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 December 31, 2006

                                       OR

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

                           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 December  31,  2006 was  approximately
$383,000. 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  March  1,  2007,  there  were  11,367,487   outstanding  shares  of  the
registrant's common stock.


<PAGE>

                               TABLE OF CONTENTS


                                     PART I
                                     ------

Item 1.   Business                                                    2
Item 1A.  Risk Factors                                                7
Item 2.   Properties                                                 13
Item 3.   Legal Proceedings                                          13
Item 4.   Submission of Matters to a Vote of Security Holders        13

                                    PART II
                                    -------

Item 5.   Market for the Registrant's Common Equity, Related
          Stockholder Matters                                        14
Item 6.   Selected Financial Data                                    16
Item 7.   Management's Discussion and Analysis of Financial
          Condition and Results of Operations                        17
Item 7A.  Quantitative and Qualitative Disclosures about
          Market Risk                                                38
Item 8.   Financial Statements and Supplementary Data                38
Item 9.   Changes in and Disagreements with Accountants on
          Accounting and Financial Disclosure                        68
Item 9A.  Controls and Procedures                                    68
Item 9B.  Other Information                                          68

                                    PART III
                                    --------

Item 10.  Directors and Executive Officers of the Registrant         69
Item 11.  Executive Compensation                                     72
Item 12.  Security Ownership of Certain Beneficial Owners and
          Management and Related Stockholder Matters                 75
Item 13.  Certain Relationships and Related Transactions             77
Item 14.  Principal Accountant Fees and Services                     79

                                    PART IV
                                    -------

Item 15.  Exhibits and  Financial Statement Schedules                79


<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    future  effects  from our  filing  for  Chapter  11  protection  which
          occurred between December 4, 2006 and December 7, 2006;

     o    the  potential  adverse  impact  of  our  Chapter  11  filing  on  our
          operation,  management and employees,  and the risks  associated  with
          operating businesses under Chapter 11 protection;

     o    our ability to develop,  confirm and  consummate  a Chapter 11 plan of
          reorganization;

     o    our ability to reduce our overall leveraged position;

     o    customer and vendor response to our Chapter 11 filing;

     o    limited access to capital resources;

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

     o    increased competition from new and existing forms of gaming;

     o    our ability to sell or reposition the Big Easy and the Royal Star on a
          timely and cost effective manner in the future,  or as an alternative,
          sub charter the vessels to other parties;

     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    the  vessels  we  charter  and  the  Royal  Star  are  subject  to the
          provisions  of the  International  Convention on Safety of Life at Sea
          amended ("SOLAS 74"), which may require  substantial  capital expenses
          in the future.


                                        1

<PAGE>


                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.

                                     PART I

Item 1. Business.

Overview

     In April  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. After
retrofitting and refurbishing the Big Easy, a second gaming vessel, we initially
placed into service on October 18, 2005, from the Port of Palm Beach Florida. We
did not commence regular (although  limited)  operations until November 12, 2005
and because we did not meet our  expectations  on February 1, 2006 we  suspended
operations of the Big Easy.

     International Thoroughbred Breeders, Inc., a Delaware corporation ("ITB" or
the "Company"),  was  incorporated  on October 31, 1980.  Until January 1999, we
were  primarily  engaged in the  ownership  and  operation of  standardbred  and
thoroughbred racetracks in New Jersey. During the following two years, our focus
concentrated  upon  working  out our debt  problems  by selling  our real estate
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
remaining  race track  property and  property in Las Vegas,  Nevada and paid our
indebtedness in full.

Chapter 11 Proceedings

     Between  December 4, 2006 and December 7, 2006,  the Company and six of its
subsidiaries, herein referred to as the Debtors, along with four companies owned
or  controlled  by our principal  stockholder  and Chairman of the Board,  filed
voluntary  petitions for reorganization  under Chapter 11 of the U.S. Bankruptcy
Code in the U.S.  Bankruptcy  Court for the Southern  District of Florida  (Palm
Beach Division) (the "Chapter 11 Cases").  These cases were consolidated for the
purpose of joint administration and were assigned case number  06-16350-BKC-PGH.
We filed the Chapter 11 Case as a result of difficulties  generating  sufficient
cash flow from operations to meet our financial obligations under the Promissory
Notes and equipment leases with PDS Gaming  Corporation  after expiration of the
Forbearance Agreements.

     Under   Chapter  11,  the  Company  is  operating   its   businesses  as  a
debtor-in-possession   ("DIP")  under  court   protection   from  creditors  and
claimants.  Since the  Chapter 11 filing,  all orders  sufficient  to enable the
Company  to  conduct  normal  business  activities,  have  been  entered  by the
Bankruptcy  Court.  While the Company is subject to Chapter 11, all transactions
not in the  ordinary  course  of  business  require  the prior  approval  of the
Bankruptcy Court.

     As a consequence of the Chapter 11 filing,  pending  litigation against the
Company is  generally  stayed,  and no party may take any action to collect  its
pre-petition  claims except pursuant to order of the Bankruptcy Court. April 18,
2007 was the last date by which  holders of pre-filing  date claims  against the
Debtors could file such claims.  Any holder of a claim that was required to file
such claim and did not do so may be barred from asserting such claim against the
Debtors and, accordingly,  may not be able to participate in any distribution on
account of such claim.  Differences  between  claim  amounts  identified  by the
Debtors and claims  filed by  claimants  will be  investigated  and  resolved in
connection  with the Debtors'  claims  resolution  process,  and only holders of
claims  that are  ultimately  allowed  for  purposes  of Chapter 11 case will be
entitled to distribution.  The Company has not yet completed its analysis of all
the proofs of claim. Since the treatment,  including payment,  of allowed claims
is subject to a confirmed plan of reorganization, the ultimate distribution with
respect to allowed claims is not presently ascertainable.

     Although we filed a timely  motion to extend the  exclusive  period for the
Debtors to file a plan(s) of  reorganization,  our largest secured  lender,  PDS
Gaming  Corporation,  filed a motion on April 11, 2006 objecting to the proposed
extension. If the exclusivity period in not extended, other parties in interest,
including the Creditor's Committee,  the secured lender or other creditors could
file a plan of reorganization.

Recent Developments

     During the quarter  ended March 31, 2007  passenger  counts and revenues at
the Company's Palm Beach Princess operation have declined approximately 17% from
the  comparative  quarter of 2006.  The Company  attributes  these declines to a
decrease in the marketing and advertising in the current quarter due to our cash
shortages,  the effect of our  bankruptcy  filing on our customers and increased
competition  from slot  machines  placed at  racetracks  in  Broward  County and
another day cruise  casino  vessel  operating  from the Port of Palm Beach since
January 15, 2007.

     We  anticipate  receiving a commitment  for a secured loan from a financial
institution in order to fund the majority of the proceeds  necessary to create a
new  special  purpose  subsidiary  to own and  operate  the Palm Beach  Princess
business.  We anticipate that the commitment will be subject to bankruptcy court
approval,   an  additional   equity  infusion  from  us  or  a  third-party  and
satisfactory loan documentation. Proceeds from the financing will be

                                       2
<PAGE>

used to pay existing  creditors  and provide  working  capital to the Palm Beach
Princess business.

     We are in the process of  negotiating  a series of  transactions  that will
allow  for the  redeployment  of the  Big  Easy to a  foreign  jurisdiction.  We
anticipate  receiving  a  term  sheet  for  a  secured  loan  from  a  financial
institution  in order to fund a  portion  of the  proceeds  necessary  to fund a
special purpose affiliate of the company to own and operate the Big Easy in this
foreign  location.  We  anticipate  that the term  sheet  will be  subject to an
additional  equity  investment  from a  third-party,  successful  negotiation of
operating  agreements  and  satisfactory  loan  documentation.  Closing  of  the
transactions  will also be subject to bankruptcy  court approval.  Proceeds from
the  transaction  will be used to pay  existing  creditors  and provide  working
capital,  including  funding start up and relocation  expenses,  to the Big Easy
business.  No  assurances  can be  given  that we will be  successful  in  these
negotiations

Our Gaming Operations

     The Palm Beach Princess

     We  operate  the M/V Palm  Beach  Princess  for  fourteen  cruises  weekly,
consisting  of a daytime and an evening  cruise each day. Each cruise is of five
to six hours in duration. During each cruise, the M/V Palm Beach Princess offers
a range of  amenities  and services to her  passengers,  including a full casino
while  outside  Florida's 3- mile  territorial  waters  limit,  sit-down  buffet
dining,  live musical shows,  discotheque,  bars and lounges,  and sundeck.  The
casino  occupies  15,000  square  feet  aboard  the  ship and is  equipped  with
approximately  425 slot machines,  all major table games,  including  blackjack,
dice,  roulette and poker,  and a sports  wagering  book. The vessel 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 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.

     The Big Easy

     The Big Easy is 201 feet long and has a passenger capacity of approximately
1,100 persons for coastal voyages, and complies with the standards of the United
States  Coast  Guard  regulations  as  applicable  to ships of its class.  It is
subject to safety and health  inspections  by the United  States Coast Guard and
the  Florida  Department  of Public  Health.  Casino  space on board the  vessel
occupies approximately 30,000 square feet. The vessel contains slot machines and
major table games,  dining, a sports wagering book,  simulcasting,  and multiple
bars and lounges. As with the M/V Palm Beach Princess,  gaming is permitted only
outside of Florida's 3-mile territorial waters limit.

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

     We were having  challenges  attracting  customers to the Big Easy given her
inconsistent schedule of sailings.  The initial delay in receiving a Certificate
of Inspection and subsequent  inconsistencies  in scheduling caused  significant
negative cash flow and made advertising and promotional  efforts  difficult from
both a financial and practical  planning  perspective.  The lack of a consistent
commercial   service  schedule   inhibited  customer  support  and  resulted  in
suspending the Big Easy  operations  indefinitely.  Currently the Big Easy is in
wet dock storage.

     The Royal Star

     During our 2004 fiscal  year we  purchased  a third  vessel,  the M/V Royal
Star.  The Royal Star is currently in wet dock storage and we are limited by our
negative cash position in making any further  improvements on the vessel. In the
past we have explored possible  locations from which to potentially  operate the
vessel,  however  additional  financing  is  necessary  before we move  forward.
However, this ship will need additional improvements and outfitting before being
placed in service.  We have retained a third-party  ship broker who is marketing
the vessel for sale.

                                       3
<PAGE>

Bareboat Charters

     Beginning  on July 7, 2004,  we entered into  sub-bareboat  charters of the
vessels Palm Beach  Princess  and Big Easy with  entities  (Palm Beach  Maritime
Corporation ("PBMC") and Palm Beach Empress, Inc. ("PBE") owned or controlled by
our Chairman, Francis W. Murray).

     In connection with our June 30, 2005  refinancing and  restructuring of the
PDS transaction,  PBMC, an affiliate 100% owned by our Chairman and CEO, Francis
W.  Murray,  acquired  all of the  membership  interests  of Cruise  Holdings I,
(previously owned by PDS Gaming Corporation) the owner of the casino cruise ship
Palm Beach Princess, and PBE, an affiliate 50% owned by Mr. Murray, acquired all
the membership  interests in Cruise Holdings II, (also  previously  owned by PDS
Gaming  Corporation) the owner of the casino ship the Big Easy. As a result, the
bareboat   charters   between  PBMC  and  Cruise  I,  and  PBE  and  Cruise  II,
respectively, terminated, and, in place of the sub-bareboat charters by ITGV and
ITGPB,  these  subsidiaries  now charter the vessels from Cruise I and Cruise II
under  substantially the same economic terms as had applied under their previous
sub-bareboat charters in effect on July 7, 2004.

     Pursuant to the new charters,  we pay Cruise Holdings I and Cruise Holdings
II, as owners of the  vessels,  charter  fees of $50,000  per month for the Palm
Beach  Princess and  $100,000  per month for the Big Easy,  plus 1% of our gross
revenues from operation of those vessels.  We have the right to purchase  either
or both vessels,  at our option, for $17.5 million in the case of the Palm Beach
Princess  representing its appraised value at the charter inception and for fair
market  value  (to be  determined  by  appraisal)  in the case of the Big  Easy.
Provided that we satisfy the notes against the Palm Beach Princess and Big Easy,
we will be entitled to credits against the purchase prices of the vessels: a $14
million  credit in the case of the Palm Beach  Princess and up to  approximately
$14 million, that can be applied to the purchase price of the Big Easy.

Marketing

     Because of our ongoing financial  difficulties and shortage of cash flow we
have been forced to dramatically  reduce our marketing and  advertising.  In the
past we developed a marketing  program intended to generate a loyal following of
repeat  customers and to attract  tourists who are visiting the area. We believe
we have positioned the Palm Beach Princess  afternoon cruise for seniors who not
only enjoy slot machines and gaming but also the extensive  buffet and Las Vegas
type shows presented on board. Younger  professionals also enjoy the evening and
weekend cruises.

     In the second quarter of fiscal 2006 we installed a player  tracking system
on the vessel.  Our members have the ability to play and  accumulate  points for
complimentary  rewards.  This system  provides us with personal  information and
preferences  and tracks our customers  level of play. In the future we expect to
utilize this  information  to expand our direct mail program for our  customers,
hotels, travel agents, group leaders, local chambers, associations and others.

     Our primary  target for guests is in Palm Beach County,  Broward County and
Martin  County.  We actively seek out marketing  partners such as tour companies
who produce large volume groups.  Our reservations and telemarketing are handled
in house.  We utilize  charter  and line  coach  programs  which  reach out from
Melbourne in the North and Miami in the South and we actively seek out marketing
partnerships  with major brand  companies.  We also  utilize an in-house  travel
agent to arrange airline and hotel reservations for our major customers.

PDS Gaming Transactions

     Since July 2004,  ITB and  several of its  subsidiaries,  along with Cruise
Holdings I, LLC,  Cruise  Holdings  II,  LLC,  Palm Beach  Maritime  Corporation
("PBMC") and Palm Beach Empress, Inc. ("PBE"),  companies owned or controlled by
our  chairman,   Francis  W.  Murray,  completed  several  financial  and  lease
transactions  with PDS Gaming  Corporation  ("PDS"),  a Las Vegas  based  gaming
finance  company,  along with several of its affiliated  companies.  On June 30,
2005 the  Company  and  several of its  subsidiaries,  along with the  companies
controlled  by  Francis  W.  Murray,   borrowed  $29,313,889  to  refinance  the
approximately $27 million in existing PDS debts, with approximately $2.3 million
of add-on financing being provided.

     The PDS  indebtedness  is secured by mortgages  on the Royal Star,  the Big
Easy and the Palm Beach  Princess,  an assignment of our  promissory  note dated
November 29, 2000 payable by Realen-Turnberry/Cherry  Hill, LLC in the principal
amount of $10 million,  an  assignment of our  promissory  note in the principal
amount of  $2,021,176  dated May 1, 2002  payable by OC Realty,  a company  also
owned by Mr. Murray, and stock in certain of our subsidiaries. As a condition to
entering into the PDS  Transaction,  PDS required the Company,  its  subsidiary,
International  Thoroughbred Gaming Development  Corporation ("ITGDC"),  PBMC and
PBE to enter into a Guaranty  Agreement and Pledge  Agreements  guaranteeing the
obligations of the borrowers.

     Beginning in January  2006,  we ceased  making our debt service and monthly
rental payments on the PDS  obligations.  In March and July 2006,we entered into
two consecutive  forbearance agreements which subsequently expired on August 29,
2006 after  which we were not able to make our monthly  loan and lease  payments
nor were we able to  consummate  any  transactions  to  refinance  or reduce our
indebtedness as  contemplated  under the  forbearance  agreement.  On October 3,
2006, PDS  accelerated  the maturity of our obligations and declared all amounts
remaining unpaid under the Loan Agreements,  Notes and equipment leases with PDS
immediately due and payable. We did not have the means to satisfy the creditor's
demands and as a result, between December 4 and 7, 2006, the parties to

                                       4
<PAGE>

the PDS financing filed petition for reorganization under Chapter 11 of the U.S.
Bankruptcy Code.

Other Assets

     Cherry Hill Notes

     In  connection  with the sale on November 30, 2000 of our Garden State Park
property  in Cherry  Hill,  New Jersey,  to  Realen-Turnberry/Cherry  Hill,  LLC
("Realen")  we hold a  promissory  note in the face amount of $10  million.  All
payments are  dependent  upon,  and payable  solely out of, the buyer's net cash
flow available for  distribution to its equity owners.  After the buyer's equity
investors  have  received  aggregate   distributions   equal  to  their  capital
contributions plus an agreed upon return on their invested capital, the next $10
million  of  Distributable  Cash  is to be  paid  to us  along  with 33 % of all
Distributable Cash plus accrued interest at 22% until maturity.

     In  connection  with the sale on May 22, 2000 of our property in Las Vegas,
Nevada,  the  non-operating  former El Rancho Hotel and Casino, to Turnberry/Las
Vegas  Boulevard,  LLC, we purchased a promissory  note of the buyer in the face
amount of $23,000,000 . On June 16, 2004, the Company sold the Las Vegas Note to
Cherry Hill at El Rancho,  LP, a limited  partnership  which was 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 Second Cherry Hill
Note matures in 2015 and is similar to the Las Vegas Note,  in that it generally
is payable  prior to maturity  only from  distributable  cash of the maker.  The
maker under the Second Cherry Hill Note is one of the principal  partners in the
entity which  purchased the Garden State Park property 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 the Garden State Park property.  The
Second  Cherry  Hill  Note is  secured  by a pledge  of stock  owned by  Raymond
Parello,  an affiliate of the Buyer, in Palm Beach Empress,  Inc.,  representing
fifty percent (50%) of the stock in that company.  Palm Beach  Empress,  Inc. is
the entity formed to acquire the Big Easy,  the second vessel which is chartered
to a subsidiary  of the Company.  The other fifty  percent (50%) of the stock in
Palm Beach  Empress,  Inc. is owned by PBMC, a  corporation  owned by Francis W.
Murray, the Company's Chief Executive Officer.

     Subsequent to December 31, 2006, the Company began settlement  negotiations
to sell the Cherry Hill Notes.  Although these transactions have not consummated
before the  filing of the  Company's  Form 10-K,  the  observable  market  price
representing  the fair  value of these  notes is  substantially  lower  than the
carrying values on our books. As a result of our recent negotiations to sell the
Cherry Hill Notes, the the Company recorded an impairment loss on the two Cherry
Hill  Notes  of  $9,378,651  as of  December  31,  2006  to more  fully  reflect
approximately  $5.3 million estimated fair value of the notes in accordance with
the term sheet being negotiated.

     We cannot  guarantee that we will be successful or that we will receive the
necessary   Bankruptcy  Court  approvals  to  complete  the  above  contemplated
transactions

     OC Realty Note - Related Party

     We have made three  loans in the  approximate  amount of $2.7  million to a
project (OC Realty) in which Mr. Murray is participating  for the development of
an oceanfront parcel of land, located in Fort Lauderdale,  Florida. This project
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.  Two of these loans in the approximate  amount of $2 million bear
interest  at 12% and will be  repayable  out of OC Realty's  share of  proceeds,
after payment of bank debts, generated by the sale of condominiums. We will also
have the right to receive, as participation  interest,  from available cash flow
of OC Realty, if the project is successful,  a priority return of our investment
and a priority profits interest for our investment. Repayment of these loans and
our participation  interest will be subject to repayment of, first, bank debt of
approximately  $20 million (at  present)  and,  second,  construction  financing
expected to amount to $50 million  and third,  any capital  invested by and fees
payable to joint  venture  partners  including OC Realty.  OC Realty's  share of
proceeds  thereafter  will  range  from  22.5%  to  45%.  We have  assessed  the
collectability  of the advances made to OC Realty based on  comparable  sales of
like units in the marketplace  which suggest a weakening  demand for prospective
sales of the project's  condominium units. At December 31, 2006, $2.8 million is
the  estimated  fair value of the note after  recording a reserve  allowance  of
$2,235,523 for the year ended December 31, 2006  representing  the amount of the
interest  accrued  to date and  leaving  an asset  value we  believe to be fully
realizable.

Employees

     As of December  31,  2006,  our parent  company  employed  seven  full-time
corporate  executive,  administrative  and  clerical  personnel.  The Palm Beach
Princess employs a crew of approximately 318 and office and management personnel
of 54 for the operations of its casino cruise business.

Competition

     From June,  2002 until  February 15, 2003,  the coastal gaming vessel Texas
Treasure II was operating  from the Port of Palm Beach in  competition  with the
M/V Palm Beach Princess.  This vessel was  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.

                                       5
<PAGE>


     From  February  16, 2003 until  January 15, 2007 we operated the Palm Beach
Princess without competition,  except for our operation of the Big Easy from mid
November  2005 until  February  2006. In mid January  2007,  the coastal  gaming
vessel Sun Cruz VI began  operating  from the Port of Palm Beach in  competition
with the Palm Beach  Princess.  This  vessel is a 165 foot  catamaran  and has a
passenger  capacity of 600 people and has 38 table games and  approximately  300
slot machines. The vessel is scheduled to make two cruises each day.

     On March 8, 2005 the citizens of Broward County  approved a referendum that
amended Florida's constitution to permit slot machines at pari-mutuel facilities
in  Broward  County.  Currently  there are three race  tracks  and one  jai-alai
facility in the County.  Broward  County is  contiguous  to Palm Beach County in
which we conduct operations. The referendum approved for Broward County in March
2005  also  sought  approval  for  Miami-Dade  County.  However,   approval  for
Miami-Dade County was defeated at that time. The Florida  legislature has passed
legislation  which  permits  1,500  slot  machines  at  each  of  the  four  (4)
pari-mutuel  facilities in Broward County.  On November 15, 2006 Gulfstream Park
Racing and Casino opened with  approximately  500 slot  machines,  now has 1,200
slot  machines  and is expected to have 1,500 slot  machines in the near future,
Mardi Gras Racetrack & Gaming Center  (formerly  Hollywood  Greyhound)  operates
with 1,100 slot  machines  and  Pampano  Park  Racing  operates  with 1,500 slot
machines.  Neither  the timing of the  expansion  of the slot  machines at these
locations,  the  installation  at the one other  location  nor the impact to our
Company, can be predicted at this time.

     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 Native
American Indian gaming  casinos,  poker rooms,  horse and dog racing,  off track
wagering,  state-sponsored  lotteries,  short-term cruises,  resort attractions,
various sports activities and numerous other recreational activities.  In August
2005 a 300 passenger  high-speed ferry began carrying  passengers on daily round
trips to Freeport,  Grand Bahamas where gaming is conducted.  This operation was
terminated  in  June  2006.  There  is no  assurance  that  we  will  be able to
successfully compete with such other activities.

     The expansion of slot machines at pari-mutuel  facilities in other counties
and/or the  expansion  of Native  American  tribe  gaming in Florida  could also
materially impact our operation in the near future.

Weather and Seasonal Fluctuations

     The success of our casino cruise business depends, to a significant extent,
on weather conditions.  In particular,  inclement weather, or the threat of such
weather,  has  a  direct  effect  on  passenger  counts,  potentially  adversely
affecting  our  revenues.  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 winter and spring  seasons due to the  increased  local
population as well as increased tourist populations.

     During the first  quarter of  operations  of our fiscal year ended June 30,
2005, four major hurricanes severely 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 33
cruises  during  the first and second  quarters  of last year as a result of the
weather,  loss of utilities and damage to the surrounding areas.  During the 4th
quarter of our year ended December 31, 2005, we cancelled 18 Palm Beach Princess
cruises as a consequence  of  hurricanes  "Katrina" and "Rita" and the resulting
bad weather.  During our year ended  December 31, 2006 we did not experience any
hurricanes and disruptions due to inclement weather were at a minimum.

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  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.

     The  vessels we lease and own are  subject to the  provisions  of SOLAS 74,
which was adopted in 1974 by

                                       6
<PAGE>


the  International  Maritime  Organization,  a specialized  agency of the United
Nations that is  responsible  for measures to improve the safety and security of
international  shipping, and to prevent marine pollution from ships. SOLAS 74 is
the  current  basic  safety  standard  for all ships  engaged  in  international
service.  The Convention was substantially  amended in 1992 and 2000 in order to
upgrade  and  improve  shipboard  fire  safety  standards.  The  Amendments  are
applicable to all passenger ships engaged in  international  service,  including
retroactively  those ships such as the Palm Beach Princess that were built prior
to 1980. Under the terms of the Amendments,  full compliance by older ships with
SOLAS 74  standards  is to be  phased  in and  implemented  over the  years  and
completed no later than October 1, 2010.

     The Palm Beach Princess is in compliance  with the SOLAS 74 requirements to
date, and has previously  completed  substantial  upgrading and  installation of
fire sprinkler and smoke  detection  systems and other fire safety  construction
standards.   By  2010  the  ship  must  comply  with  the  final  phase  of  the
implementation of the SOLAS 74 Amendments,  most notably being requirements that
no  combustible  material be used in ships'  structures  and that certain  other
interior  structure and space  standards be met. The precise nature and scope of
necessary work maybe  determined in conjunction  with the ship's  classification
society,  Det norske Veritas.  To accomplish  such work will entail  substantial
cost in order to remove all wood and other combustible materials now used in the
structure  of the Palm Beach  Princess,  to refit the ship with  non-combustible
materials,  and otherwise to upgrade interior  structure and spaces. We have not
yet obtained an estimate of such cost.

2003 Chapter 11 Case

     In April 2001, in order to obtain rights to operate the Palm Beach Princess
under a bareboat charter,  we entered into an agreement to purchase a promissory
note of Palm  Beach  Maritime  Corporation  (or PBMC) in the  amount  (including
accrued interest) of $13.75 million, which was secured by a mortgage against the
Palm Beach Princess,  from the bankruptcy estate of one of our former affiliates
("Ship Mortgage  Obligation").  In addition we agreed with the bankruptcy estate
to  purchase  shares of our common  stock  still held by this  affiliate  for an
aggregate  purchase  price of  approximately  $1.8  million,  which was $.50 per
share.

     We  began  making  payments  on the Ship  Mortgage  Obligation  in  monthly
installments  of $250,000 until July 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) until January 2003.
On January 3, 2003, we did not have the funds to complete the purchase and after
our requests for further  extension was denied, 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. PBMC, the entity which owned
the vessel,  also filed for relief under Chapter 11 of the Bankruptcy  Code. The
petition  did not  cover us or any of our  other  subsidiaries.  The Palm  Beach
Princess continued to operate as "debtor-in-possession."

     In September 2003, the bankruptcy  court issued an order  confirming a plan
of  reorganization  under  Chapter 11 of the  Bankruptcy  Code which was jointly
proposed by the debtors. The plan of reorganization included, among other items,
the payment of the  amounts  owing under the Ship  Mortgage  Obligation  and the
amounts  owing  under  the  stock  repurchase  discussed  above.  All  of  these
obligations  were  secured by a ship  mortgage  against the Palm Beach  Princess
vessel and security interests in all of the other assets of the debtors.

     In July 2004, we and PBMC entered into certain financing  transactions with
PDS  Gaming.  A portion of these  funds was  utilized by PBMC to pay in full our
obligations under the plan of  reorganization.  On July 17, 2004, the bankruptcy
court issued a final decree closing the Chapter 11 cases.

Item 1A. Risk Factors

     This report contains certain statements that are forward-looking within the
meaning  of  the  Private  Securities  Litigation  Reform  Act  of  1995.  These
statements are not guarantees of future  performance  and involve certain risks,
uncertainties and assumptions that are difficult to predict. Actual outcomes and
results  may differ  materially  from  those  expressed  in, or implied  by, our
forward-looking statements.  Words such as "expects," "anticipates," "believes,"
estimates" and other similar  expressions or future or conditional verbs such as
"will,"   "should,"   "would"  and  "could"  are   intended  to  identify   such
forward-looking  statements.  Readers of this annual report of the Company (also
referred  to as we, us or our)  should  not rely  solely on the  forward-looking
statements  and should  consider all  uncertainties  and risks  throughout  this
report. The statements are representative only as of the date they are made, and
we undertake no obligation to update any forward-looking statement.

     All forward-looking  statements,  by their nature, are subject to risks and
uncertainties.  Our actual future results may differ  materially  from those set
forth in our forward-looking  statements. We face risks that are inherent in the
businesses  and the market places in which we operate.  Factors that might cause
our  future   financial   performance   to  vary  from  that  described  in  our
forward-looking statements include the market, credit, operational,  regulatory,
strategic,  liquidity, capital and economic risks, among others, as discussed in
the MD&A and in other  periodic  reports  filed with the SEC. In  addition,  the
following  discussion sets forth certain risks and uncertainties that we believe
could cause actual future results to differ  materially  from expected  results.
However, other factors besides those listed below or discussed in our reports to
the SEC also could  adversely  affect  our  results,  and the reader  should not
consider any such list of factors to be a complete set of all potential risks or
uncertainties.

                                       7
<PAGE>


Bankruptcy Related Risks

Upon filing our Plan of  Reorganization  it must be confirmed by the  Bankruptcy
Court and must be consummated.

     Our  future  results  are  dependent  upon  successfully  filing  our plan,
obtaining   approval,   confirmation   and   implementation   of  our   plan  of
reorganization.  There can be no assurance that our plan of reorganization  will
be confirmed by the Bankruptcy Court.  Currently,  it is not possible to predict
with  certainty  the  length of time we will  operate  under the  protection  of
Chapter 11, the outcome of the Chapter 11 proceedings in general,  or the effect
of the proceedings on our business or on the interests of the various  creditors
and stockholders.

The  Creditors'  Committee  and other  parties in  interest  may not support our
positions in the Chapter 11 proceedings.

     The Creditors'  Committee  appointed in the bankruptcy  proceedings has the
right to be heard on all matters that come before the  Bankruptcy  Court.  There
can be no assurance  that the secured  lender,  the  Creditors'  Committee,  our
equity  holders or other  parties in interest  will support our positions in the
bankruptcy  proceeding  or  the  plan  of  reorganization  once  proposed,   and
disagreements  between  us and  such  entities  could  protract  the  bankruptcy
proceedings,  could negatively impact our ability to operate during  bankruptcy,
and could delay our emergence from bankruptcy.

Our Chapter 11 proceedings may result in a negative public perception of us that
may adversely affect our relationships with customers and suppliers,  as well as
our business, results of operations and financial condition.

     Even  if we  submit  a plan of  reorganization  that  is  confirmed  by the
Bankruptcy  Court and consummated by us, our Chapter 11 filing and the resulting
uncertainty  regarding  our future  prospects  may hinder our  ongoing  business
activities and its ability to operate, fund and execute our business plan by (i)
impairing  relations  with existing and  potential  customers;  (ii)  negatively
impacting  our ability to attract,  retain and  compensate  key  executives  and
associates  and to retain  employees  generally;  (iii)  limiting our ability to
obtain trade credit;  and (iv) impairing present and future  relationships  with
vendors and service providers.

We have incurred, and expect to continue to incur,  significant costs associated
with the Chapter 11 proceedings.

     We have incurred and will continue to incur  significant  costs  associated
with the reorganization.  The amount of these costs, which are being expensed as
incurred,  are expected to have a significant  adverse  affect on the results of
operations and cash flows.

Our ability to continue as a going concern is dependent on a number of factors.

     The accompanying financial statements have been prepared on a going concern
basis,  which contemplates  continuity of operations,  realization of assets and
liquidation of liabilities  in the ordinary  course of business.  As a result of
the  bankruptcy  filing  and  related  events,  there is no  assurance  that the
carrying  amounts  of  assets  will  be  realized  or that  liabilities  will be
liquidated  or  settled  for  the  amounts  recorded.  In  addition,  a plan  of
reorganization,  or rejection thereof,  could change the amounts reported in the
financial statements.

     The company incurs substantial expenses to carry the Big Easy and the Royal
Star in wet dock storage.  As part of our plan of  reorganization  and/or future
financial  stability we must find a way to deploy  these vessel  asssets or sell
the Big Easy in order to reduce the wet dock  storage  costs which are  draining
the company of needed cash.


Company Specific Risks

Access to funds from subsidiaries.

     The  parent  company is a  separate  and  distinct  legal  entity  from our
operating and non-operating  subsidiaries.  We therefore depend on distributions
and other payments from our subsidiaries to fund our parent company overhead and
administrative  obligations.  Our  subsidiaries  were and could in the future be
subject to credit  agreements that severely limited the flow of funds from those
subsidiaries  to the parent company and currently are limited by approvals being
obtained from the Bankruptcy Court.

We derive  substantially all of our revenues from our offshore gaming operations
of the Palm Beach Princess vessel that has substantial fixed costs.

     Substantially  all of our revenues are currently derived from our operation
of the M/V Palm Beach  Princess.  Many of our  operating  costs,  including  the
charter fee payable to the vessels' owners,  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

                                       8
<PAGE>


through to customers.  Passenger and gaming revenues earned from the vessel must
be high enough to cover these expenses.

We Charter the vessels the Palm Beach Princess and the Big Easy

     We charter the vessels we use in our  operating  business.  The Amended and
Restated  Bareboat  Charters and Option to Purchase which allows for the charter
of Palm Beach  Princess and Big Easy and for a option to purchase the vessels at
the end of the lease  expire on July 1,  2009.  Currently,  there are no renewal
periods and if we should be delayed in making  charter hire payments or payments
on the PDS debt we could lose the ability to continue  chartering the vessels or
the option to purchase the vessels.

We have agreed to issue  warrants that may be  exercisable at our common stock's
market price on the date the warrants are issuable, and these warrants may cause
severe dilution to our stockholders.

     In connection  with our borrowing of $400,000 on November 9, 2005 we agreed
to issue additional  penalty warrants,  exercisable for a period of three years,
if the loan was not paid by January 9, 2006; we agreed to issue warrants for the
purchase  of 200,000  shares of common  stock each month at a price per share of
the lower of $2.50,  on the  market  value on the day of issue in each month for
each  additional  month until the loan is paid.  During 2006,  we have issued or
reserved penalty warrants for the issuance of 2.2 million shares of common stock
as a result  of this  borrowing  at prices  between  $.10 and  $2.50.  As of our
bankruptcy filing date this loan has not been paid.

We  face  competition  to  our  off-shore  gaming   operations  from  non-gaming
activities  in  Florida,  as well as  traditional  land-based  casinos and other
gaming activities.

     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 sixty miles of the Port of
Palm Beach,  there are a number of smaller  marinas that are capable of handling
other coastal gaming vessels.  In the future, we expect  competition to increase
as:

     o    new gaming operators enter our market,

     o    existing competitors expand their operations to the Port of Palm Beach
          and other ports in Florida.

     o    gaming activities expand in existing jurisdictions, and

     o    if gaming is legalized in new jurisdictions.

     In general, we compete with gaming activities including:

     o    traditional land-based casinos,

     o    casino gaming on Indian land,

     o    state-sponsored lotteries,

     o    pari-mutuel betting on horse racing and jai-alai

     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.

Our  competition  may  increase in the future if the State of Florida  legalizes
additional gaming activities.

     Over the past few  years,  there has been an  attempt  to  legalize  gaming
throughout  the State of  Florida.  It is likely that the gaming  industry  will
continue to pursue  legalization  of gaming in Florida,  and we believe that the
legalization  of gaming in Florida 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 Atlantic City, New Jersey, Las
Vegas,  Nevada,  the Bahamas,  riverboat  gambling on the Mississippi  river and
gambling in the pan handle area and Mississippi  Coast.  Such competition  could
adversely  affect our  ability to compete  for new gaming  opportunities  and to
maintain revenues.

     On March 8, 2005 the citizens of Broward County  approved a referendum that
amended Florida's constitution to permit slot machines at pari-mutuel facilities
in  Broward  County.  Currently  there are three race  tracks  and one  jai-alai
facility in the County.  Broward  County is  contiguous  to Palm Beach County in
which we conduct operations. The referendum approved for Broward County in March
2005  also  sought  approval  for  Miami-Dade  County.  However,   approval  for
Miami-Dade County was defeated at that time. The Florida  legislature has passed
legislation  which  permits  1,500  slot  machines  at  each  of  the  four  (4)
pari-mutuel  facilities in Broward County.  On November 15, 2006 Gulfstream Park
Racing and Casino opened with  approximately  500 slot  machines,  now has 1,200
slot  machines  and is expected to have 1,500 slot  machines in the near future,
Mardi Gras Racetrack & Gaming Center  (formerly  Hollywood  Greyhound)  operates
with 1,100 slot  machines  and  Pampano  Park  Racing  operates  with 1.500 slot
machines.  Neither  the timing of the  expansion  of the slot  machines at these
locations,  the  installation  at the one other  location  nor the impact to our
Company, can be predicted at this time.

                                       9
<PAGE>


We are potentially subject to new gaming laws, regulations and taxes.

     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,  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 effect our business.

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

We are subject to a variety of non-gaming regulations.

     The M/V Palm Beach  Princess,  the Big Easy, 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.  An 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 state and local safety
and health laws, regulations and ordinances that apply to non-gaming businesses,
such as the Clean Air Act,  the Clean Water Act, and other  environmental  rules
and  regulations.  The coverage and compliance costs associated with these laws,
regulations  and  ordinances  will  result  in  future  additional  costs to our
operations.

We rely on patrons  primarily  from Florida and tourists  from the  Northeastern
United  States,  and are therefore  particularly  sensitive to adverse  economic
events in these regions.

     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
vessels to  continue to attract  customers  from these  geographic  markets as a
result of  increased  competition  in local  markets,  or other  factors such as
future 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:

     o    competition from other amusement properties;

     o    changes  in  regional  and  local  population  and  disposable  income
          composition;

     o    changes or cancellations in local tourism;

     o    changes in travel  patterns  or  preferences  which may be affected by
          increases in gasoline prices;

     o    changes in airline schedules and fares, or airline strikes

     o    weather events; and

     o    our need to make renovations,  refurbishments  and improvements to our
          vessels to continue to attract tourists.

Weather conditions could seriously disrupt our operations.

     Our gaming  operations  are  subject  to unique  risks,  including  loss of
service  because of flood,  hurricane or other severe  weather  conditions.  Our
vessels  face  additional  risks from their  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  severe  weather
conditions, as well as the ordinary or extraordinary maintenance requirements of
our vessels, if we are unable to operate our vessels,  our results of operations
will be harmed.

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
and our Vice President of ITG Vegas, Inc., Francis X. Murray. Since the business
of  gaming  has  expanded  significantly  over the past  few  years,  so has the
competition for qualified employees. There is no assurance that such persons can
be retained or readily replaced. Furthermore, there is no assurance that we will
be able to  continue  to add  qualified  personnel  as  needed.  The loss of the
services of any of our executive officers could adversely affect our business.

Our business is seasonal and we experience significant quarterly fluctuations in
operating results.

     Our  quarterly  operating  results are expected to fluctuate  significantly
because of seasonality.  We expect to generate the majority of our income during
the quarters  ending March 31 and June 30. If our  operations  are shut down for
any  periods  of time  during  these  quarters  in  particular,  our  results of
operations will be adversely affected.

                                       10
<PAGE>


Our vessels are subject to the  provisions  of the  International  Convention on
Safety of Life at Sea as Amended  ("SOLAS 74"),  which will require  substantial
capital expenses in the future.

