Empress.  Under the Empress  Sub-Charter,
PBE granted to ITG Vegas and ITGPB an option to purchase  PBE's right to acquire
the Empress at the end of the term, for an exercise price equal to the appraised
value of the Empress,  to be determined upon the retrofitting and  refurbishment
of the Empress,  to which certain  amounts are to be credited as described below
(The "Empress  Purchase  Option").  As  consideration  for the Empress  Purchase
Option,  ITG Vegas will make Cash Flow Sweep  payments on the same terms as PBMC
and PBE are  required  to make such  payments  under the  Empress  Charter  (and
effectively will make such payments  directly to Cruise II on behalf of PBMC and
PBE to the extent any such payments are due). As further  consideration  for the
Empress Purchase Option, ITG Vegas and ITGPB are to make payments of $82,695 per
month for the first 12 months  and  $171,702.54  for the  remaining  term of the
Empress  Sub-Charter (i.e., the same amounts as the charter hire payable by PBMC
and PBE under the Empress Charter) (the "Empress Additional  Payments").  If ITG
Vegas and ITGPB fail to make any Empress  Additional  Payments when due, PBE may
terminate the Empress  Purchase  Option.  Upon exercise of the Empress  Purchase
Option,  ITG Vegas and ITGPB will be  entitled to credits  against the  exercise
price of the Empress Purchase Option for (i) ITG Vegas's  investment in the Ship
Mortgage  Note  (except to the extent  credited  toward  payment of the exercise
price for the purchase  option on the Princess  under the Princess  Sub-Charter,
described  above),  plus  (ii)  the  amounts  of  costs  for  the  retrofit  and
improvements  to the Empress which are paid by ITG Vegas or ITGPB plus (iii) the
aggregate  amount  of all Cash  Flow  Sweep  payments  made  under  the  Empress
Sub-Charter,  plus (iv) the portion of the Empress Additional  Payments made for
the 13th month  through  the 60th month of the term of the  Empress  Sub-Charter
which would be considered  principal  payments if such Additional  Payments were
payments of principal  and interest on a loan of  $6,000,000  amortized  over 48
months at an interest rate of 16.54%.  In addition,  the exercise  price for the
assignment  option may be offset by any debts owing by PBMC to ITG Vegas  and/or
ITGPB.

     Lease of Gaming Equipment.  At Closing,  ITG Vegas and ITGPB entered into a
Master  Lease,  together  with three  Lease  Schedules  (the  "Gaming  Equipment
Lease"),  to lease certain new and used gaming equipment from PDS for use on the
two vessels.  A portion of the  equipment was  previously  owned and used by ITG
Vegas on the Princess and was sold to PDS at Closing, for $500,000,  pursuant to
a Warranty Bill of Sale and Transfer  Agreement and then leased back pursuant to
the Gaming Master Lease.  Each Schedule of the Gaming Equipment Lease has a term
of three years from the time the  equipment  under that Schedule is delivered to
and  accepted by ITG Vegas and ITGPB.  Aggregate  rent for all gaming  equipment
will be approximately  $1.4 million per year. ITG Vegas and ITGPB have an option
to purchase  the leased  equipment  at the end of the term for a purchase  price
equal to the fair  market  value of the  equipment  at such time  (less,  to the
extent

                                       67
<PAGE>

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


any items of equipment were replaced during the previous  12-month  period,  the
excess of the then-  current book value of the  replacement  equipment  over the
book value of the old equipment at the time of replacement).

     Guaranty  Agreements.  As a condition to entering into the PDS Transaction,
PDS  required  the  Corporation,  ITG  Vegas,  ITGPB,  PBMC and PBE to  guaranty
performance of certain of the PDS Transactions.  The Corporation,  ITG Vegas and
ITGPB entered into Guaranty  Agreements  guarantying the obligations of PBMC and
PBE under the Princess  Charter,  Princess  Master  Lease,  Empress  Charter and
Empress  Master  Lease.  The  Corporation,  PBMC and PBE entered into a Guaranty
Agreement  guarantying  the  obligations of ITG Vegas and ITGPB under the Gaming
Equipment Lease.

     Additional Security. As security for the performance by ITG Vegas under the
Guaranty Agreements  described above and the Princess and Empress  Sub-Charters,
ITG Vegas entered into a Collateral  Assignment of the Maritime  Office  Complex
Lease and Operating  Agreement  and Other Lease as well as a Leasehold  Mortgage
pursuant to which it assigned as collateral to Cruise I and Cruise II its rights
under its lease for space, and its operating rights, at the Port of Palm Beach.

     Limitation on Upstream  Payments to the Corporation.  Upstream  payments by
ITG Vegas to the Company are limited under the Princess  Sub-Charter and Empress
Sub-Charter. If the "YTD Result" (defined as 10/12ths of annualized EBITDAR from
operation of the two vessels) is greater  than  $8,000,000  at the end of any of
the first three fiscal  quarters or EBITDAR from operation of the two vessels is
greater  than  $8,000,000  at the end of any fiscal  year,  and if ITG Vegas and
ITGPB have made all  payments  due under the  Princess  Sub-Charter  and Empress
Sub-Charter,  ITG  Vegas  may  make  (i) tax  sharing  payments  to the  Company
(payments  equal to the federal  income tax savings to ITG Vegas  resulting from
its  inclusion  in the  Company's  consolidated  group for  federal  income  tax
purposes)  including any tax sharing payments previously deferred as a result of
the limitation under the Princess Sub-Charter or Empress  Sub-Charter,  and (ii)
other  payments to the Company in an amount  which,  together  with charter hire
payments  in excess of $100,000  per month to PBMC and PBE for the two  vessels,
shall not exceed  $200,000 per month (a "Restricted  Payment").  If ITG Vegas is
prohibited from making any Restricted  Payment for any month, once such payments
are again allowed, such Restricted Payment may be made to the Company,  provided
that the total amount of  Restricted  Payments paid by ITG Vegas to the Company,
PBMC and PBE in any twelve-month period may not exceed $2,400,000.

     (B) Options Exercised and Shares Issued

     On July 23, 2004 Mr. Murray  exercised  his  2,000,000  options to purchase
2,000,000  shares of Common  Stock at $.26875  per  share.  The  Company  issued
2,000,000 shares of stock held in treasury in exchange for proceeds of $537,500.
In November  2003,  the Company's  Board of Directors  approved  issuance of the
Company's Common Stock,  valued at $0.50 per share, in exchange for the deferred
salary of Mr.  Murray and Mr.  Quigley.  In July  2004,  Mr.  Murray  elected to
receive his salary of $344,865  accrued from January 3, 2003 until  November 18,
2003,  which had been  deferred,  in the form of 689,730 shares of the Company's
Common  Stock.  In August  2004,  Mr.  Quigley  elected to receive his salary of
$36,339 which had been deferred,from January 3, 2003 until November 18, 2003, in
the form of 72,678 shares of the Company's Common Stock.

     (C) Hurricanes

     During the first quarter of Fiscal 2005, the Palm Beach area was threatened
by several hurricanes passing over or near Florida.  We suffered materially from
the effects of these hurricanes

                                       68
<PAGE>

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

"Frances"  and "Jeanne" that left the area without  power,  resulting in curfews
and limited food, water and life resources that significantly contributed to the
evacuated population remaining out of the area. As a result of these hurricanes,
our  business  was  severely  affected  by the  loss in the  pool  of  potential
passengers,  both local residences and tourists, who needed a significant period
of time to recover.  Tewenty Nine of our daily cruises were cancelled during the
period of time that the  hurricanes  affected  the area.  The loss of our vessel
from  service  for any period of time has  adversely  affected  and could in the
future adversely affect our revenues.

     (D) Chapter 11 Final Decree

     On July 17, 2004,  the  Bankruptcy  Court issued a final decree closing the
Debtor's Chapter 11 cases.

     (E) Collection of Deferred Income

     During the quarter  ended March 31,  2002,  the Company  charged Leo Equity
Group $3 million and PBMC $1 million for their  portion of expenses  incurred by
us and a success fee for the  efforts of  International  Thoroughbred  Breeders,
Inc. in connection with the final settlement with the Chapter 11 Trustee for the
Bankruptcy Estate of Robert E. Brennan (the "Brennan Trustee").  We had deferred
all income  from these  transactions  until such time as payment  was  received.
During the first quarter of Fiscal 2005, we received  payment for the previously
deferred income.

     (F) Issuance of Stock for Tax Consequences

     At a meeting of the Board of Directors of the Company held on June 29, 2004
the board authorized  reimbursement to Francis W. Murray for tax consequences he
would  incur as a result of the PDS  Transaction.  The  amount  and form of such
reimbursement  will be determined by the full board of directors when data as to
such tax consequences becomes available.


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

          None

Item 9A. Controls And Procedures

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

     Within  90 days  prior  to the  filing  of this  report,  we  completed  an
evaluation,  under the supervision and with the participation of our management,
including  our chief  executive  officer  and chief  financial  officer,  of the
effectiveness  of the  design  and  operation  of our  disclosure  controls  and

                                       69
<PAGE>

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


procedures.  Based on the  foregoing,  our  chief  executive  officer  and chief
financial  officer  concluded  that  the  Company's   disclosure   controls  and
procedures were effective.

     There have not been any significant changes that occurred during the fiscal
quarter  ended June 30,  2004 in the  Company's  internal  controls  or in other
factors that could significantly affect these controls subsequent to the date of
their evaluation.

Item 9B. Other Information

          Not applicable

                                       70
<PAGE>

                                    Part III

Item 10. Directors and Executive Officers of the Registrant.

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


Name                    Age      Position
----                    ---      --------
Francis W. Murray         63     Chairman of the Board,
                                 President and Chief Executive Officer
James J. Murray           65     Director
Walter ReDavid            78     Director
Robert J. Quigley         75     Director

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

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

     Francis  W.  Murray.  Mr.  Murray  has been a  director  since 1996 and our
President,  Chief Executive  Officer and Chairman of the Board since October 10,
2000. On October 15, 2002,  Mr. Murray  assumed the position of Chief  Financial
Officer. From time to time from November 1995 until June 1999, Mr. Murray served
as President of the Company's  subsidiaries  International  Thoroughbred  Gaming
Development Corporation ("ITG") and Orion Casino Corporation. From November 1993
through June 1995,  Mr. Murray served as a consultant to ITG. From December 1988
through  November  1993,  Mr.  Murray was the co-owner and  President of the New
England  Patriots  and  co-founder  of the  St.  Louis  NFL  Partnership,  which
attempted to obtain an expansion NFL franchise for the city of St. Louis.

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

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

     Robert J. Quigley.  Mr. Quigley has been a director since 1980. Since 2002,
Mr. Quigley has served as an officer of one of our subsidiaries which was formed
to develop  foreign gaming  opportunities.  From February 1996 until October 15,
1997,  and again from 1999 until  October 10, 2000,  Mr.  Quigley  served as our
President.  Mr.  Quigley  also  served as  President  from 1988 until July 1992.
Between  November 1995 and May 1996,  Mr.  Quigley served as our Chairman of the
Board and acting Chief  Executive  Officer.  From July 1992 until November 1995,
Mr.  Quigley  was  President  and  Chief   Operating   Officer  of  Retama  Park
Association, Inc., a racetrack facility in San Antonio, Texas.

                                       71

<PAGE>

Executive and Other Key Officers

Our  executive  and other key  officers,  in addition to Mr.  Francis W. Murray,
include:
--------------------------------------------------------------------------------
Name                        Age    Position
----                        ---    --------
William H. Warner           59     Secretary

Christine E. Rice Newell    58     Assistant Treasurer and Controller

Francis X. Murray           38     Vice President of ITG Vegas, Inc. (ITGV)
                                   (surviving company of merger of Palm Beach
                                   Princess, Inc. and ITGV)

Jerry Winters               44     Treasurer and CFO of ITG Vegas, Inc.

Stephen Flood               44     Vice President of Casino Operations,
                                   ITG Vegas, Inc.
--------------------------------------------------------------------------------

     William H. Warner.  Mr. Warner was appointed our Secretary in October 2000.
Mr.  Warner  served as  Treasurer  and Chief  Financial  Officer from 1983 until
October 15, 2002. Mr. Warner  resigned from his Treasurer and CFO positions over
his  concerns  that the Company may not  maintain  its  Director  and  Officer's
insurance  policy in the  future.  The  limits of the policy  have been  reduced
significantly from Fiscal 2001 levels due to cash flow shortages.  Mr. Warner is
a certified public  accountant,  and prior to joining us, was employed in public
accounting for 11 years.

     Christine E. Rice Newell. Ms. Rice Newell has been our Assistant  Treasurer
and  Controller  since 1990.  She has served as  Secretary/Treasurer  of our ITG
Vegas,  Inc.  subsidiary  since its inception in December 2001.  From 1986 until
1990, Ms. Rice Newell was our Corporate Accounting Manager. Ms. Rice Newell is a
certified public accountant.

     Francis X. Murray.  Mr.  Murray,  son of our Chairman and CEO,  has,  since
April 2001, been Vice President of our ITGV subsidiary (surviving company of the
merger of Palm Beach Princess, Inc. and ITGV) which operates the cruise ship M/V
Palm Beach  Princess  and related  offshore  gaming  business.  He has also been
President of Palm Beach Maritime Corp.  (formerly MJQ Corp.)  Corporation  since
May of 1999, which corporation owns the M/V Palm Beach Princess and operated the
cruise and offshore gaming business from May 1999 until chartering the vessel to
Palm  Beach  Princess,  Inc.  in April,  2001.  Prior  thereto,  Mr.  Murray was
President  (January 1999 to May 1999),  and Vice  President and General  Manager
(February  1998 to January  1999) of Palm Beach  Casino  Line, a division of Leo
Equity Group,  Inc.  which operated the vessel M/V Palm Beach  Princess;  and in
1997-98 was a consultant for Leo Equity Group, Inc.

     Jerry  Winters.  Mr.  Winters has been Chief  Financial  Officer of our ITG
Vegas,  Inc.  subsidiary  since its  inception  in April 2001.  He has also been
Treasurer and CFO of Palm Beach Maritime Corp  (formerly MJQ Corp.)  Corporation
since March 1999. Prior thereto, Mr. Winters was CFO for Home Care America, Inc.
(March 1998 to March 1999) and  regional  CFO for  Vencor,  Inc.  (March 1996 to
March, 1998). Mr. Winters is a certified public accountant.

     Stephan  Flood.  Mr.  Flood  joined the  previous  owners of the Palm Beach
Princess in May 1994. From 1997 he served as a casino manager until January 2000
when he assumed his current position of Vice President,  Casino  Operations.  In
that  position,  Mr. Flood is  responsible  for  management and direction of all
aspects of the company's casino operations, including casino marketing, tracking
and customer service. Prior to joining the company Mr. Flood was employed

                                       72

<PAGE>

in a range of casino  positions  by  Norwegian  Cruise  Line,  Premier  Cruises,
Lucayan Beach Casino and Charlie  Chester's  London  Casino.  He holds  licenses
issued by British casino regulatory authorities.

     The Company does not have an audit committee and, accordingly, its Board of
Directors acts as such. The Board also has not determined that any member of the
Board  meets  all of the  requirements  necessary  to be  considered  an  "audit
committee  financial  expert" as defined by SEC  Rules.  While the  Company  has
officers,  directors and employees who have accounting and financial  expertise,
during  the  period  (until  July of  2004)  in which  the  Company's  operating
subsidiary has been involved in its Chapter 11 case, due to the  restrictions on
such  subsidiary's  providing funds to the Company,  it was not feasible for the
Company  to add  directors,  including  those  with a level of  expertise  to be
considered an "audit committee financial expert." Among other things,  there was
no assurance  that the Company  could  continue to pay  premiums for  directors'
liability  insurance  and the  Company  could not afford to pay any  significant
amount of directors'  fees.  With the Chapter 11 case being dismissed in July of
2004 and the restrictions on its operating  subsidiary  upstreaming  funds being
lessened as a result of the PDS  Transaction,  the  Company  expects to consider
adding  one or more  directors  to its Board  who  would be an "audit  committee
financial expert" as defined in SEC Rules.