     Our vessels are subject to the provisions of the  International  Convention
on  Safety  of  Life  at Sea as  Amended,  which  was  adopted  in  1974  by the
International Maritime Organization,  a specialized agency of the United Nations
that is  responsible  for  improving  the safety and  security of  international
shipping,  and preventing  marine pollution from ships.  SOLAS 74 is the current
basic  safety  standard  for all ships  engaged in  international  service.  The
Convention  was  substantially  amended in 1992 and 2000 (the  "Amendments")  in
order to upgrade and improve shipboard fire safety standards. The Amendments are
applicable to all passenger ships engaged in  international  service,  including
retroactively those ships, such as the M/V Palm Beach Princess,  that were built
prior to 1980. Under the terms of the Amendments, full compliance by older ships
with SOLAS 74 standards  is to be phased in and  completed no later than October
1, 2010.

     The M/V Palm Beach  Princess,  in compliance with the SOLAS 74 requirements
to date,  and has  completed  substantial  upgrading  and  installation  of fire
sprinkler  and smoke  detection  systems  and  other  fire  safety  construction
standards.   By  2010  the  ship  must  comply  with  the  final  phase  of  the
implementation of the SOLAS 74 Amendments.  Most notably, the Amendments require
that no combustible material be used in ships' structures and that certain other
interior  structure and space  standards be met. The precise nature and scope of
necessary work will be determined in conjunction with the ship's classification.
To accomplish such work may entail  substantial cost in order to remove all wood
and other combustible  materials now used in the structure of the M/V Palm Beach
Princess,  to refit the ship with  non-combustible  materials,  and otherwise to
upgrade interior  structure and spaces.  We have not yet obtained an estimate of
such cost.

     The  Bareboat  Charter  and Option to Purchase  Agreement  for the M/V Palm
Beach  Princess  permits us to  purchase  the  vessel at the end of the  charter
period  on July 1,  2009.  We will  need to make a  determination  if it will be
economically  feasible to purchase the M/V Palm Beach Princess at the end of the
charter  period  considering  the costs which may be  involved  in readying  the
vessel for SOLAS 74 requirements.

We are subject to  environmental  laws and potential  exposure to  environmental
liabilities.

     We  are  subject  to  various  international,   federal,  state  and  local
environmental  laws and  regulations  that govern our  operations and our ships,
including  emissions and discharges into the  environment,  and the handling and
disposal of hazardous and non-hazardous substances and wastes. Failure to comply
with such laws and  regulations  could result in costs for corrective  action or
environmental  clean up,  penalties,  or the imposition of other  liabilities or
restrictions.

     With the sale of our  Freehold  Raceway  property  in New Jersey in January
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,  removed in 1990,  prior to our purchase of Freehold  Raceway.  In
February 2000, the New Jersey  Department of Environmental  Protection  approved
our remedial  investigation  workplan.  Under the workplan,  numerous test wells
were drilled and soil tests were preformed to determine the extent and direction
of the flow of underground  hazardous  material.  Reports and conclusions of the
tests were prepared for the State of New Jersey. However, prior to obtaining the
workplan  from the State of New  Jersey,  the work was  stopped due to a lack of
funds.  At this time we are unable to predict the effects  that such delays have
caused, but it is likely that some retesting of the wells may be necessary.

Energy and fuel price increases may adversely  affect our cost of operations and
our revenues.

     Our  vessels  use  significant  amounts of fuel and other  forms of energy.
While no shortages of energy have been experienced,  the recent increases in the
cost of fuel  in the  United  States  will  negatively  affect  our  results  of
operations.  In  addition,  energy and fuel price  increases  could  result in a
decline in disposable income of potential customers and a corresponding decrease
in visitation to our vessels,  which would negatively  impact our revenues.  The
extent of the impact is subject to the  magnitude and duration of the energy and
fuel price increases, and this impact could be material.

We hold two  notes  from our sale of real  property  the  repayment  of which is
dependent on revenues derived from these properties.

     We hold two notes.  One in the face  amount of $10  million and a second in
the face amount of approximately  $35 million.  We have written down these notes
to approximately $5.3 million based upon a term sheet we are negotiating for the
sale of the notes. Both notes are payable from  distributable  cash generated by
the  development  or sale of the former  Garden  State Park  racetrack in Cherry
Hill,  New Jersey,  which we sold. If the sale is not  consummated  all payments
under these notes are uncertain and depend  entirely upon the  profitability  of
the development or resale of the subject real property.

Economic downturns,  as well as other factors affecting  discretionary  consumer
spending,  could  reduce the number of visitors or the amount of money  visitors
spend on our vessels.

     The strength and  profitability  of our business depends on consumer demand
for cruise  trips and gaming in general and for the type of  amenities we offer.
Changes in consumer  preferences or discretionary  consumer  spending could harm
our business.

     During  periods of economic  contraction,  our revenues may decrease  while
some of our costs remain fixed,

                                       11
<PAGE>


resulting in decreased  earnings.  This is because the gaming and other  leisure
activities we offer on our vessels are discretionary expenditures. Participation
in these activities may decline during economic downturns because consumers have
less disposable income.  Even an uncertain economic outlook may adversely affect
consumer spending in our gaming operations and related facilities,  as consumers
spend less in anticipation of a potential economic downturn.

     The  terrorist  attacks  which  occurred on  September  11,  2001,  and the
potential for future terrorist  attacks had and may again have a negative impact
on  travel  and  leisure  expenditures.   Leisure  travel  remains  particularly
susceptible to global geopolitical  events. Many of the customers of our vessels
travel by air,  and the cost and  availability  of air  service  can  affect our
business.  We cannot predict the extent to which war,  future security alerts or
additional terrorist attacks may interfere with our operations.


Provisions  in our  charter  documents  could  prevent  or  delay  stockholders'
attempts to replace or remove
current management.

     Our  charter  documents  will  provide  that  our  Board  of  Directors  is
authorized to issue "blank check" preferred stock, with designations, rights and
preferences  as they may  determine.  Accordingly,  our Board of Directors  may,
without  stockholder  approval,  issue shares of preferred  stock with dividend,
liquidation,  conversion, voting or other rights that could adversely affect the
voting  power or other rights of the holders of our common  stock.  This type of
preferred stock could also be issued to discourage, delay or prevent a change in
our control.

     The  ability  to issue  "blank  check"  preferred  stock  is a  traditional
anti-takeover  measure.  These  provisions  in our  charter  documents  make  it
difficult for a majority  stockholder  to gain control of the Board of Directors
and of our company. These provisions may be beneficial to our management and our
Board of Directors in a hostile  tender offer and may have an adverse  impact on
stockholders who may want to participate in such a tender offer, or who may want
to replace some or all of the members of our Board of Directors.

Provisions in our bylaws provide for  indemnification of officers and directors,
which could require us to direct funds away from our business.

     Our bylaws provide for the  indemnification  of our officers and directors.
We may be required to advance  costs  incurred by an officer or director  and to
pay judgments, fines and expenses incurred by an officer or director,  including
reasonable  attorneys'  fees, as a result of actions or proceedings in which our
officers and directors are involved by reason of being or having been an officer
or director of our company.  Funds paid in satisfaction of judgments,  fines and
expenses  may be  funds  we need  for the  operation  of our  business,  thereby
affecting our ability to attain or maintain profitability.

There is a limited  public  trading  market for our  common  stock and our Stock
Transfer Agent is no longer performing services.

     There is a limited public  trading market for our common stock.  Without an
active  trading  market,  there can be no assurance  of any  liquidity or resale
value of our common stock,  and  stockholders  may be required to hold shares of
our  common  stock  for an  indefinite  period of time.  Additionally  our Stock
Transfer  Company  is no longer  performing  services  on behalf of the  Company
because  of  overdue,   unpaid  bills.  Thus,   shareholders  owning  shares  in
Certificate form are not able to transact their shares.

The requirements of being a public company may strain our resources and distract
our management.

     As a public  company,  we are subject to the reporting  requirements of the
Securities  Exchange  Act of 1934,  as amended,  or the  Exchange  Act,  and the
Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley  Act. These requirements place
a strain on our systems and  resources.  The Exchange Act requires  that we file
annual, quarterly and current reports with respect to our business and financial
condition. The Sarbanes-Oxley Act requires that we maintain effective disclosure
controls and procedures and internal  controls for financial  reporting.  In the
future, we will be required to document and test our internal control procedures
in order to satisfy the requirements of Section 404 of the  Sarbanes-Oxley  Act,
which  requires  annual  management  assessments  of  the  effectiveness  of our
internal  controls  over  financial  reporting  and a report by our  independent
registered public accountants addressing these assessments. During the course of
our testing, we may identify  deficiencies which we may not be able to remediate
in time to meet the deadline  imposed by the  Sarbanes-Oxley  Act for compliance
with the  requirements  of Section  404. If we fail to achieve and  maintain the
adequacy of our internal controls, as such standards are modified,  supplemented
or amended from time to time,  we may not be able to ensure that we can conclude
on an ongoing basis that we have  effective  internal  controls  over  financial
reporting in accordance with Section 404 of the Sarbanes-Oxley Act.

     In order to  maintain  and  improve  the  effectiveness  of our  disclosure
controls  and  procedures  and  internal   control  over  financial   reporting,
significant resources and management oversight will be required. This may divert
management's attention from other business concerns, which could have a material
adverse effect on our business,  financial condition,  results of operations and
cash flows. In addition, we may need to hire additional accounting and financial
staff with  appropriate  public  company  experience  and  technical  accounting
knowledge,  and we cannot  assure  you that we will be able to do so in a timely
fashion.

We have no intention of paying dividends.

     We have never declared or paid any cash  dividends on our common stock.  We
currently  intend to retain  future  earnings,  if any, for funding  growth and,
therefore, do not expect to pay any dividends in the foreseeable future.

                                       12
<PAGE>


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 month to month and  cancellable  by either
party upon 90 days  notice.  We also lease one  office  suite in Miami,  Florida
which serves as a satellite  executive office. The lease is for one year and can
be renewed annually.

     Through ITG Vegas,  we have negotiated with the Port of Palm Beach District
an operating  agreement and a lease of space in a new office complex constructed
at the Port of Palm Beach adjacent to a new cruise terminal  effective May 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 our  agreement  with the Port of Palm Beach in
order to permit the  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 Big Easy.

     From February  2004 to December 2006 we held an agreement  with the City of
Riviera  Beach,  Florida that  permitted us dockage at the 160 foot main dock at
the City Marina located north of the Port of Palm Beach. While the agreement did
not permit us 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.  This  agreement was  terminated by us in December 2006. The Agreement
provided for our payment to the City of dockage and other fees totaling  $11,000
per month.

Item 3. Legal Proceedings

     As discussed above on page 2, the Parent Company and 6 of its  subsidiaries
initiated  proceedings  under Chapter 11 of the Bankruptcy  Code on December 4th
and 7th, 2006.

     Through our  subsidiary,  Royal Star  Entertainment  LLC, we had negotiated
with the Port of Palm Beach District a second  agreement that would permit us to
operate the Big Easy in passenger  service from the Cruise Terminal at the Port,
with  certain  berthing  and  scheduling  priorities.  The initial  term of this
agreement  was five years from the date of  commencement  of sailings by the Big
Easy from the Port, with subsequent  renewal options of four and three years. We
were  required to commence  sailings on or before  October 31, 2005.  Due to the
suspension of the Big Easy operations,  the Port of Palm Beach District voted on
April 10, 2006 to terminate this  agreement,  and on April 19, 2006 the District
filed suit in Florida Circuit Court for declaratory  judgement of termination of
the  agreement  and for other relief.  Royal Star  Entertainment,  LLC filed its
answer denying that the District was entitled to terminate the  agreement.  This
lawsuit was stayed upon Royal Star  Entertainment,  LLC's  filing of a voluntary
petition for reorganization  under Chapter 11 of the Bankruptcy Code on December
4, 2006.

     On November 17, 2006 a Complaint  was filed in the United  States  District
Court for the Northern District of Illinois by Westminster Investments,  LLC and
certain other plaintiffs against International  Thoroughbred Breeders, Inc., its
Chairman Francis W. Murray,  its Vice President Scott Kaplan, and its subsidiary
ITG Vegas' Chief Executive  Officer Francis X. Murray,  alleging  non-payment to
the plaintiffs by International Thoroughbred Breeders of a promissory note dated
November 9, 2005 in the amount of four hundred  thousand  dollars plus interest,
and  alleging  fraud  by  the  individual  defendants  in  connection  with  the
promissory  note.  This lawsuit was stayed  against  International  Thoroughbred
Breeders  upon its  filing of a  voluntary  petition  for  reorganization  under
Chapter 11 of the  Bankruptcy  Code on December  7, 2006.  The  automatic  stay,
however, was not applicable to the individual defendants;  accordingly, with the
permission of the Bankruptcy Court,  International Thoroughbred Breeders engaged
counsel  for the limited  purpose of filing a motion to transfer  the lawsuit to
the United  States  District  Court for the Southern  District of Florida.  That
motion is now pending before the Court of Illinois.

     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
our opinion,  the disposition of these lawsuits will not have a material adverse
effect on our financial position, results of operations or cash flows.

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
quarter ended December 31, 2006.

                                       13
<PAGE>


                                     PART II


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

     Our common  stock has been  traded on a limited and  sporadic  basis 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 and reflects inter dealer prices,  without retail  mark-up,  mark-down or
commissions.


                                                                 High      Low
Year Ended June 30, 2004                                       --------   ------
                             First Quarter                    $  0.54  $  0.25
                             Second Quarter                      1.48     0.20
                             Third Quarter                       1.97     1.03
                             Fourth Quarter                      1.80     1.50

Year Ended June 30, 2005
                             First Quarter                       1.55     1.45
                             Second Quarter                      1.31     0.90
                             Third Quarter                       3.25     1.20
                             Fourth Quarter                      2.33     1.20

Six Months Ended December 31, 2005

                             Quarter ended September 30, 2005    3.55     1.33
                             Quarter ended December 31, 2005     3.45     1.75

Year Ended December 31, 2006
                             First Quarter                       3.00     1.02
                             Second Quarter                      1.15     0.33
                             Third Quarter                       1.00     0.22
                             Fourth Quarter                   $  0.39  $  0.02


     On December 31, 2006, there were approximately  27,000 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  purchases  of common  stock by the  Company  during the last
quarter of the year ended December 31, 2006.

     For  information to be provided under Item 201 (d) of this item  (regarding
Equity Compensation Plan Information) see Part III, Item 12.

Unregistered Sales Of Equity Securities

     On July 13, 2005 the Company began accepting subscriptions for the purchase
of shares of the  Company's  Series B  Convertible  Preferred  Stock,  par value
$10.00 per share (the "Series B Preferred Stock").  The subscriptions for Series
B  Preferred  Stock  have  been  received  by the  Company  as part of a private
offering of 500,000  shares of its Series B Preferred  Stock,  at a subscription
price of $15.00 per share.  Subscribers also received  warrants for the purchase
of 1.2 shares of the Company's common stock for each share of Series B Preferred
Stock  purchased (an aggregate of 600,000  shares of the Company's  common stock
based on purchases of all 500,000 shares of the Series B Preferred  Stock).  The
exercise  price  under  each such  warrant is $3.25 per  common  share,  and the
warrants  issued to purchasers of the Series B Preferred  Stock are  exercisable
for a term of three (3) years beginning one year after issuance.  As of December
28, 2005 the  Company had  accepted  subscriptions  for the  purchase of 295,033
shares of Series B Preferred Stock and had received  approximately $4 million in
net cash  proceeds.  On  December  29,  2005 our  Chairman,  Francis W.  Murray,
purchased all of the remaining Series B Preferred Stock which had not previously
been sold in the  private  offering,  amounting  to  204,966  shares of Series B
Preferred  Stock, on the same terms as the private  offering.  Since we sold the
Series B Preferred  Stock to Mr.  Murray in payment of  $3,074,500 of debt which
the Company had owed to Mr. Murray, this amount has not been included in the net
cash proceeds amount of $4 million indicated above.


                                       14

<PAGE>


     The Series B  Preferred  Stock was  established  by the Board of  Directors
pursuant to its authority under the Company's  Certificate of  Incorporation  to
fix the relative rights and preferences of the authorized but unissued preferred
stock of the Company. Upon accepting subscriptions for purchases of the Series B
Preferred  Stock,  the Company has entered into a Registration  Rights Agreement
with the purchasers, pursuant to which the Company agreed to file a Registration
Statement under the Securities Act of 1933, as amended, in order to register the
resale of the shares of common stock of the Company  issuable upon conversion of
the  Series B  Preferred  Stock and the  shares of common  stock  issuable  upon
exercise  of the  accompanying  stock  purchase  warrants,  and to use its  best
efforts  to cause such  Registration  Statement  to be  declared  effective.  On
December  30,  2005 we  filed  the  Form  S-1  Registration  Statement  with the
Securities  &  Exchange  Commission.  Such  registration  statement  is not  yet
effective.

     The Series B Preferred  Stock will  automatically  be converted into common
stock upon the effective date of the Registration  Statement covering the common
shares issuable upon conversion. The initial conversion price is $2.00 per share
of common stock,  declining by $.02 for each full calendar quarter elapsing from
July 1, 2005 to the date on which the conversion  shall occur.  Upon conversion,
each share of Series B Preferred Stock will be converted into a number of shares
of common stock determined by dividing the subscription price, $15.00 per share,
by the conversion price then in effect. If we are able to issue the common stock
during the quarter ending December 31, 2008,  during which the conversion  price
will  be  $1.82,  the  outstanding  shares  of  Series  B  Preferred  Stock  are
convertible into 4,120,880 shares of additional new common shares.

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

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

     The shares of Series B Preferred  Stock  (including  the common shares into
which they are  convertible)  and the  warrants  (including  the  common  shares
purchasable  under the warrants) were sold in a private offering  believed to be
exempt from  registration  under Section 4(2) and Rule 506 under the  Securities
Act of 1933, as amended.  Among other things,  all  purchasers  were  accredited
investors  and all  conditions  under SEC Rules 501, 502 and 506 are believed to
have been satisfied.

     During the quarter  ended  December 31,  2005,  we also issued three 4-year
warrants  to MBC Global,  LLC,  for the  purchase of (i) up to 88,500  shares of
common  stock at $2.50 per share,  (ii) up to 59,000  shares of common  stock at
$3.50 per  share,  and (iii) up to  88,500  shares of common  stock at $4.50 per
share,  as  compensation  for  advisory  services  rendered  by MBC  Global.  In
connection  with our issuance to four entities of $400,000  aggregate  principal
amount of promissory notes during the quarter ended December 31, 2005, we issued
3-year warrants to purchase 200,000 shares of common stock  exercisable at $2.50
per share,  and we agreed to issue  additional  warrants to such note holders to
purchase  200,000 shares of common stock per month  exercisable at the lesser of
$2.50 per share or the market  price on the date of issue,  for each month after
December 2005 until the notes are paid.  Durning 2006 we have issued or reserved
for issuance  2,200,000  warrants for the purchase of 2,200,000 shares at prices
between $.10 and $2.45. The issuance of additional shares after November 9, 2006
has been suspended due to our Bankruptcy filing.

     Additionally, during the quarter ended December 31, 2005, we issued 800,000
shares of common stock to our primary lender, PDS Gaming Corporation, in payment
of $1,600,000 of our obligations to it.

     The shares of Series B Preferred  Stock  (including  the common shares into
which they are  convertible)  and the warrants  related  thereto  (including the
common shares  purchasable  under such warrants) were sold in a private offering
believed to be exempt from  registration  under  Section 4(2) and Rule 506 under
the Securities Act of 1933, as amended.  Among other things, all purchasers were
accredited  investors  and all  conditions  under SEC Rules 501, 502 and 506 are
believed to have been satisfied.  The issuance of 800,000 shares of common stock
to PDS Gaming,  our primary lender,  the issuance of warrants as compensation to
our final  advisor  (MBC  Global) and the  issuance of warrants to the four note
holders (MBC Global and three entities which had previously  purchased shares of
Series B Preferred  Stock) are  believed  to have been exempt from  registration
under Section 4(2) of the Securities Act of 1933, as amended.



                                       15

<PAGE>


Item 6 - SELECTED FINANCIAL DATA

                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                             (Debtor-in-Possession)
<TABLE>
                                       Year Ended      Six Months Ended                   Years Ended June 30,
                                       December 31,       December 31,     ----------------------------------------------
                                           2006              2005               2005             2004            2003
                                      -------------   -----------------    -------------    -------------   -------------
<CAPTION>
<S>                               <C>              <C>                  <C>              <C>              <C>
Revenue From Operations           $     30,955,562 $        13,976,650  $    32,773,247  $    32,962,239  $   31,290,599

Net Income (Loss) (1) (3)         $    (25,513,839)$       (12,232,985) $    (1,900,035) $    (6,800,030) $    5,233,826

Income (Loss) Per Common Share
Basic & Diluted                   $          (2.24)$             (0.57) $         (0.18) $         (0.86) $         0.54

Weighted Average Number of Shares       11,367,487          10,303,942       10,303,942        7,933,691       9,720,275

</TABLE>
<TABLE>
                                                                                             June 30,
                                       December 31,       December 31,     ----------------------------------------------
                                          2006               2005               2005            2004             2003
                                      -------------   -----------------    -------------    -------------   -------------
<CAPTION>
<S>                               <C>              <C>                  <C>              <C>              <C>
Total Assets                      $     62,035,722 $        77,111,578  $    83,363,665  $    50,813,716  $   54,822,023

Long-Term Debt                    $        808,164 $         5,486,288  $    33,813,301  $     6,339,396  $      985,017

Stockholders' Equity              $      2,525,048 $        26,269,386  $    29,550,451  $    30,566,037  $   37,586,067
</TABLE>

(1)  The Company  recognized  impairment  losses in Fiscal 2004 in the amount of
     $10  million  and in  fiscal  2005  in the  amount  of $0.5  million  which
     materiallly  affect the  comparability  of a portion of of the  information
     reflected in the above data.

(2)  The Company did not pay cash dividends during any of the fiscal years shown
     above.

(3)  The Company  recognized an  impairment  loss and a reserve for bad debts in
     the Year Ended December 31, 2006 in the approximate amount of $11.6 million
     which materially  affects the comparability of a portion of the information
     reflected in the above data.

(4)  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 the year ended December 31,
     2006, the six months ended December 31, 2005 and each of the three years in
     the period ended June 30, 2005 and 2004.

 See Notes to Consolidated Financial Statements.



                                       16

<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
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    Future  effects  from our  filing  for  Chapter  11  protection  which
          occurred on December 4, 2006;

     o    the  potential  adverse  impact  of  our  Chapter  11  filing  on  our
          operation,  management and employees,  and the risks  associated  with
          operating businesses under Chapter 11 protection;

     o    our ability to develop,  confirm and  consummate  a Chapter 11 plan of
          reorganization;

     o    our ability to reduce our overall leveraged position;

     o    customer and vendor response to our Chapter 11 filing;

     o    limited access to capital resources;

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

     o    increased competition from new and existing forms of gaming;

     o    our ability to sell or reposition the Big Easy and the Royal Star on a
          timely and cost effective manner in the future,  or as an alternative,
          sell or sub charter the vessels to other parties;

     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    the  vessels  we  charter  and  the  Royal  Star  are  subject  to the
          provisions  of the  International  Convention on Safety of Life at Sea
          amended ("SOLAS 74"), which may require  substantial  capital expenses
          in the future.

Overview

     Our financial  condition has been significantly and negatively  affected by
the poor  performance,  extensive delays and cost overruns of the Big Easy, that
was initially  placed into service on October 18, 2005,  the  significant  carry
costs of the vessel  after it was taken out of service on  February  1, 2006 and
our  significant  indebtedness.  On March 22, 2006 and again on July 14, 2006 we
entered into  Forbearance  Agreements  with PDS Gaming  Corporation.  The second
agreement  expired on August 29, 2006 and after the expiration,  we did not make
our  monthly  loan  and  equipment  lease  payments.  We also  were  not able to
consummate the sale of any of our vessels,  the Original Cherry Hill Note or our
operating   business  within  the  time  period  permitted  by  the  Forbearance
Agreement.  We ultimately  decided to seek to reorganize under Chapter 11 of the
Federal Bankruptcy Code.

     Between  December 4, 2006 and  December  7, 2006,  the Company and 6 of its
subsidiaries (the "Debtors") filed voluntary petitions for reorganization  under
Chapter  11 of the U.S.  Bankruptcy  Code in the U.S.  Bankruptcy  Court for the
Southern District of Florida (Palm Beach Division) (the "Chapter 11 Cases"). The
cases  were  consolidated  for the  purpose  of  joint  administration  and were
assigned case number 06-16350-BKC-PGH.  We filed the Chapter 11 Cases because we
were experiencing  difficulties  generating sufficient cash flow from operations
to meet our  financial  obligations  under the  Promissary  Notes and  equipment
leases  with  PDS  Gaming   Corporation  after  the  expiration  of  Forbearance
Agreements.

     Under   Chapter  11,  the  Company  is  operating   its   businesses  as  a
debtor-in-possession   ("DIP")  under  court   protection   from  creditors  and
claimants.  Since the  Chapter 11 filing,  all orders  sufficient  to enable the
Company  to  conduct  normal  business  activities,  have  been  entered  by the
Bankruptcy  Court.  While the Company is subject to Chapter 11, all transactions
not in the  ordinary  course  of  business  require  the prior  approval  of the
Bankruptcy Court.

     As a consequence of the Chapter 11 filing,  pending  litigation against the
Company is  generally  stayed,  and no party may take any action to collect  its
pre-petition  claims except pursuant to order of the Bankruptcy Court. April 18,
2007 was the last date by which  holders of pre-filing  date claims  against the
Debtors could file such claims.  Any holder of a claim that was required to file
such claim and did not do so may be barred from asserting such claim against the
Debtors and, accordingly,  may not be able to participate in any distribution on
account of such claim.  Differences  between  claim  amounts  identified  by the
Debtors and claims  filed by  claimants  will be  investigated  and  resolved in
connection  with the Debtors'  claims  resolution  process,  and only holders of
claims  that are  ultimately  allowed  for  purposes  of Chapter 11 case will be
entitled to distribution. The Company has not yet completed its analysis

                                       17
<PAGE>


of all the proofs of claim. Since the treatment,  including payment,  of allowed
claims  is  subject  to  a  confirmed  plan  of  reorganization,   the  ultimate
distribution with respect to allowed claims is not presently ascertainable.

     Although we filed a timely  motion to extend the  exclusive  period for the
Debtors to file a plan(s) of  reorganization,  our largest secured  lender,  PDS
Gaming  Corporation,  filed a motion on April 11, 2006 objecting to the proposed
extension. If the exclusivity period in not extended, other parties in interest,
including the Creditor's Committee,  the secured lender or other creditors could
file a plan of reorganization.

     We  anticipate  receiving a commitment  for a secured loan from a financial
institution in order to fund the majority of the proceeds  necessary to create a
new  special  purpose  subsidiary  to own and  operate  the Palm Beach  Princess
business.  We anticipate that the commitment will be subject to bankruptcy court
approval,   an  additional   equity  infusion  from  us  or  a  third-party  and
satisfactory loan documentation. Proceeds from the financing will be used to pay
existing  creditors  and  provide  working  capital to the Palm  Beach  Princess
business.  We are in the process of  negotiating a series of  transactions  that
will allow for the  redeployment of the Big Easy to a foreign  jurisdiction.  We
anticipate  receiving  a  term  sheet  for  a  secured  loan  from  a  financial
institution  in order to fund a  portion  of the  proceeds  necessary  to fund a
special purpose affiliate of the company to own and operate the Big Easy in this
foreign  location.  We  anticipate  that the term  sheet  will be  subject to an
additional  equity  investment  from a  third-party,  successful  negotiation of
operating  agreements  and  satisfactory  loan  documentation.  Closing  of  the
transactions  will also be subject to bankruptcy  court approval.  Proceeds from
the  transaction  will be used to pay  existing  creditors  and provide  working
capital,  including  funding start up and relocation  expenses,  to the Big Easy
business.

     Our ability to  continue as a going  concern is  predicated  upon  numerous
issues, including our ability to achieve the following:

     o    having a plan of reorganization confirmed by the Bankruptcy Court in a
          timely manner;

     o    being able to successfully  implement our business plans and otherwise
          offset the negative effects that the Chapter 11 filing has had and may
          continue to have on our business,  including the  impairment of vendor
          relations;

     o    operating  within  the  framework  of  our  DIP  Facility,   including
          limitations  on capital  expenditures  and  financial  covenants,  our
          ability to generate  cash flows from  operations or seek other sources
          of financing and

     o    attracting, motivating and/or retaining key executives and associates.

These  challenges  are in addition to those  operational,  regulatory  and other
challenges that we face in connection with our business.

     On December 7, 2006  following  first day hearings of December 6, 2006, the
Bankruptcy  Court entered  orders  granting us authority to, among other things,
pay certain pre-petition and post-petition  employee wages,  salaries,  benefits
and  other  employee  obligations,  pay  selected  critical  vendors  and  other
providers for the post-petition delivery of goods and services.

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

     We also lease through a bareboat  charter and on a limited basis  operated,
through our wholly owned subsidiary,  ITG Palm Beach, LLC ("ITGBP"),  the gaming
vessel,  Big Easy. After retrofitting and refurbishing the Big Easy, this vessel
was  initially  placed into service on October 18,  2005,  also from the Port of
Palm Beach  Florida,  although we did not commence  regular  (although  limited)
operations  until  November  12,  2005.  We were  having  challenges  attracting
customers  to the Big Easy given her  inconsistent  schedule  of  sailings.  The
initial  delay  in  receiving  a  Certificate   of  Inspection   and  subsequent
inconsistencies  in scheduling  caused  significant  negative cash flow and made
advertising  and  promotional  efforts  difficult  from  both  a  financial  and
practical  planning  perspective.  The lack of a consistent  commercial  service
schedule  inhibited  customer  support and resulted in  suspending  the Big Easy
operations indefinitely.  Currently the Big Easy is in wet dock storage.

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

     ITGPB  charters the Big Easy from Cruise  Holdings II, LLC, a company owned
by PBE,  for a five year period  ending  July 2009.  The  charter  provides  for
payments to Cruise  Holdings  II, LLC of $100,000 per month plus 1% of the gross
operating  revenues  of the Big Easy.  Under the Big Easy  charter,  PBE granted
ITGPB an option to purchase the Big Easy at the end of the term, for an exercise
price equal to the appraised value of the Big Easy,

                                       18
<PAGE>

which is yet to be determined,  following the retrofitting and  refurbishment of
the Big Easy, to which certain  amounts are to be credited  against the purchase
price. The Big Easy is currently in wet dock storage following a brief period of
operations as described below in Liquidity and Capital Resources. We continue to
explore  possible  locations  from which to  potentially  operate  the Big Easy,
however,  our negative cash position has  restricted  our efforts to re-position
the vessel.

     During our 2004 fiscal  year we  purchased  a third  vessel,  the M/V Royal
Star.  The Royal Star is currently in wet dock storage and we are limited by our
negative cash position to make any further improvements on the vessel.

     During the quarter  ended  September  30, 2004,  we  re-entered  the equine
business,  however  on  December  31,  2005 we ceased our horse  operations  and
divested our interest in the racehorse assets.

Liquidity and Capital Resources

     Our cash flow from  operations is primarily  dependent  upon the cash flows
from ITG Vegas, which operates the vessel,  M/V Palm Beach Princess.  During the
twelve  months  ended  December  31, 2006,  the Palm Beach  Princess  operations
generated  approximately  $6.2  million of cash which was  insufficient  for our
consolidated  cash  needs,  thus  we had to  rely on  other  adjustments  in our
operations to meet our cash  requirements.  During the past few fiscal years, we
extended the terms of our vendor payables and as a result,  our accounts payable
and  accrued  expenses  exceeded  our cash by  approximately  $11  million as of
December  31,  2006.  We  continued  to defer  payments on vessel and  equipment
leases,  on notes payable and charter hire fees and continue to defer the salary
of our Chairman.

     ITG Vegas' cash flow from operations is seasonal. The period from January 1
to June 30 has been a period of increased activity and revenues. The period July
1 to December 31 is a seasonably slow period for vessel  operations and a period
during  which  we have  suffered  from  hurricanes  interrupting  our  business.
Therefore,  we  normally  schedule  dry dock or wet dock vessel work during this
period,  which further  negatively  effects our operations during this six month
period.  However,  in 2006 there was no dry or wet dock work completed.  Many of
ITG Vegas' operating costs,  including  leasing and charter fees, fuel costs and
wages, are fixed and cannot be reduced when passenger counts decrease.

     Our cash flows were  negatively  impacted  by the delay in putting  the Big
Easy in full service,  caused by delays in obtaining certification for passenger
operations  pursuant to the United States Coast Guard's  Alternative  Compliance
Program.  On  November  12,  2005 we placed  the Big Easy  vessel  into  limited
scheduled service from the Port of Palm Beach,  Florida,  however we were forced
to remove the Big Easy from  service on  February  1, 2006 in order to  conserve
working capital. During the twelve months ended December 31, 2006, the operating
loss for the Big Easy for January 2006 and the carrying  costs for the remaining
eleven months were $4.7 million before interest  expense.  We expect that future
carrying  costs  for the wet  dock  storage  and  slot  machine  leases  will be
approximately $200,000 per month before interest expense.

     During our 2004 fiscal year, we purchased a third  vessel,  the Royal Star.
We  anticipate  that  the  vessel  will  require  additional   improvements  and
outfitting  before  being placed in service as a gaming  vessel.  The vessel has
been placed in wet storage and delays in  commencing  the Royal Star  operations
have and will  continue  to  adversely  affect  our cash  flows  because  of the
continuing  costs of  carrying  the  vessel.  During  the twelve  months  ending
December  31,  2006,  carrying  costs for the Royal  Star  vessel and the gaming
equipment  leases were  approximately  $1.5  million  before  interest  expense.
Effective  December  2006, we  terminated  the gaming  equipment  lease which is
projected to reduce the monthly lease payments by approximately $95,000. We have
retained a third-party ship broker who is marketing the vessel for sale.

     As of December 31, 2006 Cash and Cash Equivalents were $871,236 as compared
to $1,846,239 as of December 31, 2005.

     As a result of our Chapter 11 filings in December 2006, our commitments and
non-cancellable  contracts  are not able to be  determined  in that  most of our
contracts and leases are stayed by the bankruptcy  filing,  the current  amounts
are being approved and paid by orders of the Bankruptcy Court and future amounts
due cannot be reasonably determined.

Outlook:

     We  intend  to  reorganize   around  our  successful  Palm  Beach  Princess
operation.  We consider this operation to be a viable  foundation for the future
expansion of our Company. We believe we will: (i) require additional  financing;
and/or (ii) may be forced to sell other company assets; and/or (iii) re-position
or sell the Big Easy and the Royal Star vessels in order to reduce or payoff the
PDS debt.

     We  anticipate  receiving a commitment  for a secured loan from a financial
institution in order to fund the majority of the proceeds  necessary to create a
new  special  purpose  subsidiary  to own and  operate  the Palm Beach  Princess
business.  We anticipate that the commitment will be subject to bankruptcy court
approval,   an  additional   equity  infusion  from  us  or  a  third-party  and
satisfactory loan documentation. Proceeds from the financing will be used to pay
existing  creditors  and  provide  working  capital to the Palm  Beach  Princess
business.

     We are in the process of  negotiating  a series of  transactions  that will
allow  for the  redeployment  of the  Big  Easy to a  foreign  jurisdiction.  We
anticipate  receiving  a  term  sheet  for  a  secured  loan  from  a  financial
institution  in order to fund a  portion  of the  proceeds  necessary  to fund a
special purpose affiliate of the company to own and operate the Big Easy in this
foreign  location.  We  anticipate  that the term  sheet  will be  subject to an
additional

                                       19
<PAGE>

equity  investment  from a  third-party,  successful  negotiation  of  operating
agreements and satisfactory loan documentation. Closing of the transactions will
also be subject to bankruptcy court approval. Proceeds from the transaction will
be used to pay existing creditors and provide working capital, including funding
start up and relocation expenses, to the Big Easy business. No assurances can be
given that we will be successful in these negotiations

     At this time, however, it is impossible to predict accurately the effect of
the Chapter 11 reorganization on the Company, when we may emerge from Chapter 11
and what our  capital  structure  will be.  The  rights  and  claims of  various
creditors and security holders will be determined by our plan of reorganization.
No  assurance  can be given as to what values,  if any,  will be ascribed in the
bankruptcy  proceedings to each of these constituencies.  We anticipate that, in
any plan of  reorganization  ultimately  confirmed by the Bankruptcy  Court, our
common and preferred stock could be negatively  effected,  diluted or cancelled.
Accordingly,  we urge that  appropriate  caution be  exercised  with  respect to
existing and future investments in any of such securities and claims.

Critical Accounting Policies and Estimates

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

Notes Receivable

     Statement  of  Financial  Accounting  Standards  No.  114,  "Accounting  by
Creditors for Impairment of a Loan" as amended,  requires  management  judgments
regarding the future  collectability of notes receivable and the underlying fair
market value of  collateral.  Estimates are required to be used by management to
assess the  recoverability  of our notes  receivable.  We  regularly  review our
receivables  to determine if there has been any decline in value.  These reviews
require management judgments that often include estimating the outcome of future
events and  determining  whether  factors  exist that  indicate  impairment  has
occurred. In the past, we evaluated real estate appraisals and financial balance
sheets,  earnings  and cash  forecasts.  Our returns are also subject to factors
affecting the  profitability  and saleability of the project.  Our  assumptions,
estimates and evaluations  are subject to the  availability of reliable data and
the uncertainty of predictions concerning future events. Accordingly,  estimates
of  recoverable  amounts  and  future  cash  flows  are  subjective  and may not
ultimately  be  achieved.   Should  the  underlying  circumstances  change,  the
estimated  recoverable  amounts and future cash flows could change by a material
amount.

     (A) Cherry Hill Notes

     As a result of the sale of the Garden  State  Park  Racetrack  property  in
Cherry Hill NJ, and the sale of the non-  operating  former El Rancho  Hotel and
Casino in Las Vegas,  NV,  portions of the proceeds  from each sale were paid in
the form of promissory notes. During the fiscal year ended June 30, 2004 we sold
the note  receivable  we held on the Las Vegas,  NV property  for cash and other
future  benefits  including a second  note  payable  solely from  profits of the
Cherry Hill, NJ property.  We had previously received a note receivable from the
sale of the  Garden  State  Park  property  in the  amount  of $10  million  and
together,  these notes were  classified  on the Balance Sheet as Long Term Notes
Receivables in the amount of $14,278,651 as of December 31, 2005.

     Subsequent to December 31, 2006, the Company began negotiations to sell the
Cherry Hill Notes.  Although these  transactions have not consummated before the
filing of the Company's  Form 10-K, the offered price made to us for these notes
is  substantially  lower than the carrying  values on our books. In prior years,
the fair value and the collectability of these notes was determined by financial
statements and financial projections by the developer of the property based upon
the  future  development  of the site  incorporating  an office  park and hotel.
Recent economic  conditions have forced the developer to reconsider  their plans
for the  remaining  property  which  resulted in cash flow  projections  for the
property  being  substantially  lower  than in prior  years.  As a result of our
recent  negotiations  to sell the Cherry  Hill  Notes the  Company  recorded  an
impairment  loss on the two Cherry Hill Notes of  $9,378,651  as of December 31,
2006 to more fully reflect in the loan's observable market value.