     The  Company has adopted a code of ethics  which  applies to its  principal
executive officer,  principal financial officer, principal accounting officer or
controller,  or persons performing similar functions. The Company will provide a
copy of its code of ethics to any  person,  free of charge,  upon  request.  Any
request  for a copy  of the  code of  ethics  should  be  made to our  corporate
secretary, ITB 1105 N. Market Street, Wilmington, Delaware 19899.

Section 16(a) Beneficial Ownership Reporting Compliance

     Pursuant  to Section  16(a) of the  Securities  Exchange  Act of 1934,  our
executive  officers  and  directors  are  required to file  reports with the SEC
relating to their ownership of and transactions in our equity securities.  Based
on our records and other  information,  we believe that all Section 16(a) filing
requirements were met for fiscal year 2004.

Involvement in Certain Legal Proceedings

     In  February,  2002,  Robert J.  Quigley  and  William H.  Warner,  without
admitting  or  denying  the  allegations,  settled  a  cease  and  desist  order
instituted by the Securities and Exchange Commission relating to filings made in
Fiscal 1997, which included findings by the Commission that Messrs.  Quigley and
Warner  committed and caused  violations of the  reporting,  record  keeping and
internal  control  provisions  of  the  Securities  Exchange  Act of  1934  (the
"Exchange  Act") by causing the Company to  improperly  disclose and account for
certain  related  party  transactions   involving  the  Company's  former  chief
executive officer.  Without admitting or denying the Commission's  findings, Mr.
Quigley  consented  to the  issuance  of an order that he cease and desist  from
causing any  violation or future  violation of Section 13(a) of the Exchange Act
and Rules 12b-20 and 13a-13 thereunder and from committing any violation and any
future  violation  of  Rule  13b2-2.  Also  without  admitting  or  denying  the
Commission's  findings, Mr. Warner consented to the issuance of an order that he
cease and desist from  causing any  violation  or future  violation  of Sections
13(a),  13(b)(2)(A)  and  13(b)(2)(B)  of the  Exchange Act and Rules 12b-20 and
13a-13  thereunder and from committing any violations and any future  violations
of Rules 13b2-1 and 13b2-2.

                                       73
<PAGE>

Item 11. Executive Compensation

     The  following  table sets forth the cash  compensation  as well as certain
other  compensation  paid or accrued during fiscal years 2003,  2002 and 2001 to
the  individuals  who served as our chief  executive  officer during fiscal year
2003 and other  executive  officers of the Company who earned more than $100,000
during fiscal year 2003 (collectively, the "Named Executives"):

<TABLE>
                                                               Long-Term
                                                             Compensation
                                 Annual Compensation            Awards
                                 -------------------            ------
                                                               Securities       All
Name and                                        Other Annual   Underlying      Other
Principal Position    Year  Salary      Bonus   Compensation     Options   Compensation
                              ($)         ($)       ($)            (#)          ($)
<CAPTION>
<S>                   <C>   <C>        <C>         <C>        <C>              <C>
Francis W. Murray,    2004  395,000(1)    -0-      17,701(2)       -0-           -0-
President, Chief      2003  402,596(1)    -0-      11,503          -0-         14,733
Executive Officer     2002  387,404       -0-      17,049     2,000,000(3)     18,658
and Chief Financial
Officer

Francis X. Murray,    2004  290,122     88,628     23,367(4)       -0-          1,399(5)
Vice President of     2003  301,154     88,628     11,647          -0-         21,137
ITG Vegas, Inc.       2002  277,885    135,320     11,423          -0-         21,930

William H. Warner,    2004  175,000       -0-       9,780(6)       -0-          1,440(8)
Secretary             2003  171,635       -0-       9,780(6)       -0-         10,717
                      2002  176,346       -0-       3,244        75,000(7)     18,650
</TABLE>
(1)  Consists of $395,000 in salary earned by Mr.  Murray  through June 30, 2004
     but deferred. For fiscal 2003 consists of $212,692.48 in salary paid to Mr.
     Maurray and $189,904 of salary earned through June 30, 2003 but deferred.

(2)  Consists of automobile lease payments.

(3)  Represents the number of shares under options  granted in fiscal 2002. Such
     options  replaced  options  for the same  number of  shares  which had been
     granted in fiscal 2001 and terminated in fiscal 2002.

(4)  Consists of automobile lease payments.

(5)  Fiscal 2004 amounts consist of $877 of life insurance  premiums paid by the
     Company  with  respect  to term life  insurance  payable  to  beneficiaries
     designated by Mr. F. X. Murray,  $521.55  contributed  by the Company under
     Palm Beach Maritime Corp.(PBMC) (formerly MJQ Corp.)'s 401(k) plan.

(6)  Consists of monthly automobile allowance which was deferred by Mr. Warner.

(7)  Represents the number of shares under options  granted in fiscal 2002. Such
     options  replaced  options  for the same  number of  shares  which had been
     granted in fiscal 2001 and terminated in fiscal 2002.

(8)  Fiscal 2004 amounts  include $1,440 of life insurance  premiums paid by the
     Company  with  respect  to term life  insurance  payable  to  beneficiaries
     designated by Mr. Warner.


                                       74

<PAGE>

Stock Options Grants

     There were no stock options granted to the Named  Executives  during Fiscal
Year 2004.

Stock Option Exercises and Holdings

     The  following  table sets  forth the value of options  held by each of the
Named  Executives at June 30, 2004. None of the Named  Executives  exercised any
options during fiscal year 2004.
<TABLE>
          Aggregated Option Exercises in 2004 and Option Values at June 30, 2004
-----------------------------------------------------------------------------------------------
                                           Number of Securities         Value of Unexercised
                                           Underlying Unexercised       In-the-Money Options
                                           Optionsat June 30, 2004      at June 30, 2004
                  Shares       Value                (#)                       ($)(1)
                  Acquired on  Realized  --------------------------- --------------------------
Name              Exercise (#)   ($)     Exercisable  Unexercisable  Exercisable  Unexercisable
----------------  ------------ --------  -----------  -------------- -----------  -------------
<CAPTION>
<S>                  <C>         <C>      <C>                <C>      <C>                <C>
Francis W. Murray    --          --       2,300,000          0        2,602,500          0
William H. Warner    --          --          75,000          0           97,593          0
-----------------------------------------------------------------------------------------------
</TABLE>

(1) The value of  unexercised  in-the-money  options is based on the  difference
between the last  reported  sale price per share of common  stock as reported on
the Pink Sheets on June 28, 2004 ($1.57) and the exercise  price of the options,
multiplied by the number of options.

Compensation of Directors

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

Employment Contracts

     Effective December 1, 2000, we entered into a five-year employment contract
with Mr. Francis W. Murray as our Chief Executive Officer. The contract provides
for  annual  compensation  of  $395,000,  a $1,500  monthly  automobile  expense
allowance,  a country club annual dues  allowance  and travel and  entertainment
reimbursements for business expenses  reasonably incurred by him, in addition to
participation  in various other benefits  provided to our employees.  As part of
his contract,  on December 28, 2000, Mr. Murray was awarded  options to purchase
2,000,0000  shares of our common stock under an stock  incentive  plan which was
subject to stockholder  approval.  Such options  terminated in fiscal 2002 since
the Plan was not submitted for shareholder  approval,  and  replacement  options
were  granted  in fiscal  2002 with an  exercise  price of  $0.26875  per share,
expiring December 31, 2010.

     In  connection  with the  bareboat  charter with Palm Beach  Maritime  Corp
("PBMC")  (formerly  MJQ Corp.) we are  obligated  to honor  several  employment
contracts  between key  executives  and PBMC.  A contract  for Francis X. Murray
which  expired on December 31, 2003  provided for a base salary of  $290,000,and
$310,000  respectively  during  calendar years 2002 and 2003.  Additionally  the
contract  provides  for an  annual  bonus of up to 30% of the  executive's  base
salary if certain EBITDA  performance  goals are met,  membership to a golf club
and other expense  allowances.  The Company  continues to honor the terms of the
contract from year to year.

                                       75
<PAGE>

Compensation Committee Interlocks and Insider Participation

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

Item 12.  Security  Ownership of Certain  Beneficial  Owners and  Management and
          Related Stockholder Matters.

Security Ownership of Certain Beneficial Owners

     The  following  table sets forth  certain  information  with respect to the
beneficial ownership, as of September 13, 2004, of each person who we knew to be
the  beneficial  owner of more than 5% of our  common  stock.  To the  Company's
knowledge,  each of the stockholders  named below has sole voting and investment
power with respect to such shares,  unless otherwise indicated.  As of September
13, 2004 there were 10,565,203 shares of outstanding stock.

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

Francis W. Murray              5,489,730          (1)      52%
211 Benigno Boulevard
Suite 210
Bellmawr, NJ 08031

The Family Investment Trust      872,585          (2)     8.25%
Henry Brennan, Trustee
340 North Avenue
Cranford, NJ 07016

Frank A. Leo                     736,201          (3)      7%
44 Minnbrook Rd
Colts Neck, NJ 07722
--------------------------------------------------------------------------------
(1)  Includes 300,000 shares of common stock issuable upon the exercise of stock
     options at $5.00 per share.
(2)  Henry  Brennan is the brother of Robert E. Brennan,  our former  president,
     whose adult sons are the beneficiaries of the trust.
(3)  Includes 200,000 shares purchasable under stock options at $0.50 per share.

                                       76
<PAGE>

Security Ownership of Management

     The  following  table sets forth  certain  information  with respect to the
beneficial ownership,  as of September 13, 2004, of (i) each director,  (ii) the
Named  Executives  and (iii) all of our directors  and  executive  officers as a
group. Each of the stockholders named below has sole voting and investment power
with respect to such shares, unless otherwise indicated.

--------------------------------------------------------------------------------
Name of Beneficial Owner           Number of Shares(1)         Percent of Class
------------------------           -------------------         ----------------
Francis W. Murray                        5,489,730       (1)   52%
James J. Murray                             25,000       (2)   *
Walter ReDavid                                   0             *
Robert J. Quigley                          179,169       (3)   1.7%
William H. Warner                          123,124       (4)   1.2%
Francis X. Murray                          200,000       (5)   1.9%
All executive officers and
directors as a group                     6,022,023             57%
(7 persons)
--------------------------------------------------------------------------------
*Less than 1 percent.

(1)  Includes 300,000 shares issuable upon the exercise of stock options.
(2)  Consists of shares of common stock issuable upo the exercise of options.
(3)  Includes  100,000  shares of common  stock  issuabl  upon the  exercise  of
     options.
(4)  Includes  75,000  shares  issuable  upon the exercise of stock  options and
     48,000  shares  issuable  to Mr.  Warner  provided he agrees to accept such
     shares as payment of obligations due him by the Company.
(5)  Includes  200,000 shares  issuable upon the exercise of stock options which
     have been authorized by the Board of Directors for future grants.

Equity Compensation Plan Information

     The following table contains  information on Equity Compensation Plans that
have been and have not been approved by security holders at June 30, 2004:
<TABLE>
                                                                             Number of securities
                                                                             remaining available for
                         Number of                                           future issuance under
                         Securities to be           Weighted average         equity compensation
                         issued upon exercise       exercise price of        plans (excluding
                         of outstanding options,    outstanding options,     securities reflected in
                         warrants and rights        warrants and rights      column (a)
Plan Category                     (a)                        (b)                        (c)
----------------------   -----------------------   ---------------------    ------------------------
<CAPTION>
<S>                      <C>                       <C>                      <C>
Equity compensation
plans approved by                   -0-                      N/A                       N/A
security holders

Equity compensation
plans not approved by            3,336,500                   1.59                      -0-
security holders
                         -----------------------   ---------------------    ------------------------
Total                            3,336,500                   1.59                      -0-
                         =======================   =====================    ========================
</TABLE>

     Set forth below is a summary of the material terms of stock options granted
by the Company which were not approved by the Company's security holders.

     Pursuant to a  Non-qualified  Stock Option  Agreement dated January 7, 2002
between the Company  and each of Francis W.  Murray and William H.  Warner,  the
Company  granted an option to purchase  2,000,000  shares of Common Stock to Mr.
Murray and to purchase 75,000 shares of Common Stock to Mr. Warner, in each case
for a purchase price of $0.26875 per share.  The options vested  immediately and
expire December 31, 2010. The options are not transferable other than by will or
the laws of descent and distribution,  and, during the lifetime of the optionee,
are exercisable

                                       77
<PAGE>

only by the optionee.  The options remain exercisable  following  termination of
employment,  until their scheduled  expiration date. On July 28, 2004 Mr. Murray
exercised his 2,000,000 options.

     In Fiscal 1997, the Company granted a  non-qualified  stock option to Frank
A. Leo, its then chairman,  to purchase  200,000 shares of Common Stock at $4.00
per share.  In fiscal 2002,  in  connection  with the  agreement to purchase Mr.
Leo's stock in Leo Equity Group, Inc., the Company agreed to reduce the purchase
price for shares  under Mr.  Leo's stock  option to $0.50 per share.  Mr.  Leo's
option  survived  termination of his employment  and expires  December  20,2006.
Additionally, in connection with other prior agreements with former officers and
directors,  the Company  granted  options to purchase  650,000  shares of Common
Stock at prices  ranging from $4.00 to $5.00 per share.  These options expire at
various times from January 2006 to January 2007.

     In Fiscal 1996 the Company granted  warrants to purchase  275,000 shares of
Common  Stock at  $4.00  per  share as a  finder's  fee in  connection  with the
purchase of its El Rancho property. These warrants expire in April 2006.

Item 13. Certain Relationships and Related Transactions.

     During the third  quarter of Fiscal  2001 we  invested  in two  projects in
which our Chairman,  President and Chief Executive  Officer,  Francis W. Murray,
also has a pecuniary interest. In connection with one such project, the Board of
Directors  approved  advances,  as  loans,  of up to $1.5  million  to a limited
partnership  in which  Francis W.  Murray  owned,  at that  time,  an 80% equity
interest and owned the general partner, the proceeds of which were to be used to
pay costs and expenses for development of a golf course in Southern  California.
Mr. Murray's equity interest in the limited partnership,  indirectly through his
ownership of the general partner,  as of December 26, 2002, was 64%. At December
26, 2002,  loans of $735,584 were outstanding on such project and we had accrued
$155,945  of  interest  due on the loans.  On  December  26,  2002,  the limited
partnership's  indebtedness  to us was  assumed  by OC  Realty,  LLC,  a Florida
limited liability company which is owned by Francis W. Murray and which owns the
second real estate project  described below.  Such  indebtedness is due December
31, 2004 and bears an interest rate of 6%.

     In the second project, Mr. Murray is participating in the development of an
oceanfront  parcel  of land,  located  in Fort  Lauderdale,  Florida,  which has
received all governmental  entitlements from the City of Fort Lauderdale and the
state of Florida to develop a  14-story  building  to include a 5-story  parking
garage,  approximately  6,000 square feet of commercial  space and a residential
9-story tower. The property had been owned by Palm Beach Maritime  Corp.("PBMC")
(formerly MJQ Corp.),  which was owned by Michael J. Quigley III until  December
26, 2002 when the property  was acquired by OC Realty,  LLC, the entity owned by
Mr. Murray.  Mr. Quigley has no  relationship  to Robert J. Quigley,  one of our
directors. OC Realty is developing a condominium hotel resort on the property as
discussed  above.  As of March 31, 2004 we had lent  $2,034,405 in total to PBMC
and we have  accrued  interest in the amount of  $842,704 on the loan.  Upon the
acquisition of the property,  OC Realty assumed PBMC's indebtedness to us. These
loans bear  interest  at 12% and will be  repayable  out of the first  proceeds,
after payment of bank debts, generated by the sale of the condominiums.  We will
also have the right to receive, as participation  interest,  from available cash
flow of OC  Realty  if the  project  is  successful,  a  priority  return of our
investment and a priority profits interest for up to three times our investment.
Repayment  of these  loans and our  participation  interest  will be  subject to
repayment  of,  first,  bank debt of  approximately  $5.5  million (at  present)
incurred  in the  purchase  of  the  real  property  and,  second,  construction
financing  expected to amount to $25 to $30 million and third,  capital invested
by a joint  venture  partner  (expected to be up to $6.5 million) plus a 15% per
annum return  thereon.  At the time the loans to PBMC were approved,  Mr. Murray
stood  to  receive

                                       78
<PAGE>

a substantial contingent benefit from PBMC for his participation in the project.
Fair value and  collectability  of the original  investment  of  $2,034,405  and
accrued  interest  was  determined  by the  joint  venture  through  projections
evidencing our collection upon build out and sale of the project.