     (B) OC Realty Note - Related Party

     We have made three  loans in the  approximate  amount of $2.7  million to a
project (OC Realty) in which Mr. Murray is participating  for the development of
an oceanfront parcel of land, located in Fort Lauderdale,  Florida. This project
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.  Two of these loans in the approximate  amount of $2 million bear
interest  at 12% and will be  repayable  out of OC Realty's  share of  proceeds,
after payment of bank debts, generated by the sale of condominiums. We will also
have the right to receive, as participation  interest,  from available cash flow
of OC Realty, if the project is successful,  a priority return of our investment
and a priority profits interest for our investment. Repayment of these loans and
our participation  interest will be subject to repayment of, first, bank debt of
approximately  $20 million (at  present)  and,  second,  construction  financing
expected to amount to $50 million  and

                                       20
<PAGE>


third,  any  capital  invested  by and fees  payable to joint  venture  partners
including OC Realty.  OC Realty's share of proceeds  thereafter  will range from
22.5% to 45%. We have  assessed the  collectability  of the advances  made to OC
Realty based on comparable sales of like units in the marketplace  which suggest
a weakening demand for prospective sales of the project's  condominium units. At
December 31, 2006,  $2.8 million is the  estimated  fair value of the note after
recording a reserve allowance of $2,235,523 for the year ended December 31, 2006
representing  the amount of the  interest  accrued to date and  leaving an asset
value we believe to be fully realizable.

Valuation of Vessels and Vessel Deposits - Related Parties

     We charter vessels, the Palm Beach Princess and the Big Easy, directly from
companies  owned or controlled by our Chairman and CEO. The Amended and Restated
Bareboat  Charter and Option to Purchase  Agreement for the Palm Beach  Princess
has been  accounted for as a capital  lease.  In  accordance  with our lease and
purchase agreement for the Palm Beach Princess we have the right to purchase the
vessel for  $17,500,000  at the end of the lease term,  and up to $14 million of
principal payments made by us and allocable to the Palm Beach Princess debt will
be credited  toward the purchase  price.  The Company  determined  that it would
capitalize;  1) costs it had  incurred for  improvements  it had made to the Big
Easy;  2) all payments  required  under the PDS Gaming loans for the Big Easy of
$12.6 million;  and 3) all payments  required under the charter hire fees, for a
total capitalized amount as of June 30, 2005 of $24,318,989.

     Effective  November 1, 2005 we determined that the amount and timing of the
receipt of the charter  hire fees of  $100,000,  plus 1% of the gross  revenues,
which  we had  estimated  to be  $30,000  per  month  could  not  be  reasonably
determined  considering  the  problems  with  the  Big  Easy  operation  and the
suspension from service on February 1, 2006.  Therefore the capitalized value of
the Big Easy was  reduced,  effective  November 1, 2005,  by $4 million to $20.3
million and the liability for payments due were also reduced by $4 million.  The
charter hire fees are being expensed as incurred effective November 1, 2005.

     The Company has credits in the amount of $9,726,377  which are available to
use against the purchase costs for the vessels.  See footnote 7 to our financial
statements with respect to the credits which are available  against the purchase
costs of the vessels.  Should the Company lose its ability to purchase either or
both of the vessels due to the bankruptcy filing or elect not to purchase one or
both of the vessel at the end of the lease,  the Company  could lose some or all
of the value of the credits unless other terms are negotiated  with the owner of
the vessels.

Results of Operations for the Year Ended December 31, 2006 and 2005

     The  following  are the most  important  factors and trends that affect our
operating performance:

     o    We are currently  exclusively  dependent upon operating  revenues from
          the Palm Beach  Princess to pay the wet dock storage,  interest,  debt
          service and equipment  lease costs of the Big Easy, the Royal Star and
          the expenses of the parent company.

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

     o    The impact of Hurricanes  also may affect our  operating  performance.
          During the first  quarter of the fiscal  year ended June 30,  2005 and
          the second  quarter of the fiscal year ended December 31, 2005 we were
          adversely affected by several hurricanes passing over or near Florida.
          During the quarter  ended  September  30, 2004,  our  operations  were
          negatively impacted by the direct effects of hurricanes  "Frances" and
          "Jeanne,"  and during the three  months  ended  December  31, 2005 our
          operations were negatively  impacted by the direct effect of hurricane
          Wilma.  These  hurricanes  left the area without  power,  resulting in
          curfews and limited food, water and life resources,  the evacuation of
          the population in our area, and further  affected tourism in the area,
          severely reducing our pool of potential passengers.

     o    From  February  16, 2003 until  January 15, 2007 we operated  the Palm
          Beach Princess  without  competition,  except for our operation of the
          Big Easy from mid November 2005 until  February 2006. In January 2007,
          the coastal gaming vessel Sun Cruz VI began operating from the Port of
          Palm Beach in competition with the Palm Beach Princess. This vessel is
          a 165 foot  catamaran  and has a passenger  capacity of 600 people and
          has 38 table games and approximately 300 slot machines.  The vessel is
          scheduled to make two cruises each day.



                                       21

<PAGE>


Consolidated

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


                                                  Year Ended
                                              December 31, 2006
                           --------------------------------------------------
                                                      Holding Co.
                            Palm Beach                    &
                             Princess     Big Easy    Other Subs    Total
                                ($)         ($)          ($)         ($)
                           ------------ -----------  ----------- ------------
Operating Revenues:
    Gaming                   26,239,833      62,738            -   26,302,571
    Fare                      2,501,765       6,332            -    2,508,097
    On Board                  1,687,903       9,418            -    1,697,321
    Other                             -           -      447,573      447,573
                           ------------ -----------  ----------- ------------
Net Operating
 Revenues                    30,429,501      78,488      447,573   30,955,562
                           ------------ -----------  ----------- ------------
Operating Costs and
 Expenses:

    Gaming                    9,132,841     527,282            -    9,660,123
    Fare                      2,320,512      81,561      392,683    2,794,756
    On Board                    811,770      13,358                   825,128
    Maritime & Legal          7,384,568     352,983            -    7,737,551
    G & A Expense             2,608,758     249,475    2,099,174    4,957,407
    Development & Carrying
     Costs                            -   3,148,782      419,145    3,567,927
    Royal Star Development
     Costs                            -           -      601,599      601,599
    Equine Development
     Costs                            -           -            -            -
    Bankruptcy Costs            191,485           -            -      191,485
    Impairment of Notes and
    Allowance for Doubtful
    Accounts                  1,464,146           -   10,149,830   11,613,976
    Depreciation &
     Amortization             2,451,916     411,104        6,493    2,869,513
                           ------------ -----------  ----------- ------------
Total Operating Costs &
  Expenses                   26,365,996   4,784,545   13,668,924   44,819,465
                           ------------ -----------  ----------- ------------
Operating Income (Loss)       4,063,505  (4,706,057) (13,221,351) (13,863,903)
                           ------------ -----------  ----------- ------------
Other Income (Expense)

    Interest & Financing
     Expenses                (2,881,141) (3,207,119)  (1,843,583)  (7,931,843)
    Cost of Warrants
     Granted                         -           -    (1,828,287)  (1,828,287)
    Interest & Financing
     Expenses -
     Related Party             (972,752) (1,200,000)      (9,505)  (2,182,257)
    Interest Income                   -          54            -           54
    Interest Income -
     Related Party              263,178           -       29,219      292,397
                           ------------ -----------  ----------- ------------
Total Other Income(Expenses) (3,590,715) (4,407,065)  (3,652,156) (11,649,936)
                           ------------ -----------  ----------- ------------
Income (Loss) Before Tax        472,790  (9,113,122) (16,873,507) (25,513,839)
                           ============ ===========  =========== ============



                                               Twelve Month Ended
                                                December 31, 2005
                                                   (Unaudited)
                           ----------------------------------------------------
                                                      Holding Co.
                             Palm Beach                    &
                              Princess     Big Easy    Other Subs     Total
                                ($)           ($)          ($)         ($)
                           -------------  -----------  ---------- ------------
Operating Revenues:
    Gaming                    26,764,038      518,609           -   27,282,647
    Fare                       2,968,254       40,035           -    3,008,289
    On Board                   1,959,122       90,287           -    2,049,409
    Other                              -            -     516,236      516,236
                           -------------  -----------  ---------- ------------
Net Operating
 Revenues                     31,691,414      648,931     516,236   32,856,581
                           -------------  -----------  ---------- ------------
Operating Costs and
 Expenses:

    Gaming                     9,043,899    1,022,228           -   10,066,127
    Fare                       3,585,935      187,129     406,627    4,179,691
    On Board                     971,717       65,942           -    1,037,659
    Maritime & Legal           7,119,264    1,081,411           -    8,200,675
    G & A Expense              2,879,983    1,038,992   2,218,518    6,137,493
    Development & Carrying
     Costs                             -    7,213,224     948,025    8,161,249
    Royal Star Development
     Costs                             -            -     439,514      439,514
    Equine Development
     Costs                             -            -     846,501      846,501
    Bankruptcy Costs                   -            -           -            -
    Impairment of Notes and
    Allowance for Doubtful
    Accounts                           -            -     150,000      150,000
    Depreciation &
     Amortization              2,204,840      312,359      16,113    2,533,312
                           -------------  -----------  ---------- ------------
Total Operating Costs &
  Expenses                    25,805,638   10,921,285   5,025,298   41,752,221
                           -------------  -----------  ---------- ------------
Operating Income (Loss)        5,885,776  (10,272,354) (4,509,062)  (8,895,640)
                           -------------  -----------  ---------- ------------
Other Income (Expense)

    Interest & Financing
     Expenses                (2,469,167)  (1,750,082)  (1,430,918)  (5,650,167)
    Cost of Warrants
     Granted                           -            -     (86,590)     (86,590)
    Interest & Financing
     Expenses -
     Related Party              (915,909)    (206,489)    (25,482)  (1,147,880)
    Interest Income                9,011            -           -        9,011
    Interest Income -
     Related Party               273,508            -      29,463      302,971
                           -------------  -----------  ---------- ------------
Total Other Income (Expenses) (3,102,557)  (1,956,571) (1,513,527)  (6,572,655)
                           -------------  -----------  ---------- ------------
Income (Loss) Before Tax       2,783,219  (12,228,925) (6,022,589) (15,468,295)
                           =============  ===========  ========== ============


     At December  31, 2005 the Company  changed it's  accounting  year from June
30th to  December  31st.  Therefore  the  accounting  period  December  31, 2005
represents a six month  period  whereas  December  31, 2006  represents a twelve
month accounting period. In order to more  appropriately  compare the results of
operations  the table above  includes the results of  operations  for the twelve
months ended December 31, 2005 (unaudited) as compared to the audited  financial
statements for the twelve months ended December 31, 2006.


                                       22
<PAGE>

     Revenue for the year ended December 31, 2006 decreased from $32,856,581 for
the twelve  months  ended  December  31, 2005 to  $30,955,562  in the year ended
December 31, 2006 primarily as a result of decrease in the revenues generated by
the Palm Beach  Princess  and the Big Easy  which was put in limited  service on
November 12, 2005 and operated only one month in fiscal 2006.

     Operating expenses increased  approximately $7 million, from $41,752,221 in
the twelve  months  ended  December 31, 2005 to  $45,772,982  for the year ended
December 31, 2006 primarily the result of:

     o    an impairment of the Cherry Hill Notes in the amount of $9,228,651 and
          recording an allowance for doubtful  accounts on the OC Realty Note of
          $2,235,325

     o    an  increase  in the  carrying  costs  for our  Royal  Star  vessel of
          $162,085,  which the  vessel  has been in wet dock  storage  since its
          purchase.

     o    an increase in the bankruptcy costs of $191,485

     o    an increase in Depreciation and Amortization of $336,201; offset by

     o    a decrease in the  development,  operating  and carry costs of the Big
          Easy of  $6,136,740.  On  February  1, 2006 we took the  vessel out of
          service  and  during the  majority  of 2006 only paid for the costs to
          keep the vessel at wet dock.

     o    a  decrease  in the  operating  costs of the Palm  Beach  Princess  of
          $1,342,349

     o    a decrease in our equine  costs of $846,501,  primarily  the result of
          ceasing the equine operations effective December 31, 2005.

     o    a decrease in the Parent Company administrative expense of 119,344

     o    a decrease in other development costs of $528,880

     The Operating (loss) for the year ended December 31, 2006 was ($13,863,903)
as compared to a loss of ($8,895,640)  (unaudited)  for the  comparative  twelve
month period of last year.

     Other expenses  increased by  approximately  $5.3 million as a result of an
increase in the interest and financing  expense due to addition interest expense
primarily the result of : (1) higher  interest rates on the PDS loans due to the
penalty  interest  accrued  because  of the  Forbearance  Agreement  in 2006 (2)
interest  recorded as an expense in the year ended December 31, 2006 for the Big
Easy  as  compared  to  interest  being  capitalized  during  a  portion  of re-
construction  period in the prior twelve month period and (3) an increase in the
costs of warrants issued in the amount of $1,597,263.

     The Net (Loss) for the year ended  December 31, 2006 was  ($25,513,839)  as
compared to a loss of  ($15,237,271)  (unaudited)  for the twelve  months  ended
December 31, 2005.

     Vessel Operations

     Palm Beach Princess

     During the current year net operating  revenue from vessel  operations  was
$30,429,500 as compared to $31,691,414  for the twelve months ended December 31,
2005.  The  decrease  in  revenue  of  approximately  $1.3  million  during  the
comparable period we believe is due to a decrease passenger count resulting from
a decrease in our  advertising  and  marketing  expenses of  approximately  $1.3
million as discussed below and, in part, to comparing the 52 weeks of operations
during 2006 to 53 weeks of  operations  during 2005.  The  operating  subsidiary
which operates the Palm Beach Princess ends its quarterly  accounting  period on
the last Sunday of each quarter.  These end of the week cut offs normally create
more  comparability  of the Company's  operations  by generally  having an equal
number  of weeks  and  weekend  days in each  year.  Periodically,  this  system
necessitates  an extra week in the year. The twelve month period ending December
31, 2005 was such a year, therefore the number of cruises, revenues and expenses
reported for 2005  included one  additional  week of  operations  as compared to
2006.

     During  the  first  three  quarters  of  2006  passenger  counts  decreased
approximately 10% each quarter.  However, during the forth quarter our passenger
counts  increase  by 5% as compared  to the prior year  because  during the last
quarter of 2005 the Palm Beach Princess went in to dry dock for  approximately 2
weeks.  The decrease in passenger  counts was partially offset by an increase in
the revenue per passenger which increased from $118.91 to $122.57 or 3%.

     During 2005 and 2006 a portion of the employee costs  normally  incurred by
the Palm Beach Princess for operational and administrative  salary expenses were
allocated  to the  Big  Easy  operation.  These  allocations  were  made to more
accurately  reflect  the cost of the Big Easy  used as a casino  gaming  vessel.
Approximately  $162,000 of salaries  were  allocated  to the Big Easy during the
twelve  months of 2006 as compared to  approximately  $1,540,000 of salary costs
that were  allocated  during the twelve  months ended  December  31, 2005.  This
allocation should be taken into consideration  when comparing  operating results
from year to year for the Palm Beach Princess.

     Casino   operating   expenses  which  also  includes  food,   beverage  and
entertainment  increased  $88,941 from  $9,043,899  or 34% of casino  revenue to
$9,132,840 or 35% of casino revenue.

                                       23

<PAGE>


     Sales,  marketing and advertising expenses decreased $1,265,423 or 35%. The
amounts incurred for marketing and advertising decreased because the company did
not have sufficient  funds to spend due to our negative cash position.  On Board
expenses  decreased  by  $159,947  as a result of fewer  passengers  during  the
current year.

     Maritime,  legal,  administrative  expenses and bareboat charter  increased
$255,317  which  reflects in part the decrease in the  allocation of salaries to
the Big Easy  since the  allocation  was only done for one month in the  current
year.

     Finance expenses increased $738,429 as a result of the higher interest rate
due to default interest being charged and a forbearance fees recorded during the
year. Depreciation and amortization increased $247,075 as a result of amortizing
the dry dock expenses incurred in October 2005.

     The income before  income tax expense for the year ended  December 31, 2006
was $472,791 as compared to income before  income tax of $3,225,495  (unaudited)
in the comparable twelve month period ended December 31, 2005.

     The following is a  comparative  summary of income and expenses of the Palm
Beach  Princess  operation  for the 52 weeks ended  December 31, 2006 and the 53
weeks ending January 1, 2006:

<TABLE>
                                                Twelve Months Ended
                                         --------------------------------
                                          December 31,    January 1, 2006
             Description                      2006          (unaudited)            Change
    ------------------------------------ --------------   ----------------   -------------
<CAPTION>
<S>                                      <C>              <C>                <C>
Passenger Count                                 248,495            266,527        (18,032)
Number of Cruises                                   699                676             23
Average Number of Passengers per Cruise             355                394            (39)
Net Revenue per Passenger                $       122.57   $         118.91   $        3.66

Revenue:
    Gaming                               $   26,239,833   $     26,764,038   $   (524,205)
    Fare                                      7,095,927          7,715,198       (619,271)
    On Board                                  3,587,910          3,871,572       (283,662)
    Less: Promotional Allowances
    Fare                                    (4,594,163)        (4,746,944)         152,781
    On Board                                (1,900,007)        (1,912,450)          12,443
                                         --------------   ----------------   -------------
    Net Operating Revenue                    30,429,500         31,691,414     (1,261,914)
                                         --------------   ----------------   -------------
Expenses:
    Gaming                                    9,132,840          9,043,899          88,941
    Fare                                      2,320,512          3,585,935     (1,265,423)
    On Board                                    811,770            971,717       (159,947)
    Maritime and Legal Expenses               7,384,568          7,119,120         265,448
    Administrative                            2,414,876          2,481,851        (66,975)
    Bare Boat Charter - Related Party           972,752            915,909          56,844
    Finance Expenses - Net                    2,881,140          2,142,648         738,492
    Allowance for Doubtful Accounts           1,419,673                  -       1,419,673
    Depreciation and Amortization             2,451,916          2,204,840         247,075
    Bankruptcy Fees                             166,662                  -         166,662
                                         --------------   ----------------   -------------
    Total Expenses                           29,956,709         28,465,919       1,490,790
                                         --------------   ----------------   -------------
    Net Income Before Income Tax Expense $      472,791   $      3,225,495   $ (2,752,705)
                                         ==============   ================   =============
</TABLE>

     Big Easy

     The  United  States  Coast  Guard  issued the Big Easy her  Certificate  of
Inspection on October 11, 2005,  following an extensive and unexpected  delay in
receiving  such   certification.   The  vessel's   first   official   cruise  to
international  waters was October 18,  2005.  Due to the  approaching  Hurricane
Wilma,  the vessel was  ordered  out of the Port for safe  haven  following  her
afternoon cruise on October 19, 2005.  Hurricane Wilma struck Florida on October
24,  2005.  Due to the damages  caused by  Hurricane  Wilma and vessel  schedule
conflicts,  the Big Easy was unable to sail commercially until November 6, 2005.
The unexpected  delay in receiving the vessels'  Certificate of Inspection,  and
the  subsequent  delays,  damage and  inconveniences  caused by Hurricane  Wilma
immediately  following the maiden voyage had a compounding adverse effect on the
Company's  ability to retain  personnel.  As a result,  the Company  experienced
greater than normal  attrition  of Big Easy  personnel,  particularly  those who
carried

                                       24

<PAGE>


Coast Guard-issued Merchant Marine cards (i.e. also known as z-cards). These are
issued by Coast Guard and serve as required  documentation  for those working on
US flagged vessels to fill Coast Guard mandated muster station requirements). As
the number of Merchant Marine card personnel became increasingly inadequate,  it
became   increasingly   difficult  for   management   to  meet  muster   station
requirements,  often forcing the cancellation of many sailings,  particularly in
December and January.  The Coast Guard  stopped  issuing  Merchant  Marine cards
suddenly and unexpectedly  sometime in October,  2005. Adverse sea conditions in
November and December were generally unfavorable for commercial sailing and were
a contributing factor to several missed sailings.  As a result of these numerous
challenges the vessel was able to make only nineteen  sailings in November 2005;
twenty-four  sailings in December 2005 and eight sailings in January. On January
31, 2006 the Coast Guard denied the Company's request to provide an extension to
complete  certain  mandated  work  and  removed  the  vessels'   Certificate  of
Inspection.  On January 31, 2006, approximately one hundred Coast Guard Merchant
Marine card  applications  relating to the Big Easy remained  unprocessed by the
Coast Guard for twelve weeks or longer.

     We were having challenges  attracting  customers to the Big Easy, given her
inconsistent schedule of sailings.  The initial delay in receiving a Certificate
of Inspection and subsequent  inconsistencies  in scheduling caused  significant
negative cash flow and made advertising and promotional  efforts  difficult from
both a financial and practical  planning  perspective.  The lack of a consistent
commercial service schedule caused  insignificant  customer support resulting in
negative  results.  On February 1, 2006 we  suspended  operations  indefinitely.
During the twelve month period ending  December 31, 2005 the Big Easy  sustained
losses of  approximately  $12.2  million  (unaudited)  as  compared to a loss of
approximately $9.1 million for the year ended December 31, 2006.

Horse Operations

     During the quarter  ended  December 31, 2005 we determined to liquidate our
stock of horses on December 31,  2005.  On that date we  transferred  our entire
stock of horses to Francis W. Murray at our cost. Payment was made by Mr. Murray
by offsetting  $328,000 in amounts he had  previously  loaned the Company.  This
action  was taken to  conserve  operating  funds.  Our horse  operation  did not
produce any significant revenue during the 15 month period we owned the horses.



                                       25

<PAGE>


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

Consolidated

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


                                            Three Months Ended
                                             December 31, 2006
                             ---------------------------------------------------
                                                        Holding Co.
                              Palm Beach                   &
                               Princess    Big Easy     Other Subs     Total
                                  ($)         ($)          ($)          ($)
                             ------------ ----------  ------------ ------------
Operating Revenues:
    Gaming                      5,273,015          -             -    5,273,015
    Fare                          415,977          -             -      415,977
    On Board                      420,186          -             -      420,186
    Other                               -          -        92,283       92,283
                             ------------ ----------  ------------ ------------
Net Operating
 Revenues                       6,109,178          -        92,283    6,201,461
                             ------------ ----------  ------------ ------------
Operating Costs and
 Expenses:

    Gaming                      2,130,736          -             -    2,130,736
    Fare                          577,196          -        75,793      652,989
    On Board                      189,862          -             -      189,862
    Maritime & Legal            1,819,285          -             -    1,819,285
    G & A Expense                 332,022          -       610,057      942,079
    Development & Carrying
     Costs                              -    517,933        77,643      595,576
    Royal Star Development
     Costs                              -          -       237,595      237,595
    Equine Development
     Costs                              -          -             -            -
    Bankruptcy Costs              191,485          -             -      191,485
    Impairment of Notes and
     Allowance for Doubtful
     Accounts                   1,464,146          -     9,749,830   11,213,976
    Depreciation &
     Amortization                 604,799          -             -      604,799
                             ------------ ----------  ------------ ------------
Total Operating Costs &
 Expenses                       7,309,531    517,933    10,750,918   18,578,382
                             ------------ ----------  ------------ ------------
Operating Income (Loss)        (1,200,353)  (517,933)  (10,658,635) (12,376,921)
                             ------------ ----------  ------------ ------------
Other Income (Expense)

    Interest & Financing
     Expenses                     (86,265)  (159,701)     (107,761)    (353,727)
    Cost of Warrants
     Granted                            -          -      (317,985)    (317,985)
    Interest & Financing
     Expenses -
     Related Party               (233,011)  (300,000)            -     (533,011)
    Interest Income                (4,479)        54             -       (4,425)
    Interest Income -
     Related Party                 69,557          -         7,325       76,882
    Other Income (Expense)              -          -             -            -
                             ------------ ----------  ------------ ------------
Total Other Income(Expenses)     (254,198)  (459,647)     (418,421)  (1,132,266)
                             ------------ ----------  ------------ ------------
Income(Loss)Before Tax         (1,454,551)  (977,580)  (11,077,056) (13,509,187)
                             ============ ==========  ============ ============



                                            Three Months Ended
                                             December 31, 2005
                                                 (Unaudited)
                             --------------------------------------------------
                                 Palm                   Holding Co.
                                 Beach                       &
                               Princess      Big Easy   Other Subs     Total
                                  ($)          ($)          ($)         ($)
                             ------------  ----------- ------------ -----------
Operating Revenues:
    Gaming                      4,828,775      518,609            -   5,347,384
    Fare                          510,327       40,035            -     550,362
    On Board                      378,314       90,287            -     468,601
    Other                               -            -      219,235     219,235
                             ------------  ----------- ------------ -----------
Net Operating
 Revenues                       5,717,416      648,931      219,235   6,585,582
                             ------------  ----------- ------------ -----------
Operating Costs and
 Expenses:

    Gaming                      2,017,312    1,022,228            -   3,039,540
    Fare                          535,191      187,129      117,229     839,549
    On Board                      217,828       65,942            -     283,770
    Maritime & Legal            1,743,509    1,081,411            -   2,824,920
    G & A Expense                 690,358    1,038,992      559,596   2,288,946
    Development & Carrying
     Costs                              -      497,759      345,469     843,228
    Royal Star Development
     Costs                              -            -      284,257    284,257
    Equine Development
     Costs                              -            -            -           -
    Bankruptcy Costs                    -            -            -           -
    Impairment of Notes and
     Allowance for Doubtful
     Accounts                           -            -            -           -
    Depreciation &
     Amortization                 600,875      295,139            -     896,014
                             ------------  ----------- ------------ -----------
Total Operating Costs &
 Expenses                       5,805,073    4,188,600    1,306,551  11,300,224
                             ------------  ----------- ------------ -----------
Operating Income (Loss)           (87,657)  (3,539,669)  (1,087,316) (4,714,642)
                             ------------  ----------- ------------ -----------
Other Income (Expense)

    Interest & Financing
     Expenses                    (524,592)  (1,285,253)  (1,012,972) (2,822,817)
    Cost of Warrants
     Granted                            -            -            -           -
    Interest & Financing
     Expenses -
     Related Party               (429,424)    (206,489)      (9,505)   (645,418)
    Interest Income               (63,116)           -       (7,405)    (70,521)
    Interest Income -
     Related Party                129,081            -       14,811     143,892
    Other Income (Expense)              -            -       (8,348)          -
                             ------------  ----------- ------------ -----------
Total Other Income(Expenses)     (888,051)  (1,491,742)  (1,023,419) (3,403,212)
                             ------------  ----------- ------------ -----------
Income(Loss)Before Tax           (975,708)  (5,031,411)  (2,110,735) (8,117,854)
                             ============  =========== ============ ===========



                                       26

<PAGE>


     Revenues  decreased  by  $384,121  primarily  as a result  of the  revenues
generated  by the Big Easy  decreasing  by  $648,931  since it was  taken out of
service on February 2, 2006  offset by an increase in the revenue  generated  by
the Palm Beach Princess increasing by $391,762.

     Operating expenses increased approximately $7.3 million from $11,300,224 in
the three months  ended  December  31, 2005 to  $18,578,382  in the three months
ended December 31, 2006 primarily the result of:

     o    an impairment of Notes Receivable and allowances for doubtful accounts
          in the amount of $11,213,976 offset by;

     o    a decrease in the operating costs of the Big Easy of $3,670,667;

     o    a  decrease  in  operating  expenses  for the Palm Beach  Princess  of
          $155,097;

     o    a decrease in other  development  costs of $267,826  since the Company
          was forced to reduce its costs in search of new gaming  opportunities;
          offset by,

     o    a decrease in the carrying costs for our Royal Star vessel of $46,662,
          which the vessel has been in wet dock storage since its purchase.

     The operating  (loss) before other income and expenses  including  interest
expense for the quarter ended December 31, 2006 was ($12,376,921) as compared to
an operating (loss) of $(4,714,642) for the comparative  quarter, an increase in
loss of  $(7,662,279)  for the reasons  stated  above.  Interest  and  financial
expenses  decreased  approximately  $2.3 million.  As a result of our Bankruptcy
filing during the 2006 quarter we are no longer accruing interest on our debt to
various parties holding secured and unsecured debt.

     The Net (loss) for the quarter ended December 31, 2006 was ($13,509,187) as
compared to a (loss) of ($8,117,854) for the quarter ended December 31, 2005.

     Vessel Operations

     Palm Beach Princess

     During the three months ended December 31, 2006 net operating  revenue from
vessel  operations  was  $6,109,178 as compared to  $5,717,386.  The increase in
revenue of $391,792 during the comparable  quarter is due in part to an increase
in the passenger counts from 48,412 in 2005 to 51,035 for the three months ended
December  31,  2006.  An increase in the revenue per  passenger  from $118.10 to
$120.26 during the current period, also helped to increase our revenues for this
quarter.

     This  increase  in  passenger  count  occurred  because  last  year we were
materially  impacted by a scheduled  dry dock period of 12 days and by hurricane
Wilma and its  resulting  inclement  weather  which struck  Florida and the Palm
Beach area during  October 2005.  During the dry dock period we lost 24 cruises,
and we lost 2 cruises due to the hurricane.

     Casino   operating   expenses  which  also  includes  food,   beverage  and
entertainment  increased  $113,375 from  $2,017,311 or 42% of casino  revenue in
2005 to $2,130,686 or 40% of casino revenue in 2006.

     Maritime  and legal  expenses  increased  $64,201 due to an increase in the
number of cruises.

     Administrative expenses decreased $110,099.

     During the quarter we incurred $191,485 in bankruptcy fees.

     Finance expenses  decreased  $867,009 as a result of not accruing  interest
after December 4, 2006 as a result of our bankruptcy filing.

     During the quarter we recorded an allowance  for doubtful  accounts for the
OC Realty Notes held by us in the amount of $1,440,859.

     The loss before income tax expense for the three months ended  December 31,
2006 was  ($1,454,549)  as compared to a loss before income tax of ($968,737) in
the comparable three month period of 2005.



                                       27

<PAGE>


     The Palm Beach  Princess ends its quarterly  accounting  period on the last
Sunday of each quarter. These end of the week cut offs create more comparability
of the Company's  quarterly  operations  by generally  having an equal number of
weeks (13) and weekend days in each  quarter.  The  following  is a  comparative
summary of income and expenses of the Palm Beach  Princess  operation for the 13
weeks ended December 31, 2006 and January 1, 2006;

<TABLE>
                                                      Three Months Ended
                                          --------------------------------------
                                           December 31, 2006    January 1, 2006
             Description                      (Unaudited)         (Unaudited)          Change
    ------------------------------------- -------------------  ------------------   --------------
<CAPTION>
<S>                                       <C>                  <C>                  <C>
Passenger Count                                        51,035              48,412            2,623
Number of Cruises                                         177                 146               31
Average Number of Passengers per Cruise                   288                 332              (55)
Net Revenue per Passenger                 $            120.26  $           118.10   $         2.16

Revenue:
    Gaming                                $         5,273,015  $        4,828,775   $      444,240
    Fare                                            1,496,055           1,464,117           31,938
    On Board                                          680,265             778,061          (97,796)
    Less: Promotional Allowances
    Fare                                           (1,002,444)           (953,820)         (48,624)
    On Board                                         (337,713)           (399,747)          62,034
                                          -------------------  ------------------   --------------
    Net Operating Revenue                           6,109,178           5,717,386          391,792
                                          -------------------  ------------------   --------------
Expenses:
    Gaming                                          2,130,686           2,017,311          113,375
    Fare                                              577,196             535,191           42,005
    On Board                                          189,862             217,828          (27,966)
    Maritime and Legal Expenses                     1,807,566           1,743,365           64,201
    Administrative                                    367,077             477,176         (110,099)
    Bare Boat Charter                                 233,011             206,182           26,829
    Finance Expenses - Net                             21,186             888,195         (867,009)

    Allowance for Doubtful Accounts                 1,440,859                   -        1,440,859
    Depreciation and Amortization                     604,799             600,875            3,924
    Bankruptcy Fees                                   191,485                   -          191,485
                                          -------------------  ------------------   --------------
    Total Expenses                                  7,563,727           6,686,123          877,604
                                          -------------------  ------------------   --------------
          Income (Loss) Before Income
           Tax Expense                    $        (1,454,549) $         (968,737)  $     (485,812)
                                          ===================  ==================   ==============
</TABLE>

Results of Operations for the Six Months Ended December 31, 2005 and 2004

     The  following  are the most  important  factors and trends that affect our
operating performance:

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

     After  receiving  proceeds  of $2.3  million  in June  2005 and  subsequent
additional PDS debt financing, we have approximately $30 million of indebtedness
outstanding  to PDS as of  December  31,  2005.  We have been unable to make the
required monthly principal payments required under the PDS loans since September
1, 2005 and have  borrowed  additional  funds in order to make several  interest
payments due under the debt  agreement.  We have  extended  payment terms of our
accounts  payable  in order to  conserve  working  capital.  This  action  could
jeopardize  the  relationships  with our  vendors  and we may be  forced to find
alternative   sources  for  some  of  our  suppliers,   further  disrupting  our
operations.  We may incur  additional  indebtedness in the future.  Our level of
indebtedness  will have several  significant  effects on our future  operations,
including the following:

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


                                       28

<PAGE>


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

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

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

     o    seek additional financing in the debt or equity markets;

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

     o    sell selected assets.

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

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

     The impact of Hurricanes also may affect our operating performance.  During
the first quarter of the fiscal year ended June 30, 2005 and the second  quarter
of the fiscal year ended December 31, 2005 we were adversely affected by several
hurricanes passing over or near Florida.  During the quarter ended September 30,
2004,  our  operations  were  negatively  impacted  by  the  direct  effects  of
hurricanes  "Frances" and  "Jeanne," and during the three months ended  December
31,  2005 our  operations  were  negatively  impacted  by the  direct  effect of
hurricane  Wilma.  These  hurricanes  left the area without power,  resulting in
curfews  and limited  food,  water and life  resources,  the  evacuation  of the
population  in our area,  and  further  affected  tourism in the area,  severely
reducing our pool of potential passengers.



                                       29

<PAGE>


Consolidated

     The table below separately  identifies and compares the revenues,  expenses
and net income  before taxes of our two vessels and other  operating  subsidiary
companies  as shown on the  Consolidated  Statement  of  Operations  for the six
months  ended  December  31,  2005  as  compared  to an  unaudited  Consolidated
Statement of Operations for the six months ended December 31, 2004.


                                           Six Months Ended
                                           December 31, 2005
                        -----------------------------------------------------
                          Palm Beach       Big        Holding Co &
                            Princess       Easy        Other Subs       Total
                           ($)             ($)             ($)           ($)
                         -----------  ------------ ------------- ------------
Operating Revenues:
  Gaming                  11,061,370       518,609             -   11,579,979
  Fare                     1,137,407        40,035             -    1,177,442
  On Board                   845,844        90,287             -      936,131
  Other                            -             -       283,098      283,098
                         -----------  ------------ ------------- ------------
  Net Operating
   Revenues               13,044,621       648,931       283,098   13,976,650
                         -----------  ------------ ------------- ------------
Operating Costs and
  Expenses:

  Gaming                   4,159,341     1,022,228             -    5,181,569
  Fare                     1,425,782       187,130       202,269    1,815,181
  On Board                   436,123        65,942             -      502,065
  Maritime & Legal         3,590,470     1,081,412             -    4,671,882
  G & A Expenses           1,297,488     1,038,992     1,321,832    3,658,312
  Development Costs                -     2,830,532       582,154    3,412,686
  Royal Star
   Development Costs               -             -       261,675      261,675
  Equine Development
   Costs                           -             -       517,486      517,486
  Impairment of Note               -             -             -            -
  Depreciation &
   Amortization            1,183,981       312,357         7,568    1,503,906
                         -----------  ------------ ------------- ------------
   Total Operating
   Costs & Expenses       12,093,185     6,538,593     2,892,984   21,524,762
                         -----------  ------------ ------------- ------------

Operating Income (Loss)      951,436    (5,889,662)   (2,609,886)  (7,548,112)
                         -----------  ------------ ------------- ------------
Other Income (Expense):

  Interest &
   Financing Expenses     (1,321,358)   (1,750,082)   (1,119,594)  (4,191,034)
  Interest & Financing
   Expenses -
   Related Party            (429,424)     (206,489)       (9,505)    (645,418)
   Interest Income             7,687             -             -        7,687
  Interest Income -
   Related Party             129,081             -        14,811      143,892
  Extraordinary Item               -             -             -            -
  Other Income(Expense)            -             -             -            -
                         -----------  ------------ ------------- ------------
  Total Other Income
  (Expense)               (1,614,014)   (1,956,571)   (1,114,288)  (4,684,873)
                         -----------  ------------ ------------- ------------
Income (Loss) Before Tax    (662,578)   (7,846,233)   (3,724,174) (12,232,985)
                         ===========  ============ ============= ============


                                         Six Months Ended
                                        December 31, 2004
                                            (Unaudited)
                         -----------------------------------------------
                          Palm Beach      Big    Holding Co &
                           Princess       Easy    Other Subs   Total
                              ($)          ($)        ($)       ($)
                         ------------  --------- ----------- -----------
Operating Revenues:
  Gaming                   11,647,486          -           -  11,647,486
  Fare                      1,168,282          -           -   1,168,282
  On Board                    890,468          -           -     890,468
  Other                             -          -     187,079     187,079
                         ------------  --------- ----------- -----------
  Net Operating
   Revenues                13,706,236          -     187,079  13,893,315
                         ------------  --------- ----------- -----------
Operating Costs and
  Expenses:

  Gaming                    4,252,422          -           -   4,252,422
  Fare                      1,778,961          -     167,455   1,946,416
  On Board                    451,803          -           -     451,803
  Maritime & Legal          2,892,336          -           -   2,892,336
  G & A Expenses            1,484,240          -   1,009,006   2,493,246
  Development Costs            77,318    629,064     539,365   1,245,747
  Royal Star
   Development Costs                -          -     106,418     106,418
  Equine Development
   Costs                            -          -     118,975     118,975
  Impairment of Note                -          -     350,000     350,000
  Depreciation &
   Amortization               956,230          -       8,871     965,101
                         ------------  --------- ----------- -----------
   Total Operating
   Costs & Expenses        11,893,310    629,064   2,300,090  14,822,464
                         ------------  --------- ----------- -----------

Operating Income (Loss)     1,812,926   (629,064) (2,113,011)   (929,149)
                         ------------  --------- ----------- -----------
Other Income (Expense):

  Interest &
   Financing Expenses      (1,119,227)         -    (268,663) (1,387,890)
  Interest & Financing
   Expenses -
   Related Party             (409,812)         -           -    (409,812)
   Interest Income              8,027          -           -       8,027
  Interest Income -
   Related Party              127,480          -      16,411     143,891
  Extraordinary Item                -          -   3,560,000   3,560,000
  Other Income(Expense)             -          -         211         211
                         ------------  --------- ----------- -----------
  Total Other Income
  (Expense)                (1,393,532)         -   3,307,959   1,914,427
                         ------------  --------- ----------- -----------
Income (Loss) Before Tax      419,394   (629,064)  1,194,948     985,278
                         ============  ========= =========== ===========

                                       30
<PAGE>

     Revenue for the six months ended December 31, 2005 increased  slightly from
$13,893,315 for the six months ended December 31, 2004 to $13,976,650 in the six
months ended  December  31, 2005  primarily as a result of the net effect of the
revenues  generated by the Big Easy which was put in limited service on November
12, 2005 partially offset by a decrease in revenues  generated by the Palm Beach
Princess operations during the comparable periods.