     On January  26,  2001,  the Company  borrowed  $1,000,000  from  Michael J.
Quigley,  III at an annual  interest rate of 10%.  Principal and interest on the
loan was due on or about April 25, 2001. On May 14, 2001,  the loan was modified
to be due on demand.  As collateral  for the loan,  the Company  pledged the $33
million in notes receivable from the sale of the El Rancho and Garden State Park
properties.  On May 8, 2002, we made a payment of $100,000  against the note. On
February  22, 2002,  Mr.  Quigley  released his security  interest in the Garden
State Park Note in connection with the Master Settlement Agreement.  On February
20, 2004 the Company paid in full its  indebtedness to Michael J. Quigley III in
the amount of $1,206,850 which included accrued interest.

     Effective  April 30, 2001,  we entered  into a bareboat  charter with PBMC,
pursuant to which we are  chartering  the vessel M/V Palm Beach Princess for the
purpose of  operating  a casino  cruise  business  from the Port of Palm  Beach,
Florida.  Michael J.  Quigley,  III was a principal  of PBMC.  In October,  2002
Francis W. Murray, our Chairman, President and Chief Executive Officer purchased
the stock of PBMC and has been an  officer  and  director  of PBMC.  Francis  X.
Murray,  the son of Francis W. Murray,  is President  and a director of PBMC and
Vice President of our subsidiary,  ITG Vegas,  Inc.,  which operates the vessel.
Under the  bareboat  charter  agreement  in effect  until July 7, 2004,  we paid
$50,000 per month as the charter hire fee to PBMC.  All costs of  operating  the
vessel  incurred by PBMC on our behalf are to be  reimbursed  by us to PBMC.  In
addition,  as  described  in Notes 3 and 11-A above,  we entered into an amended
Master Settlement Agreement with the Chapter 11 Trustee of the Bankruptcy Estate
of Robert E.  Brennan,  PBMC and others to  purchase  from the  Trustee the Ship
Mortgage  Obligation  of PBMC,  having an  original  balance  of  principal  and
interest  outstanding  at April 30, 2001 of  approximately  $15.7  million for a
purchase price of $13.75 million.  Pursuant to the Master Settlement  Agreement,
PBMC and its  officers and  directors  (including  Francis W. Murray)  exchanged
mutual  releases  with the Trustee and others having claims to the Ship Mortgage
Obligation.

     On July 12, 2002, we borrowed  $300,000 from Francis W. Murray at an annual
interest  rate of 6%.  During  Fiscal  2003,  we reduced  the loan to  $250,000.
Payment was made to Mr. Murray in full during the fourth quarter of Fiscal 2004.

     On November 1, 2002 the Company employed Tanuja Murray,  daughter-in-law of
Francis W. Murray.  Mrs. Murray holds a law degree and is acting in the capacity
of assistant to the  Chairman  involving  the  Company's  exploration  of gaming
related business  opportunities.  Mrs. Murray earns $60,000 per year in addition
to the regular employee benefits paid by the Company.

     On July 7,  2004,  the  Company  entered  into a  five-year  charter of two
vessels,  the Palm Beach Princess and the Empress II, under the terms  described
in Part I, Item I above under the  caption,  PDS  Transactions.  The vessels are
chartered to us by PBMC and Palm Beach Empress, Inc. Mr. Murray is sole owner of
PBMC and a 50% owner of Palm Beach  Empress,  Inc. (See Note 24 to our financial
statements.)

                                       79
<PAGE>

Item 14. Principal Accountant Fees and Services.

     The following table presents fees for professional  audit services rendered
by  Stockton  Bates,  LLP  for  the  audit  of the  Company's  annual  financial
statements and fees billed for other services rendered by Stockton Bates for the
last two fiscal years.

     The Audit Committee, consisting of the full Board of Directors, approved in
advance audit and  non-audit  services  performed by the  Company's  independent
auditor.  The Audit Committee considers Stockton Bates, LLP to be well qualified
to serve as the independent public accountants of the Company.

                                            -----------------------
                                               Year Ended June 30,
                                            -----------------------
                                              2004           2003
                                              ----           ----
Audit fees excluding audit related fees $    55,000     $   37,352
Audit related fees (1)                  $     8,925     $    7,600
                                           ---------      ---------
Total audit and audit related fees           63,925         44,952

Tax related fees                             15,000          8,110
All other fees (3)                            6,472         10,792
                                           ---------      ---------
Total fees                              $    85,397     $   63,854
                                           =========      =========

(1)  Audit related fees  consisted  principally  of review of our Forms 10-Q for
     compliance.
(2)  Tax fees include tax compliance,  planning, research and return preparation
     services.
(3)  All other fees consisted of fees for other accounting services.

                                       80

<PAGE>

                                     PART IV

Item 15. Exhibits and Financial Statement Schedules.

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

     1.   Financial Statements.

        See index to Financial Statements at Item 8 on page 30 of this report.

     2.   Financial Statement Schedules.

        See index to Financial Statements at Item 8 on page 30 of this report.

     3.   Exhibits.

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

      Exhibit
      Number    Description

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

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

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

        3.4#    Amendment to the Certificate of Incorporation

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

        10.2*   Employment  Agreement by and between the  Registrant and Francis
                W.  Murray  dated  as  of  December  1,  2000  (incorporated  by
                reference to Exhibit 10.3 to the  Registrant's  Annual Report on
                Form 10-K for the fiscal year ended June 30, 2001)

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

        10.4    $10,000,000  Promissory  Note  dated  November  29,  2000,  from
                Realen-Turnberry/Cherry Hill, LLC to GSRT, LLC. (incorporated by
                reference to Exhibit 10.2 to the Registrant's  Current Report on
                Form 8-K dated November 30, 2000)

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

        10.6    Bareboat  Charter  dated as of April 30, 2001 between Palm Beach
                Princess.  Inc. and Palm Beach Maritime Corp (formerly MJQ Corp)
                (incorporated  by reference to Exhibit 10.17 to the Registrant's
                Annual  Report on Form 10-K for the  fiscal  year ended June 30,
                2001)

                                       81
<PAGE>

      Exhibit
      Number    Description

        10.7    Master  Settlement  Agreement dated February 22, 2002, among the
                Chapter  11  Trustee  for the  Bankruptcy  Estate  of  Robert E.
                Brennan,  the Company,  and,  among others,  Palm Beach Maritime
                Corp.("PBMC")  (formerly  MJQ Corp.) , Leo Equity  Group,  Inc.,
                Francis W.  Murray,  Frank A. Leo and Michael J.  Quigley,  III.
                (incorporated  by reference to Exhibit 10.13 to the Registrant's
                Annual  Report on Form 10-K for the  fiscal  year ended June 30,
                2002)

        10.8    Purchase and Sale  Agreement  dated  February 22, 2002,  between
                Palm Beach  Princess,  Inc.  and the  Chapter 11 Trustee for the
                Bankruptcy  Estate  of  Robert  E.  Brennan.   (incorporated  by
                reference to Exhibit 10.16 to the Registrant's  Annual Report on
                Form 10-K for the fiscal year ended June 30, 2002)

        10.9    Stock Purchase  Agreement  dated February 22, 2002,  between the
                Company and the Chapter 11 Trustee for the Bankruptcy  Estate of
                Robert E. Brennan.  (incorporated  by reference to Exhibit 10.17
                to the  Registrant's  Annual  Report on Form 10-K for the fiscal
                year ended June 30, 2002)

        10.10*  Non-Qualified  Stock  Option  Agreement  dated  January 7, 2002,
                between  the Company and  Francis W.  Murray.  (incorporated  by
                reference to Exhibit 10.18 to the Registrant's  Annual Report on
                Form 10-K for the fiscal year ended June 30, 2002)

        10.11*  Non-Qualified  Stock Option  Agreement dated January 7, 2002,
                between  the Company and  William H.  Warner.  (incorporated  by
                reference to Exhibit 10.19 to the Registrant's  Annual Report on
                Form 10-K for the fiscal year ended June 30, 2002)

        10.12*  Stock  Option  granted to Francis W. Murray on January 15, 1997.
                (incorporated by reference to the Registrant's Current Report on
                Form 8-K dated January 29, 1997)

        10.13#* Stock Option granted to Frank A. Leo on December 20, 1996.

        10.14   Joint Amended Plan of Reorganization of ITG Vegas, Inc. and Palm
                Beach Maritime Corp.(PBMC) (formerly MJQ Corp.) (incorporated by
                reference to Exhibit 2.1 on Form 8-K dated September 22, 2003)

        10.15#  Stock Put  Agreement  dated October 15, 2003 between the Company
                and the Chapter 11 Trustee for the  Bankruptcy  Estate of Robert
                E. Brennan.

        10.16   Amended  and  Restated   Bareboat  Charter  between  Palm  Beach
                Princess, Inc. and Palm Beach Maritime Corp.(PBMC) (formerly MJQ
                Corp.)  (incorporated  by  reference  to  Exhibit  10.9  to  the
                Registrant's  Annual  Report  on Form 10-K for the  fiscal  year
                ended June 30, 2003)

        10.17#  Amended  Bareboat  Charter  dated  October 15, 2003  between ITG
                Vegas,  Inc. and Palm Beach Maritime  Corp.(PBMC)  (formerly MJQ
                Corp.)

        10.18   Guaranty Agreement (Palm Beach Princess Vessel) dated July 6,
                2004 made by International Thoroughbred Breeders, Inc., ITG
                Vegas, Inc. and ITG Palm Beach, LLC in favor of Cruise Holdings
                I, LLC (incorporated by reference to Exhibit 10.1 to the
                Registrant's Current Report on Form 8-K dated July 21, 2004)

        10.19   Guaranty  Agreement  (Empress II Vessel) dated July 6, 2004 made
                by International  Thoroughbred  Breeders,  Inc., ITG Vegas, Inc.
                and ITG Palm  Beach,  LLC in favor of Cruise  Holdings  II,  LLC
                (incorporated  by reference to Exhibit 10.2 to the  Registrant's
                Current Report on Form 8-K dated July 21, 2004)

                                       82
<PAGE>

      Exhibit
      Number    Description

        10.20   Guaranty Agreement (Gaming Equipment) dated July 6, 2004 made by
                Palm Beach Empress,  Inc.,  Palm Beach Maritime  Corporation and
                International Thoroughbred Breeders, Inc. in favor of PDS Gaming
                Corporation  (incorporated  by  reference to Exhibit 10.3 to the
                Registrant's Current Report on Form 8-K dated July 21, 2004)

        10.21   Bareboat Charter and Option to Purchase of the Casino Cruise
                Ship Palm Beach Princess dated as of July 6, 2004 among Cruise
                Holdings I, LLC, Palm Beach Maritime Corporation and Palm Beach
                Empress, Inc. (incorporated by reference to Exhibit 10.4 to the
                Registrant's Current Report on Form 8-K dated July 21, 2004)

        10.22   Master Lease Agreement dated as of July 6, 2004 among Cruise
                Holdings I, LLC, Palm Beach Maritime Corporation and Palm Beach
                Empress, Inc., together with Lease Schedule No. 1 thereto
                (incorporated by reference to Exhibit 10.5 to the Registrant's
                Current Report on Form 8-K dated July 21, 2004)

        10.23   Sub-Bareboat  Charter  of the  Casino  Cruise  Ship  Palm  Beach
                Princess  dated as of July 6, 2004  among  Palm  Beach  Maritime
                Corporation,  Palm Beach Empress,  Inc., ITG Vegas, Inc. and ITG
                Palm Beach,  LLC  (incorporated  by reference to Exhibit 10.6 to
                the Registrant's Current Report on Form 8-K dated July 21, 2004)

        10.24   Bareboat  Charter and Option to  Purchase  of the Casino  Cruise
                Ship Empress II dated as of July 6, 2004 among  Cruise  Holdings
                II, LLC, Palm Beach Maritime Corporation and Palm Beach Empress,
                Inc.   (incorporated   by  reference  to  Exhibit  10.7  to  the
                Registrant's Current Report on Form 8-K dated July 21, 2004)

        10.25   Master  Lease  Agreement  dated as of July 6, 2004 among  Cruise
                Holdings II, LLC, Palm Beach Maritime Corporation and Palm Beach
                Empress,  Inc.,  together  with  Lease  Schedule  No. 1  thereto
                (incorporated  by reference to Exhibit 10.8 to the  Registrant's
                Current Report on Form 8-K dated July 21, 2004

        10.26   Sub-Bareboat  Charter of the Casino Cruise Ship Empress II dated
                as of July 6, 2004 among Palm Beach Maritime  Corporation,  Palm
                Beach  Empress,  Inc., ITG Vegas,  Inc. and ITG Palm Beach,  LLC
                (incorporated  by reference to Exhibit 10.9 to the  Registrant's
                Current Report on Form 8-K dated July 21, 2004)

        10.27   Warranty Bill of Sale and Transfer Agreement dated as of July 6,
                2004  between  ITG  Vegas,  Inc.  and  PDS  Gaming   Corporation
                (incorporated  by reference to Exhibit 10.10 to the Registrant's
                Current Report on Form 8-K dated July 21, 2004)

        10.28   Master  Lease  dated  as  of  July  6,  2004  among  PDS  Gaming
                Corporation,  ITG Vegas,  Inc. and ITG Palm Beach, LLC, together
                with Lease Schedules T-3, T-4 and T-5 (incorporated by reference
                to Exhibit 10.11 to the Registrant's  Current Report on Form 8-K
                dated July 21, 2004)

        10.29   Promissory Note of  Soffer/Cherry  Hill Partners,  LP dated June
                16, 2004, in the principal  amount of $35,842,027  (incorporated
                by reference to Exhibit 10.1 to the Registrant's  Current Report
                on Form 8-K dated July 6, 2004)

        10.30   Agreement dated June 16, 2004,  among Orion Casino  Corporation,
                Turnberry/Las  Vegas Boulevard.,  L.L.C. and Turnberry/Las Vegas
                Boulevard.,  L.P.  (incorporated by reference to Exhibit 10.2 to
                the Registrant's Current Report on Form 8-K dated July 6, 2004)

        10.31   Pledge  Agreement  dated June 16, 2004,  between Raymond Parello
                and Orion  Casino  Corporation  (incorporated  by  reference  to
                Exhibit  10.3 to the  Registrant's  Current  Report  on Form 8-K
                dated July 6, 2004)

        10.32   Shareholders'  Agreement  dated June 16, 2004,  among Palm Beach
                Empress, Inc., Raymond Parello and MJQ Corporation (incorporated
                by reference to Exhibit 10.4 to the Registrant's  Current Report
                on Form 8-K dated July 6, 2004)

                                       83
<PAGE>

      Exhibit
      Number    Description

        10.33   Letter Agreement dated June 16, 2004,  between Cherry Hill at El
                Rancho  LP  and  Orion  Casino   Corporation   (incorporated  by
                reference to Exhibit 10.5 to the Registrant's  Current Report on
                Form 8-K dated July 6, 2004)

        21      Subsidiaries.

        31.1    Certification  pursuant to 18 U.S.C.  Section  1350,  as adopted
                pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

        31.2    Certification  pursuant to 18 U.S.C.  Section  1350,  as adopted
                pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

        32.1    Certification  pursuant to 18 U.S.C.  Section  1350,  as adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

        32.2    Certification  pursuant to 18 U.S.C.  Section  1350,  as adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

----------------------------------------------------------
*  Constitutes a management contract or compensation plan.
#   As filed as an exhibit herewith


                                       84
<PAGE>

                                   SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the  undersigned,  thereunto  duly  authorized,  in Bellmawr,  New
Jersey, this 13th day of October, 2004.

             INTERNATIONAL THOROUGHBRED BREEDERS, INC.