     Operating  expenses  increased  approximately  $7  million,  or  31%,  from
$14,822,464  in the six months ended December 31, 2004 to $21,524,762 in the six
months ended December 31, 2005 primarily the result of:

     o    an  increase  in  recording  start  up  costs  for  the  Big  Easy  of
          approximately  $2.2 million for carrying  costs  incurred from July 1,
          2005 to October 17, 2005, and approximately  $3.4 million in operating
          expenses from October 17 to December 31, 2005. During the prior fiscal
          year we only  incurred  start-up  costs for a  portion  of the 6 month
          period;

     o    an  increase  in the  carrying  costs  for our  Royal  Star  vessel of
          $155,257,  which the  vessel  has been in wet dock  storage  since its
          purchase.  The  increase was  primarily  caused by the payments we are
          making on the  gaming  equipment  placed  aboard the vessel in January
          2005;

     o    an increase in our equine costs of $398,511,  primarily  the result of
          an increase  in the number of  livestock  owned  during this period as
          compared  to the same period in the prior  fiscal  year and  increased
          expenses  primarily  associated the equine operation in effect for the
          full six months of the  current  fiscal year as compared to only three
          months of operations in the prior fiscal period;

     o    an increase in Depreciation and Amortization of $538,805  primarily as
          a result of depreciation being recorded on the Big Easy; and

     o    an increase in the Parent Company  administrative expense of $122,008;
          partially offset by

     o    the  decrease  of the  impairment  of a note in the amount of $350,000
          which expense was recognized last year.

     The  Operating  (loss)  for the six  months  ended  December  31,  2005 was
($7,548,112) as compared to a loss of ($929,149) for the  comparative  period of
last year.

     Other  expenses  increased  by  approximately  $3 million as a result of an
increase in the interest and financing  expense of $3,038,750  due to the higher
debt level on the vessel  leases,  equipment  leases  and the  additional  funds
loaned to the Company  from its primary  lender and other loans taken during the
current  period as  compared  to debt  levels  during the same  period last year
primarily  the result of; (1) interest  recorded as an expense in the six months
ended  December  31,  2005  for  the Big  Easy as  compared  to  interest  being
capitalized  during the six months re-  construction  period in the prior fiscal
period;  and (2)  expensing  warrants  issued  during the last six months  which
include:  (i)  236,000  warrants  issued to MBC Global in the amount of $51,088;
(ii) the 600,000  warrants  issuable to the purchasers of our Series B Preferred
Stock in the amount of $67,900; (iii) the 200,000 warrants issued to the parties
who loaned the Company $400,000 in the amount of $93,000,  and (iv) expensing of
the Beneficial  Conversion  Feature in the amount of $231,024 in connection with
the sale of 500,000 shares of Series B Convertible Preferred Stock.

     For  the  six  months  ended   December  31,  2005  the  (loss)  before  an
extraordinary  item (reported in the comparative  period) was  ($12,232,985)  as
compared to a (loss) before an  extraordinary  item of ($2,574,722)  for the six
months ended  December 31, 2004.  During the six months ended  December 31, 2004
the Company recorded  extraordinary income, net of tax, of $3,560,000.  This was
the result of the  collection of success fees charged to Leo Equity Group,  Inc.
and Palm Beach Maritime Corporation (formerly MJQ) for our efforts in connection
with the final settlement with the Chapter 11 Trustee for the Bankruptcy  Estate
of Robert E. Brennan.  We had deferred all income from these  transactions until
such time as payment was received.

     The Net (Loss) for the six months ended December 31, 2005 was ($12,232,985)
or ($1.16) per diluted  share as  compared to income of  $1,076,278  or $.13 per
diluted share for the six months ended December 31, 2004.

     For the six months  ending  December 31, 2005 the (loss)  before  interest,
taxes,  depreciation  and  amortization  and our unusual items of  extraordinary
income  and the Big  Easy  start  up  costs  (Adjusted  EBITDA)  was a  negative
($6,044,206)  as compared to adjusted  EBITDA of $386,163 for the  corresponding
period. The decrease in Adjusted EBITDA of $6.4 million was primarily due to the
losses  sustained  in the six months ended  December 31, 2005 as detailed  above
caused in part due to  hurricane  Wilma  hitting our area,  dry dock of the Palm
Beach Princess, start up costs of the Big Easy and negative operating results of
the Big Easy for the six months ended December 31, 2005. See the  reconciliation
of  Adjusted  EBITDA to net income  for the six and three  month  periods  ended
December 31st below.

Reconciliation of Non-GAAP Measures to GAAP

     Adjusted  EBITDA or  earnings  before  interest,  taxes,  depreciation  and
amortization  and unusual  items is not a measure of  performance  or  liquidity
calculated in accordance with generally accepted accounting  principles.  EBITDA
information  is  presented  as  a  supplemental  disclosure  because  management
believes  that it is a widely  used  measure of such  performance  in the gaming
industry. In addition, management uses Adjusted EBITDA as the primary measure of
the  operating  performance  of its  operations,  including  the  evaluation  of
operating  personnel.  Adjusted EBITDA should not be construed as an alternative
to operating income, as an indicator of the Company's operating performance,  or
as an  alternative  to cash flows  from  operating  activities,  as a measure of
liquidity,  or as any other measure of performance determined in accordance with
generally accepted  accounting  principles.  The Company has significant uses of
cash flows, including capital expenditures,  interest payments, taxes, lease and
debt principal repayments, which are not reflected in Adjusted EBITDA. It should
also be noted that other gaming companies that

                                       31

<PAGE>


report EBITDA  information may calculate  EBITDA in a different  manner than the
Company.  A reconciliation of the Company's Adjusted EBITDA and unusual items to
net income (GAAP), is shown below.

Reconciliation of Adjusted EBITDA to Net Income (GAAP)

<TABLE>
                                        Six Months Ended December 31,     Three Months Ended December 31,
                                        ------------------------------    -----------------------------
                                              2005            2004              2005           2004
                                        --------------   -------------    --------------   ------------
<CAPTION>
<S>                                   <C>              <C>               <C>             <C>
Total Adjusted EBDITA                 $    (6,044,206) $       386,163   $   (3,867,933) $      717,369
     Depreciation & Amortization           (1,503,906)       (965,101)         (846,708)      (566,222)
     Interest & Financing Expenses         (4,836,452)     (1,797,702)       (3,468,235)      (630,111)
     Interest Income                           151,579         151,918            65,023         73,601
     Tax Benefit (Expense) on Income               -0-          91,000             7,000         49,000
Net Income (Loss) before Unusual Items    (12,232,985)     (2,133,722)       (8,110,853)      (356,363)
     Extraordinary Item                            -0-       3,560,000               -0-              0
     Impairment Loss                               -0-       (350,000)               -0-      (150,000)
                                        --------------   -------------    --------------   ------------
Net Income (Loss)                     $   (12,232,985) $     1,076,278   $   (8,110,853) $    (506,363)
                                        ==============   =============    ==============   ============
</TABLE>
Vessel Operations

     Palm Beach Princess

     Operations  for the six months  ended  December  31,  2005 were  materially
impacted by a scheduled  dry dock period of 12 days and by  hurricane  Wilma and
its resulting  inclement  weather  which struck  Florida and the Palm Beach area
during  our  second  quarter  of  operations.  Fortunately  the dry dock  period
overlapped the date  hurricane  Wilma struck and during a portion of the time we
were  suffering from the  hurricane's  continuing  effects.  During the dry dock
period we lost 24 cruises,  additionally  we lost 2 cruises due to the hurricane
and 6 cruises due to weather related  problems or scheduling  conflicts with the
Big Easy.  As a result of the  decrease in the number of cruises  our  passenger
counts also  decreased by 6,080,  or 5%. During the six month period our revenue
per passenger increased slightly from $116.55 to $116.97.  During the six months
ended  December 31, 2004 we also suffered from two hurricanes  which  materially
negatively impacted our operations and affect the comparisons from year to year.

     During the six months ended December 31, 2005, total net operating  revenue
from vessel  operations was  $13,044,621 as compared to $13,706,236  for the six
months ended December 31, 2004.  The decrease in revenue of $661,615  during the
comparable  six  months was due to a  decrease  in the  number of cruises  which
resulted  in a decrease  in  passenger  counts.  The  decrease  in the number of
cruises was offset  slightly by an  increase in the revenue per  passenger  from
$116.55  during the six months ended December 31, 2004 to $116.97 in the current
six month period.  During the current six month period gaming revenues decreased
$586,116 from  $11,647,486 for the six months of 2004 to $11,061,370 for the six
months of 2005.

     Net fare and on board income decreased  $75,500,  or 3.7%. Casino operating
expenses which also includes food, beverage and entertainment  decreased $93,081
from  $4,252,422  or 36.5% of casino  revenue in 2004 to  $4,159,341 or 37.6% of
casino revenue in 2005 primarily the result of dividing costs, many of which are
fixed by their nature, over reduced revenues.

     During  the six month  period  ending  December  31,  2005 a portion of the
employee costs normally  incurred by the Palm Beach Princess for operational and
administrative  salary  expenses  were  allocated  to  the  Big  Easy  start  up
operation.  These  allocations were made to more accurately  reflect the cost of
preparing the Big Easy for use as a casino gaming vessel. Approximately $875,000
of salaries  allocated to the Big Easy were  expensed as operating  costs during
the six months ended December 31, 2005 as compared to approximately  $511,000 of
salary costs which were  capitalized  as part of the vessel costs during the six
months  ended  December  31,  2004.  This   allocation   should  be  taken  into
consideration  when comparing  operating  results from year to year for the Palm
Beach Princess.

     Sales,   marketing  and  advertising   expenses   decreased  $353,179  from
$1,778,961  in 2004 to  $1,425,782  for the first six months ended  December 31,
2005. The amounts incurred for marketing and advertising  decreased  because the
Company  did not  have  sufficient  funds  to  spend  due to our  negative  cash
position.  Maritime and legal expenses  increased $698,104 or 24% primarily as a
result of increased fuel costs during the current six month period.

     Administrative  expenses  decreased  $264,040  from  $1,561,528  in 2004 to
$1,297,488  in 2005 due to steps taken to reduce  expenses  during this quarter,
and the allocation of salary expenses as stated above.

     Finance expenses increased $220,482 as a result of the interest paid on the
capital lease  payments for the Palm Beach  Princess which was effective July 7,
2004. Depreciation and amortization increased $227,751 from $956,230 for the six
months ended  December 31 2004 to $1,183,981  for the six months ended  December
31, 2005.

                                       32

<PAGE>


As a result of the capital  lease  arrangement  for the Palm Beach  Princess the
Company is  recording  depreciation  on the vessel as compared to last year when
the Company recorded depreciation for a portion of the six month period.

     The loss before  income tax expense for the six months  ended  December 31,
2005 was a loss of  ($662,578)  as  compared  to  income  before  income  tax of
$419,394 in the comparable six month period of 2004.

     The Palm  Beach  Princess  performs  fourteen  cruises  weekly,  that is, a
daytime  and an evening  cruise  each day.  Each  cruise is of five to six hours
duration.  During  each  cruise,  the  Palm  Beach  Princess  offers  a range of
amenities  and services to her  passengers,  including a full  casino,  sit-down
buffet dining, live musical shows, discotheque,  bars and lounges, swimming pool
and  sundecks.  The casino  occupies  15,000  square feet aboard the ship and is
equipped with approximately 400 slot machines, all major table games (blackjack,
dice,  roulette and poker),  and a sports  wagering book.  During the six months
ended  December  31, 2005 the ship  completed  305  cruises and 49 cruises  were
missed  due to dry dock,  hurricane  Wilma,  inclement  weather  and  scheduling
conflicts  with the Big Easy.  Whereas  during the six months ended December 31,
2004 the ship  completed  328  cruises  and 33  cruises  were  cancelled  due to
hurricanes and inclement weather.

     The Palm Beach  Princess ends its quarterly  accounting  period on the last
Sunday of each quarter. These end of the week cut offs create more comparability
of the Company's  quarterly  operations  by generally  having an equal number of
weeks (13) and weekend days in each  quarter.  The  following  is a  comparative
summary of income and expenses of the Palm Beach  Princess  operation for the 26
weeks ended January 1, 2006 and December 26, 2004:

                                          Six Months Ended
                                   ----------------------------
                                    January 1,     December 26,
           Description                2006            2004             Change
  -------------------------------- ------------    ------------     -----------
Passenger Count                         111,523         117,603          (6,080)
Number of Cruises                           305             328             (23)
Average Number of Passengers
 per Cruise                                 366             358               8
Net Revenue per Passenger         $      116.97   $      116.55   $        0.42

Revenue:
    Gaming                        $  11,061,370   $  11,647,486   $    (586,116)
    Fare                              3,087,363       3,177,007         (89,644)
    On Board                          1,694,636       1,861,213        (166,577)
    Less: Promotional Allowances
    Fare                             (1,949,957)     (2,008,725)         58,768
    On Board                           (848,791)       (970,745)        121,954
                                   ------------    ------------     -----------
    Net Operating Revenue            13,044,621      13,706,236        (661,615)
                                   ------------    ------------     -----------
Expenses:
    Gaming                            4,159,341       4,252,422         (93,081)
    Fare                              1,425,782       1,778,961        (353,179)
    On Board                            436,123         451,803         (15,680)
    Maritime and Legal Expenses       3,590,470       2,892,366         698,104
    Administrative                    1,297,488       1,561,528        (264,040)
    Finance Expenses - Net            1,614,014       1,393,532         220,482

    Depreciation and Amortization     1,183,981         956,230         227,751
    Total Expenses                   13,707,199      13,286,842         420,357
                                   ------------    ------------     -----------
        Income (Loss) Before
         Income Tax Expense       $    (662,578)  $     419,394   $  (1,081,972)
                                   ============    ============     ===========

     Big Easy

     The  United  States  Coast  Guard  issued the Big Easy her  Certificate  of
Inspection on October 11, 2005,  following an extensive and unexpected  delay in
receiving  such   certification.   The  vessel's   first   official   cruise  to
international  waters was October 18,  2005.  Due to the  approaching  Hurricane
Wilma,  the vessel was  ordered  out of the Port for safe  haven  following  her
afternoon cruise on October 19, 2005.  Hurricane Wilma struck Florida on October
24,  2005.  Due to the damages  caused by  Hurricane  Wilma and vessel  schedule
conflicts,  the Big Easy was unable to sail commercially until November 6, 2005.
The unexpected  delay in receiving the vessels'  Certificate of Inspection,  and
the  subsequent  delays,  damage and  inconveniences  caused by Hurricane  Wilma
immediately  following the maiden voyage had a compounding adverse effect on the
Company's  ability to retain  personnel.  As a result,  the Company  experienced
greater than normal  attrition  of Big Easy  personnel,  particularly  those who
carried Coast Guard- issued  Merchant Marine cards (i.e. also known as z-cards).
These are issued by Coast Guard and serve as required

                                       33

<PAGE>


documentation  for those  working  on US flagged  vessels  to fill  Coast  Guard
mandated  muster station  requirements).  As the number of Merchant  Marine card
personnel became increasingly  inadequate,  it became increasingly difficult for
management to meet muster station  requirements,  often forcing the cancellation
of many sailings,  particularly in December and January. The Coast Guard stopped
issuing  Merchant  Marine cards suddenly and  unexpectedly  sometime in October,
2005. Adverse sea conditions in November and December were generally unfavorable
for  commercial  sailing  and  were a  contributing  factor  to  several  missed
sailings.  As a result of these numerous  challenges the vessel was able to make
only nineteen sailings in November;  twenty-four  sailings in December and eight
sailings in January.  On January 31, 2006 the Coast Guard  denied the  Company's
request to provide an extension to complete  certain  mandated  work and removed
the vessels' Certificate of Inspection.  On January 31, 2006,  approximately one
hundred Coast Guard Merchant Marine card  applications  relating to the Big Easy
remained unprocessed by the Coast Guard for twelve weeks or longer.

     We were having challenges  attracting  customers to the Big Easy, given her
inconsistent schedule of sailings.  The initial delay in receiving a Certificate
of Inspection and subsequent  inconsistencies  in scheduling caused  significant
negative cash flow and made advertising and promotional  efforts  difficult from
both a financial and practical  planning  perspective.  The lack of a consistent
commercial service schedule caused  insignificant  customer support resulting in
negative  results  for the six  months  ending  December  31,  2005.  During the
operating  period we were losing  approximately  $1.2  million per month.  These
losses continued into January, 2006. On February 1, 2006 we suspended operations
indefinitely.  During the six month period ending December 31, 2005 the Big Easy
sustained an operational  loss of approximately $5 million and start up costs of
approximately $2.8 million.

     The following is a summary of income and expenses of the Big Easy operation
from October 18th to January 1, 2006:

                                                            For the Period
             Description                                 October 18, 2005 to
                                                            January 1,2006
    ---------------------------------------------     -----------------------
  Passenger Count                                                       5,214
  Number of Cruises                                                        45
  Average Number of Passengers per Cruise                                 116
  Net Revenue per Passenger                          $                    137

  Revenue:

      Gaming                                         $                518,609
      Fare                                                            102,111
      On Board                                                         90,287
      Less: Promotional Allowances
      Fare                                                            (62,076)
                                                      -----------------------
      Net Operating Revenue                                           648,931
                                                      -----------------------
  Expenses:

      Gaming                                                        1,022,228
      Fare                                                            187,129
      On Board                                                         65,942
      Maritime and Legal Expenses                                   1,081,411
      Administrative                                                1,038,994
      Finance Expenses - Net                                        1,956,571
      Depreciation and Amortization                                   312,357
      Total Expenses                                                5,664,632
                                                      -----------------------
                       Net (Loss) from Operations    $            (5,015,701)
                                                      =======================

Horse Operations

     During the quarter  ended  December 31, 2005 we determined to liquidate our
stock of horses on December 31,  2005.  On that date we  transferred  our entire
stock of horses to Francis W. Murray at our cost. Payment was made by Mr. Murray
by offsetting  $328,000 in amounts he had  previously  loaned the Company.  This
action was taken to  conserve  funds  since the  operational  expenses  had been
approximately  $45,000  per  month.  Our horse  operation  did not  produce  any
significant revenue during the 15 month period we owned the horses.


                                       34

<PAGE>


Results of Operations for the Years Ended June 30, 2005 and 2004

     Consolidated

     Revenue  for the year ended June 30,  2005  decreased  slightly by $188,992
from  $32,962,239  in Fiscal 2004 to  $32,773,247  in Fiscal 2005 primarily as a
result of a slight  decrease in revenues  generated  by the Palm Beach  Princess
operations  during  the  comparable   periods.   Operating   expenses  decreased
$2,582,669  from  $37,632,595  in Fiscal  2004 to  $35,049,926  in  Fiscal  2005
primarily  as the result of:  (1)  recording  start up costs for the Big Easy of
$5,011,756  compared  to last year  when no start up costs  were  recorded;  (2)
payments of other  development  costs of  $970,836 as a result of our  continued
search,   both   domestically  and   internationally,   for  additional   gaming
opportunities,  as compared to $700,580  spent on similar  expenses  during last
year; (3) expenses of $447,989 incurred as a result of our entry into the equine
business;  (4) an increase in depreciation  and  amortization of $1,254,636 as a
result of depreciation  being recorded on the Palm Beach Princess as a result of
capital leasing arrangements effective in July, 2004; and (5) an increase in the
Parent  Company  General  and  Administrative  expenses  of  $321,129  due to an
increase in the salary and related benefit expenses due to the hiring of several
new employees and increases in health  insurance  coverage and 401-K expenses as
compared to last year when the Parent Company employees did not participate in a
401-K  plan;  offset by (1) a  decrease  in  impairment  loss as a result of the
Company  recording an impairment loss of $500,000 on the Second Cherry Hill Note
Receivable in Fiscal 2005,  whereas  during Fiscal 2004 the Company  recorded an
impairment  loss of  $10,000,000  on the same note;  (2) a decrease  in the Palm
Beach  Princess  operating  expenses,  before  depreciation,  of $255,238 due to
salary and benefit  costs of  approximately  $1.3  million  incurred on the Palm
Beach  Princess'  payroll which were allocated to the Big Easy during the period
we were  preparing  the Big Easy for use as a casino  gaming  vessel,  partially
offset by generally higher costs incurred by the Palm Beach Princess;  and (3) a
decrease in bankruptcy  costs of $417,454 due to the bankruptcy  being completed
at the end of fiscal 2004.

     Operating  (loss)  for  the  year  ended  June  30,  2005  was  a  loss  of
($2,276,679) as compared to a loss of ($4,670,356) for last year. Operating loss
before  depreciation for the year was ($282,172) as compared to ($3,930,485) for
the comparative year.

     Other net  expenses  increased  by  $1,632,182  primarily as a result of an
increase in the interest and financing expenses of $1,597,896  primarily due to:
(1)  classifying  $1,186,297  of  bareboat  charter  hire fees as related  party
interest expense in Fiscal 2005 as compared capitalizing these costs in the case
of the Big Easy in  Fiscal  2004 and  classifying  these  costs as an  operating
expense of the Palm  Beach  Princess  in Fiscal  2004;  and (2) the higher  debt
levels on the vessel  leases  than that  amount  previously  owed to the Brennan
Trustee and an increase in the rates of interest on such leases.  In addition to
the $3,845,888 of interest expense recorded in the statement of operations,  the
Company  incurred  additional  interest  which was  capitalized  to the Big Easy
during that vessel's  re-construction  period in the amount of $1,530,197 during
the Fiscal 2005, and $896,297 of interest paid on the vessel capital lease which
is  classified  in the  Big  Easy  development  costs.  The  net  (loss)  before
extraordinary item for the year ended June 30, 2005 was ($5,900,035) as compared
to a (loss) of ($6,800,030) during Fiscal 2004.

     During  the first  quarter of the 2005  Fiscal  year the  Company  recorded
extraordinary  income,  net of tax,  of  $4,000,000.  This was the result of the
collection  of success  fees  charged to Leo Equity  Group,  Inc. and Palm Beach
Maritime Corporation (formerly MJQ) for our efforts in connection with the final
settlement  with the Chapter 11 Trustee for the  Bankruptcy  Estate of Robert E.
Brennan.  We had deferred all income from these  transactions until such time as
payment was received.

     The Net  (Loss)  for the year ended  June 30,  2005 was  ($1,900,035)  or a
(loss) of ($.18) per diluted share as compared to a (loss) of ($6,800,030), or a
loss of ($.86) per diluted share for the year ended June 30, 2004.

     For  the  year  ended  June  30,  2005  earnings  before  interest,  taxes,
depreciation and  amortization  and our unusual items of  extraordinary  income,
impairment  losses and vessel start up costs (Adjusted EBITDA) was $5,521,801 as
compared to $6,089,228  for the prior year.  The decrease in Adjusted  EBITDA of
$567,427  was  primarily  due to  EBITDA  levels  for the  Palm  Beach  Princess
decreasing from  approximately  $1.7 million in Fiscal 2004 to approximately $.6
million in Fiscal 2005 in the first  quarter of the Fiscal  year  because of the
hurricanes,  partially  offset by better  EBITDA  results  during our second and
third fiscal quarters for the Palm Beach Princess.


                                       35
<PAGE>

Reconciliation of Non-GAAP Measures to GAAP

     Adjusted  EBITDA or  earnings  before  interest,  taxes,  depreciation  and
amortization  and unusual  items is not a measure of  performance  or  liquidity
calculated in accordance with generally accepted accounting  principles.  EBITDA
information  is  presented  as  a  supplemental  disclosure  because  management
believes  that it is a widely  used  measure of such  performance  in the gaming
industry. In addition, management uses Adjusted EBITDA as the primary measure of
the  operating  performance  of its  operations,  including  the  evaluation  of
operating  personnel.  Adjusted EBITDA should not be construed as an alternative
to operating income, as an indicator of the Company's operating performance,  or
as an  alternative  to cash flows  from  operating  activities,  as a measure of
liquidity,  or as any other measure of performance determined in accordance with
generally accepted  accounting  principles.  The Company has significant uses of
cash flows, including capital expenditures,  interest payments, taxes, lease and
debt principal repayments, which are not reflected in Adjusted EBITDA. It should
also be noted that other gaming  companies  that report EBITDA  information  may
calculate EBITDA in a different manner than the Company. A reconciliation of the
Company's  Adjusted  EBITDA and  unusual  items to net income  (GAAP),  is shown
below.

Reconciliation of Adjusted EBITDA to Net Income (GAAP)

                                                Years Ended June 30,
                                    ------------------------------------------
                                        2005            2004           2003
                                    ------------     -----------    ----------
Total Adjusted EBITDA             $      225,788   $   6,089,228   $ 6,548,792
  Depreciation & Amortization         (1,994,507)       (739,871)     (254,082)
  Interest & Financing Expenses       (3,845,887)     (2,247,992)   (1,338,649)
  Interest Income                        304,571         327,105       423,265
  Income Tax                             (90,000)       (228,500)     (145,500)
                                    ------------     -----------    ----------
Net Income (Loss) before
  Unusual Items                       (5,400,035)      3,199,970     5,233,826
  Extraordinary Item                   4,000,000               -             -
  Impairment Loss                       (500,000)    (10,000,000)            -
                                    ------------     -----------    ----------
Net Income (Loss)                 $   (1,900,035)  $  (6,800,030)  $ 5,233,826
                                    ============     ===========    ==========


     Vessel Operations for the Years Ended June 30, 2005 and 2004

     During  the  year  ended  June 30,  2005  total  net  revenue  from  vessel
operations was $32,353,030 as compared to $32,601,396 for the comparative Fiscal
year of 2004. The decrease in revenue of $248,366 during the comparable year was
the result of a number of factors which offset one another.  Our  operations for
Fiscal 2005 were materially  impacted by hurricanes and inclement  weather which
struck  Florida and the Palm Beach area during our first quarter of  operations.
The  negative  effect of those  hurricanes  on our  operations  during the first
quarter is also  reflected in the financial  results for the year ended June 30,
2005.   During  our  first   quarter  of  operations   net  revenues   decreased
approximately  $1,300,000,  however  this  decrease was  partially  offset by an
increase in net  revenues in each of the  following  quarters as compared to the
previous year.  Additionally,  the operating  subsidiary which operates the Palm
Beach Princess ends its quarterly  accounting  period on the last Sunday of each
quarter.  These end of the week cut offs normally create more  comparability  of
the Company's quarterly  operations by generally having an equal number of weeks
(13) and weekend days in each quarter. Periodically,  this system necessitates a
14 week quarter and a 53 week year.  Consequently  our March 31, 2005 was such a
quarter  and our  Fiscal  2005 year a 53 week  year.  Therefore,  the  number of
cruises, revenues and expenses reported for the current Fiscal year includes one
additional  week of operations as compared to Fiscal 2004.  The average  revenue
per week during  Fiscal 2005 was $610,343 as compared to $626,949  during Fiscal
2004,  or a decrease  of 2.6%.  This was the result of a slight  decrease in the
average number of passengers  per week and a slight  decrease in the revenue per
passenger as compared to Fiscal 2004.  However,  when the first quarter  results
are excluded, the average revenue per week for the second through fourth quarter
of Fiscal 2005 was  $651,788 for the 40 weeks as compared to $641,698 for the 39
weeks for the second and fourth quarters of Fiscal 2004.

     Approximately 85% of the net revenues are from the gaming operations aboard
the vessel.  These  revenues  fell  $178,477 or less than .7% during the current
Fiscal year.  Other income consists of fare revenues and on board revenues.  The
fare and on board net revenues decreased $69,900 during Fiscal 2005, or 1.4%.

     Casino   operating   expenses  which  also  includes  food,   beverage  and
entertainment  increased  $331,824 from $8,805,157,  or 32% of casino revenue in
Fiscal 2004 to $9,136,981, or 33% of casino revenue in Fiscal 2005. The increase
in casino  operating  expenses  was caused by operating  an  additional  week in
Fiscal 2005 and a slight increase in the casino operating expenses.

                                       36
<PAGE>


     During the current year a portion of the employee costs  normally  incurred
by the Palm Beach Princess for  operational and  administrative  salary expenses
were allocated to the Big Easy start up operation.  These  allocations were made
to more  accurately  reflect  the  cost of  preparing  the Big Easy for use as a
casino gaming vessel.  Approximately $1,103,600 of salaries allocated to the Big
Easy and expensed as developmental  costs and  approximately  $203,900 of salary
and benefit costs were  capitalized as part of the Big Easy vessel costs.  These
capitalized costs reflect the value of vessel improvements  completed by company
employees.  This allocation  should be taken into  consideration  when comparing
operating results from year to year for the Palm Beach Princess.

     Fare expenses,  which included sales,  marketing and  advertising  expenses
increased  $392,961 from $3,546,153 in Fiscal 2004 to $3,939,114 in Fiscal 2005.
The increase was the result of additional  advertising and promotions to attract
customers after the  cancellation  of cruises due to the  hurricanes,  inclement
weather and curfews following the hurricanes in the quarter ending September 30,
2004 and subsequent quarters. Maritime and legal expenses decreased $375,357, or
5.6% primarily as a result of allocating departmental salaries to the Big Easy.

     General and  administration  expenses  increased $20,275 from $3,738,114 in
Fiscal 2004 to $3,758,389 in Fiscal 2005. During Fiscal 2005 the Company accrued
bonuses of only  $12,260 as  compared  to bonus  accrued  during  Fiscal 2004 of
$453,976.  Bonuses  were not accrued  this year because of steps taken to reduce
expenses and payment of bonuses may be limited in the future due to covenants in
the PDS  Agreements.  The  decrease  in bonus  accrual was offset by a write off
taken in the fourth  quarter in the amount of $322,000  for  payments we made on
behalf of the day cruise casino operating companies for lobby efforts concerning
slot machines to be placed at racetracks  in  Miami-Dade  and Broward  counties.
After repeated  efforts of collection,  the Company  determined that the amounts
should be written off. The Company continues to pursue collection,  however, one
company is now in bankruptcy and another has threatened bankruptcy.

     Interest and finance expenses  increased $949,905 from $1,109,221 in Fiscal
2004 to  $2,059,126  in  Fiscal  2005 as a result  of the  interest  paid on the
capital  lease and the charter hire payments for the Palm Beach  Princess  which
was effective July 7, 2004 and subsequent  loans from PDS during Fiscal 2005. As
a result of the capital leases  arrangement  and loans,  the debt levels and the
rates of interest paid on our indebtedness are higher than the amount previously
owed to the Brennan Trustee.

     Depreciation and amortization  increased $1,254,374 from $722,714 in Fiscal
2004 to $1,977,088 in Fiscal 2005. As a result of the capital lease  arrangement
for the Palm Beach Princess the Company is recording  depreciation on the vessel
as compared to last year when the  Company  did not record  depreciation  on the
vessel because it operated the vessel under an operating lease.

     Income before income tax expense in Fiscal 2005 was  $4,073,806 as compared
to income before income tax of $6,557,033 for Fiscal 2004.

     The Palm  Beach  Princess  performs  fourteen  cruises  weekly,  that is, a
daytime  and an evening  cruise  each day.  Each  cruise is of five to six hours
duration.  During  each  cruise,  the  Palm  Beach  Princess  offers  a range of
amenities  and services to her  passengers,  including a full  casino,  sit-down
buffet dining, live musical shows, discotheque,  bars and lounges, swimming pool
and  sundecks.  The casino  occupies  15,000  square feet aboard the ship and is
equipped with approximately 400 slot machines, all major table games (blackjack,
dice,  roulette and poker),  and a sports wagering book.  During Fiscal 2005 the
ship  completed 699 cruises  compared to 702 cruises during the same period last
year.  During  Fiscal year 2005,  37 cruises  were  cancelled  due to  inclement
weather.  The  majority  of the  cancellations  occurred in the first and second
fiscal  quarters.  During  fiscal  2004 the  vessel was placed in wet dock for 6
days.  During the fiscal year ended June 30, 2005.  the vessel was not placed in
dry dock or wet dock.  The vessel was placed in dry dock for  approximately  one
week on October 17, 2005.



                                       37

<PAGE>


     The following is a  comparative  summary of income and expenses of the Palm
Beach Princess operation for the years ended June 30, 2005 and 2004:

                                            Years Ended
                                              June 30,
                                     --------------------------
            Description                 2005           2004            Change
                                     ----------    ------------    -----------
 Passenger Count                        273,964         274,266           (302)
 Number of Cruises                          699             702             (3)
 Average Number of Passengers
  per Cruise                                392             391              1
 Net Revenue per Passenger         $     118.09   $      118.87   $      (0.78)

 Operating Revenue:

     Gaming                        $ 27,350,154      27,528,631   $   (178,477)
     Fare                             7,946,897       7,860,536         86,361
     On Board                         4,038,149       3,666,320        371,829
     Less: Promotional Allowances
     Fare                            (4,947,767)     (4,709,354)      (238,413)
     On Board                        (2,034,403)     (1,744,737)      (289,666)
                                     ----------    ------------    -----------
     Net Operating Revenue           32,353,030      32,601,396       (248,366)
                                     ----------    ------------    -----------
 Operating Costs and Expenses:
     Gaming                           9,136,981       8,805,157        331,824
     Fare                             3,939,114       3,546,153        392,961
     On Board                           987,397         925,980         61,417
     Maritime and Legal Expenses      6,421,129       6,796,486       (375,357)
     General and Administrative
      Expenses                        3,758,389       3,738,114      3,720,275
     Interest and Financing Fees      2,059,126       1,109,221        949,905
     Professional Fees - Bankruptcy           0         400,538       (400,538)
     Depreciation and Amortization    1,977,088         722,714      1,254,374
                                     ----------    ------------    -----------
     Total Operating Costs and
      Expenses                       28,279,224      26,044,363      2,234,861
                                     ----------    ------------    -----------
            Income Before Income
              Tax Expense          $  4,073,806   $   6,557,033   $ (2,483,227)
                                     ==========    ============    ===========



Item 7A Quantitative and Qualitative Disclosures about Market Risk.

     Not Applicable

Item 8 Financial Statements and Supplemental Data.

                          INDEX TO FINANCIAL STATEMENTS


         Report of Registered Independent Public Accountants ........40
         Balance Sheets..............................................41
         Statements of Operations ...................................43
         Statements of Stockholders' Equity..........................44
         Statements of Cash Flow ....................................45



                                       38

<PAGE>

         REPORT OF REGISTERED 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 December 31,
2006  and  December  31,  2005  and  the  related  consolidated   statements  of
operations,  stockholders'  equity  and cash  flows for each of the three  years
ended  December  31,  2006,  June 30, 2005 and 2004 and for the six months ended
December  31,   2005.   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 standards of the Public Company
Accounting Oversight Board (United States). 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 December
31, 2006 and 2005 and the results of their  operations  and their cash flows for
the three years ended December 31, 2006,  June 30, 2005 and 2004 and for the six
months  ended  December  31, 2005 in  conformity  with U.S.  generally  accepted
accounting principles.

     As discussed in Note 1, International Thoroughbred Breeders, Inc. filed for
reorganization  under Chapter 11 of the Federal  Bankruptcy  Code on December 4,
2006. The accompanying financial statements do not purport to reflect or provide
for  the  consequences  of  the  bankruptcy  proceedings.  In  particular,  such
financial  statements do not purport to show (a) as to assets,  their realizable
value on a liquidation basis or their availability to satisfy  liabilities;  (b)
as to  pre-petition  liabilities,  the amounts that may be allowed for claims or
contingencies,  or the  status  and  priority  thereof;  (c)  as to  shareholder
accounts,  the effect of any changes that may be made in the  capitalization  of
International  Thoroughbred  Breeders,  Inc.  and  Subsidiaries;  or  (d)  as to
operations, the effect of any changes that may be made in its business.

     The accompanying  financial statements have been prepared assuming that the
Company will continue as a going concern.  As discussed in Note 1, the Company's
recurring   losses  from   operations,   negative   working   capital,   minimal
stockholders'  equity, and defaults under terms of its long-term debt agreements
raise  substantial  doubt  about its  ability to  continue  as a going  concern.
Management's  plans in regard to these matters are also described in Note 1. The
financial  statements  do not  include  adjustments  that might  result from the
outcome of this uncertainty.

                                             STOCKTON BATES, LLP



Philadelphia, Pennsylvania
April 16, 2007


                                       39

<PAGE>

                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                             (Debtor-in-Possession)

                           CONSOLIDATED BALANCE SHEETS
                        AS OF DECEMBER 31, 2006 AND 2005

                                     ASSETS

                                                             December 31,
                                                      --------------------------
                                                         2006           2005
                                                      ------------  ------------
 CURRENT ASSETS:

      Cash and Cash Equivalents                      $    871,236  $  1,846,239
      Accounts Receivable                                 335,500       218,087
      Prepaid Expenses                                  1,520,613     1,697,034
      Other Current Assets                                153,136       524,200
      Assets of Discontinued Operations                       436       401,672
                                                      ------------  ------------
           TOTAL CURRENT ASSETS                         2,880,921     4,687,232
                                                      ------------  ------------


 VESSELS & EQUIPMENT
      Vessel - Palm Beach Princess -
       under Capital Lease                             17,500,000    17,500,000
      Equipment                                         3,912,135     3,334,079
      Leasehold Improvements                              921,899       988,625
      Vessel - Big Easy - under Capital Lease -
       Not in Service                                  20,305,348    20,305,348
      Vessel Not Placed in Service - Royal Star         3,054,735     3,007,216
                                                      ------------  ------------
                                                       45,694,117    45,135,268
      LESS: Accumulated Depreciation and Amortization   6,562,315     4,024,434
                                                      ------------  ------------
           TOTAL VESSELS & EQUIPMENT - NET             39,131,802    41,110,834
                                                      ------------  ------------


 OTHER ASSETS:
      Notes Receivable                                  5,300,000    14,278,651
      Vessel Deposits - Related Parties                 9,733,136     9,726,377
      Deposits and Other Assets - Related Parties       2,978,340     4,541,125
      Deposits and Other Assets - Non-Related Parties     993,191     1,734,756
      Spare Parts Inventory                             1,018,332     1,032,603
                                                      ------------  ------------
           TOTAL OTHER ASSETS                          20,022,999    31,313,512
                                                      ------------  ------------


 TOTAL ASSETS                                        $ 62,035,722  $ 77,111,578
                                                      ============  ============

 See Notes to Consolidated Financial Statements.