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

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

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

/s/ Francis W. Murray    Chairman of the Board, President     October 13, 2004
----------------------   and Chief Executive Officer
    Francis W. Murray    (Principal Executive Officer)


/s/ Francis W. Murray    Chief Financial Officer              October 13, 2004
----------------------   (Principal Financial and
    Francis W. Murray    Accounting Officer)


/s/ James J. Murray      Director                             October 13, 2004
----------------------
    James J. Murray


/s/ Robert J. Quigley    Director                             October 13, 2004
----------------------
    Robert J. Quigley


/s/ Walter ReDavid       Director                             October 13, 2004
----------------------
    Walter ReDavid

                                       85

<PAGE>


                                                                    Exhibit 31.1


                      CERTIFICATION PURSUANT TO RULE 13a-14
               OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED,
                             AS ADOPTED PURSUANT TO
                  SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Francis W. Murray, certify that:

     1. I have  reviewed  this  annual  report  on Form  10-K  of  International
Thoroughbred Breeders, Inc.;

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

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

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

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

        b) Evaluated the effectiveness of the registrant's  disclosure  controls
and  procedures  and  presented  in  this  report  our  conclusions   about  the
effectiveness  of the disclosure  controls and procedures,  as of the end of the
period covered by this report based on such evaluation; and

        c)  Disclosed  in this  report any change in the  registrant's  internal
control over financial  reporting  that occurred  during the  registrant's  most
recent fiscal quarter (the registrant's  fourth fiscal quarter in the case of an
annual  report)  that  has  materially  affected,  or is  reasonably  likely  to
materially affect, the registrant's  internal control over financial  reporting;
and

     5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting,  to the
registrant's auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent functions):

        a) All significant deficiencies and material weaknesses in the design or
operation of internal  control over  financial  reporting  which are  reasonably
likely  to  adversely  affect  the  registrant's  ability  to  record,  process,
summarize and report financial information; and

        b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's  internal control over
financial reporting.

Dated: October 13, 2004



Name:  Francis W. Murray
Title: Chief Executive Officer



                                       86
<PAGE>


                                                                    Exhibit 31.2


                      CERTIFICATION PURSUANT TO RULE 13a-14
               OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED,
                             AS ADOPTED PURSUANT TO
                  SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Francis W. Murray, certify that:

     1. I have  reviewed  this  annual  report  on Form  10-K  of  International
Thoroughbred Breeders, Inc.;

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

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

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

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

     b) Evaluated the effectiveness of the registrant's  disclosure controls and
procedures and presented in this report our conclusions  about the effectiveness
of the disclosure  controls and procedures,  as of the end of the period covered
by this report based on such evaluation; and

     c) Disclosed in this report any change in the registrant's internal control
over  financial  reporting  that occurred  during the  registrant's  most recent
fiscal quarter (the registrant's  fourth fiscal quarter in the case of an annual
report) that has  materially  affected,  or is  reasonably  likely to materially
affect, the registrant's internal control over financial reporting; and

     5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting,  to the
registrant's auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent functions):

     a) All significant  deficiencies  and material  weaknesses in the design or
operation of internal  control over  financial  reporting  which are  reasonably
likely  to  adversely  affect  the  registrant's  ability  to  record,  process,
summarize and report financial information; and

     b) Any fraud,  whether or not material,  that involves  management or other
employees who have a significant role in the registrant's  internal control over
financial reporting.

Dated: October 13, 2004



Name:  Francis W. Murray
Title: Chief Financial Officer

                                       87
<PAGE>


                                                                      Exhibit 32

                            CERTIFICATION PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
                            (18 U.S.C. SECTION 1350)

In connection  with the Annual Report of  International  Thoroughbred  Breeders,
Inc., a Delaware  corporation (the  "Company"),  on Form 10-K for the year ended
June 30,  2004,  as filed  with the  Securities  and  Exchange  Commission  (the
"Report"),  Francis W.  Murray,  Chief  Executive  Officer  and Chief  Financial
Officer  of the  Company,  does  hereby  certify,  pursuant  to  ss.  906 of the
Sarbanes-Oxley Act of 2002 (18 U.S.C. ss. 1350), that to his knowledge:

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

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

Dated: October 13, 2004



Name:  Francis W. Murray
Title: Chief Executive Officer and Chief Financial Officer


                                       88
<PAGE>

                                  EXHIBIT INDEX

     Exhibit
     Number     Description

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

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

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

        3.4 #   Amendment to the Certificate of Incorporation

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

        10.2 *  Employment  Agreement by and between the  Registrant and Francis
                W.  Murray  dated  as  of  December  1,  2000  (incorporated  by
                reference to Exhibit 10.3 to the  Registrant's  Annual Report on
                Form 10-K for the fiscal year ended June 30, 2001)

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

        10.4    $10,000,000  Promissory  Note  dated  November  29,  2000,  from
                Realen-Turnberry/Cherry Hill, LLC to GSRT, LLC. (incorporated by
                reference to Exhibit 10.2 to the Registrant's  Current Report on
                Form 8-K dated November 30, 2000)

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

        10.6    Bareboat  Charter  dated as of April 30, 2001 between Palm Beach
                Princess.  Inc. and Palm Beach Maritime Corp (formerly MJQ Corp)
                (incorporated  by reference to Exhibit 10.17 to the Registrant's
                Annual  Report on Form 10-K for the  fiscal  year ended June 30,
                2001)

        10.7    Master  Settlement  Agreement dated February 22, 2002, among the
                Chapter  11  Trustee  for the  Bankruptcy  Estate  of  Robert E.
                Brennan,  the Company,  and,  among others,  Palm Beach Maritime
                Corp.("PBMC")  (formerly  MJQ Corp.) , Leo Equity  Group,  Inc.,
                Francis W.  Murray,  Frank A. Leo and Michael J.  Quigley,  III.
                (incorporated  by reference to Exhibit 10.13 to the Registrant's
                Annual  Report on Form 10-K for the  fiscal  year ended June 30,
                2002)

        10.8    Purchase and Sale  Agreement  dated  February 22, 2002,  between
                Palm Beach  Princess,  Inc.  and the  Chapter 11 Trustee for the
                Bankruptcy  Estate  of  Robert  E.  Brennan.   (incorporated  by
                reference to Exhibit 10.16 to the Registrant's  Annual Report on
                Form 10-K for the fiscal year ended June 30, 2002)

        10.9    Stock Purchase  Agreement  dated February 22, 2002,  between the
                Company and the Chapter 11 Trustee for the Bankruptcy  Estate of
                Robert E. Brennan.  (incorporated  by reference to Exhibit 10.17
                to the  Registrant's  Annual  Report on Form 10-K for the fiscal
                year ended June 30, 2002)

                                       89
<PAGE>

      Exhibit
      Number    Description

        10.10 * Non-Qualified  Stock  Option  Agreement  dated  January 7, 2002,
                between  the Company and  Francis W.  Murray.  (incorporated  by
                reference to Exhibit 10.18 to the Registrant's  Annual Report on
                Form 10-K for the fiscal year ended June 30, 2002)

        10.11*  Non-Qualified  Stock  Option  Agreement  dated  January 7, 2002,
                between  the Company and  William H.  Warner.  (incorporated  by
                reference to Exhibit 10.19 to the Registrant's  Annual Report on
                Form 10-K for the fiscal year ended June 30, 2002)

        10.12*  Stock  Option  granted to Francis W. Murray on January 15, 1997.
                (incorporated by reference to the Registrant's Current Report on
                Form 8-K dated January 29, 1997)

        10.13#* Stock Option granted to Frank A. Leo on December 20, 1996.

        10.14   Joint Amended Plan of Reorganization of ITG Vegas, Inc. and Palm
                Beach Maritime Corp.(PBMC) (formerly MJQ Corp.) (incorporated by
                reference to Exhibit 2.1 on Form 8-K dated September 22, 2003)

        10.15#  Stock Put  Agreement  dated October 15, 2003 between the Company
                and the Chapter 11 Trustee for the  Bankruptcy  Estate of Robert
                E. Brennan.