                                       40
<PAGE>


                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                             (Debtor-in-Possession)

                           CONSOLIDATED BALANCE SHEETS
                        AS OF DECEMBER 31, 2006 AND 2005

                      LIABILITIES AND STOCKHOLDERS' EQUITY


                                                             December 31,
                                                      --------------------------
                                                           2006          2005
                                                      ------------  ------------
 CURRENT LIABILITIES:
      Accounts Payable                               $    213,206  $  7,310,569
      Accrued Expenses                                  1,655,542     4,519,508
      Accrued Expenses -Bareboat  Charter -
       Related Party                                            -       129,425
      Short-Term Debt                                           -       859,057
      Notes Payable PDS - Current Portion                       -    29,530,379
      Deferred Interest - Short-Term                            -       510,423
      Short-Term Debt - Related Parties                         -       531,353
      Liabilities of Discontinued Operations              415,400       405,802
                                                      ------------  ------------
           TOTAL CURRENT LIABILITIES                    2,284,148    43,796,516
                                                      ------------  ------------

 LONG-TERM LIABILITIES:
      Accrued Expenses - Related Parties                  808,164       653,571
      Vessel Capital Lease Payable -
       Long Term Portion - Related Party                        -     3,500,000
      Long-Term Debt - Net of Current Portion                   -        93,108
      Deferred Interest - Long-Term                             -     1,239,609
                                                      ------------  ------------
           TOTAL LONG-TERM LIABILITIES                    808,164     5,486,288
                                                      ------------  ------------

 LIABILITIES SUBJECT TO COMPROMISE:
      Notes Payable PDS                                35,429,982             -
      Equipment Operating Lease Payable - PDS           2,125,530             -
      Notes Payable                                       888,639             -
      Accounts Payable & Accrued Expenses               9,592,895             -
      Vessel Capital Lease Payable -
       Long Term Portion - Related Party                3,500,000             -
      Deferred Interest                                 1,239,618             -
      Accrued Expenses - Bareboat Charter -
       Related Party                                    1,531,472             -
      Related Party Liabilities                           622,500             -
                                                      ------------  ------------
             TOTAL LIABILITIES SUBJECT TO COMPROMISE:  54,930,636             -
                                                      ------------  ------------

           TOTAL LIABILITIES                           58,022,948    49,282,804
                                                      ------------  ------------

 DEFERRED INCOME                                        1,487,726     1,559,388

 COMMITMENTS AND CONTINGENCIES                                  -             -

 STOCKHOLDERS' EQUITY:
      Series A Preferred Stock, $100 Par Value,
         Authorized 500,000 Shares, 362,844
         Issued and Outstanding                        36,284,375    36,284,375
      Series B Convertible Preferred Stock,
         $10 Par Value,
         Authorized 500,000 Shares, 500,000
         Issued and Outstanding                         5,000,000     5,000,000
      Common Stock, $2 Par Value, Authorized
        25,000,000 Shares,
        12,282,564,  Issued and Outstanding            24,565,125    24,565,125
      Capital in Excess of Par                         24,232,083    22,462,582
      (Deficit)                                       (87,098,997)  (61,585,158)
                                                      ------------  ------------
                                                        2,982,586    26,726,924
      LESS:
         Treasury Stock, 915,077 Shares                  (457,538)     (457,538)
                                                      ------------  ------------
           TOTAL STOCKHOLDERS' EQUITY                   2,525,048    26,269,386

 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY          $ 62,035,722  $ 77,111,578
                                                      ============  ============


 See Notes to Consolidated Financial Statements.


                                       41

<PAGE>

                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                             (Debtor-in-Possession)

                      CONSOLIDATED STATEMENTS OF OPERATIONS
 FOR THE YEAR ENDED DECEMBER 31, 2006 AND THE SIX MONTHS ENDED DECEMBER 31, 2005
                 AND FOR THE YEARS ENDED JUNE 30, 2005 AND 2004
<TABLE>
                                                                             Six Months Ended
                                                            December 31,        December 31,                 June 30,
                                                          ---------------     ---------------   ---------------------------------
                                                                2006               2005               2005              2004
                                                          ---------------     ---------------   ---------------   ---------------
<CAPTION>
<S>                                                      <C>               <C>                <C>               <C>
 OPERATING REVENUES:
      Gaming                                             $    26,302,571   $      11,579,979  $     27,350,154  $     27,528,631
      Fare                                                     2,508,097           1,177,442         2,999,130         3,151,182
      On Board                                                 1,697,321             936,131         2,003,746         1,921,583
      Other                                                      447,573             283,098           420,217           360,843
                                                          ---------------     ---------------   ---------------   ---------------
                     NET OPERATING REVENUES                   30,955,562          13,976,650        32,773,247        32,962,239
                                                          ---------------     ---------------   ---------------   ---------------

 OPERATING COSTS AND EXPENSES:
      Gaming                                                   9,660,123           5,181,569         9,136,981         8,805,157
      Fare                                                     2,794,756           1,815,181         4,310,927         3,868,705
      On Board                                                   825,128             502,065           987,397           925,980
      Maritime & Legal Expenses                                7,737,551           4,671,882         6,421,129         6,796,486
      General & Administrative Expenses                        2,970,090           2,407,295         3,007,640         3,722,984
      General & Administrative Expenses - Parent               2,015,553           1,131,014         1,976,507         1,655,378
      Ship Carrying/Development Costs - Big Easy               3,148,782           2,830,532         5,011,756                 -
      Ship Carrying Costs - Royal Star                           601,599             261,675           284,257                 -
      Development Costs - Other                                  390,910             582,157           970,836           700,580
      Equine Costs                                                     -             637,486           447,989                 -
      Depreciation & Amortization                              2,869,513           1,503,906         1,994,507           739,871
      Loss on Impairment of Assets                            11,613,976                   -           500,000        10,000,000
      Bankruptcy Costs                                           191,485                   -                 -           417,454
                                                          ---------------     ---------------   ---------------   ---------------
                     TOTAL OPERATING COSTS AND EXPENSES       44,819,465          21,524,762        35,049,926        37,632,595
                                                          ---------------     ---------------   ---------------   ---------------

 OPERATING (LOSS)                                            (13,863,903)         (7,548,112)       (2,276,679)       (4,670,356)
                                                          ---------------     ---------------   ---------------   ---------------

 OTHER INCOME (EXPENSE):
      Interest and Financing Expenses                         (7,931,843)         (4,104,444)       (2,518,214)       (2,232,119)
      Interest and Financing Expenses - Related Party         (2,182,257)           (645,418)       (1,327,674)          (15,873)
      Cost of Warrants Granted for Financing                  (1,828,287)            (86,590)                -                 -
      Interest Income                                                 54               7,687            11,988            79,320
      Interest Income Related Parties                            292,397             143,892           292,583           247,785
      Other Income                                                     -                   -             7,961            19,713
                                                          ---------------     ---------------   ---------------   ---------------
                     TOTAL OTHER INCOME (EXPENSE)            (11,649,936)         (4,684,873)       (3,533,356)       (1,901,174)
                                                          ---------------     ---------------   ---------------   ---------------

 (LOSS) BEFORE TAX PROVISION
 AND EXTRAORDINARY ITEM                                      (25,513,839)        (12,232,985)       (5,810,035)       (6,571,530)
       Income Tax Expense                                              -                   -            90,000           228,500
                                                          ---------------     ---------------   ---------------   ---------------

 (LOSS) BEFORE EXTRAORDINARY ITEM                            (25,513,839)        (12,232,985)       (5,900,035)       (6,800,030)

 EXTRAORDINARY ITEM -  Fees charged to related
      parties for Master Settlement Agreement.                         -                   -         4,000,000                 -
                                                          ---------------     ---------------   ---------------   ---------------
 NET (LOSS)                                              $   (25,513,839)  $     (12,232,985) $     (1,900,035) $     (6,800,030)
                                                          ===============     ===============   ===============   ===============

 BASIC AND DILUTED INCOME (LOSS) PER COMMON SHARE:
      (Loss) before Extroardinary Item                   $         (2.24)  $           (1.16) $          (0.57) $          (0.86)
      Extraordinary Item                                               -                   -              0.39                 -
                                                          ---------------     ---------------   ---------------   ---------------
      Net (Loss)                                         $         (2.24)  $           (1.16) $          (0.18) $          (0.86)
                                                          ===============     ===============   ===============   ===============

 WEIGHTED AVERAGE COMMON
    SHARES OUTSTANDING - Basic and Diluted                    11,367,487          10,567,487        10,303,942         7,933,691
                                                          ===============     ===============   ===============   ===============
</TABLE>

 See Notes to Consolidated Financial Statements.

                                       42
<PAGE>
                    INTERNATIONAL THOROUGHBRED BREEDERS, INC
                                AND SUBSIDIARIES

                             (Debtor-in-Possession)

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

FOR THE YEAR ENDED DECEMBER 31, 2006 AND THE SIX MONTHS ENDED DECEMBER 31, 2005
                 AND FOR THE YEARS ENDED JUNE 30, 2005 AND 2004

<TABLE>
                                                                         Series A              Series B Convertible
                                                                         Preferred                  Preferred
                                                                   -----------------------   ------------------------
                                                                   Number of                  Number of
                                                                   Shares        Amount       Shares        Amount
                                                                   ---------  ------------   ----------  ------------
<CAPTION>
<S>                                                                 <C>     <C>                <C>     <C>
BALANCE - JUNE 30, 2003                                             362,489 $  36,248,875            - $           -

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          -             -            -             -
Amortization of Deferred Compensation Costs                               -             -            -             -
Net (Loss) for the Year Ended June 30, 2004                               -             -            -             -

                                                                   ---------  ------------   ----------  ------------
BALANCE - JUNE 30, 2004                                             362,489    36,248,875            -             -

   Shares Issued for Fractional Exchanges With Respect to the
      One-for-twenty Reverse Stock Split effected on March 13, 1992     355        35,500            -             -
   Shares Issued for Options Exercised                                    -             -            -             -
   Options Issued at Less than Treasury Stock Cost                        -             -            -             -
   Cost of New Stock to be Issued                                         -             -            -             -
   Amortization of Deferred Compensation Costs                            -             -            -             -
Net (Loss) for the Year Ended June 30, 2005                               -             -            -             -

                                                                   ---------  ------------   ----------  ------------
BALANCE - JUNE 30, 2005                                             362,844    36,284,375            -             -

   Series B Convertible Shares Issued                                     -             -      500,000     5,000,000
   Common Shares Issued                                                   -             -            -             -
   Options Issued at Less than Treasury Stock Cost                        -             -            -             -
   Cost of New Stock to be Issued                                         -             -            -             -
   Amortization of Deferred Compensation Costs                            -             -            -             -
Net (Loss) for the Six Months Ended December 31, 2005                     -             -            -             -

                                                                   ---------  ------------   ----------  ------------
BALANCE - DECEMBER 31, 2005                                         362,844    36,284,375      500,000     5,000,000

   Warrants Issued as Compensation                                        -             -            -             -
Net (Loss) for the Year Ended December 31, 2006                           -             -            -             -

                                                                   ---------  ------------   ----------  ------------
BALANCE - DECEMBER 31, 2006                                         362,844 $  36,284,375      500,000 $   5,000,000
                                                                   =========  ============   ==========  ============
</TABLE>

<TABLE>
                                                                               Common
                                                                   -------------------------------
                                                                   Number of
                                                                   Shares               Amount
                                                                   -------------    --------------
<CAPTION>
<S>                                                                  <C>          <C>
BALANCE - JUNE 30, 2003                                              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                                              11,480,279        22,960,557

   Shares Issued for Fractional Exchanges With Respect to the
      One-for-twenty Reverse Stock Split effected on March 13, 1992       2,285             4,568
   Shares Issued for Options Exercised                                        -                 -
   Options Issued at Less than Treasury Stock Cost                            -                 -
   Cost of New Stock to be Issued                                             -                 -
   Amortization of Deferred Compensation Costs                                -                 -
Net (Loss) for the Year Ended June 30, 2005                                   -                 -

                                                                   -------------    --------------
BALANCE - JUNE 30, 2005                                              11,482,564        22,965,125

   Series B Convertible Shares Issued                                         -                 -
   Common Shares Issued                                                 800,000         1,600,000
   Options Issued at Less than Treasury Stock Cost                            -                 -
   Cost of New Stock to be Issued                                             -                 -
   Amortization of Deferred Compensation Costs                                -                 -
Net (Loss) for the Six Months Ended December 31, 2005                         -                 -

                                                                   -------------    --------------
BALANCE - DECEMBER 31, 2005                                          12,282,564        24,565,125

   Warrants Issued as Compensation                                            -                 -
Net (Loss) for the Year Ended December 31, 2006                               -                 -

                                                                   -------------    --------------
BALANCE - DECEMBER 31, 2006                                          12,282,564   $    24,565,125
                                                                   =============    ==============
</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, 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

   Shares Issued for Fractional Exchanges With Respect to the
      One-for-twenty Reverse Stock Split effected on March 13, 1992    (40,068)             -            -           -            -
   Shares Issued for Options Exercised                                       -              -      919,035           -      919,035
   Options Issued at Less than Treasury Stock Cost                           -       (462,500)     462,500           -            -
   Cost of New Stock to be Issued                                      (39,586)             -            -           -      (39,586)
   Amortization of Deferred Compensation Costs                               -              -            -       5,000        5,000
Net (Loss) for the Year Ended June 30, 2005                                  -     (1,900,035)           -           -   (1,900,035)

                                                                   ------------   ------------  -----------  ---------- ------------
BALANCE - JUNE 30, 2005                                             20,112,328    (49,352,173)    (457,538)     (1,666)  29,550,451

   Series B Convertible Shares Issued                                2,263,664              -            -           -    7,263,664
   Common Shares Issued                                                      -              -            -           -    1,600,000
   Options Issued at Less than Treasury Stock Cost                      86,590              -            -           -       86,590
   Cost of New Stock to be Issued                                            -              -            -           -            -
   Amortization of Deferred Compensation Costs                               -              -            -       1,666        1,666
Net (Loss) for the Six Months Ended December 31, 2005                        -    (12,232,985)           -           -  (12,232,985)

                                                                   ------------   ------------  -----------  ---------- ------------
BALANCE - DECEMBER 31, 2005                                         22,462,582    (61,585,158)    (457,538)          -   26,269,386

   Warrants Issued as Compensation                                   1,769,501              -            -           -    1,769,501
Net (Loss) for the Year Ended December 31, 2006                              -    (25,513,839)           -           -  (25,513,839

                                                                   ------------   ------------  -----------  ---------- ------------
BALANCE - DECEMBER 31, 2006                                       $ 24,232,083   $(87,098,997) $  (457,538) $        - $  2,525,048
                                                                   ============   ============  ===========  ========== ============
</TABLE>


See Notes to Consolidated Financial Statements.

                                       43
<PAGE>

                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.
                                AND SUBSIDIARIES

                             (Debtor-in-Possession)

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
 FOR THE YEAR ENDED DECEMBER 31, 2006 AND THE SIX MONTHS ENDED DECEMBER 31, 2005
                 AND FOR THE YEARS ENDED JUNE 30, 2005 AND 2004

<TABLE>
                                                                                     Six Months Ended
                                                                        December 31,   December 31,          June 30,
                                                                        ------------   ------------  --------------------------
                                                                           2006            2005           2005          2004
                                                                        ------------   ------------  ------------   -----------
<CAPTION>
<S>                                                                    <C>            <C>           <C>           <C>
 CASH FLOWS FROM OPERATING ACTIVITIES:

      (LOSS) BEFORE DISCONTINUED OPERATIONS                            $(25,513,839)  $(12,232,985) $ (1,900,035) $ (6,800,030)
      Adjustments to reconcile income (loss) to net cash (used in)
          provided by operating activities:
                     Depreciation and Amortization                        2,869,513      1,503,906     1,994,507       739,871
                     Compensation for Options Granted                             -         86,590             -             -
                     Stock Issued for Payment of Expenses                         -      1,600,000             -             -
                     Expense of Options/Warrants Granted                  1,828,287              -             -             -
                     Interest Added to Capital Lease Debt - PDS           5,560,140              -             -             -
                     Impairment of Assets                                   400,000              -             -             -
                     Impairment of Note                                  11,213,976              -       500,000    10,000,000
                     Increase (Decrease) in Deferred Income                 (71,662)       (35,832)      155,269             -
                     Changes in Operating Assets and Liabilities -
                        (Increase) Decrease in Accounts Receivable         (117,413)     1,660,998    (1,655,672)      (29,720)
                        (Increase) Decrease in Other Assets                 371,064        (80,717)     (289,856)      337,454
                        (Increase) Decrease in Prepaid Expenses             176,421       (304,719)     (653,812)      (26,088)
                        Increase (Decrease) in Accounts Payable and
                          Accrued Expenses                                3,221,501      3,743,544     5,124,345    (1,331,785)
                                                                        ------------   ------------  ------------   -----------
      CASH (USED IN) OPERATING ACTIVITIES BEFORE
         DISCONTINUED OPERATIONS                                            (62,012)    (4,059,215)     (725,254)    2,889,702
      CASH PROVIDED BY DISCONTINUED OPERATING ACTIVITIES                      9,600          4,801        90,202         9,600
                                                                        ------------   ------------  ------------   -----------
      NET CASH (USED IN) OPERATING ACTIVITIES                               (52,412)    (4,054,415)     (635,052)    2,899,302
                                                                        ------------   ------------  ------------   -----------

 CASH FLOWS FROM INVESTING ACTIVITIES:
     Purchase and Improvements of Big Easy - Related Party                        -              -   (13,248,786)            -
     Purchase and Improvements of Royal Star                                      -        (36,075)   (1,649,647)   (1,321,494)
     Security Deposit on New Bare Boat Charter - Related Party PBMC               -              -             -      (880,782)
     Refunds and (Deposits) on Purchase of  Vessels                               -              -             -       300,000
     Purchase Options in Big Easy - Related Party                                 -              -    (2,973,575)            -
     Note Receivable Collected - Related Party                                    -              -     2,600,749             -
     Note Receivable Collected - Related Party                                    -              -     1,128,268             -
     Advances -  Related Party                                                    -       (157,881)            -             -
     Livestock Expenditures                                                       -              -      (328,247)            -
     Capital Expenditures                                                  (506,185)      (202,173)     (905,980)     (925,346)
     (Increase) Decrease in Other Investment Activity                          (336)      (426,922)     (435,787)      (99,735)
     (Increase) in Other Investment Activity - Related Party                      -              -             -      (712,362)
                                                                        ------------   ------------  ------------   -----------
      NET CASH (USED IN) INVESTING ACTIVITIES                              (506,521)      (823,051)  (15,813,005)   (3,639,719)
                                                                        ------------   ------------  ------------   -----------

 CASH FLOWS FROM FINANCING ACTIVITIES:
     Funds Received from PDS Notes & Other Lenders                          100,000        700,000    10,829,417             -
     Proceeds from Sale of Series B Preferred Stock                               -      4,425,500             -             -
     Fees Paid on Sale of Series B Preferred Stock                                -       (328,850)            -             -
     Funds Received on Refinance of Note                                          -              -     2,651,558             -
     Proceeds from Related Party Loans                                            -              -             -     7,800,000
     Principal Payment on Stock Purchase Note                                     -              -    (1,120,240)            -
     Advances (Paid) Received (to) From Related Parties                     387,640      1,310,169    (1,241,669)            -
     Principal Payments on Short Term Notes                                (505,935)       (11,597)     (240,960)   (5,099,519)
     Principal Payments on Long Term Notes                                  (99,346)      (247,214)     (733,385)            -
     Principal Payments on Capital Leases                                         -       (120,542)            -             -
     Principal Payments on Long Term Debt - Related Parties                (300,000)             -             -      (574,022)
     Decrease in Balances Due to/from Discontinued Subsidiaries              10,836          4,875        89,290         8,550
                                                                        ------------   ------------  ------------   -----------
      CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES
        BEFORE DISCONTINUED FINANCING ACTIVITIES                           (406,805)     5,732,341    10,234,011     2,135,009
      CASH (USED IN) DISCONTINUED FINANCING ACTIVITIES                      (10,836)        (4,875)      (89,290)       (8,550)
                                                                        ------------   ------------  ------------   -----------
      NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES                  (417,641)     5,727,466    10,144,721     2,126,459
                                                                        ------------   ------------  ------------   -----------

 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                      (976,574)       850,001    (6,303,336)    1,386,042
           LESS CASH AND CASH EQUIVALENTS  FROM
             DISCONTINUED OPERATIONS                                          1,572             74          (912)       (1,050)
      CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD                1,846,239      1,204,384     7,508,632     6,123,641
                                                                        ------------   ------------  ------------   -----------

      CASH AND CASH EQUIVALENTS AT END OF THE PERIOD                   $    871,237   $  2,054,459  $  1,204,384  $  7,508,633
                                                                        ============   ============  ============   ===========

      Supplemental Disclosures of Cash Flow Information:
                     Cash paid during the period for:
                     Interest                                          $     47,257   $  2,280,793  $  6,325,962  $  1,440,262
                     Income Taxes                                      $          -   $          -  $          -  $    256,517
</TABLE>
Supplemental Schedule of Non-Cash Investing and Financing Activities:
During the Year Ended December 31, 2006, the PDS interest expense for the
period in the amount of $5,560,140 added to the principal balance of the
respective leases.

 See Notes to Consolidated Financial Statements.

                                       44
<PAGE>

                    INTERNATIONAL THOROUGHBRED BREEDERS,INC
                                AND SUBSIDIARIES

                             (DEBTOR-IN-POSSESSION)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)  CHAPTER 11 FILING, AND BASIS OF PRESENTATION

     Between  December 4, 2006 and December 7, 2006,  the Company and six of its
subsidiaries, herein referred to as the Debtors, along with four companies owned
or  controlled  by our  principal  stockholder  and  Chairman of the Board filed
voluntary  petitions for reorganization  under Chapter 11 of the U.S. Bankruptcy
Code in the U.S.  Bankruptcy  Court for the Southern  District of Florida  (Palm
Beach Division) (the "Chapter 11 Cases").  These cases were consolidated for the
purpose of joint administration and were assigned case number  06-16350-BKC-PGH.
We  filed  the  Chapter  11  Case  because  we  were  experiencing  difficulties
generating   sufficient   cash  flow  from  operations  to  meet  our  financial
obligations  under the  Promissory  Notes and  equipment  leases with PDS Gaming
Corporation after expiration of the Forbearance Agreements.

     Under   Chapter  11,  the  Company  is  operating   its   businesses  as  a
debtor-in-possession   ("DIP")  under  court   protection   from  creditors  and
claimants.  Since the  Chapter 11 filing,  all orders  sufficient  to enable the
Company  to  conduct  normal  business  activities,  have  been  entered  by the
Bankruptcy  Court.  While the Company is subject to Chapter 11, all transactions
not in the  ordinary  course  of  business  require  the prior  approval  of the
Bankruptcy Court.

     As a consequence of the Chapter 11 filing,  pending  litigation against the
Company is  generally  stayed,  and no party may take any action to collect  its
pre-petition  claims except pursuant to order of the Bankruptcy Court. April 18,
2007 was the last date by which  holders of pre-filing  date claims  against the
Debtors could file such claims.  Any holder of a claim that was required to file
such claim and did not do so may be barred from asserting such claim against the
Debtors and, accordingly,  may not be able to participate in any distribution on
account of such claim.  Differences  between  claim  amounts  identified  by the
Debtors and claims  filed by  claimants  will be  investigated  and  resolved in
connection  with the Debtors'  claims  resolution  process,  and only holders of
claims  that are  ultimately  allowed  for  purposes  of Chapter 11 case will be
entitled to distribution.  The Company has not yet completed its analysis of all
the proofs of claim. Since the treatment,  including payment,  of allowed claims
is subject to a confirmed plan of reorganization, the ultimate distribution with
respect to allowed claims is not presently ascertainable.

     Although we filed a timely  motion to extend the  exclusive  period for the
Debtors to file a plan(s) of  reorganization,  our largest secured  lender,  PDS
Gaming  Corporation,  filed a motion on April 11, 2006 objecting to the proposed
extension. If the exclusivity period in not extended, other parties in interest,
including the Creditor's Committee,  the secured lender or other creditors could
file a plan of reorganization.

     We  anticipate  receiving a commitment  for a secured loan from a financial
institution in order to fund the majority of the proceeds  necessary to create a
new  special  purpose  subsidiary  to own and  operate  the Palm Beach  Princess
business.  We anticipate that the commitment will be subject to bankruptcy court
approval,   an  additional   equity  infusion  from  us  or  a  third-party  and
satisfactory loan documentation. Proceeds from the financing will be used to pay
existing  creditors  and  provide  working  capital to the Palm  Beach  Princess
business.

     We are in the process of  negotiating  a series of  transactions  that will
allow  for the  redeployment  of the  Big  Easy to a  foreign  jurisdiction.  We
anticipate  receiving  a  term  sheet  for  a  secured  loan  from  a  financial
institution  in order to fund a  portion  of the  proceeds  necessary  to fund a
special purpose affiliate of the company to own and operate the Big Easy in this
foreign  location.  We  anticipate  that the term  sheet  will be  subject to an
additional  equity  investment  from a  third-party,  successful  negotiation of
operating  agreements  and  satisfactory  loan  documentation.  Closing  of  the
transactions  will also be subject to bankruptcy  court approval.  Proceeds from
the  transaction  will be used to pay  existing  creditors  and provide  working
capital,  including  funding start up and relocation  expenses,  to the Big Easy
business.  No  assurances  can be  given  that we will be  successful  in  these
negotiations

     The  consolidated  financial  statements  have  been  prepared  on a "going
concern" basis  accordance  with GAAP. The "going concern" basis of presentation
assumes that we will continue in operation for the  foreseeable  future and will
be able to realize our assets and discharge our liabilities in the normal course
of business. Because of the Chapter 11 case and the circumstances leading to the
filing  thereof,  our  ability to  continue  as a "going  concern" is subject to
substantial  doubt and is dependent upon, among other things,  confirmation of a
plan of  reorganization,  our  ability  to  comply  with  the  terms  of the DIP
Facility,  and our ability to generate  sufficient  cash flows from  operations,
asset sales and financing arrangements to meet our obligations.  There can be no
assurance  that this can be  accomplished  and if it were not,  our  ability  to
realize the carrying value of our assets and discharge our liabilities  would be
subject to substantial uncertainty. Therefore, if the "going concern" basis were
not used for the Financial  Statements,  then significant  adjustments  could be
necessary  to the  carrying  value of assets and  liabilities,  the revenues and
expenses reported, and the balance sheet classifications used.

     Beginning  in the  fourth  quarter  of  2006,  the  consolidated  financial
statements  have been  prepared in  accordance  with the  American  Institute of
Certified Accountants' Statement of Position (SOP) 90-7, "Financial Reporting by
Entities in  Reorganization  Under the  Bankruptcy  Code" and on a going concern
basis, which contemplates  continuity of operations,  realization of assets, and
liquidation of liabilities  in the ordinary  course of business.  As a result of
our Chapter 11 filing,  the realization of assets and liquidation of liabilities
are subject to uncertainty.  Under SOP 90-7, certain liabilities  existing prior
to the Chapter 11 filing are classified as Liabilities

                                       45
<PAGE>

Subject  to  Compromise  on  the  Consolidated  Balance  Sheets.   Additionally,
professional fees and expenses directly related to the Chapter 11 proceeding are
reported separately as reorganization items.

(2)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     (A) Nature of Operations -  International  Thoroughbred  Breeders,  Inc., a
Delaware corporation ("ITB" and together with its subsidiaries,  the "Company"),
was incorporated on October 31, 1980. Its principal  operating  subsidiary,  ITG
Vegas,  Inc. ("ITG Vegas") is currently  engaged in an entertainment  cruise and
casino  ship  business  under a  bareboat  charter  of the vessel M/V Palm Beach
Princess (the "Palm Beach Princess").  The Palm Beach Princess performs fourteen
cruises weekly from the Port of Palm Beach,  Florida,  that is, a daytime and an
evening  cruise each day. Each cruise is of five to six hours  duration.  During
each cruise, the Palm Beach Princess offers a range of amenities and services to
her passengers,  including a full casino,  sit-down buffet dining,  live musical
shows,  bars and  lounges,  swimming  pool and  sundecks.  The  casino  occupies
approximately   15,000  square  feet  aboard  the  ship  and  is  equipped  with
approximately 425 slot machines, 24 table games, including blackjack,  craps and
roulette, 5 poker tables, and a sports wagering book.

     Using the funding provided by the PDS Transactions (see Note 3) and working
capital,  our  subsidiary,  ITG  Palm  Beach,  LLC,  began  making  alterations,
retrofits and  improvements to a second vessel,  the Big Easy, to prepare it for
use as a casino cruise ship.  After numerous  delays caused by start up problems
and hurricane  Wilma, we began limited regular  passenger  service also from the
Port of Palm  Beach,  Florida on  November  12,  2005.  On  February  1, 2006 we
indefinitely  suspended operations of the Big Easy after two and one half months
of  operations  because the Coast  Guard  removed the  vessel's  Certificate  of
Inspection until the installation of an insulating  bulkhead was completed.  The
February 1, 2006 Coast  Guard  decision  was the last in a series of  unforeseen
business  circumstances which limited  management's ability to introduce the Big
Easy to the market and necessitated the suspension of Big Easy commercial cruise
operations indefinitely.

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

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

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

     (E) Accounting  Periods - During the six months ended December 31, 2005 the
Company  changed  its year end period from a June 30th year end to a December 31
year end. Therefore,  the period ended December 31, 2005 was a transition period
of six months. The period ending December 31, 2006 is for a twelve month period.
The subsidiaries which operate the Palm Beach Princess and operated the Big Easy
until February 1, 2006 end their quarterly accounting periods on the last Sunday
of each quarter. These end of the week cut offs create more comparability of the
Company's  operations,  by  generally  having an equal  number of weeks (13) and
week-end days in each quarter.  From time to time an additional week is included
our  accounting  period due to this April 4, 2005 week  quarter.  The year ended
December 31, 2006 consists of 52 weekly accounting periods.

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

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

     (H)  Depreciation and Amortization - Depreciation of property and equipment
were computed by the  straight-line  method at rates  adequate to allocate their
cost or  adjusted  fair  value  in  accordance  with U.  S.  generally  accepted
accounting   principles  over  the  estimated  remaining  useful  lives  of  the
respective assets.  Amortization  expense includes the write off of major vessel
repairs and  maintenance  work completed at dry dock period.  These expenses are
written off during a two year period following the dry dock period. For the year
ended  December  31,  2006 and 2005,  the  amortized  expense was  $329,766  and
$193,652.

     As a result of the PDS  transactions  (see  Footnote  3) we are leasing the
vessel  M/V  Palm  Beach   Princess  and  the  Big  Easy  under   capital  lease
arrangements.  The Company began depreciating the M/V Palm Beach Princess during
our  previous  fiscal year end of June 30, 2005 and began  depreciating  the Big
Easy when it was placed in service on October 18,  2005.  As a result of the Big
Easy being removed from service  during the quarter ended March 31, 2006 and the
unlikelihood  that the vessel  will be  returned  to  service  in the  immediate
future, we suspended depreciating the vessel.

                                       46
<PAGE>

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

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

     (J) Recent Accounting Pronouncements

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

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

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

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

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

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

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

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

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

(3)  PDS TRANSACTIONS

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

     (A) On July 7, 2004 PBMC and its  affiliate  company,  PBE, the Company and
our  subsidiaries  ITG Vegas and ITG Palm  Beach,  LLC  closed on a $23  million
transaction  with PDS which was  re-financed on June 30, 2005.  Additionally  on
July 7, 2004, ITG Vegas and ITG Palm Beach entered into a Master Lease, together
with three Lease Schedules (the "Gaming Equipment Lease"),  to lease certain new
and used gaming equipment from PDS for use on the two vessels.  A portion of the
equipment  was  previously  owned and used by ITG Vegas on the  Princess and was
sold to PDS at Closing,  for $500,000 and then leased back  pursuant to a Gaming
Master Lease.  Each Schedule of the Gaming  Equipment  Lease had a term of three
years.  ITG Vegas and ITG Palm  Beach  have an option  to  purchase  the  leased
equipment  at the end of the term for a purchase  price equal to the fair market
value of the equipment at such time.

     (B)  On  January  5,  2005,  Royal  Star  Entertainment,   LLC  ("RSE"),  a
wholly-owned  indirect subsidiary of ITB, borrowed $2,850,000 from PDS which was
refinanced on June 30, 2005. Also at the closing,  RSE entered into an equipment
lease with PDS  providing for the lease by RSE of slot machines to be located on
the  vessel  Royal  Star.  The term of the Lease was three  years,  with  rental
payments of $11,879 per month for the first four months and  $95,351.73  for the
next  thirty-two  months.  RSE paid a closing fee of $57,020.74,  and a security
deposit in the amount of  $95,351.73.  In January 2007 the gaming  equipment was
returned and the lease was cancelled.

     (C) On June 30, 2005,  the Company,  together  with its  subsidiaries,  ITG
Vegas, Inc. ("ITGV"), ITG Palm Beach, LLC ("ITGPB"),  International Thoroughbred
Gaming Development  Corporation  ("ITGDC") and Riviera Beach Entertainment,  LLC
("RBE")  and Royal Star  Entertainment,  LLC  ("RSE"),  entered  into a Loan and
Security  Agreement with PDS as lender,  pursuant to which ITGV, ITGDC, RBE, RSE
and ITGPB (collectively, the "Borrowers"), borrowed $29,313,889 to refinance the
approximately  $27 million in existing debts (whether in the form of loans, ship
leases or ship  charters)  to PDS,  with  approximately  $2.3  million of add-on
financing being provided.  The maturity of all of the new indebtedness was to be
July 1, 2009. Our overall annual interest rate on the new PDS loan was to be 17%
until ITG Vegas'  EBITDA  exceeds $17 million on an annualized  basis,  at which
time the interest rate would have been 15.5%.  Funding was completed on July 18,
2005 following the satisfaction of certain conditions,  including the execution,
delivery and recording of ship mortgages and all other closing documents.

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


     Effective  August 1, 2005 monthly  interest  and  principal  payments  were
scheduled to be due in the amount of approximately $1,100,000 during the first 2
years,  with the remaining  monthly payments  decreasing  slightly.  We made the
first monthly payment in August 2005 and then began deferring principal payments
which was permitted in accordance  to the loan  documents.  The terms of the new
loan  required  the Company to  maintain an EBITDA of $7.5  million for the nine
months  ending  October 2, 2005,  $10.5  million  for the twelve  months  ending
January 1, 2006,  increasing to $12 million for the twelve months ending October
1, 2006.  If these levels were not  maintained  or if we were not in  compliance
with other various loan covenants we would be in default of the loan.

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

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

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

     (D) December 2005 Transactions

     In December  2005,  the Company  borrowed from and issued a note payable in
the amount of $541,102 to PDS Gaming in order to cover our required debt service
interest payment on December 10, 2005.

     (E) Forbearance Agreements

     We entered into two consecutive  forbearance  agreements which subsequently
expired on August 29, 2006 after which we were not able to make our monthly loan
and lease payments nor were we able to consummate any  transactions to refinance
or reduce our indebtedness as contemplated under the forbearance agreement.

     (F) Default Notice from PDS Gaming Corporation.

     On October 3, 2006, the parties to the PDS leases  received notice from PDS
that it has accelerated the maturity of our obligations and declared all amounts
remaining  unpaid under the Loan Agreement and the Note dated June 30, 2005, and
all amounts  payable under our  equipment  leases with PDS  immediately  due and
payable.

     We did not have the means to satisfy the creditor's demands and on December
4 and 7, 2006 the parties to the PDS financing filed petition for reorganization
under Chapter 11 of the U.S.  Bankruptcy  Code.  PDS has indicated by way of its
proof of claim  filed with the  Bankruptcy  Court  that they  believe to be owed
amounts in excess of what we have  recorded.  We do not believe that the penalty
interest is enforceable under a bankruptcy filing.

(4)  DESCRIPTION OF LEASING ARRANGEMENTS

     The Company and  several of its  subsidiaries  have  entered  into  charter
transactions  for two vessels and lease  transactions  for  equipment  placed on
three vessels.

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

     We also charter the Big Easy and lease gaming equipment aboard that vessel.
As a result of the June 30, 2005 PDS  transaction  and the Amended and  Restated
Bareboat  Charter  and Option to  Pruchase  Agreement  with Cruise II, a company
controlled by Francis W. Murray, we have accounted for the Big Easy charter as a
capital  lease.  Principal  payments on the Big Easy  portion of the PDS loan of
$12.6 million will reduce the capital lease purchase  liability and the interest
portion of each monthly payment will be expensed.  The transaction  described in
note 3 also permits the Company to purchase the Big Easy for the appraised value
of the vessel which shall be determined  upon the refitting and  refurbishing of
the vessel. The Company has determined the value of the Big Easy by capitalizing
the total of: 1) the costs it had incurred for  improvements  it had made to the
Big Easy; and 2) the present value of the payments required under the PDS Gaming
loans on the date we recorded the capital lease.

     The transaction  described in Note 3 included a lease for gaming  equipment
aboard the vessel,  Royal Star. The gaming equipment lease will be accounted for
as an operating lease.

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


     Vessel, Palm Beach Princess                       $      17,500,000
     Vessel, Big Easy                                         20,305,348
                                                       -----------------
      Less: allowance for depreciation                        (3,284,410)
                                                       -----------------
     Capital Leases                                    $      34,520,938
                                                       =================

     The  following is a schedule of capital lease  liabilities  due at December
31, 2006:

                                                   December 31, 2006
                                      -----------------------------------------
Vessel                                  Short-Term    Long-Term       Total
---------------------------------     -------------  ------------  ------------
Palm Beach Princess                   $  16,367,756             -  $ 16,367,756
Big Easy                                 15,113,357             -    15,113,357
Royal Star                                3,335,039             -     3,335,039
                                      -------------  ------------  ------------
Amount due to PDS for vessels            34,816,152             -    34,816,152
Less: Royal Star Note shown in
 Notes Payable (See Note 10)             (3,335,039)            -   (3,335,039)
Fair Market Valuation -
 Palm Beach Princess                              -     3,500,000     3,500,000
                                      -------------  ------------  ------------
Total Short and Long Term Vessel
 Leases Payable                       $  31,481,113  $  3,500,000  $ 34,981,113
                                      =============  ============  ============

(5)  SERIES B PREFERRED STOCK

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

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

     The Series B Preferred  Stock will  automatically  be converted into common
stock upon the effective  date of a Registration  Statement  covering the common
shares issuable upon conversion which was filed with the Securities and Exchange
Commission on December 30, 2005. The initial conversion price is $2.00 per share
of common stock,  declining by $.02 for each full calendar quarter elapsing from
July 1, 2005 to the date on which the conversion  shall occur.  Upon conversion,
each share of Series B Preferred Stock will be converted into a number of shares
of common stock determined by dividing the subscription price, $15.00 per share,
by the conversion price then in effect. The Company will need to file an Amended
Form S-1 in the  future  and if the  registration  statement  becomes  effective
during the quarter ended December 31, 2008,  the conversion  price will be $1.82
and the outstanding  Series B Preferred Stock will be convertible into 4,032,258
shares of additional new common shares.

     During  the year  our net  loss was  increased  by a  non-cash  expense  of
$509,800 as the result of the  accounting  for the sale of Series B  convertible
preferred stock. This non-cash item, known as a "Beneficial Conversion Feature",
is the result of the  application  of the Emerging  Issues Task  Force's  (EITF)
Issues 98-5 and 00-27. The beneficial  conversion  feature was calculated as the
difference  between  the  effective  conversion  price and the fair value of the
common stock, multiplied by the estimated number of common shares into which the
security is convertible. Upon conversion, each share of Series B Preferred Stock
will be converted into a number of shares of common stock determined by dividing
the subscription  price of $15 per share by the conversion price then in effect.
If these shares are issued before December 31, 2008 a total of 4,120,880  shares
of Common  Stock would be issued upon  conversion  of all the Series B Preferred
Stock,  which represents an additional  370,880 shares above the original number
had the price been $2. The value assigned to the beneficial  conversion  feature
on the  Preferred  Stock was credited to paid in capital and charged to earnings
as interest expense.

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

     The  majority of the net  proceeds of the sale of Series B Preferred  Stock
was used for working  capital of the subsidiary  companies which operate the Big
Easy and the Palm Beach Princess.

(6)  NOTES RECEIVABLE

     (A) Original Cherry Hill Note

     A portion of the proceeds  from the sale on November 30, 2000 of our Garden
State Park property in Cherry Hill, New Jersey, to Realen-Turnberry/Cherry Hill,
LLC ("Realen")  was paid in the form of a promissory  note in the face amount of
$10 million (the "Note.") All payments are dependent  upon,  and payable  solely
out of, the  buyer's  net cash flow  available  for  distribution  to its equity
owners. After the buyer's equity investors have received aggregate distributions
equal to  their  capital  contributions  plus an  agreed  upon  return  on their
invested capital, the next $10 million of Distributable Cash is to be paid to us
along  with  331/3%  of all  Distributable  Cash  plus  accrued  interest  until
maturity.

     (B) Second Cherry Hill Note

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

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

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

     The Second Cherry Hill Note received by the Company  matures in 2015 and is
similar to the Las Vegas Note which was sold,  in that it  generally  is payable
prior to maturity only from distributable cash of the maker. The maker under the
Second  Cherry Hill Note is one of the  principal  partners in the entity  which
purchased  the Garden  State Park real  property  from a Company  subsidiary  in
November of 2000,  and such  obligor  will only have funds with which to pay the
Second Cherry Hill Note out of its profits from the  development of Garden State
Park.  While the Company  expected the $10,000,000 note to be fully paid, it was
not  optimistic  that this  Second  Cherry  Hill Note  will be fully  paid,  and
accordingly,  during the fiscal  years  ended June 30, 2004 and 2005 the Company
wrote down the Second Cherry Hill Note on its books to $4,278,651.

     The  Second  Cherry  Hill Note is  secured  by a pledge  of stock  owned by
Raymond  Parello,  an  affiliate  of the  Buyer,  in Palm Beach  Empress,  Inc.,
representing  fifty  percent  (50%) of the  stock in that  company.  Palm  Beach
Empress,  Inc. is the entity  formed to acquire the Big Easy,  the second vessel
which is chartered to a subsidiary of the Company. The other fifty percent (50%)
of the stock in Palm Beach Empress,  Inc. is owned by PBMC, a corporation  owned
by Francis W. Murray, the Company's Chief Executive Officer.

     (C) Impairment of Cherry Hill Notes

     Subsequent to December 31, 2006, the Company began negotiations to sell the
Cherry Hill Notes.  Although these  transactions have not consummated before the
filing of the Company's Form 10-K, the observable market price  representing the
fair value of these notes is substantially lower than the carrying values on our
books.  In prior  years,  the fair value and the  collectability  of these notes
determined by financial statements and financial projections by the developer of
the property  based upon the future  development of the site  incorporating  our
office park and hotel.  Recent economic  conditions have forced the developer to
reconsider  their plans for the remaining  property  which resulted in cash flow
projections for the property being substantially lower than in prior years. As a
result of our  recent  negotiations  to sell the Cherry  Hill Notes the  Company
recorded an  impairment  loss on the two Cherry Hill Notes of  $9,378,651  as of
December  31, 2006 to more fully  reflect  the  observable  market  value of the
loans.

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

     (A) Vessel Deposits - Related Parties

     Beginning  on July 7, 2004,  we entered into  sub-bareboat  charters of the
vessels Palm Beach  Princess  and Big Easy with  entities  (Palm Beach  Maritime
Corporation  and Palm Beach Empress,  Inc.) owned or controlled by our Chairman,
Francis W. Murray.  Pursuant to our June 30, 2005 refinancing and  restructuring
of the PDS transactions, we now charter the vessels, Palm Beach Princess and Big
Easy directly from Cruise Holdings I and Cruise Holdings II, respectively, which
companies are owned by Palm Beach Maritime  Corporation  and Palm Beach Empress,
Inc. Pursuant to the new charters,  we pay Cruise Holdings I and Cruise Holdings
II, as owners of the  vessels,  charter  fees of $50,000  per month for the Palm
Beach  Princess and  $100,000  per month for the Big Easy,  plus 1% of our gross
revenues from operation of those vessels.  We have the right to purchase  either
or both vessels,  at our option, for $17.5 million in the case of the Palm Beach
Princess (representing its appraised value at the time of $17.5 million) and for
fair market value (to be  determined  by appraisal) in the case of the Big Easy.
Once we pay off the loans against the Palm Beach  Princess and Big Easy, we will
be entitled to substantial credits against the purchase prices of the vessels: a
$14  million  credit in the case of the Palm  Beach  Princess  and a $6  million
credit in the case of the Big Easy,  representing the original principal amounts
of the July 2004 sale - leaseback  transactions involving those vessels; as well
as  credits  for  our  investment  in  the  net  Ship  Mortgage   Obligation  of
approximately  $7.2 million which can be applied to the purchase price of either
vessel;  and a  credit  for  the  portions  of the  costs  of  refurbishing  and
retrofitting  the Big Easy in excess of $6 million  which we paid,  amounting to
approximately $2.5 million, that can be applied to the purchase price of the Big
Easy.

     (B) Deposits and Other Assets - Related  Parties and Allowance for Doubtful
Accounts:

     We have invested in two projects in which our Chairman, President and Chief
Executive Officer,  Francis W. Murray, also has a pecuniary interest.  The first
of these  investments  was to pay costs and expenses for  development  of a golf
course in Southern  California.  In Fiscal 2003, the loans made by us, including
principal  of $735,584  and  accrued  interest,  in the amount of  $193,957  was
assumed by OC Realty,  LLC, a Florida limited liability company in which Francis
W. Murray also has a primary interest.

     In the second project,  Mr. Murray (through OC Realty) is  participating in
the  development of an oceanfront  parcel of land,  located in Fort  Lauderdale,
Florida, which has received all governmental  entitlements from the City of Fort
Lauderdale and the State of Florida to develop a 14-story  building to include a
5-story parking garage,  approximately 6,000 square feet of commercial space and
a residential  9-story tower. As of December 31, 2006, we had lent $2,704,617 in
total to the project and we have accrued interest in the amount of $2,235,325 on
the loan.  These  loans bear  interest  at 12% and will be  repayable  out of OC
Realty's share of proceeds,  after payment of bank debts,  generated by the sale
of  condominiums.  We will  also  have the right to  receive,  as  participation
interest, from available cash flow of OC Realty, if the project is successful, a
priority  return of our  investment  and a priority  profits  interest for up to
three  times our  investment.  Repayment  of these  loans and our  participation
interest will be subject to repayment of, first,  bank debt of approximately $14
million (at present) and, second,  construction  financing expected to amount to
$25 to $30 million and third,  any capital invested by and fees payable to joint
venture partners  including OC Realty. OC Realty's share of proceeds  thereafter
will  range  from  22.5% to 45%.  We have  assessed  the  collectability  of the
advances  made to the golf course  project and to OC Realty based on  comparable
sales of like units in the  marketplace  which  suggests a weakening of the real
estate market for condominium  projects in the Fort Lauderdale area.  Therefore,
at December  31, 2006 we recorded an allowance  for doubtful  accounts on the OC
Realty project of $2,235,325 to more fully reflect the  observable  market value
of the loans.


                                                     December 31,  December 31,
                                                         2006          2005
                                                    ------------- -------------
Loans to the Ft Lauderdale Project (OC Realty, LLC) $   2,784,394 $   2,769,989
Accrued Interest on Loans to the Ft. Lauderdale
 Project (OC Realty, LLC)                                       -     1,577,190
Goodwill on Purchase of GMO Travel                        193,946       193,946
                                                    ------------- -------------
Total Deposits and Other Assets - Related Parties   $   2,978,340 $   4,541,125
                                                    ============= =============


(8)  DEPOSITS AND OTHER ASSETS - NON RELATED PARTIES

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

                                                     December 31,   December 31,
                                                         2006          2005
                                                   --------------  -------------
Long-Term Prepaid Loan Costs - Net of amortization $      700,333  $   1,411,976
Port Lease Rights                                         250,000        250,000
Other Misc. Assets                                         42,858         72,780
                                                   --------------  -------------
         Total                                     $      993,191  $   1,734,756
                                                   ==============  =============


(9)  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. (See Footnote 6)

     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. 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
for a refund of the $100,000  payment if, at the  expiration of the lease,  June
27,  2002,  it did not have a use for the liquor  license  at the OTB  facility.
During the three year period Jan.  28, 1999 to Jan. 28, 2002 no OTB facility was
built and we believe the  lessee/buyer did not have a use for the liquor license
at that  property.  By the terms of the contract it was the  Company's  position
that we had the  right  to  re-acquire  the  liquor  license  for  $100,000  and
exercised such right,  however the lessee/buyer  refused to perform.  On January
18, 2006 the Company  filed a Complaint in Camden County  Superior  Court of NJ,
Chancery  Division,  (Civil Action No. C-7-06) against the defendants to protect
our interests in the license.  In May 2006 the judge ruled against us in a bench
ruling.  The Company is appealing this matter.  The carrying value of the liquor
license was $400,000 and during 2006 we  recognized an impairment of $400,000 as
a result of the court's preliminary ruling.

     The  net  assets  of the  operations  to be  disposed  of  included  in the
accompanying  consolidated  balance  sheets  as of  December  31,  2006 and 2005
consist of the following:

                                  December 31,        December 31,
Classified As:                        2006               2005
                                --------------       -------------
Current Assets                  $          436      $      401,672
Current Liabilities                   (415,400)           (405,802)
                                --------------       -------------
   Net (Liabilities) Assets of
    Discontinued Operations     $     (414,964)      $      (4,130)
                                ==============       =============


     Cash flows from  discontinued  operations  for the year ended December 31,m
2006,  the six months ended  December 31, 2005 and the years ended June 30, 2005
and 2004 consist of the following:

<TABLE>
                                                                                                            June 30,
                                                                       December 31,  December 31,    ---------------------
                                                                           2005          2005          2005        2004
                                                                       ------------  ------------    ---------    --------
<CAPTION>
Cash Flows From Discontinued Operating Activities:
<S>                                                                  <C>            <C>            <C>          <C>
    Income                                                           $          -0- $         -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                      (336)           -0-          -0-         -0-

              Increase (Decrease) in Accounts and Purses
               Payable and Accrued Expenses                                  10,836         4,802       90,202       9,600
                                                                       ------------  ------------    ---------    --------
    Net Cash Provided by Discontinued Operating Activities                   10,500         4,802       90,202       9,600
                                                                       ------------  ------------    ---------    --------
Cash Flows from Discontinued Financing Activities:
    (Decrease) in Balances Due To/From Continuing Operations               (10,836)       (4,875)     (89,290)     (8,550)
                                                                       ------------  ------------    ---------    --------
    Net Cash (Used In) Discontinued Financing Activities                   (10,836)       (4,875)     (89,290)     (8,550)
                                                                       ------------  ------------    ---------    --------
    Net (Decrease) Increase in Cash and Cash Equivalents From
    Discontinued Operations                                                   (336)          (73)          912       1,050
         Cash and Cash Equivalents at Beginning of Year From
         Discontinued Operations                                              1,572         1,645          733       (317)
                                                                       ------------  ------------    ---------    --------
         Cash and Cash Equivalents at End of Year From Discontinued
         Operations                                                  $        1,236 $       1,572  $     1,645  $      733
                                                                       ============  ============    =========    ========
</TABLE>


(10) VESSELS, EQUIPMENT AND LIVESTOCK

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

                                        Estimated
                                         Useful
                                        Lives in    December 31,   December 31,
                                          Years         2006           2005
--------------------------------------- --------- -------------- -------------
  Leased Vessel - Palm Beach Princess       20    $   17,500,000 $  17,500,000
  Leased Vessel - Big Easy                  20        20,305,348    20,305,348
  Vessel Not Placed in Service -
    Royal Star                             N/A         3,054,735     3,007,216
  Equipment                                5-15        3,912,135     3,334,079
  Leasehold Improvements                  15-40          921,899       988,625
                                                  -------------- -------------
                                                      45,135,268    45,694,117
  Less Accumulated Depreciation
   and Amortization                                   (6,562,315)   (4,024,434)
                                                  -------------- -------------
                                                  $   39,131,802 $  41,110,834
                                                  ============== =============


(11) ACQUISITIONS AND DISPOSITIONS

     o    Year ended December 31, 2006 - none

     o    Six Months  Ended  December  31,  2005 - during  the six months  ended
          December 31, 2005 we divested our interest in the  livestock  owned at
          December 31, 2005.

     o    Fiscal Year Ended June 30, 2005 - During the Fiscal 2005, we purchased
          livestock, including stud fees in the amount of $328,247.

     o    Fiscal  Year Ended June 30,  2004 - Royal Star  Entertainment,  LLC, a
          wholly owned  subsidiary  registered as a Delaware  limited  liability
          company,  purchased  the vessel M/V Royal Star ("Royal  Star").  As of
          December  31,  2006 the  Company has  capitalized  $3,054,735  for the
          purchase  and  improvements  and for  legal and  professional  fees in
          connection with the vessel. 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  additional  improvements  and
          outfitting  before  being  placed  in  service  as  a  gaming  vessel.
          Depreciation will not be computed on the Royal Star until it is placed
          in service.

(12) LIABILITIES SUBJECT TO COMPROMISE

     As discussed in Note 1, International  Thoroughbred Breeders, Inc. has been
operating as a debtor-in-  possession  under Chapter 11 of the  Bankruptcy  Code
since December 4, 2006. The Company has been authorized by the Bankruptcy  Court
overseeing the proceeding to operate its business in the ordinary course.

     As a result of the Chapter 11 filing, all actions to collect the payment of
pre-petition  indebtedness  are subject to compromise or other treatment under a
plan of  reorganization.  Generally,  actions  to enforce  or  otherwise  effect
payment of pre-Chapter 11 liabilities are stayed.  Although  pre-petition claims
are generally  stayed,  as part of the first day orders and  subsequent  motions
granted by the Bankruptcy  Court,  the  Bankruptcy  Court approved the Company's
motions to pay certain pre-petition  obligations including,  but not limited to,
employee wages and other related benefits.

     These  amounts  represent  the  Company's  estimate  of known or  potential
pre-petition   claims  to  be  resolved  in  connection   with  the   bankruptcy
proceedings.  Such claims remain  subject to future  adjustments,  based on such
things as (i) negotiations;  (ii) actions taken by the Bankruptcy  Court;  (iii)
further  developments  with respect to any disputed  claims;  (iv)  rejection of
executory contracts and leases; (v) the determination of the value of collateral
securing  claims;  or (vi) other events.  Payment terms for these claims will be
established in connection with the Company's confirmed plan of reorganization.


(13) NOTES AND MORTGAGES PAYABLE

     (a) Notes and Mortgages Payable - Subject to Compromise

     Notes and Mortgages Payable Subject to Compromise are summarized below. The
capital lease  transactions  with PDS other than the Royal Star loan are carried
under lease liabilities (See Note 4).





                            Interest  December 31, 2006     December 31, 2005 *
                                   %  -----------------    ---------------------
                                 Per    Current      Long-     Current     Long-
                               Annum                 Term                  Term
                            --------  -----------   -----  -----------   -------
International Thoroughbred
Breeders,Inc.:

PDS Gaming (A)                   20% $    541,102  $  -0- $    541,102  $    -0-
Francis X. Murray (B)             8%      382,864     -0-      459,164       -0-
William H. Warner (B)            12%       37,000     -0-       37,000       -0-
MBC Global (C)                    9%      200,000     -0-      200,000       -0-
Westminister Investments (C)      9%      150,000     -0-      150,000       -0-
Ryan Moore Trust (C)              9%       25,000     -0-       25,000       -0-
James B. Moore Trust (C)          9%       25,000     -0-       25,000       -0-
Other                        Various       38,654     -0-       36,595       -0-

ITG Vegas, Inc.:

PDS Gaming (A)               various   31,174,482     -0-   26,255,439       -0-
PDS Gaming (A)                 22.5%    3,271,628     -0-    2,733,838       -0-
Maritime Services, Corp.          9%          -0-     -0-      166,156       -0-
International Game
 Technology (D)                   8%      404,928     -0-      221,297    59,568
Others                       Various       45,057     -0-       35,009    33,540
                                      -----------   -----  -----------   -------
Totals                                 36,295,715     -0-   30,885,600    93,108
PDS Gaming (A)                        (34,987,212)    -0-  (29,530,379)      -0-
                                      -----------   -----  -----------   -------
Related Party Notes                      (419,864)    -0-     (496,164)      -0-
                                      -----------   -----  -----------   -------
Totals                               $    888,639  $  -0- $    859,057  $ 93,108
                                      ===========   =====  ===========   =======
* Carried as amounts not subject to compromise at December 31, 2005.

     (A) During the year ended  December 31, 2006,  we entered into various loan
agreements with our primary lender,  PDS, which had the effect of reclassing our
capital leasing arraignments on two vessels to promissory notes. The outstanding
balance, subject to compromise, on the vessel promissory notes is $31,174,482 at
various  interest rates. On December 9, 2005, the Company executed and delivered
a promissory  note in the original  principal  amount of $541,102 to PDS Gaming.
The  proceeds of the note were used to make  several  December 9, 2005  interest
payments due on the PDS  Transactions.  The interest rate is 20% until such time
as the annualized  EBITDA for the various vessels  operated by the Company reach
$20 million at which time the  interest  rate will be reduced to 15%. On January
5, 2005, the Company and its subsidiary, Royal Star Entertainment,  LLC ("RSE"),
executed and  delivered a promissory  note in the original  principal  amount of
$2,850,000  (the "Note").  The Note is secured by RSE's Preferred Ship Mortgage.
The lender and holder of the Note and  Mortgage is Cruise  Holdings  IV, LLC, an
affiliate of PDS Gaming Corporation.  At closing,  RSE paid a closing fee to the
lender in an amount  equal to  $78,375 or 2.75% of the  principal  amount of the
Note.  The  proceeds  of the Loan were used to make  improvements  to the vessel
Royal Star or to the vessel Big Easy. The Note was originally due on January 17,
2006,  however,  the PDS  re-financing  completed on June 30, 2005  extended the
terms of this note to July 1, 2009.  The interest rate is 20% until such time as
the annualized  EBITDA for the various vessels operated by the Company reach $17
million at which time the interest rate will be reduced to 15%. We are currently
paying a default  interest  rate of 22.5%.  At December  31,  2006,  the balance
represents  the unpaid  principal  and the interest  added to the debt  totaling
$3,271,628. (See Note 3)

     (B) On March 1,  2003,  we  issued a  promissory  note for a line of credit
bearing interest at 8% to Francis X. Murray. The outstanding balance on the line
of credit  note at December  31, 2005 was  $459,164  and  accrued  interest  was
$29,052.  On September 19, 2005 Mr.  Murray lent an  additional  $300,000 to the
Parent  Company.  At September 30, 2006 the  outstanding  balance on the line of
credit was $382,864 and accrued interest was $45,216.  In fiscal 2003 and fiscal
2005, we issued promissory notes for $24,000 and $13,000  respectively,  bearing
interest at 12% to William H. Warner,  Secretary  of the  Company.  The proceeds
from both notes were used for working capital.

     (C) On November 9, 2005, we borrowed $400,000 from four (4) private parties
and agreed to issue our promissory  notes evidencing the loans. In consideration
of the loans we also agreed to issue 3-year warrants to purchase 100,000 shares,
in the aggregate of our common stock, exercisable at $2.50 per share. The loans,
bearing interest at 9% per year, and the principal were due on December 9, 2005.
The terms of the note required the Company to issue penalty warrants on December
9, 2005 to purchase  100,000  shares of our common stock at an exercise price of
$2.50 per share.  Furthermore,  if the notes are not paid by the 9th day of each
month  thereafter,  we are  required  to issue  additional  penalty  warrants to
purchase  200,000 shares of common stock at the lesser of $2.50 per share or the
then  current  market price per share for each month  beginning  January 9, 2006
until these notes are paid.  As of December 31, 2006, we have reserved or issued
warrants for the  issuance of 2.4 million  shares of common stock as a result of
this borrowing.  Proceeds of the loans were used to pay interest then due on our
secured indebtedness for borrowed money to PDS Gaming Corporation.

     (D) 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  were to be paid on the balance.  In March 2005, ITG
Vegas,  Inc. issued an additional  thirty month promissory note in the amount of
$387,463  bearing  interest at 8.15% to  International  Game  Technology for the
purchase of fully  reconditioned  gaming equipment.  Thirty consecutive  monthly
installments of $14,319.49 were to be paid on the balance. At December 31, 2006,
the principal  balance on the two notes to  International  Game  Technology  was
$404,928 which was classified as short term. At December 31, 2006 the balance on
the notes includes past due payments. The Company is negotiating new terms under
these notes and if unsuccessful  the creditor may seek to enforce payment of the
notes.

     (b) Notes and Mortgages Payable - Not subject to Compromise

     In connection with the January 28, 1999 lease  transactions  for the Garden
State Park facility,  the Company  purchased a liquor license  located at Garden
State Park owned by an unaffiliated  third party,  Service  America  Corporation
(the "Holder"), for $500,000 financed by a five (5) year promissory note at a 6%
interest rate.  Yearly  principal  payments of $80,000 plus interest were due on
December 28, 2002 and December 28, 2003 and have not been paid.  The Company has
been  unsuccessful in negotiating new terms under this note and the creditor may
seek to enforce  payment of the note. In additional to the principal  amount due
of  $160,000  the accrued but unpaid  interest  is  approximately  $42,000 as of
December  31,  2006.   These  amount  are  classified  in  the   Liabilities  of
Discontinued Operations in the current liability section of the Balance Sheet.

(14) RELATED PARTY DEBT

     The following schedule  represents related party debt (See Note 25- Related
Party Transactions):

                                  December 31, 2006         December 31, 2005
                              ------------------------   ----------------------
                              Short-Term    Long-Term    Short-Term   Long-Term
                              -----------   ----------   ----------   ---------
Related Party Notes          $         -   $        -   $   496,164  $        -

Accrued Wages due to and
 Advances from Francis W.
 Murray                                -       808,164       35,189     395,000

Accrued Expenses Subject
 to Compromise                         -       622,500            -           -
Advances from Palm Beach
 Maritime Corp. (Francis W.
 Murray ownership)                     -             -            -     258,571
                              -----------   ----------   ----------   ---------
   Total Debt - Related
    Parties                  $         -   $ 1,430,664  $   531,353  $  653,571
                              ===========   ==========   ==========   =========


(15) INCOME TAX EXPENSE

     The Company's  income tax expense for the year ended June 30, 2005 and 2004
relates to state income taxes for its Palm Beach  Princess  operations  and from
June 30,  2004  includes  a Federal  Alternative  Minimum  Tax on the  Company's
consolidated  income  before  the  impairment  loss on the sale of the El Rancho
note.

     During the year ended June 30, 2005,  the Company  recognized $4 million of
extraordinary income.  Federal and state income taxes were not recognized on the
income  because the  Company has Net  Operating  Loss  deductions  to offset any
federal taxes accrued.  Additionally,  this income was reported in the Company's
state  income tax return in a prior year and the  extraordinary  item amount was
offset by state net operating loss carryforwards.

     At  December  31,  2006  the  Company  has  available  net  operating  loss
carryforwards  aggregating  approximately  $119,000,000,  which  can be  used to
offset future federal taxable income.  These unused net operating  losses expire
2006 through  2026.  SFAS No. 109 requires the  establishment  of a deferred tax
asset for all deductible temporary differences and operating loss carryforwards.
Because of the  uncertainty  that the Company will generate income in the future
sufficient  to fully or partially  utilize  these  carryforwards,  however,  the
deferred tax asset of approximately $43.4 million has been offset by a valuation
allowance of the same amount. Accordingly, no deferred tax asset is reflected in
these financial statements.

     Components  of deferred  tax assets as of December 31, 2006 and 2005 are as
follows:

                                    December 31, 2006    December 31, 2005
                                   -------------------  -------------------
Non Current:

   Net operating loss carryforward $        43,400,000  $        41,650,000
   Valuation allowance                     (43,400,000)         (41,650,000)
                                   -------------------  -------------------
   Net deferred tax asset          $                 0  $                 0
                                   ===================  ===================

     In  accordance  with Section 382 of the Internal  Revenue Code, as amended,
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 December 31, 2006:

       Net Operating
            Loss                   Year End
       Carryforwards           Expiration Dates
       -------------           ----------------
      $   21,600,000               12/31/2007
           5,280,000               12/31/2008
           5,600,000               12/31/2009
           8,750,000               12/31/2009
          82,770,000               12/31/2010
                               through 12/31/2027
       -------------
      $  124,000,000
       =============

(16) LEGAL PROCEEDINGS

     As a consequence of our Chapter 11 Filing,  all pending  litigation against
the Debtors was stayed  automatically by Section 362 of the Bankruptcy Code and,
absent  further order of the Bankruptcy  Court,  no party may take any action to
recover on  pre-petition  claims against the Debtors.  In addition,  pursuant to
Section  365  of  the  Bankruptcy   Code,  the  Debtors  may  reject  or  assume
pre-petition  executory  contracts  and unexpired  leases,  and other parties to
contracts  or leases that are rejected may assert  rejection  damages  claims as
permitted by the Bankruptcy Code.

     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. 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
for a refund of the $100,000  payment if, at the  expiration of the lease,  June
27,  2002,  it did not have a use for the liquor  license  at the OTB  facility.
During the three year period Jan.  28, 1999 to Jan. 28, 2002 no OTB facility was
built and we believe the  lessee/buyer did not have a use for the liquor license
at that  property.  By the terms of the contract it was the  Company's  position
that we had the  right  to  re-acquire  the  liquor  license  for  $100,000  and
exercised such right,  however the lessee/buyer  refused to perform.  On January
18, 2006 the Company  filed a Complaint in Camden County  Superior  Court of NJ,
Chancery  Division,  (Civil Action No. C-7-06) against the defendants to protect
our interests in the license.  In May 2006 the judge ruled against us in a bench
ruling.  The Company is appealing this matter.  The carrying value of the liquor
license was $400,000 and during 2006 we  recognized an impairment of $400,000 as
a result of the court's preliminary ruling.

     Through our  subsidiary,  Royal Star  Entertainment  LLC, we had negotiated
with the Port of Palm Beach District a second  agreement that would permit us to
operate the Big Easy in passenger  service from the Cruise Terminal at the Port,
with  certain  berthing  and  scheduling  priorities.  The initial  term of this
agreement  was five years from the date of  commencement  of sailings by the Big
Easy from the Port, with subsequent  renewal options of four and three years. We
were  required to commence  sailings on or before  October 31, 2005.  Due to the
suspension of the Big Easy operations,  the Port of Palm Beach District voted on
April 10, 2006 to terminate this  agreement,  and on April 19, 2006 the District
filed suit in Florida Circuit Court for declaratory  judgement of termination of
the  agreement  and for other relief.  Royal Star  Entertainment,  LLC filed its
answer denying that the District was entitled to terminate the  agreement.  This
lawsuit was stayed upon Royal Star  Entertainment,  LLC's  filing of a voluntary
petition for reorganization  under Chapter 11 of the Bankruptcy Code on December
4, 2006.

     On November 17, 2006 a Complaint  was filed in the United  States  District
Court for the Northern District of Illinois by Westminster Investments,  LLC and
certain other plaintiffs against International  Thoroughbred Breeders, Inc., its
Chairman Francis W. Murray,  its Vice President Scott Kaplan, and its subsidiary
ITG Vegas' Chief Executive  Officer Francis X. Murray,  alleging  non-payment to
the plaintiffs by International Thoroughbred Breeders of a promissory note dated
November 9, 2005 in the amount of four hundred  thousand  dollars plus interest,
and  alleging  fraud  by  the  individual  defendants  in  connection  with  the
promissory  note.  This lawsuit was stayed  against  International  Thoroughbred
Breeders  upon its  filing of a  voluntary  petition  for  reorganization  under
Chapter 11 of the  Bankruptcy  Code on December  7, 2006.  The  automatic  stay,
however, was not applicable to the individual defendants;  accordingly, with the
permission of the Bankruptcy Court,  International Thoroughbred Breeders engaged
counsel  for the limited  purpose of filing a motion to transfer  the lawsuit to
the United  States  District  Court for the Southern  District of Florida.  That
motion is now pending before the Court of Illinois.

(17) COMMITMENTS AND CONTINGENCIES

     See Note 3 for additional commitments and contingencies with respect to the
PDS Transactions.

     See Note 24 for additional commitments and contingencies of the Company and
transactions with related parties.

     See Note 27 with  respect to events and  developments  after  December  31,
2006.

     On July 13, 2005, the Company  entered into an Advisory  Agreement dated as
of June 30, 2005, and an amendment  thereto dated as of July 12, 2005,  with MBC
Global,  LLC,  pursuant to which the Company retained the services of MBC Global
as financial  advisor on a  non-exclusive  basis.  The Advisory  Agreement has a
minimum term of two (2) years,  and requires the Company to pay a consulting fee
of $10,000 per month to MBC Global,  a merger and  acquisition  fee of 2% of the
purchase price upon closing of a merger or acquisition transaction with a target
introduced  by MBC  Global,  and an  advisory  fee upon  closing of a  financing
transaction  with a source  introduced  by MBC  Global  equal to 7% of the gross
proceeds in the case of an equity  transaction,  3% of the gross proceeds in the
case of any  mezzanine  debt,  and 1% of the gross  proceeds  in the case of any
senior debt. MBC Global agreed to reduce its compensation in connection with the
sale of our Series B Preferred  Stock to 5% of the gross  proceeds of such sales
to investors introduced by MBC Global.

     As  additional  compensation  to MBC  Global,  we agreed to issue three (3)
stock  purchase  warrants  to MBC Global,  one for the  purchase of up to 88,500
shares of the Company's  common stock at $2.50 per share,  a second  warrant for
the purchase of up to 59,000 shares of the  Company's  common stock at $3.50 per
share, and a third warrant for the purchase of up to an additional 88,500 shares
of the  Company's  common  stock at $4.50 per share.  All three  stock  purchase
warrants  will have a term of four (4) years.  In  connection  with the Advisory
Agreement and such  warrants,  the Company  entered into a  Registration  Rights
Agreement  with MBC Global  pursuant to which the Company  filed a  Registration
Statement,  Form S-1 on December 30, 2005,  under the Securities Act of 1933, as
amended,  covering the resale of shares of common stock  purchasable  under such
MBC Global  warrants,  and to use its best  efforts  to cause such  Registration
Statement to be declared effective. The agreements with MBC Global are currently
stayed due to our Bankruptcy filing.

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

     With the sale of our  Freehold  Raceway  property  on January  28,  1999 we
assumed  full  responsibility  for the  costs  associated  with the  clean up of
petroleum  and related  contamination  caused by the  leakage of an  underground
storage  tank  which was  removed in 1990,  prior to our  purchase  of  Freehold
Raceway.  In  February  2000 the N.J.  Department  of  Environmental  Protection
approved our remedial  investigation  workplan  ("RIW").  Under the RIW numerous
test wells were  drilled  and the soil tested and  monitored  to  determine  the
extent and direction of the flow of underground  hazardous  material and reports
and conclusions of the tests were prepared for the State of New Jersey. However,
prior to obtaining a remedial action workplan from the State of New Jersey,  the
work was  stopped  due to a lack of funds  resulting  from  the  institution  of
proceedings by our subsidiary, ITGV, under Chapter 11 of the bankruptcy code. At
this time we are unable to predict the effects that such delay may cause, but it
is likely that some retesting of the wells may be necessary. Prior to the delays
it was  estimated  that the cost to  remediate  the site would be  approximately
$750,000.  However,  we now  estimate  that  the  total  cost of  clean up to be
approximately  $830,000  including  costs we have already spent according to the
environmental consulting firm handling this matter. These costs include drilling
of test  wells and  monitoring,  lab  testing,  engineering  and  administrative
reports,  equipment and remediation of the site through a "pump and treat" plan.
The Company has made  payments of  approximately  $617,000  during  prior fiscal
years 2000, 2001 and 2002. As of December 31, 2006 we have accrued  $211,000 for
the additional  work. It is estimated that  completion of the site clean up will
take  approximately 18 months from the time the work is reinstated.  The Company
will not receive any insurance  reimbursement  for our costs of this remediation
project.

     As a result of our Chapter 11 filings in December 2006, our commitments and
non-cancellable  contracts  are not able to be  determined  in that  most of our
contracts and leases are stayed by the bankruptcy  filing,  the current  amounts
are being approved and paid by orders of the Bankruptcy Court and future amounts
due cannot be reasonably determined.

(18) FAIR VALUE OF FINANCIAL INSTRUMENTS

     In assessing the fair value of financial instruments,  the Company has used
a variety of methods and  assumptions,  which were based on  estimates of market
conditions  and loan risks  existing  at that  time.  For  certain  instruments,
including cash and cash equivalents,  investments, non-trade accounts receivable
and loans,  and short- term debt,  it was  estimated  that the  carrying  amount
approximated fair value for the majority of these  instruments  because of their
short-term  maturity.  The carrying  amounts of long term debt  approximate fair
value since the Company's interest rates approximate  current interest rates. On
our original Cherry Hill note  receivable in the amount of $10 million,  we have
elected to defer the gain on the sale and the interest to be accrued  until such
time that  collectability  can be  determined.  On our second  Cherry  Hill note
receivable  we recorded a $10.5 million  impairment  loss during the fiscal year
ended June 30, 2004 and 2005 to reflect the  estimated  current  market value of
this note.  (See Note 6-B).  As of December  31,  2006 we recorded a  $9,378,651
impairment  loss on the original and second Cherry Hill Notes to more accurately
reflect the  current  market  value of these  notes (see  footnote 6 - C). As of
December 31, 2006 we recorded an allowance  for doubtful  accounts in the amount
of $2,235,525 on the OC Realty Note. (See footnote 7 - B)

(19) RETIREMENT PLANS

     ITG Vegas  maintains  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.
Our parent  company  adopted  the ITG Vegas 401 (k) plan  during the fiscal year
2005.

     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 may have been 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.  We have  accrued  $370,639  as of
December 31, 2006 to cover all or part of this cost.

     Our expense  recorded for the year ended  December 31, 2006, the six months
ended  December  31,  2005 and the years  ended June 30,  2005 and 2004  totaled
$271,230, $52,031, $141,305 and $52,170, respectively, for the 401 (k) plan.

(20) STOCK-BASED COMPENSATION

     (A) EMPLOYEE AND NON-EMPLOYEE OPTIONS

     In June, 2005, the Company's Board of Directors adopted and approved a 2005
Stock Option and Award Plan (the "2005 Plan"). The 2005 Plan permitted the grant
of options to purchase  up to  1,300,000  shares of Common  Stock at a price per
share no less than 100% of the fair market value of the Common Stock on the date
an option is

granted with respect to incentive  stock options only. The 2005 Plan  terminated
because it was not approved by the  shareholders  within one year of the Board's
adoption. Under the 2005 Plan, in June 2005, the Board of Directors approved the
grant of options to purchase  300,000  shares at $2.00 per share,  however  they
expired in June 2006.

     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  would be granted or issued  until the  Bankruptcy  Trustee  (2003
Chapter  Case) was paid in full,  at which time the Company  would be authorized
(but not  obligated)  to grant such  options.  Such action was taken in order to
compensate  Mr.  F.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.  In June 2005 the
Board of Directors authorized replacing the authorized but un-granted options to
Mr.  Murray with a cash payment of $.97 per option share which  represented  the
difference between the original option price of $.50 and the closing sales price
on June 26, 2005 of $1.47

     At a meeting of the Board of Directors of the Company held on June 29, 2004
the board  authorized  compensating  Francis W. Murray for tax  consequences  he
would  incur as a result of the PDS  Transactions.  The  amount and form of such
compensation was to be determined by the full board of directors when data as to
such tax  consequences  became  available.  At its  meeting on June 27, 2005 the
Board of  Directors  determined  that the tax effect of the  transaction  to Mr.
Murray  totaled  $1,064,500  and that he should be compensated in that regard by
granting him an option to purchase 724,143 shares at an exercise price of $2 per
share.  The number of option shares was determined by dividing the $1,064,500 by
the closing stock price on June 26, 2005 of $1.47.

     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, Mr. Robert J.
Quigley 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.  In June 2005, the Board of Directors
authorized  replacing the authorized but un-granted  options to Mr. Murray,  Mr.
ReDavid  and Mr.  Quigley  with a cash  payment of $.97 per option  share  which
represented  the  difference  between the original  option price of $.50 and the
closing sales price on June 26, 2005 of $1.47. To date, these payments have been
accrued but not paid.

     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 unpaid loan  principal to Mr. Warner in shares of common  stock,  valued
for such purpose at $.50 per share provided that he agrees to accept such shares
(valued at $.50 per share) in payment of a portion, specified by the grantee, of
the Company's  obligation to him. In the quarter ended  September 30, 2004,  Mr.
Murray and Mr. Quigley elected to take their then deferred salary in the form of
shares.

     At December 31, 2006,  total options  outstanding were 1,110,643 and all of
these options were exercisable.

     The  following  table  contains  information  on stock  options for options
granted for periods ended June 30, 2005,  2003,  2004, six months ended December
31, 2005 and the year ended December 31. 2006


                                                  Stock Options
                                 -----------------------------------------------
                                   Number of      Exercise Price      Weighted
                                    Shares       Range Per Share   Average Price
                                 -------------- ----------------- --------------
Outstanding at
 June 30, 2003 and 2004            3,336,500      $0.269 - $5.00       $1.59
Exercised during the fiscal
 year ended June 30, 2005         (2,000,000)          0.269            0.269
Options granted to employees
 during the fiscal year
 ended June 30, 2005               1,024,143           2.00             2.00
                                 -------------
Outstanding at June 30, 2005
 and December 31, 2005             2,360,643       0.269 -  5.00        2.00
Options canceled during 2006      (1,250,000)       .50  -  4.62        3.07
                                 -------------
Outstanding at December 31, 2006   1,110,643      $0.269 - $5.00       $2.68
                                 =============

                                                   Exercise Price    Weighted
                                 Option Shares    Range Per Share  Average Price
                                 --------------  ----------------  -------------
Exercisable at June 30:
2003                               3,336,500      $0.269 - $5.00         $1.59
                                 --------------  -------  -------  -------------
2004                               3,336,500       0.269 -  5.00          1.59
                                 --------------  -------  -------  -------------
2005                               2,120,643       0.269 -  5.00          2.99
                                 --------------  -------  -------  -------------
Exercisable at December 31:
2005                               2,180,643       0.269 -  5.00          2.96
                                 --------------  -------  -------  -------------
2006                               1,110,643      $0.269 - $5.00         $2.68
                                 ==============  -------  -------  -------------

     The following table summarizes  information about stock options outstanding
at December 31, 2006:
<TABLE>
                                                   Ranges                   Total
                                  -------------------------------------  ------------
                                  $0.27 - 0.50   $1.00 - 2.00    $5.00   $0.27 - 5.00
                                  ------------   ------------   -------  ------------
<CAPTION>
<S>                               <C>            <C>            <C>      <C>
Outstanding and exercisable
 options:

   Number outstanding at
    December 31, 2006                   81,500        729,143   300,000     1,110,643
                                  ------------   ------------   -------  ------------
   Weighted average remaining
    contractual life (years)              4.00           9.46      0.00          5.85
                                  ------------   ------------   -------  ------------
   Weighted average exercise price      $0.287         $1.990    $5.000        $2.680
                                  ------------   ------------   -------  ------------
</TABLE>

     For our fiscal  year ended June 30,  2005 and prior to that date we account
for stock option grants using the intrinsic-value  method in accordance with APB
Opinion  No.  25,  "Accounting  for Stock  Issued to  Employees"  ("APB 25") and
related Interpretations.  Under the intrinsic-value method, because the exercise
price of the  Company's  employee  stock options is equal to the market price of
the  underlying  stock  on  the  date  of  grant,  no  compensation  expense  is
recognized.