        10.16   Amended  and  Restated   Bareboat  Charter  between  Palm  Beach
                Princess, Inc. and Palm Beach Maritime Corp.(PBMC) (formerly MJQ
                Corp.)  (incorporated  by  reference  to  Exhibit  10.9  to  the
                Registrant's  Annual  Report  on Form 10-K for the  fiscal  year
                ended June 30, 2003)

        10.17#  Amended  Bareboat  Charter  dated  October 15, 2003  between ITG
                Vegas,  Inc. and Palm Beach Maritime  Corp.(PBMC)  (formerly MJQ
                Corp.)

        10.18   Guaranty Agreement (Palm Beach Princess Vessel) dated July 6,
                2004 made by International Thoroughbred Breeders, Inc., ITG
                Vegas, Inc. and ITG Palm Beach, LLC in favor of Cruise Holdings
                I, LLC (incorporated by reference to Exhibit 10.1 to the
                Registrant's Current Report on Form 8-K dated July 21, 2004)

        10.19   Guaranty  Agreement  (Empress II Vessel) dated July 6, 2004 made
                by International  Thoroughbred  Breeders,  Inc., ITG Vegas, Inc.
                and ITG Palm  Beach,  LLC in favor of Cruise  Holdings  II,  LLC
                (incorporated  by reference to Exhibit 10.2 to the  Registrant's
                Current Report on Form 8-K dated July 21, 2004)

        10.20   Guaranty Agreement (Gaming Equipment) dated July 6, 2004 made by
                Palm Beach Empress,  Inc.,  Palm Beach Maritime  Corporation and
                International Thoroughbred Breeders, Inc. in favor of PDS Gaming
                Corporation  (incorporated  by  reference to Exhibit 10.3 to the
                Registrant's Current Report on Form 8-K dated July 21, 2004)

        10.21   Bareboat Charter and Option to Purchase of the Casino Cruise
                Ship Palm Beach Princess dated as of July 6, 2004 among Cruise
                Holdings I, LLC, Palm Beach Maritime Corporation and Palm Beach
                Empress, Inc. (incorporated by reference to Exhibit 10.4 to the
                Registrant's Current Report on Form 8-K dated July 21, 2004)

        10.22   Master Lease Agreement dated as of July 6, 2004 among Cruise
                Holdings I, LLC, Palm Beach Maritime Corporation and Palm Beach
                Empress, Inc., together with Lease Schedule No. 1 thereto
                (incorporated by reference to Exhibit 10.5 to the Registrant's
                Current Report on Form 8-K dated July 21, 2004)

                                       90
<PAGE>

      Exhibit
      Number    Description

        10.23   Sub-Bareboat  Charter  of the  Casino  Cruise  Ship  Palm  Beach
                Princess  dated as of July 6, 2004  among  Palm  Beach  Maritime
                Corporation,  Palm Beach Empress,  Inc., ITG Vegas, Inc. and ITG
                Palm Beach,  LLC  (incorporated  by reference to Exhibit 10.6 to
                the Registrant's Current Report on Form 8-K dated July 21, 2004)

        10.24   Bareboat  Charter and Option to  Purchase  of the Casino  Cruise
                Ship Empress II dated as of July 6, 2004 among  Cruise  Holdings
                II, LLC, Palm Beach Maritime Corporation and Palm Beach Empress,
                Inc.   (incorporated   by  reference  to  Exhibit  10.7  to  the
                Registrant's Current Report on Form 8-K dated July 21, 2004)

        10.25   Master  Lease  Agreement  dated as of July 6, 2004 among  Cruise
                Holdings II, LLC, Palm Beach Maritime Corporation and Palm Beach
                Empress,  Inc.,  together  with  Lease  Schedule  No. 1  thereto
                (incorporated  by reference to Exhibit 10.8 to the  Registrant's
                Current Report on Form 8-K dated July 21, 2004

        10.26   Sub-Bareboat  Charter of the Casino Cruise Ship Empress II dated
                as of July 6, 2004 among Palm Beach Maritime  Corporation,  Palm
                Beach  Empress,  Inc., ITG Vegas,  Inc. and ITG Palm Beach,  LLC
                (incorporated  by reference to Exhibit 10.9 to the  Registrant's
                Current Report on Form 8-K dated July 21, 2004)

        10.27   Warranty Bill of Sale and Transfer Agreement dated as of July 6,
                2004  between  ITG  Vegas,  Inc.  and  PDS  Gaming   Corporation
                (incorporated  by reference to Exhibit 10.10 to the Registrant's
                Current Report on Form 8-K dated July 21, 2004)

        10.28   Master  Lease  dated  as  of  July  6,  2004  among  PDS  Gaming
                Corporation,  ITG Vegas,  Inc. and ITG Palm Beach, LLC, together
                with Lease Schedules T-3, T-4 and T-5 (incorporated by reference
                to Exhibit 10.11 to the Registrant's  Current Report on Form 8-K
                dated July 21, 2004)

        10.29   Promissory Note of  Soffer/Cherry  Hill Partners,  LP dated June
                16, 2004, in the principal  amount of $35,842,027  (incorporated
                by reference to Exhibit 10.1 to the Registrant's  Current Report
                on Form 8-K dated July 6, 2004)

        10.30   Agreement dated June 16, 2004,  among Orion Casino  Corporation,
                Turnberry/Las  Vegas Boulevard.,  L.L.C. and Turnberry/Las Vegas
                Boulevard.,  L.P.  (incorporated by reference to Exhibit 10.2 to
                the Registrant's Current Report on Form 8-K dated July 6, 2004)

        10.31   Pledge  Agreement  dated June 16, 2004,  between Raymond Parello
                and Orion  Casino  Corporation  (incorporated  by  reference  to
                Exhibit  10.3 to the  Registrant's  Current  Report  on Form 8-K
                dated July 6, 2004)

        10.32   Shareholders'  Agreement  dated June 16, 2004,  among Palm Beach
                Empress, Inc., Raymond Parello and MJQ Corporation (incorporated
                by reference to Exhibit 10.4 to the Registrant's  Current Report
                on Form 8-K dated July 6, 2004)

        10.33   Letter Agreement dated June 16, 2004,  between Cherry Hill at El
                Rancho  LP  and  Orion  Casino   Corporation   (incorporated  by
                reference to Exhibit 10.5 to the Registrant's  Current Report on
                Form 8-K dated July 6, 2004)

        21      Subsidiaries.

                                       91
<PAGE>

      Exhibit
      Number    Description

        31.1    Certification  pursuant to 18 U.S.C.  Section  1350,  as adopted
                pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

        31.2    Certification  pursuant to 18 U.S.C.  Section  1350,  as adopted
                pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

        32.1    Certification  pursuant to 18 U.S.C.  Section  1350,  as adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

        32.2    Certification  pursuant to 18 U.S.C.  Section  1350,  as adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

----------------------------------------------------------
*  Constitutes a management contract or compensation plan.
#   As filed as an exhibit herewith

                                       92
<PAGE>

                                                                      Exhibit 21

                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                                   EXHIBIT 21


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

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

Atlantic City Harness, Inc.                                  New Jersey

Circa 1850, Inc.                                             New Jersey

Garden State Race Track, Inc.                                New Jersey

GSRT, LLC                                                    Delaware

Holdfree Racing Association                                  New Jersey

ITB Management, Inc.                                         New Jersey

International Thoroughbred Gaming Development Corporation    New Jersey

ITG - Brazil, Inc.                                           Delaware

ITG - Venezuela, Inc.                                        Delaware

Olde English Management Co., Inc.                            New Jersey

Orion Casino Corporation                                     Nevada

Palm Beach Princess, Inc.(merged into ITGV 1/2/03)           Delaware

ITG Vegas, Inc                                               Nevada

South America Thoroughbred Company, LLC                      Delaware

ITG Peru, LLC                                                Delaware

Premier Lottery Co., LLC                                     Delaware

Palm Beach Entertainment, Inc.                               Delaware

ITB Realty, Inc.                                             Florida

GMO Travel, Inc.                                             Florida

Leo Equity Group, Inc.                                       Florida

Royal Star Entertainment, LLC                                Delaware

ITB Racing, Inc.                                             Delaware

ITG Panama, S. A.                                            Republic of Panama

Riviera Beach Entertainment                                  Delaware


                                       93
<PAGE>