     In December 2004, the Financial  Accounting Standards Board ("FASB") issued
Statement  of Financial  Accounting  Standards  (SFAS") No. 123 (revised  2004),
"Share-Based  Payment" which revised Statement of Financial Accounting Standards
No. 123,  "Accounting for Stock-Based  Compensation".  This statement supersedes
APB Opinion No. 25,  "Accounting  for Stock  Issued to  Employees".  The revised
statement  addresses the accounting for share-based  payment  transactions  with
employees and other third parties,  eliminates the ability to account for share-
based compensation  transactions using APB 25 and requires that the compensation
expense  relating  to  such  transactions  be  recognized  in the  statement  of
operations.  The revised  statement,  as amended by the SEC is effective for our
six month  period  ended  December  31,  2005.  We did not issue any  options to
employees  during the six months ended  December  31, 2005 or the twelve  months
ended  December  31,  2006,  thus there is no effect on our earnings due to this
change.

     The following  table  illustrates the effect on net income and earnings per
share if the Company had applied the fair value  recognition  provisions  of the
revised  SFAS No. 123 (R ) during  the the year end  December  31,  2006 and six
months ended December 31, 2005 and the years ended June 30, 2005 and 2004.

<TABLE>
                                                       Six Months
                                          Year End        Ended               June 30,
                                        December 31,   December 31,   -------------------------
                                            2006           2005           2005          2004
                                        -------------  ------------  -------------  -----------
<CAPTION>
<S>                                     <C>            <C>            <C>           <C>
Net Income (Loss):
 As Reported                           $(25,513,839)   $(1,900,035)   $(6,800,030)  $5,233,826
                                        -------------  ------------  -------------  -----------
Pro Forma Net Income (Loss):
 Basic and Diluted                     $(25,513,839)   $(2,851,101)   $(6,800,030)  $5,233,826
                                        -------------  ------------  -------------  -----------
Net Income (Loss) Per Share:
 As Reported                           $      (0.24)   $     (0.18)   $     (0.86)  $     0.54
                                        -------------  ------------  -------------  -----------
Pro Forma Net Income (Loss) Per Share:
 Basic and Diluted                     $      (0.24)   $     (0.28)   $     (0.86)  $     0.54
                                        -------------  ------------  -------------  -----------
</TABLE>

     (B) WARRANTS

     In connection  with our borrowing of $400,000 on November 9, 2005 (See Note
14(c)) we agreed to issue additional penalty warrants,  exercisable for a period
of three years,  if the loan was not paid by January 9, 2006; we agreed to issue
warrants  for the  purchase  of 200,000  shares of common  stock each month at a
price per share of the lower of $2.50,  or the market  value on the day of issue
in each month for each  additional  month until the loan is paid. As of December
31, 2006, we reserved  warrants for the issuance of 2.2 million shares of common
stock as a result of this  borrowing as a result of our Chapter 11 filing future
issuance of additional  warrants has been stayed. The following table summarizes
our stock prices for each month that the warrants were reserved or issued.



  Date of Issue       Price       Date of Issue         Price
  -------------       -----       -------------         -----
  January 8, 2006     $2.45       July 9, 2006          $0.70
  February 9, 2006     1.50       August 9, 2006         0.41
  March  9, 2006       1.25       September 9, 2006      0.23
  April 9, 2006        0.75       October 9, 2006        0.25
  May 9, 2006          0.80       November 9, 2006      $0.10
  June 9, 2006        $0.55

     During the year ended  December 31, 2006, we recognized a non-cash  expense
for the 2,200,000 warrants issued in the amount of $1,828,287.  As of the filing
of our Chapter 11 filing, the loan had not been repaid.

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


                                      Twelve Months Ended
                                        December 31, 2006

  Expected volatility                         20% to 140%

  Risk-free interest rate                            4.7%

  Expected term                                   3 Years

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

     In  connection  with the Series B  Preferred  Stock  issued  during the six
months ended December 31, 2005 the Company granted  600,000  warrants to holders
of the Preferred  Stock to purchase  600,000 shares of Common Stock at $3.25 per
share, and we granted 236,000 warrants to MBC Global, our investment advisor, to
purchase  236,000  shares of Common  Stock at prices  that  range  from $2.50 to
$4.50.

     In November,  2005 we issued 200,000  warrants to various parties  involved
with loaning the Company $400,000. These warrants permit the purchase of 200,000
Common shares at $2.50 per share.

     The fair value of warrants issued were accounted for as financing expense.



                                                       Warrants
                                       --------------------------------------
                                                         Exercise    Weighted
                                           Number      Price Range    Average
                                         Of Shares      Per Share      Price
                                       --------------------------------------
Outstanding at  June 30, 2003             710,000     $2.50 - $4.00    $3.08
Expired During Fiscal 2004               (435,000)        $2.50        $2.50
                                       -----------
Outstanding at June 30, 2004 and 2005                     $4.00        $4.00
 (expiring April 23, 2006)                275,000
Issued during the six month period
 to non-employees
Outstanding at December 31, 2005        1,036,000     $2.50 - $4.50    $3.16
                                       -----------
Outstanding at December 31, 2005        1,311,000     $2.50 - $4.50    $3.34
Expired during - 2006                    (275,000)        $4.00        $4.00
Issued during 2006 to non-employees     2,200,000     $ .10 - $2.45    $0.81
                                       -----------
Outstanding at December 31, 2006        3,236,000     $ .10 - $4.50    $1.01
                                       ===========

(21) EXTRAORDINARY ITEM

     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 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 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 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 had  deferred all income from these  transactions  until such time as payment
was  received.  During the first  quarter of Fiscal 2005 we recorded the payment
for the previously deferred income in the amount of $4,000,000.

(22) TREASURY SHARES

     As of July 1, 2004, we held 3,678,146 shares of Treasury Stock. On July 28,
2004 Mr. Francis W. Murray  exercised his option to purchase 2 million shares of
our Common Stock at an exercise price of $0.26875 per share.  The Company issued
2 million shares of Treasury stock it held in exchange for proceeds of $537,500.
Also on July 28, 2004 the Company issued 689,730  Treasury  shares to Mr. Murray
in payment of the deferred salary of $344,865 we owed to him for the period from
January 3, 2003 to November  18,  2003.  On August 31,  2004 the Company  issued
73,339  Treasury  shares to Robert Quigley in payment of the deferred  salary of
$36,670 we owed to him for the period from January 3, 2003 to November 18, 2003.
As of December 31, 2005 there were 915,077  shares of Treasury Stock held by the
Company.

(23) EXECUTIVE COMPENSATION

     In April of 2001,  when we acquired  (under a bareboat  charter) the vessel
operations of the entity now known as Palm Beach Maritime Corporation, we became
obligated to honor employment  contracts between Palm Beach Maritime Corporation
and its employees. That included an Employment Agreement with Francis X. Murray,
the son of our CEO, Francis W. Murray. Mr. F.X. Murray had been the president of
Palm Beach Maritime  Corporation  and became vice  president of our  subsidiary,
which is now ITG Vegas,  Inc.  The  employment  agreement  with Mr. F.X.  Murray
(which had an  initial  term of three  years  which  ended  December  31,  2003)
automatically  renews  for  one-year  terms on  January  1 of each  year  unless
previously  terminated.  The employment  agreement with Mr. F.X. Murray provides
for a base salary of $310,000  per year and an annual  bonus of up to 25% of the
executive's base salary if certain EBITDA performance goals are met,  membership
to a golf club, life insurance for the benefit of the executive's  dependents in
the amount of $1,000,000 and other expense benefits. In addition,  the executive
is eligible for awards of stock options outside of his employment agreement, and
received in that respect  options to purchase  90,000  shares of common stock on
June 27, 2005, at an exercise  price of $2.00 per share.  On June 26, 2006 these
options were cancelled because the stock option plan from which they were issued
expired on June 26, 2006.


(24) RELATED PARTY TRANSACTIONS

     See  Footnote  3  for  related   party   transactions   regarding  the  PDS
Transactions.

     We have invested in two projects in which our Chairman, President and Chief
Executive Officer,  Francis W. Murray, also has a pecuniary interest.  The first
of these  investments  was to pay costs and expenses for  development  of a golf
course in Southern  California.  In Fiscal 2003, the loans made by us, including
principal  of $735,584  and  accrued  interest,  in the amount of  $193,957  was
assumed by OC Realty,  LLC, a Florida limited liability company in which Francis
W. Murray also has a primary interest.

     In the second project,  Mr. Murray (through OC Realty) is  participating in
the  development of an oceanfront  parcel of land,  located in Fort  Lauderdale,
Florida, which has received all governmental  entitlements from the City of Fort
Lauderdale and the State of Florida to develop a 14-story  building to include a
5-story parking garage,  approximately 6,000 square feet of commercial space and
a residential  9-story tower. As of December 31, 2006, we had lent $2,034,405 in
total to the project and we have accrued interest in the amount of $2,235,325 on
the loan.  These  loans bear  interest  at 12% and will be  repayable  out of OC
Realty's share of proceeds,  after payment of bank debts,  generated by the sale
of  condominiums.  We will  also  have the right to  receive,  as  participation
interest, from available cash flow of OC Realty, if the project is successful, a
priority  return of our  investment  and a priority  profits  interest for up to
three  times our  investment.  Repayment  of these  loans and our  participation
interest will be subject to repayment of, first,  bank debt of approximately $14
million (at present) and, second,  construction  financing expected to amount to
$25 to $30 million and third,  any capital invested by and fees payable to joint
venture partners  including OC Realty. OC Realty's share of proceeds  thereafter
will  range  from  22.5% to 45%.  We have  assessed  the  collectability  of the
advances  made to the golf course  project and to OC Realty based on  comparable
sales of like units in the  marketplace  which  suggests a weakening of the real
estate market for condominium  projects in the Fort Lauderdale area.  Therefore,
at December  31, 2006 we recorded an allowance  for doubtful  accounts on the OC
Realty project of $2,235,325 to more fully reflect the  observable  market value
of the loans.

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

     From time to time  Francis W. Murray has  advanced  funds to the Company to
meet its operating  expenses.  During our quarter which ended June 30, 2005, Mr.
Murray or companies  owned or  controlled by him made advances to the Company in
the amount of  approximately  $2,150,000 to fund the Company's  working  capital
needs.  Additionally,  the Company has deferred  making  salary  payments to Mr.
Murray and payments to his companies, the majority of which were during the last
quarter,  for charter hire fees on the Palm Beach Princess and Big Easy vessels.
As of September 30, 2005, the total advances and deferred  payments due him were
$3,277,000. On December 29, 2005 Mr. Murray purchased 204,966 shares of Series B
Preferred  Stock  at a  cost  of  $3,074,490.  These  shares  were  paid  for by
offsetting  advances made to the Company by Mr. Murray.  No interest expense was
accrued for the period of time from the  advances by Mr.  Murray  until  shortly
afterward when he converted the advances into equity of the Company.

     During  fiscal  2006 Mr.  Murray  continued  to defer his yearly  salary of
$395,000 and certain of the charter fees due on the Palm Beach  Princess and the
Big Easy.  During the year we accrued charter fees on the Palm Beach Princess in
the amount of $1,102,177 and accrued  charter fees on the Big Easy in the amount
of $1,200,000.

     During 2006 we made  payments  against the charter  fees to Mr.  Francis W.
Murray in the amount of $668,059. Additionally,  during 2006 we made payments to
Francis X. Murray  against the charter fees owed in the amount of $167,646.  Mr.
Francis W.  Murray has agreed  that  payments  to his son  (Francis  X.  Murray)
constitute payments on his behalf .

     During the fiscal  year ended June 30,  2005,  the Company  re-entered  the
equine business. In addition to the purchase of horses from outside parties, the
Company  purchased  horses  from  Francis W.  Murray at prices  which were to be
determined by an appraisal of their  values.  On December 31, 2005 we liquidated
our stock of horses.  On that date we transferred  our entire stock of horses to
Francis W. Murray. The horses originally purchased from Mr. Murray were returned
to him since the  Company  never  paid him for our  purchase  and the horses the
Company  purchased from outside parties were sold to Mr. Murray for our original
cost.  Payment was made by Mr. Murray by  offsetting  $328,000 in amounts he had
previously loaned the Company.

     On September 19, 2005, Francis X. Murray,  Vice President of our ITG Vegas,
Inc. subsidiary and son of Francis W. Murray, our President,  CFO and CEO loaned
the  Company  an  additional  $300,000  which  amount is due on demand and bears
interest at 8%. These amounts were re-paid to Mr. Murray  subsequent to December
31, 2005. During 2006, Mr. Murray loaned the Company $223,000. This loan has not
been repaid.

     The Company  employs Tanuja Murray,  daughter-in-law  of Francis W. Murray.
Ms.  Murray holds a law degree and is acting in the capacity of assistant to the
Chairman.  Ms. Murray earns $60,000 per year in addition to the regular employee
benefits paid by the Company.

(25) DEBTORS' FINANCIAL STATEMENTS

     The  Company's  bankruptcy  filing  included  the Company and seven of it's
operating   subsidiaries   and  excluded   several   inactive  or   non-material
subsidiaries. Presented below are the condensed combined financial statements of
the  Debtors.  These  statements  reflect  the  financial  position,  results of
operations  and  cash  flows  of  the  combined   Debtors,   including   certain
transactions and resulting  assets and liabilities  between the Debtors and non-
Debtor  subsidiaries  of the  Company,  which are  eliminated  in the  Company's
consolidated financial statements.


                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.

                             (Debtor-in-Possession)

                  CONDENSED COMBINED FINNANCIAL INFORMATION OF
                     ENTITIES IN REORGANIZATION PROCEEDINGS
                                 BALANCE SHEETS
                        AS OF DECEMBER 31, 2006 AND 2005

                                     ASSETS
                                                          December 31,
                                                -------------------------------
                                                     2006             2005
                                                --------------   --------------
 TOTAL CURRENT ASSETS                        $      2,847,060  $     4,249,365
                                                --------------   --------------
                                                --------------   --------------
 TOTAL VESSELS & EQUIPMENT - Net                   39,131,803       41,110,835
                                                --------------   --------------
                                                --------------   --------------
 TOTAL OTHER ASSETS                                19,654,302       31,279,312
                                                --------------   --------------
                                                --------------   --------------
 INVESTMENTS IN AND AMOUNTS DUE FROM
 WHOLLY OWNED SUBSIDIARIES                        203,179,529      203,446,147
                                                --------------   --------------
 TOTAL ASSETS                                $    264,812,694  $   280,085,659
                                                ==============   ==============

                      LIBILITIES AND STOCKHOLDERS' EQUITY

                                                --------------   --------------
 CURRENT LIABILITIES:                        $      1,366,580  $    46,400,870
                                                --------------   --------------
                                                --------------   --------------
 LIABILITIES SUBJECT TO COMPROMISE:                54,930,635                -
                                                --------------   --------------
                                                --------------   --------------
 LONG-TERM DEBT - Net of Current Portion                    -        1,960,722
                                                --------------   --------------

 DEFERRED INCOME                                       47,775          119,437

 COMMITMENTS AND CONTINGENCIES                              -                -
                                                --------------   --------------
 STOCKHOLDERS' EQUITY:                            208,467,704      231,604,630
                                                --------------   --------------
 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY  $    264,812,694  $   280,085,659
                                                ==============   ==============


                  CONDENSED COMBINED FINNANCIAL INFORMATION OF
                     ENTITIES IN REORGANIZATION PROCEEDINGS
  FOR THE YEAR ENDED DECEMBER 30, 2006 AND THE SIX MONTHS ENDED DECEMBER 2005
                 AND FOR THE YEARS ENDED JUNE 30, 2005 AND 2004

                             STATEMENT OF OPERATIONS
<TABLE>
                                                                                    Six Months
                                                                                      Ended
                                                                  December 31,      December 31,             June 30,
                                                                 --------------   --------------   -----------------------------
                                                                      2006             2005             2005            2004
                                                                 --------------   --------------   -------------   -------------
<CAPTION>
<S>                                                           <C>               <C>              <C>             <C>
 OPERATING REVENUES                                           $     30,507,989  $    13,693,552  $   32,353,030  $   32,601,396
                                                                 --------------   --------------   -------------   -------------
                                                                 --------------   --------------   -------------   -------------
 OPERATING COSTS AND EXPENSES:                                      44,315,110       20,079,655      33,668,751      37,304,338
                                                                 --------------   --------------   -------------   -------------
                                                                 --------------   --------------   -------------   -------------
 OTHER INCOME (EXPENSE):                                           (10,696,419)      (4,683,747)     (3,540,455)     (1,900,723)
                                                                 --------------   --------------   -------------   -------------
 (LOSS) BEFORE TAX PROVISION
 AND EXTRAORDINARY ITEM                                            (24,503,540)     (11,069,850)     (4,856,176)     (6,603,665)
     Income Tax Expense                                                      -                -          90,000         228,500
                                                                 --------------   --------------   -------------   -------------
 (LOSS) BEFORE EXTRAORDINARY ITEM                                  (24,503,540)     (11,069,850)     (4,946,176)     (6,832,165)
 EXTRAORDINARY ITEM -  Fees charged to related
     parties for Master Settlement Agreement ( Notes 15 & 21).               -                -       4,000,000               -
                                                                 --------------   --------------   -------------   -------------
 (LOSS) BEFORE EQUITY IN NET INCOME (LOSS) OF SUBSIDIARIES         (24,503,540)     (11,069,850)       (946,176)     (6,832,165)
          Equity in Net Income (Loss) of Subsidiaries                        -                -               -               -
                                                                 --------------   --------------   -------------   -------------
 NET (LOSS)                                                   $    (24,503,540) $   (11,069,850) $     (946,176) $   (6,832,165)
                                                                 ==============   ==============   =============   =============

                             STATEMENT OF CASH FLOWS

                                                                 --------------   --------------   -------------   -------------
 CASH FLOWS (USED IN) OPERATING ACTIVITIES                    $        588,005  $    (3,294,853) $      (40,969) $    2,870,539
                                                                 --------------   --------------   -------------   -------------
                                                                 --------------   --------------   -------------   -------------
 CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES                (525,428)        (829,778)    (15,485,856)     (3,218,766)
                                                                 --------------   --------------   -------------   -------------
                                                                 --------------   --------------   -------------   -------------
 CASH FLOWS (USED IN) PROVIDED BY FINANCING ACTIVITIES                (987,669)       4,777,933       9,189,934       1,729,024
                                                                 --------------   --------------   -------------   -------------
 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                 (925,092)         653,302      (6,336,891)      1,380,797
          CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR             1,819,700        1,166,398       7,503,289       6,122,492
                                                                 --------------   --------------   -------------   -------------
          CASH AND CASH EQUIVALENTS AT END OF YEAR            $        894,608  $     1,819,700  $    1,166,398  $    7,503,289
                                                                 ==============   ==============   =============   =============
</TABLE>

 See Notes to Consolidated Financial Statements.


(26) 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>
                                                                       Year Ended December 31, 2006
                                               -----------------------------------------------------------------------------
                                                  4th Quarter            3rd Quarter         2nd Quarter        1st Quarter
<CAPTION>
<S>                                            <C>                    <C>                   <C>                <C>
    Revenues                                   $       6,201,461      $       6,932,550     $    8,427,956     $   9,393,596
    Net Income (Loss)                                (13,509,188)            (3,579,428)        (4,478,924)       (3,946,299)
    Net (Loss) Per Share - Basic and Diluted   $           (1.19)     $           (0.31)    $        (0.39)    $       (0.35)
</TABLE>


<TABLE>
                                                 Six Months Ended December 31, 2005
                                               -----------------------------------------
                                                  2nd Quarter            1st Quarter
<CAPTION>
<S>                                            <C>                    <C>
    Revenues                                   $       6,585,583      $       7,391,067
    Net (Loss)                                        (8,110,852)            (4,122,130)
    Net (Loss) Per Share - Basic and Diluted   $           (0.76)     $           (0.40)
</TABLE>


<TABLE>
                                                                       Year Ended December 31, 2005
                                               -----------------------------------------------------------------------------
                                                  4th Quarter            3rd Quarter         2nd Quarter        1st Quarter
<CAPTION>
<S>                                            <C>                    <C>                   <C>                <C>
    Revenues                                   $       8,598,946      $      10,280,985     $    7,514,993     $   6,378,322
    Income (Loss) before Extraordinary Item           (4,065,430)               649,117           (506,363)       (1,977,360)
    Extraordinary Item                                   440,000                                                   3,560,000
    Net Income (Loss)                                 (3,625,430)               649,117           (506,363)        1,582,640
    Net Basic Income (Loss) per Share
    ---------------------------------
    Income (Loss) before Extraordinary Item                (0.38)                  0.06              (0.06)            (0.19)
    Extraordinary Item                                      0.04                   0.00               0.00              0.35
    Net Income (Loss)                                      (0.34)                  0.06              (0.06)             0.16
    Net Diluted Income (Loss) per Share
    -----------------------------------
    Income (Loss) before Extraordinary Item                (0.37)                  0.06              (0.06)            (0.22)
    Extraordinary Item                                      0.04                   0.00               0.00              0.37
    New Income (Loss)                          $           (0.33)      $           0.06     $        (0.06)     $       0.15
</TABLE>


<TABLE>
                                                                       Year Ended June 30, 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
    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>

(27) SUBSEQUENT EVENTS

     (A) During the quarter ended March 31, 2007 passenger  counts have declined
approximately  22%  and  revenues  have  declined  approximately  18.5%  at  the
Company's Palm Beach Princess  operation from the  comparative  quarter of 2006.
The  Company  attributes  these  declines  to a decrease  in the  marketing  and
advertising in the current quarter due to our cash shortages,  the effect of our
bankruptcy filing on our customers and increased  competition from slot machines
placed at  racetracks  in Broward  County and another day cruise  casino  vessel
operating from the Port of Palm Beach since January 15, 2007.

     (B) On April 2, 2007 the debtors files a motion in the Bankruptcy  Court to
extend the time  during  which they have the  exclusive  right to file a plan of
reorganization.  In Chapter 11, a debtor has an initial  120-day  period  during
which only they may file a plan of  reorganization,  which may be extended to up
18 monthss after the date of the Chapter 11 filing.  Other parties may object to
the requested extention,  and PDS has filed such an objection. In the event that
the Bankruptcy Court does not grant the Debtors' request to extend  exclusivity,
the other parties in interest,  including  PDS, may have the ability to file and
seek confirmation of their own plan of reorganization..

     (C) On April 12, 2007, Robert J. Quigley retired and resigned as a Director
of the Company and as an officer of several dormant subsidiaries.

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.

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

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

Item 9B. Other Information

     Not applicable


                                    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      66      Chairman of the Board, President,
                                 Chief Executive Officer
                                 and Chief Financial Officer
  James J. Murray        68      Director
  Walter ReDavid         81      Director
  Robert J. Quigley      77      Director (retired and resigned April 12,2007)
  William H. Warner      62      Secretary
  Francis X. Murray      41      Vice President of ITG Vegas
  Scott Kaplan           36      Vice President of Strategic
                                 Development & Capital Markets

     Set forth below is certain  biographical  information  with respect to each
director and other listed  officers,  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 was a director since 1980.  Since 2002, Mr.
Quigley  served as an  officer  of one of our  subsidiaries  which was formed to
develop foreign gaming opportunities.  Since September 2004 Mr. Quigley was been
president of our equine  subsidiary.  And 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 and.
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.  On April 12,
2007,  Robert J. Quigley  retired and resigned as Director of the Company and as
an officer of several dormant subsidiaries.

     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 is a certified  public  accountant,  and prior to
joining us, was employed in public accounting for 11 years.

     Francis X. Murray.  Mr.  Murray,  son of our Chairman and CEO,  has,  since
April 2001, been Vice President of our ITG Vegas subsidiary  (surviving  company
of the merger of Palm Beach  Princess,  Inc.,  and ITG Vegas) which operates the
cruise ship M/V Palm Beach Princess and related offshore gaming business. He has
also  been   President  of  Palm  Beach  Maritime   Corporation   (formerly  MJQ
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.

     Scott  Kaplan.  Mr.  Kaplan  joined the  Company on January 1, 2005 as Vice
President - Strategic  Development  and  Capital  Markets.  Prior to joining the
company,  Mr. Kaplan served as an outside financial advisor to the Company since
November 2002 with Maximillian  Advisors,  LLC and Churchill Capital,  LLC, both
New York based gaming-focused financial advisory boutique firms. Mr. Kaplan also
spent 10 years in the New York- based Gaming, Lodging and Real Estate Investment
Banking Group of Deustche Bank, prior to founding Maximillian Advisors, LLC.



Other Key Officers

  Name                        Age   Position
  ----                        ---   ------------------------
  Christine E. Rice Newell    61    Assistant Treasurer and
                                    Controller of ITB and
                                    Secretary/Treasurer of ITG Vegas, Inc.
  Stephen Flood               46    Vice President of Casino
                                    Operations, ITG Vegas, Inc.

     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.

     Stephen  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 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.

Audit Committee

     We do not have an audit committee and, accordingly,  our 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 we have officers, directors and
employees who have accounting and financial  expertise,  due to the restrictions
on of our 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."

Code of Ethics

     We have 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.  We will provide a copy of
is 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.

Involvement in Certain Legal Proceedings

     None of the  directors/officers  have been  involved in any material  legal
proceeding of any type as described in Regulation S-K which occurred  within the
last five years from the date of filing of this report.

Stockholder Director Nominations

     Stockholders  meeting the  following  requirements  who want to recommend a
director  candidate  may do so in  accordance  with our Bylaws and the following
procedures  established by the Board.  We will consider all director  candidates
recommended to the Board by  stockholders  owning at least 5% of our outstanding
shares  at  all  times  during  the  year   preceding  the  date  on  which  the
recommendation is made that meet the qualifications established by the Board. To
make a  nomination  for  director  at an annual  meeting,  a written  nomination
solicitation  notice must be received  by the Board at our  principal  executive
office not less than 120 days before the  anniversary  date our proxy  statement
was mailed to stockholders  in connection with our previous annual meeting.  The
written  nomination  solicitation  notice must  contain the  following  material
elements,  as well as any other  information  reasonably  requested by us or the
Board:



     o    the name and address,  as they appear on our books, of the stockholder
          giving the notice or of the beneficial  owner, if any, on whose behalf
          the nomination is made;

     o    a representation that the stockholder giving the notice is a holder of
          record of our common stock  entitled to vote at the annual meeting and
          intends  to  appear in person  or by proxy at the  annual  meeting  to
          nominate the person or persons specified in the notice;

     o    a complete biography of the nominee,  as well as consents to permit us
          to complete any due diligence  investigations to confirm the nominee's
          background, as we believe to be appropriate;

     o    the  disclosure  of  all  special   interest  and  all  political  and
          organizational affiliations of the nominee;

     o    a signed,  written  statement from the director  nominee as to why the
          director  nominee  wants to serve on our Board,  and why the  director
          nominee believes that he or she is qualified to serve;

     o    a description of all arrangements or  understandings  between or among
          any of the  stockholder  giving the notice,  the beneficial  owner, if
          any, on whose  behalf the notice is given,  each nominee and any other
          person or persons  (naming  such person or persons)  pursuant to which
          the nomination or nominations are to be made by the stockholder giving
          the notice;

     o    such  other  information   regarding  each  nominee  proposed  by  the
          stockholder giving the notice as would be required to be included in a
          proxy  statement  filed pursuant to the proxy rules of the SEC had the
          nominee been nominated,  or intended to be nominated,  by our Board of
          Directors; and

     o    the  signed  consent  of each  nominee  to serve as a  director  if so
          elected.

     In considering director candidates, the Board will consider such factors as
it deems  appropriate  to assist in developing a board and  committees  that are
diverse in nature and  comprised  of  experienced  and seasoned  advisors.  Each
director nominee is evaluated in the context of the full Board's  qualifications
as a whole,  with the objective of establishing a Board that can best perpetuate
our success and represent  stockholder  interests  through the exercise of sound
judgment.  Each director nominee will be evaluated  considering the relevance to
us of the director nominee's skills and experience,  which must be complimentary
to the skills and experience of the other members of the Board.



Item 11. Executive Compensation

Compensation Discussion and Analysis:

     The  Company  does  not  have a  compensation  committee  of the  Board  of
Directors,  and the full Board decides  executive  compensation.  Mr. Francis W.
Murray,  a member of the Board of Directors,  currently  serves as our President
and Chairman of the Board of Directors.  Mr. Robert J. Quigley was a director of
the Company until his  resignation  on April 12, 2007.  Mr. Quigley was a former
President and Chief Executive Officer of the Company,  and continued to serve as
a part-time  employee until  December  2006.  Mr. James Murray,  a member of the
Board of Directors is the brother of Mr.  Francis W. Murray.  Mr. Walter ReDavid
is an outside, independent member of the Board of Directors.

Objectives of our Compensation Program

     The primary  objective of our compensation  program for our chief executive
officer and our other three executive officers named in the Summary Compensation
Table of this section (together with the CEO, the "Named Executive Officers") is
to retain the Named  Executive  Officers.  We have  accomplish  this in the past
through a mix of base salary and cash bonuses or the issuance of stock  options.
Our Chapter 11 bankruptcy  filings in 2003 and in 2006 together with limitations
placed on the Company by our primary  creditor have limited and amount of salary
increases, and bonus we could pay to our Named Executive Officers.

Stock Option and Award Plan

     In June, 2005, the Company's Board of Directors adopted and approved a 2005
Stock Option and Award Plan (the "2005 Plan"). The 2005 Plan permitted the grant
of options to purchase up to 1,300,000 shares of Common Stock to Named Executive
Officers and employees.  This plan terminated  because the Company was unable to
have  a  stockholder's   meeting,  due  to  financial   difficulties,   for  the
shareholders to approve the 2005 Plan.

Retirement, Health and Welfare Benefits

     We  offer  a  variety  of  health  and  welfare  programs  to all  eligible
employees.  The Named  Executive  Officers  are  eligible  for the same  benefit
programs  on the same  basis as the rest of our  administrative  employees.  Our
health and welfare programs include medical,  pharmacy, dental insurance for all
the  Named  Executive  Officers  and life  insurance  for  certain  of the Named
Executive Officers. We offer these programs at no cost to the employees.

     We  offer a  qualified  401(K)  savings  and  retirement  plan.  All of our
employees,  including the Named Executive  Officers,  are generally eligible for
the 401(K) plan.  Our  contribution  to the 401(K) plan is a  percentage  of the
participants  salary (50% of the  participants  contribution  up to a maximum of
6%).

Salary deferred by our Named Executive Officers

     Our Chairman and CEO, Mr.  Francis W. Murray is currently and has from time
to time deferred his salary in order to conserve working  capital.  In 2004, Mr.
Murray  accepted  treasury stock as compensation in lieu of this deferred salary
in the amount of  $344,865.  Mr.  Murray also paid for a portion of the Series B
preferred  stock  purchased by him in December 2005 by off setting salary due to
him. Mr.  Warner has deferred  salary in 2005 and 2006 in the amount of $ ,which
remains  outstanding,  in order to conserve working capital for the Company. Mr.
Scott Kaplan was awarded a bonus in the amount of $ effective December 31, 2006.
This bonus  remains  outstanding  because  payment has not been  approved by the
bankruptcy court. Performance Bonus

     During  fiscal 2004 and 2005 we paid to Francis X.  Murray,  in  accordance
with his employment  contract,  a bonus for achieving certain EBITDA performance
goals. Due to the Company's weakening financial position, we did not achieve the
performance  goals nor has the  Compensation  Committee  re-set any  performance
goals.

     The  following  table sets forth the cash  compensation  as well as certain
other  compensation paid or accrued during the year ended December 31, 2006, the
six months ended  December 31, 2005,  ("**") the fiscal years ended ("FYE") June
30, 2005 and 2004 to the individuals  who served as our chief executive  officer
during fiscal year 2006 and other  executive  officers of the Company who earned
more  than  $100,000   during  fiscal  year  2006   (collectively,   the  "Named
Executives"):

<TABLE>
                           Summary Compensation Table
--------------------------------------------------------------------------------------------------------------------------
Name and Principal                                                         Option          All Other
Position                            Year     Salary         Bonus          Awards         Compensation            Total
--------                            ----     ------         -----          ------         ------------            -----
<CAPTION>
<S>                                 <C>   <C>              <C>            <C>             <C>                 <C>
Francis W. Murray                   2006  $   395,000 (1)  $       0      $        0      $    27,839 (2)     $  422,839
President, Chief              **    2005      197,500 (1)          0               0           12,948 (2)        210,448
Executive Officer and        FYE    2005      395,000 (1)          0       1,064,500 (9)       57,115 (3)      1,516,615
Chief Financial  Officer     FYE    2004      395,000 (1)          0               0           17,701 (2)        412,701

Francis X. Murray,                  2006      291,041              0               0           28,237 (13)       319,278
Vice President of             **    2005      155,442              0               0            6,517 (4,13)     161,959
ITG Vegas, Inc.              FYE    2005      310,884        115,000               0           77,930 (3,5,13)   503,814
                             FYE    2004      290,122         88,628               0           24,766 (13)       403,516

William H. Warner,                  2006      175,000 (10)         0               0           19,193 (13)       194,193
Secretary                     **    2005       87,500              0               0            8,235 (6,8)       95,735
                             FYE    2005      175,000 (7)          0               0           13,555 (13)       188,555
                             FYE    2004      175,000              0               0           11,220 (13)       186,220

Scott Kaplan,                       2006      130,000 (11)   105,000 (12)          0                0            235,000
Vice President of Strategic   **    2005  $   101,538      $       0      $        0      $         0         $  101,538
Development & Capital
Markets
</TABLE>

     (1)  For the year ended  December  31,  2006  consists of 395,000 in salary
          earned by Mr.  Murray  which was  deferred.  In the six  months  ended
          December 30, 2005, consists of $197,500 in salary earned by Mr. Murray
          which was  deferred.  In the year  ended  June 30,  2005  consists  of
          $395,000 in salary earned by Mr. Murray through June 30, 2005 of which
          $182,307  was  deferred.  In Fiscal 2004 all the salary  earned by Mr.
          Murray was  deferred.  On July 28,  2004 the  Company  issued  689,730
          Treasury  Shares to Mr.  Murray in payment of  deferred  salary in the
          amount of $344,865 that was owed to him for the period from January 3,
          2003 to November 18, 2003.

     (2)  Consists of automobile lease payments.

     (3)  At a meeting in June 2005 the Board of Directors awarded Messrs. F. W.
          Murray and F. X. Murray  $43,500  each for their  personal  guarantees
          which they were  required to provide in order to complete the PDS loan
          on April 5,  2005.  After  the Big Easy dry dock  company  refused  to
          deliver the Big Easy due to our having  disputed  some of its charges,
          Messrs. Murrays were required by PDS to personally guarantee the April
          2005 PDS loan,  the proceeds of which were used by ITG Vegas to obtain
          the release of the vessel.  The Board  determined  that a 2% guarantor
          compensation percentage would be used and paid as a guarantee fee.

     (4)  In the six months ended  December  31, 2005,  consists of $449 of life
          insurance  premiums  paid by the  Company  with  respect  to term life
          insurance payable to beneficiaries designated by Mr. F. X. Murray.

     (5)  At its meeting on September 11, 2003 the Board of Directors 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  were to be  granted or issued  until the  Bankruptcy
          Trustee  shall have been paid in full,  at which time the  Company was
          authorized (but not obligated) to grant such options.  Such action was
          taken  in  order  to  compensate  Mr.  F. 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.  In June 2005 the  Board of  Directors
          authorized  replacing  the future  option  grants to Mr. Murray with a
          cash payment of $.97 per option share or $19,400 which represented the
          difference  between the  original  option price of $.50 and the market
          price on June 26, 2006 of $1.47.

     (6)  In the  six  months  ended  December  31,  2005  consists  of  monthly
          automobile  allowance  of $9,780,  of which $4,075 was deferred by Mr.
          Warner.

     (7)  Consists of $175,000 in salary earned by Mr.  Warner  through June 30,
          2005 of which $26,923 has been deferred.

     (8)  In the six months  ended  December  31, 2005  includes  $2,160 of life
          insurance  premiums  paid by the  Company  with  respect  to term life
          insurance  payable  to  beneficiaries  designated  by Mr.  Warner  and
          $1,615, contributed by the Company under its 401(K) plan.

     (9)  At a meeting of the Board of Directors of the Company held on June 29,
          2004 the board  authorized  compensating  Francis  W.  Murray  for tax
          consequences he would incur as a result of the PDS  Transactions.  The
          amount and form of such  compensation was to be determined by the full
          board  of  directors  when  data as to such  tax  consequences  became
          available.  At its  meeting  on June 27,  2005 the Board of  Directors
          determined  that  the tax  effect  of the  transaction  to Mr.  Murray
          totaled $1,064,500 and that he should be compensated in that regard by
          granting him an option to purchase 724,143 shares at an exercise price
          of $2 per  share.  The  number  of option  shares  was  determined  by
          dividing the $1,064,500 by the closing stock price on June 26, 2005 of
          $1.47.

     (10) Consists of $175,000 in salary earned by Mr.  Warner  through June 30,
          2006, of which 40,385 has been deferred.

     (11) Consists of $ 130,000 in salary earned by Mr. Kaplan  through June 30,
          2006, of which $11,539 has been deferred.

     (12) Mr.  Kaplan was awarded a bonus of  $105,000.  This bonus has not been
          paid as of December 31, 2006  because it has not been  approved by the
          Bankruptcy Court.

     (13) Consists of automobile  allowance and our matching  contribution under
          our 401(k) plan.


Option Grants during the Year Ended December 31, 2006

     There were no stock options granted to the Named Executives during the year
ended December 31, 2006.

Aggregated Option Exercises during the Year Ended December 31, 2006

Aggregated Option Exercises during the Year Ended December 31, 2006


                         Options Awards
---------------------------------------------------------------

                    Number of
                    Securities
                    Underlying
                    Unexercised     Option
                    Options (#)     Exercise   Option
     Name           Exercisable     Price($)   Expiration Date
-----------------   -----------     --------   -----------------

Francis W. Murray   724,143    (1)      2.00   June 26, 2015
                    300,000    (2)      5.00   January 14, 2007

William H. Warner    75,000    (3)   0.26875   December 31, 2010

(1)  The option was  granted on June 27,  2005.  The option is fully  vested and
     exercisable.

(2)  The option was granted on January 15, 1997.  The option is fully vested and
     exercisable

(3)  The option was granted on January 7, 2002.  The option is fully  vested and
     exercisable

     The  following  table  provides  information  with respect to the executive
officers  shown in the  Summary  Compensation  Table  concerning  stock  options
exercised  during the year ended  December  31, 2006 and the value of vested and
unvested unexercised options held as of December 31, 2006.

<TABLE>
                                           Number of Securities            Value of Unexercised
                                           Underlying Unexercised            In-the-Money
                 Share                     Options at December 31,        Options at December 31,
               Acquired on    Value               2006 (#)                      2006 ($)(1)
  Name          Exercised    Realized   ----------------------------    ---------------------------
                   (#)         ($)      Exercisable    Unexercisable    Exercisable   Unexercisable
  ----------   -----------   --------   ------------   -------------    -----------   -------------
<CAPTION>
<S>                                      <C>                <C>            <C>             <C>
  Francis W.
  Murray           --          --        1,024,143          -0-            $-0-            $-0-

  William H.
  Warner           --          --           75,000          -0-            $-0-            $-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 December 31, 2006  ($0.06) 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. On occasion directors have been granted stock options
as compensation.  Such grants have not been made under any standard compensation
arrangements. In September 2003 the Board authorized the future grant of options
for 25,000 shares of common stock to all Directors,  other than our CEO, but did
not  actually  grant the  options  due to  restrictions  imposed by our  primary
creditor.  On  June  27,  2005  the  Board  awarded  compensation  to the  three
directors,  other than our CEO in an amount equal to the difference between $.50
(the original option price) and $1.47 (the last sale price on the prior day), or
$.97 per option share, times 25,000, or $24,250 to each of the three directors.

Employment Contracts

     In April of 2001,  when we acquired  (under a bareboat  charter) the vessel
operations of the entity now known as Palm Beach Maritime Corporation, we became
obligated to honor employment  contracts between Palm Beach Maritime Corporation
and its employees. That included an Employment Agreement with Francis X. Murray,
the son of our CEO,  Francis W. Murray.  Mr. F. X. Murray had been the president
of Palm Beach Maritime  Corporation and became vice president of our subsidiary,
which is now ITG Vegas,  Inc.  The  employment  agreement  with Mr. F. X. Murray
(which had an  initial  term of three  years  which  ended  December  31,  2003)
automatically  renews  for  one-year  terms on  January  1 of each  year  unless
previously  terminated.  The employment agreement with Mr. F. X. Murray provides
for a base salary of $310,000  per year and an annual  bonus of up to 25% of the
executive's base salary if certain EBITDA performance goals are met,  membership
to a golf club, life insurance for the benefit of the executive's  dependents in
the amount of $1,000,000 and other expense benefits. In addition,  the executive
is eligible for awards of stock options outside of his employment agreement, and
received in that respect  options to purchase  90,000  shares of common stock on
June 27, 2005, at an exercise  price of $2.00 per share.  On June 26, 2006 these
options were cancelled because the stock option plan from which they were issued
expired on June 26, 2006.

     Under Mr. F. X. Murray's  employment  agreement,  if the Company terminates
his  employment  other  than  for  "cause",  "death  or  disability",  or if the
executive  terminates his  employment  for "good reason"  following a "change of
control"  then in any such  case the  Company  shall  pay to the  executive  all
amounts  of base  salary  and  bonus,  and shall  maintain  in effect all of his
benefits,  which  otherwise would have become due through the end of the term of
the agreement.  If the  executive's  employment is terminated by the Company for
"cause",  or if the executive  voluntarily  terminates his employment other than
for "good reason",  then the Company shall have no further obligation other than
to pay him his base salary  through the effective  date of  termination  and any
other accrued compensation and benefits.  If his employment terminates by reason
of  "disability"  then the Company  will pay, for the balance of the term of the
contract,  any  difference  between  the  amount  of his  base  salary  and  any
disability  payments he may be entitled to receive  under any  Company-sponsored
disability plan.


Compensation Committee Interlocks and Insider Participation

     The  Company  does  not  have a  compensation  committee  of the  Board  of
Directors,  and the full Board decides  executive  compensation.  Mr. Francis W.
Murray,  a member of the Board of Directors,  currently  serves as our President
and  Chief  Executive  Officer  and his son,  Mr.  Francis  X.  Murray,  is Vice
President and Chief Operating  Officer of our ITG Vegas  subsidiary.  During the
last fiscal year, none of our directors has served on the Compensation Committee
of any other company.



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 December 31, 2006, 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 December
31, 2006, there were 11,367,487 shares of outstanding stock.

                                                      Common Stock
                                       --------------------------------------
                                       Amount and Nature of          Percent
  Name and Address of Beneficial Owner Beneficial Ownership          Of Class
  ------------------------------------ --------------------          --------
  Francis W. Murray
  211BenignoBlvd.Suite210
  Bellmawr, NJ 08031                        7,903,436       (1)(4)     51%

  PDS Gaming Corporation
  6280 Annie Oakley Drive
  Las Vegas, NV 89120                        800,000                    7%

  MBC Global 269 Market Square
  269 Market Square
  Lake Forest, IL 60045                     1,436,000         (2)     12.6%

  Westminster Investments, LLC
  420 N. Western Ave.
  Lake Forest, IL 60045                       941,209         (3)      8.3%

  * except as footnoted, the number of shares treated as outstanding is equal
    to 11,367,487

(1)  Includes 300,000 shares of common stock issuable upon the exercise of stock
     options at $5.00 per share,  724,143  shares of common stock  issuable upon
     the  exercises  of stock  options at $2.00 per share and  1,689,560  shares
     issuable upon conversion of Series B Preferred Stock.

(2)  Includes  warrants  exercisable  at the following  prices and 41,209 common
     shares issuable upon conversion of Series B Preferred Stock:

          #              Amount               #               Amount
     ------------  ----------------- -----------------  -----------------
      188,500             4.50             100,000             0.80
       59,000             3.50             100,000             0.55
       88,500             2.50             100,000             0.70
      100,000             2.45             100,000             0.41
      100,000             1.50             100,000             0.23
      100,000             1.25             100,000             0.25
      100,000             0.75             100,000             0.10

(3)  Includes warrants exercisable at the following prices:

         #               Amount               #               Amount
    -------------  ----------------- -----------------  -----------------
      75,000              2.50             75,000              0.55
      75,000              2.45             75,000              0.70
      75,000              1.50             75,000              0.41
      75,000              1.25             75,000              0.23
      75,000              0.75             75,000              0.25
      75,000              0.80             75,000              0.10

(4)  Based on conversion of all 500,000 shares of Series B Preferred  Stock into
     4,120,880 shares of common stock.



Security Ownership of Management

     The  following  table sets forth  certain  information  with respect to the
beneficial  ownership,  as of December 31, 2006, 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          Percent of Class
  ------------------------           ----------------          ----------------
  Francis W. Murray                      7,903,436     (1) (4)        51%
  James J. Murray                            -                         -
  Walter ReDavid                             -                         -
  Robert J. Quigley                       179,169        (2)         1.2%
  William H. Warner                       123,124        (3)          .8%
  All executive officers and
  directors  as a group (5 persons)     8,205,729        (4)          53%

  * except footnoted, the number of shares treated as outstanding is
    equal to 11,367,487

(1)  Includes  1,024,143  shares issuable upon the exercise of stock options and
     1,689,560 shares issued upon conversion Series B Preferred Stock.

(2)  Includes  100,000  shares of common  stock  issuable  upon the  exercise of
     options.

(3)  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.

(4)  Based on  conversion  of 500,000  shares of Series B  Preferred  Stock into
     3,826,530 of common stock.

2005 Stock Option and Award Plan

     On June 27, 2005, the Board adopted a 2005 Stock Option and Award Plan (the
"Plan") and granted  stock  options to a number of employees for the purchase of
300,000  shares of our common stock at $2 per share.  The Plan provides that all
options will  terminate,  however,  if the Plan is not approved by action of our
shareholders  within one year (by June 26,  2006) . The Plan was not approved by
the  shareholders  terminated  on June 26, 2006 and the options that were issued
were cancelled.

     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.

     During the fiscal year ended June 30, 2005 the Board of  Directors  awarded
Mr. Francis W. Murray a non-qualified option to purchase 724,143 shares at $2.00
per share for  compensation  of tax  consequences  incurred  by Mr.  Murray as a
result  of the  PDS  Transactions.  Pursuant  to a  Non-qualified  Stock  Option
Agreement  dated January 7, 2002 between the Company and William H. Warner,  the
Company  granted  an option to  purchase  75,000  shares of Common  Stock to Mr.
Warner,  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 decent and distribution, and, during the lifetime of
the  optionee,  are  exercisable  only  by  the  optionee.  The  options  remain
exercisable   following   termination  of  employment,   until  their  scheduled
expiration date.

     In addition to the options  described in the prior  paragraph  options have
been  issued in  connection  with  other  prior  agreements  with  officers  and
employees.  The Company has granted  non-qualified  options to purchase  311,500
shares of Common  Stock at prices  that range from $.50 to $5.00 per share.  All
the  options  were  granted at prices  equal to at least 100% of the fair market
value of the stock at the time of the grant. All the options vested  immediately
and expire ten years after their  issuance.  The options expire at various times
from January 2007 to October 2010.

     In  connection  with the Series B  Preferred  Stock  issued  during the six
months ended December 31, 2005 the Company granted  600,000  warrants to holders
of the Preferred  Stock to purchase  600,000 shares of Common Stock at $3.25 per
share, and we granted 236,000 warrants to MBC Global, our investment advisor, to
purchase  236,000  shares of Common  Stock at prices  that  range  from $2.50 to
$4.50.

     In November,  2005 we issued 200,000  warrants to various parties  involved
with loaning the Company $400,000.

     We agreed to issue additional penalty warrants, exercisable for a period of
three  years,  if the loan was not paid by January  9, 2006.  We agreed to issue
warrants  for the  purchase  of 200,000  shares of common  stock each month at a
price per share of the lower of $2.50,  or the market  value on the day of issue
in each month for each  additional  month until the loan is paid. As of December
31, 2006, we issued or reserved  warrants for the issuance of 2.2 million shares
of common stock at prices between $.10 and $2.45 as a result of this borrowing.

Item 13. Certain Relationships and Related Transactions.

     As  described  in Item 1 of this Report  ("Business  - PDS  Transactions"),
beginning on July 7, 2004, we entered into sub-bareboat  charters of the vessels
Palm Beach Princess and Big Easy with entities (Palm Beach Maritime  Corporation
and Palm Beach  Empress,  Inc.) owned or controlled by our Chairman,  Francis W.
Murray.  Reference is made to the summaries of the PDS transactions set forth in
Item 1. Pursuant to our June 30, 2005 refinancing and  restructuring  (as loans)
of the PDS transactions, we now charter the vessels, Palm Beach Princess and Big
Easy directly from Cruise Holdings I and Cruise Holdings II, respectively, which
companies are owned by Palm Beach Maritime  Corporation  and Palm Beach Empress,
Inc. Pursuant to the new charters,  we pay Cruise Holdings I and Cruise Holdings
II, as owners of the  vessels,  charter  fees of $50,000  per month for the Palm
Beach  Princess and  $100,000  per month for the Big Easy,  plus 1% of our gross
revenues from operation of those vessels.  We have the right to purchase  either
or both vessels,  at our option, for $17.5 million in the case of the Palm Beach
Princess  (representing  its appraised value as of January 12, 2004 and for fair
market value (to be determined by  appraisal))in  the case of the Big Easy.  The
charters are treated as capital leases since,  once we pay off the loans against
the Palm Beach Princess and Big Easy, we will be entitled to substantial credits
against the purchase prices of the vessels:  a $14 million credit in the case of
the Palm Beach  Princess  and a $6  million  credit in the case of the Big Easy,
representing  the original  principal  amounts of the July 2004 sale - leaseback
transactions  involving those vessels,  as well as credits for our investment in
the net Ship  Mortgage  Obligation  of  approximately  $7.2 million which can be
applied to the purchase price of either vessel, and a credit for the portions of
the costs of refurbishing and retrofitting the Big Easy which we paid, amounting
to  approximately  $3 million,  that can be applied to the purchase price of the
Big Easy.

     At a  meeting  in June 2005 the Board of  Directors  approved  compensating
Messrs. F. W. Murray and F. X. Murray $43,500 each for their personal guarantees
which they were  required to provide in order to complete  the PDS loan on April
5, 2005.  Messrs.  Murray were required by PDS to  personally  guarantee the PDS
loan,  the proceeds of which were used by ITG Vegas to obtain the release of the
Big  Easy  vessel  from dry  dock.  The  Board  determined  that a 1%  guarantor
compensation percentage would be used and paid as a guarantee fee.

     At its meeting on September 11, 2003 the Board of Directors  authorized the
future grant of options to purchase an additional  20,000 shares of common stock
to Mr. F. 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 were to be granted or issued until
the  Bankruptcy  Trustee  was paid in full,  at which time the Company was to be
authorized  (but not obligated) to grant such options.  Such action was taken in
order to compensate Mr. F. 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.  In June 2005 the
Board of Directors  approved  replacing the authorized but un-granted options to
Mr.  Murray  with a cash  payment of $.97 per  option  share,  or $19,400  which
represented  the  difference  between the original  option price of $.50 and the
prior day's closing price on June 26, 2005 of $1.47.

     From time to time  Francis W. Murray has  advanced  funds to the Company to
meet its operating  expenses.  During our quarter which ended June 30, 2005, Mr.
Murray or companies  owned or  controlled by him made advances to the Company in
the amount of  approximately  $2,150,000 to fund the Company's  working  capital
needs.  Additionally,  the Company has deferred  making  salary  payments to Mr.
Murray and payments to his companies, the majority of which were during the last
quarter,  for charter hire fees on the Palm Beach Princess and Big Easy vessels.
As of September 30, 2005, the total advances and deferred  payments due him were
$3,277,000. On December 29, 2005 Mr. Murray purchased 204,966 shares of Series B
Preferred  Stock  at a  cost  of  $3,074,490.  These  shares  were  paid  for by
offsetting  advances made to the Company by Mr. Murray.  No interest expense was
accrued for the period of time from the  advances by Mr.  Murray  until  shortly
afterward when he converted the advances into equity of the Company.

     During  fiscal  2006 Mr.  Murray  continued  to defer his yearly  salary of
$395,000 and certain of the charter fees due on the Palm Beach  Princess and the
Big Easy.  During the year we accrued charter fees on the Palm Beach Princess in
the amount of $1,102,177 and accrued  charter fees on the Big Easy in the amount
of $1,200,000.

     During 2006 we made  payments  against the charter  fees to Mr.  Francis W.
Murray in the amount of $668,059. Additionally,  during 2006 we made payments to
Francis X. Murray  against the charter fees owed in the amount of $167,646.  Mr.
Francis W. Murray has agreed  that  payments  to his sone  (Francis  X.  Murray)
constitute payments on behalf of himself.

     During the fiscal  year ended June 30,  2005,  the Company  re-entered  the
equine business. In addition to the purchase of horses from outside parties, the
Company  purchased  horses  from  Francis W.  Murray at prices  which were to be
determined by an appraisal of their  values.  On December 31, 2005 we liquidated
our stock of horses.  On that date we transferred  our entire stock of horses to
Francis W. Murray. The horses originally purchased from Mr. Murray were returned
to him since the  Company  never  paid him for our  purchase  and the horses the
Company  purchased from outside parties were sold to Mr. Murray for our original
cost.  Payment was made by Mr. Murray by  offsetting  $328,000 in amounts he had
previously  loaned  the  Company or amounts  due to him for  accrued  but unpaid
salary.

     In April of 2001,  when we acquired  (under a bareboat  charter) the vessel
operations of the entity now known as Palm Beach Maritime Corporation, we became
obligated to honor employment  contracts between Palm Beach Maritime Corporation
and its employees.  The Employment Agreement between ITGV and Francis X. Murray,
the son of our CEO,  Francis W.  Murray  automatically  renews on January 1st of
each fiscal year. Mr. F. X. Murray had been the president of Palm Beach Maritime
Corporation and became vice president of our subsidiary, which is now ITG Vegas,
Inc. The  employment  agreement with Mr. F. X. Murray (which had an initial term
or three years which ended December 31, 2003) automatically  renews for one-year
terms on January 1 of each year unless  previously  terminated.  The  employment
agreement with Mr. F. X. Murray  provides for a base salary of $310,000 per year
and an annual  bonus of up to 25% of the  executive's  base  salary  if  certain
EBITDA performance goals are met,  membership to a golf club, life insurance for
the benefit of the executive's  dependents in the amount of $1,000,000 and other
expense  benefits.  In addition,  the  executive is eligible for awards of stock
options  outside of his  employment  agreement,  and  received  in that  respect
options  to  purchase  90,000  shares of common  stock on June 27,  2005,  at an
exercise price of $2.00 per share.

     Under Mr. F. X. Murray's  employment  agreement,  if the Company terminates
his  employment  other  than  for  "cause",  "death  or  disability",  or if the
executive  terminates his  employment  for "good reason"  following a "change of
control"  then in any such  case the  Company  shall  pay to the  executive  all
amounts  of base  salary  and  bonus  and shall  maintain  in effect  all of his
benefits,  which  otherwise would have become due through the end of the term of
the agreement.  If the  executive's  employment is terminated by the Company for
"cause",  or if the executive  voluntarily  terminates his employment other than
for "good reason",  then the Company shall have no further obligation other than
to pay him his base salary  through the effective  date of  termination  and any
other accrued compensation and benefits.  If his employment terminates by reason
if  "disability"  then the Company  will pay, for the balance of the term of the
contract,  any  difference  between  the  amount  of his  base  salary  and  any
disability  payments he may be entitled to receive  under any  Company-sponsored
disability plan.

     We employ Tanuja Murray,  daughter-in-law  of Francis W. Murray. Ms. Murray
holds a law degree and is acting in the capacity of  assistant to the  Chairman.
Ms. Murray earns $60,000 per year in addition to the regular  employee  benefits
paid by the Company.

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     Six Months Ended     Year Ended
                        December 31, 2006  December 31, 2005   June 30, 2005
                        -----------------  -----------------  -----------------
  Audit fees excluding
   audit related fees     $   35,000         $     41,378       $     57,199
  Audit related fees               0                    0                  0
                        -----------------  -----------------  -----------------
  Total audit and audit
   related fees               35,000               41,378             57,199
  Tax related fees (1)             0               17,395             22,856
  All other fees (2)           6,197                3,463             10,751
                        -----------------  -----------------  -----------------
  Total fees           $      41,197         $     62,236       $     90,806
                       ================== ================== ==================

(1)  Tax fees include tax compliance,  planning, research and return preparation
     services.

(2)  All other fees consisted of fees for other accounting services.

Pre-Approved Policies and Procedures

     The December 31, 2006 and 2005 audit services  provided by Stockton  Bates,
LLP were approved by the Board of Directors as we do not currently have an audit
committee.  As we do not have an audit  committee,  we have not  implemented any
pre-approved  policies  and  procedures  related to the  provision  of audit and
non-audit services.


                                     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 41 of this report.

     2. Financial Statement Schedules.


Schedule I
                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.

                             (Debtor-in-Possession)

       CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY ONLY)
                                 BALANCE SHEETS
                        AS OF DECEMBER 31, 2006 AND 2005

                                     ASSETS


                                                      December 31,
                                              -----------------------------
                                                  2006            2005
                                              -----------     -------------
TOTAL CURRENT ASSETS                       $     154,946   $        89,788
                                              -----------     -------------
                                              -----------     -------------
TOTAL EQUIPMENT - Net                             77,046            83,539
                                              -----------     -------------
             TOTAL OTHER ASSETS                6,702,486        14,934,113
                                              -----------     -------------
                                              -----------     -------------
INVESTMENTS IN AND AMOUNTS DUE FROM
WHOLLY OWNED SUBSIDIARIES                         84,663        14,374,107
                                              -----------     -------------
TOTAL ASSETS                               $   7,019,141   $    29,481,547
                                              ===========     =============


                      LIBILITIES AND STOCKHOLDERS' EQUITY


                                              -----------     -------------
CURRENT LIABILITIES:                       $     381,937   $     2,668,506
                                              -----------     -------------
                                              -----------     -------------
LIABILITIES SUBJECT TO COMPROMISE:             3,322,157                 -
                                              -----------     -------------
                                              -----------     -------------
LONG-TERM DEBT - Net of Current Portion          790,000           543,657
                                              -----------     -------------
COMMITMENTS AND CONTINGENCIES                          -                 -
                                              -----------     -------------
STOCKHOLDERS' EQUITY:                          2,525,048        26,269,386
                                              -----------     -------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $   7,019,141   $    29,481,549
                                              ===========     =============


 See Notes to Consolidated Financial Statements.


                    INTERNATIONAL THOROUGHBRED BREEDERS, INC.

                             (Debtor-in-Possession)

       CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY ONLY)
   FOR THE YEAR ENDED DECEMBER 30, 2006 AND THE SIX MONTHS ENDED DECEMBER 2005
                 AND FOR THE YEARS ENDED JUNE 30, 2005 AND 2004

                             STATEMENT OF OPERATIONS
<TABLE>
                                                                                    Six Months
                                                                                      Ended
                                                                    December 31,    December 31,               June 30,
                                                                   -------------    -------------     ---------------------------
                                                                        2006             2005             2005           2004
                                                                   -------------    -------------     ------------   ------------
<CAPTION>
<S>                                                              <C>             <C>               <C>             <C>
 OPERATING COSTS AND EXPENSES:                                   $   10,164,650  $     1,137,244   $    1,819,304  $   1,576,879
                                                                   -------------    -------------     ------------   ------------
                                                                   -------------    -------------     ------------   ------------
 OTHER INCOME (EXPENSE):                                             (1,962,902)        (441,256)        (259,571)      (928,278)
                                                                   -------------    -------------     ------------   ------------
 INCOME (LOSS) BEFORE TAX PROVISION
 AND EXTRAORDINARY ITEM                                             (12,127,552)      (1,578,500)      (2,078,875)    (2,505,157)
     Income Tax Expense                                                       -                -                -         76,500
                                                                   -------------    -------------     ------------   ------------
 INCOME (LOSS) BEFORE EXTRAORDINARY ITEM                            (12,127,552)      (1,578,500)      (2,078,875)    (2,581,657)
 EXTRAORDINARY ITEM -  Fees charged to related
    parties for Master Settlement Agreement ( Notes 15 & 21).                 -                -        4,000,000              -
                                                                   -------------    -------------     ------------   ------------
 INCOME (LOSS) BEFORE EQUITY IN NET INCOME (LOSS) OF SUBSIDIARIES   (12,127,552)      (1,578,500)       1,921,125     (2,581,657)
        Equity in Net Income (Loss) of Subsidiaries                 (13,386,287)     (10,654,485)      (3,821,160)    (4,218,373)
                                                                   -------------    -------------     ------------   ------------
 NET INCOME (LOSS)                                               $  (25,513,839) $   (12,232,985)  $   (1,900,035) $  (6,800,030)
                                                                   =============    =============     ============   ============

                             STATEMENT OF CASH FLOWS

                                                                   -------------    -------------     ------------   ------------
 CASH FLOWS (USED IN) OPERATING ACTIVITIES                       $     (995,357) $    (1,307,186)  $   (2,505,776) $    (873,302)
                                                                   -------------    -------------     ------------   ------------
                                                                   -------------    -------------     ------------   ------------
 CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES                    8,330         (162,600)          11,776       (417,236)
                                                                   -------------    -------------     ------------   ------------
                                                                   -------------    -------------     ------------   ------------
 CASH FLOWS (USED IN) PROVIDED BY FINANCING ACTIVITIES                  961,637        1,419,378        2,490,190      1,304,952
                                                                   -------------    -------------     ------------   ------------
 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                   (25,389)         (50,405)          (3,810)        14,414
        CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                    2,007            6,981           10,790         (3,625)
                                                                   -------------    -------------     ------------   ------------
        CASH AND CASH EQUIVALENTS AT END OF YEAR                 $      (23,382) $         2,007   $        6,981  $      10,790
                                                                   =============    =============     ============   ============
</TABLE>


 See Notes to Consolidated Financial Statements.




3.   Exhibits.

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

Exhibit
Number                             Description
-------                            -----------

3.1  Restated   Certificate  of  Incorporation  of  International   Thoroughbred
     Breeders, Inc.(incorporated by reference to Exhibit 3.1 to the Registrant's
     Registration Statement on Form S-1 dated December 30, 2005)

3.2  Amended and Restated  By-Laws of the Registrant  (incorporated by reference
     to Exhibit 3.2 to the Registrant's Registration Statement on Form S-1 dated
     December 30, 2005)

4.1  Certificate of Designation,  Preferences and Rights of Series B Convertible
     Preferred Stock of International  Thoroughbred  Breeders,  Inc., dated June
     29, 2005.  (Incorporated  by  reference to Exhibit 4.1 to the  Registrant's
     Current Report on Form 10-K dated June 30, 2005.

10.1 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  Registration  Statement on Form S-1 filed
     December 30, 2005)

10.2 $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  Registration  Statement  on Form S-1
     filed December 30, 2005)

10.3 Security   Agreement,   dated  as  of  November  29,  2000,  by  and  among
     Realen-Turnberry/Cherr  Hill, LLC, its sole member  Realen-Turnberry/Cherry
     Hill Associates and GSRT, LLC.  (incorporated  by reference to Exhibit 10.3
     to the Registrant's  Registration  Statement on Form S-1 filed December 30,
     2005)

10.4 * 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)

10.5 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)

10.6 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)

10.7 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)

10.8 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)

10.9 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)

10.10 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)

10.11 Master  Lease  Agreement  between  Royal Star  Entertainment,  LLC and PDS
     Gaming  Corporation,  dated January 6, 2005.  (incorporated by reference to
     Exhibit 10.3 to the  Registrant's  Current Report on Form 8-K dated January
     5, 2005)

10.12 Lease Schedule No. 1 between Royal Star Entertainment,  LLC and PDS Gaming
     Corporation,  dated January 6, 2005.  (incorporated by reference to Exhibit
     10.4 to the Registrant's Current Report on Form 8-K dated January 5, 2005)

10.13 Guaranty  (Lease)  by  International  Thoroughbred  Breeders,  Inc.  dated
     January  6,  2005.  (incorporated  by  reference  to  Exhibit  10.5  to the
     Registrant's Current Report on Form 8-K dated January 5, 2005)

       Exhibit
       Number          Description
       -------         -----------

10.14 Advisory Agreement dated June 30, 2005 between International  Thoroughbred
     Breeders,   Inc.   and   MBC   Global,   LLC   for   financial   consulting
     services.2005.(incorporated   by   reference   to  Exhibit   10.18  to  the
     Registrant's Current Report on Form 10-K dated June 30, 2005)

10.15 Amendment  to the  Advisory  Agreement  dated as of June 30, 2005  between
     International  Thoroughbred Breeders,  Inc. and MBC Global, LLC, dated July
     12,  2005.(incorporated  by reference to Exhibit 10.19 to the  Registrant's
     Current Report on Form 10-K dated June 30, 2005)

10.16 Registration  Rights  Agreement  entered  into as of June 30,  2005 by and
     among International  Thoroughbred  Breeders,  Inc. and the purchaser of the
     Company's Series B Convertible Preferred  Stock.(incorporated  by reference
     to Exhibit  10.20 to the  Registrant's  Current  Report on Form 10- K dated
     June 30, 2005)

10.17 Amended and Restated Bareboat Charter and Option to Purchase of the Casino
     Cruise  Ship,  Palm Beach  Princess  entered into as of July 1, 2005 by and
     among  Cruise  Holdings  I, LLC,  the owner of the casino  cruise ship Palm
     Beach Princess, Palm Beach Maritime Corporation,  Palm Beach Empress, Inc.,
     ITG  Vegas,  Inc.,  as  charterer  of  the  vessel,  and  ITG  Palm  Beach,
     LLC.(incorporated  by  reference  to  Exhibit  10.14  to  the  Registrant's
     Registration Statement on Form S-1 filed December 30, 2005)

10.18 Amended and Restated Bareboat Charter and Option to Purchase of the Casino
     Cruise Ship, Big Easy,  entered into as of July 1, 2005 by and among Cruise
     Holdings II, LLC, the owner of the casino cruise ship Big Easy,  Palm Beach
     Empress,  Inc., Palm Beach Maritime  Corporation,  ITG Palm Beach,  LLC, as
     charterer of the vessel,  and ITG Vegas, Inc  (incorporated by reference to
     Exhibit 10.15 to the Registrant's  Registration Statement on Form S-1 filed
     December 30, 2005)

10.19 Loan and Security  Agreement  dated as of June 30, 2005 between PDS Gaming
     Corporation,  Cruise  Holdings I, LLC,  Cruise Holdings II, LLC, Royal Star
     Entertainment,  LLC, Riviera Beach Entertainment, LLC, ITG Vegas, Inc., ITG
     Palm Beach, LLC, as the Borrower, and International  Thoroughbred Breeders,
     Inc.,  Palm  Beach  Maritime   Corporation,   Palm  Beach  Empress,   Inc.,
     International  Thoroughbred Gaming Development  Corporation,  as Guarantor,
     for a loan in the amount of  $29,313,888.96.  (incorporated by reference to
     Exhibit 10.23 to the  Registrant's  Current  Report on Form 10-K dated June
     30, 2005)

10.20 Preferred  Mortgage on the Casino  Cruise Ship Royal Star,  dated June 30,
     2005  by  Royal  Star   Entertainment,   LLC  to  PDS  Gaming  Corporation.
     (incorporated  by reference to Exhibit  10.24 to the  Registrant's  Current
     Report on Form 10-K dated June 30, 2005)

10.21 Guaranty Agreement made by International  Thoroughbred  Breeders,  Inc. In
     favor of Palm Beach Empress, Inc. And Palm Beach Maritime Corporation as of
     June 30, 2005 for payment of all charter payments and expenses  required to
     be paid by ITGV or ITGPB under their respective charters.  (incorporated by
     reference to Exhibit 10.25 to the Registrant's  Current Report on Form 10-K
     dated June 30, 2005)

10.22 Guaranty  Agreement made by  International  Thoroughbred  Breeders,  Inc.,
     ITGDC,  Palm  Beach  Empress,  Inc.  And Palm Beach  Maritime  Corporation,
     jointly and  severally  in favor of PDS Gaming  Corporation  as of June 30,
     2005 for payment of all principal and interest and other costs  required to
     be  paid  by  borrower  pursuant  to  the  terms  of  the  Loan  Documents.
     (incorporated  by reference to Exhibit  10.26 to the  Registrant's  Current
     Report on Form 10-K dated June 30, 2005)

10.23 Promissory Note of Borrowers in favor of PDS Gaming Corporation dated June
     30, 2005 in the amount of  $29,313,888.96  (incorporated  by  reference  to
     Exhibit 10.27 to the  Registrant's  Current  Report on Form 10-K dated June
     30, 2005)

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


       Exhibit
       Number          Description
       -------         -----------

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

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




                                   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 17th day of April, 2007.

                         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   April 17, 2007
     ----------------------    and Chief Executive Officer
     Francis W. Murray         (Principal Executive Officer)


     /s/ Francis W. Murray     Chief Financial Officer            April 17, 2007
      ---------------------    (Principal Financial and
     Francis W. Murray         Accounting Officer)


     /s/ James J. Murray       Director                           April 17, 2007
     ----------------------
     James J. Murray

     /s/ Francis W. Murray     Director                           April 17, 2007
      ---------------------
     Francis W. Murray







                                                                    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: April 17, 2007


         /s/Francis W. Murray
         -----------------------
Name:    Francis W. Murray
Title:   Chief Executive Officer



                                                                    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: April 17, 2007


         /s/Francis W. Murray
         -----------------------
Name:    Francis W. Murray
Title:   Chief Executive Officer




                                                                      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 year  ended
December 31, 2006, 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: April 17, 2007


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



                                  EXHIBIT INDEX
Exhibit
Number                             Description
-------                            -----------

3.1  Restated   Certificate  of  Incorporation  of  International   Thoroughbred
     Breeders, Inc.(incorporated by reference to Exhibit 3.1 to the Registrant's
     Registration Statement on Form S-1 dated December 30, 2005)

3.2  Amended and Restated  By-Laws of the Registrant  (incorporated by reference
     to Exhibit 3.2 to the Registrant's Registration Statement on Form S-1 dated
     December 30, 2005)

4.1  Certificate of Designation,  Preferences and Rights of Series B Convertible
     Preferred Stock of International  Thoroughbred  Breeders,  Inc., dated June
     29, 2005.  (Incorporated  by  reference to Exhibit 4.1 to the  Registrant's
     Current Report on Form 10-K dated June 30, 2005.

10.1 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  Registration  Statement on Form S-1 filed
     December 30, 2005)

10.2 $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  Registration  Statement  on Form S-1
     filed December 30, 2005)

10.3 Security   Agreement,   dated  as  of  November  29,  2000,  by  and  among
     Realen-Turnberry/Cherr  Hill, LLC, its sole member  Realen-Turnberry/Cherry
     Hill Associates and GSRT, LLC.  (incorporated  by reference to Exhibit 10.3
     to the Registrant's  Registration  Statement on Form S-1 filed December 30,
     2005)

10.4 * 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)

10.5 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)

10.6 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)

10.7 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)

10.8 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)

10.9 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)

10.10 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)

10.11 Master  Lease  Agreement  between  Royal Star  Entertainment,  LLC and PDS
     Gaming  Corporation,  dated January 6, 2005.  (incorporated by reference to
     Exhibit 10.3 to the  Registrant's  Current Report on Form 8-K dated January
     5, 2005)

10.12 Lease Schedule No. 1 between Royal Star Entertainment,  LLC and PDS Gaming
     Corporation,  dated January 6, 2005.  (incorporated by reference to Exhibit
     10.4 to the Registrant's Current Report on Form 8-K dated January 5, 2005)

10.13 Guaranty  (Lease)  by  International  Thoroughbred  Breeders,  Inc.  dated
     January  6,  2005.  (incorporated  by  reference  to  Exhibit  10.5  to the
     Registrant's Current Report on Form 8-K dated January 5, 2005)


Exhibit
Number                           Description
-------                          -----------

10.14 Advisory Agreement dated June 30, 2005 between International  Thoroughbred
     Breeders,   Inc.   and   MBC   Global,   LLC   for   financial   consulting
     services.2005.(incorporated   by   reference   to  Exhibit   10.18  to  the
     Registrant's Current Report on Form 10-K dated June 30, 2005)

10.15 Amendment  to the  Advisory  Agreement  dated as of June 30, 2005  between
     International  Thoroughbred Breeders,  Inc. and MBC Global, LLC, dated July
     12,  2005.(incorporated  by reference to Exhibit 10.19 to the  Registrant's
     Current Report on Form 10-K dated June 30, 2005)

10.16 Registration  Rights  Agreement  entered  into as of June 30,  2005 by and
     among International  Thoroughbred  Breeders,  Inc. and the purchaser of the
     Company's Series B Convertible Preferred  Stock.(incorporated  by reference
     to Exhibit  10.20 to the  Registrant's  Current  Report on Form 10- K dated
     June 30, 2005)

10.17 Amended and Restated Bareboat Charter and Option to Purchase of the Casino
     Cruise  Ship,  Palm Beach  Princess  entered into as of July 1, 2005 by and
     among  Cruise  Holdings  I, LLC,  the owner of the casino  cruise ship Palm
     Beach Princess, Palm Beach Maritime Corporation,  Palm Beach Empress, Inc.,
     ITG  Vegas,  Inc.,  as  charterer  of  the  vessel,  and  ITG  Palm  Beach,
     LLC.(incorporated  by  reference  to  Exhibit  10.14  to  the  Registrant's
     Registration Statement on Form S-1 filed December 30, 2005)

10.18 Amended and Restated Bareboat Charter and Option to Purchase of the Casino
     Cruise Ship, Big Easy,  entered into as of July 1, 2005 by and among Cruise
     Holdings II, LLC, the owner of the casino cruise ship Big Easy,  Palm Beach
     Empress,  Inc., Palm Beach Maritime  Corporation,  ITG Palm Beach,  LLC, as
     charterer of the vessel,  and ITG Vegas, Inc  (incorporated by reference to
     Exhibit 10.15 to the Registrant's  Registration Statement on Form S-1 filed
     December 30, 2005)

10.19 Loan and Security  Agreement  dated as of June 30, 2005 between PDS Gaming
     Corporation,  Cruise  Holdings I, LLC,  Cruise Holdings II, LLC, Royal Star
     Entertainment,  LLC, Riviera Beach Entertainment, LLC, ITG Vegas, Inc., ITG
     Palm Beach, LLC, as the Borrower, and International  Thoroughbred Breeders,
     Inc.,  Palm  Beach  Maritime   Corporation,   Palm  Beach  Empress,   Inc.,
     International  Thoroughbred Gaming Development  Corporation,  as Guarantor,
     for a loan in the amount of  $29,313,888.96.  (incorporated by reference to
     Exhibit 10.23 to the  Registrant's  Current  Report on Form 10-K dated June
     30, 2005)

10.20 Preferred  Mortgage on the Casino  Cruise Ship Royal Star,  dated June 30,
     2005  by  Royal  Star   Entertainment,   LLC  to  PDS  Gaming  Corporation.
     (incorporated  by reference to Exhibit  10.24 to the  Registrant's  Current
     Report on Form 10-K dated June 30, 2005)

10.21 Guaranty Agreement made by International  Thoroughbred  Breeders,  Inc. In
     favor of Palm Beach Empress, Inc. And Palm Beach Maritime Corporation as of
     June 30, 2005 for payment of all charter payments and expenses  required to
     be paid by ITGV or ITGPB under their respective charters.  (incorporated by
     reference to Exhibit 10.25 to the Registrant's  Current Report on Form 10-K
     dated June 30, 2005)

10.22 Guaranty  Agreement made by  International  Thoroughbred  Breeders,  Inc.,
     ITGDC,  Palm  Beach  Empress,  Inc.  And Palm Beach  Maritime  Corporation,
     jointly and  severally  in favor of PDS Gaming  Corporation  as of June 30,
     2005 for payment of all principal and interest and other costs  required to
     be  paid  by  borrower  pursuant  to  the  terms  of  the  Loan  Documents.
     (incorporated  by reference to Exhibit  10.26 to the  Registrant's  Current
     Report on Form 10-K dated June 30, 2005)

10.23 Promissory Note of Borrowers in favor of PDS Gaming Corporation dated June
     30, 2005 in the amount of  $29,313,888.96  (incorporated  by  reference  to
     Exhibit 10.27 to the  Registrant's  Current  Report on Form 10-K dated June
     30, 2005)

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


Exhibit
Number                             Description
-------                            -----------

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

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



                    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
Broadwater Real Estate, LLC                             Delaware
Circa 1850, Inc.                                        New Jersey
Cruise Entertainment, LLC                               Delaware
Garden State Race Track, Inc.                           New Jersey
GMO Travel, Inc.                                        Florida
GSRT, LLC                                               Delaware
Holdfree, Inc.                                          New Jersey
International Thoroughbred Gaming
 Development Corporation                                New Jersey
ITB Management, Inc.                                    New Jersey
ITB Racing, Inc.                                        Delaware
ITB Realty, Inc.                                        Florida
ITG Brazil, Inc.                                        Delaware
ITG Guatemala, LLC                                      Delaware
ITG Palm Beach, LLC                                     Delaware
ITG Panama, S. A.                                       Republic of Panama
ITG Peru, LLC                                           Delaware
ITG Vegas, Inc                                          Nevada
ITG Venezuela, Inc.                                     Delaware
Leo Equity Group, Inc.                                  Florida
Olde English Management Inc.                            New Jersey
Orion Casino Corporation                                Nevada
Palm Beach Entertainment, Inc.                          Delaware
Premier Lottery Co., LLC                                Delaware
Riviera Beach Entertainment, LLC                        Delaware
Royal Star Entertainment, LLC                           Delaware
South America Thoroughbred Company, LLC                 Delaware