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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the Quarterly period ended September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _________________
Commission File No. 0-1607
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MID-STATE RACEWAY, INC.
- --------------------------------------------------------------------------------
(Exact name of Registrants as specified in their respective charters)
New York 15-0555258
- ------------------------------------ ------------------------------------
(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
PO Box 860, Vernon, New York 13476
- ----------------------------------------------- -----------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (315) 829-2201
--------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[ ] YES [X] NO
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
[ ] YES [X] NO
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
Class Outstanding September 30, 2000
----- ------------------------------
common stock, $0.10 par value 442,766 shares
TABLE OF CONTENTS
PAGE
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
-September 30, 2000 and December 31, 1999..........................3
Consolidated Statements of Operations
-Three months ended September 30, 2000 and September 30, 1999
-Nine months ended September 30, 2000 and September 30, 1999.......5
Consolidated Statements of Cash Flows
-Six months ended September 30, 2000 and September 30, 1999........6
Notes to Consolidated Financial Statements.........................7
Item 2. Management's Discussion and Analysis of the Financial
Condition and Results of Operations............................8
Item 3. Quantitative and Qualitative Disclosures About Market Risk........10
Item 4. Controls and Procedures...........................................10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................11
Item 2. Changes in Securities and Use of Proceeds.........................11
Item 3. Defaults Upon Senior Securities...................................11
Item 4. Submission of Matters to a Vote of Security Holders...............11
Item 5. Other Information.................................................12
Item 6. Exhibits and Reports on Form 8-K..................................12
Signatures
Certifications
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MID-STATE RACEWAY, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
- --------------------------------------------------------------------------------
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
ASSETS 2000 1999
------------- ------------
CURRENT ASSETS
Cash and cash equivalents $ 274,722 $ 1,113,529
Cash restricted for purses, capital improvements and
uncashed winning tickets 81,419 157,909
Grant receivable -- 233,751
Accounts receivable, net of allowance for doubtful
accounts of $25,000 in 2000 and $112,000 in 1999 439,222 339,864
Investments 302,567 200,125
Other current assets 168,550 161,264
----------- -----------
Total current assets 2,206,442
1,266,480
PROPERTY, PLANT AND EQUIPMENT
Land, racing plant and equipment 16,703,314 13,223,647
Other Properties 121,671 121,671
----------- -----------
16,824,985 13,345,318
Less accumulated depreciation 11,356,005 11,194,298
----------- -----------
5,468,980 2,151,020
OTHER ASSETS 60,776 29,265
$ 6,796,236 $ 4,386,727
=========== ===========
See notes to unaudited consolidated financial statements
3
MID-STATE RACEWAY, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
- --------------------------------------------------------------------------------
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
LIABILITIES AND SHAREHOLDERS' EQUITY 2000 1999
------------- ------------
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 1,655,320 $ 964,070
Line of credit 54,697 --
Current portion of long term debt 3,742,291 --
Current portion of real estate taxes payable 30,000 72,000
Uncashed winning tickets 9,860 63,392
Retention for capital improvements 30,299 84,272
----------- -----------
Total current liabilities 5,522,467 1,183,734
REAL ESTATE TAXES PAYABLE, LESS CURRENT PORTION 154,053 30,000
LONG TERM DEBT, NET OF CURRENT PORTION 375,935 1,250,000
DEFERRED RETIREMENT BENEFITS -- 1,013,861
SHAREHOLDERS' EQUITY
Common stock, par value $.10 per share;authorized 10,000,000 shares;
issued and outstanding 442,766 in 2000; 438,386 in 1999 44,277 43,839
Additional paid-in-capital 2,084,909 2,041,547
(Accumulated deficit) (1,391,954) (1,180,260)
Accumulated other comprehensive income 6,549 4,006
----------- -----------
Total shareholders' equity 743,781 909,132
----------- -----------
$ 6,796,236 $ 4,386,727
=========== ===========
See notes to unaudited consolidated financial statements
4
MID-STATE RACEWAY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
50 Racing 50 Racing 73 Racing 104 Racing
Days Days Days Days
------------- ------------- ------------- -------------
(Unaudited) (Unaudited)
Operating Revenues $ 2,615,666 $ 1,916,627 $ 5,727,031 $ 4,785,375
Operating Expenses 3,133,972 2,609,162 6,448,977 5,683,872
----------- ----------- ----------- -----------
Income (loss) from operations (518,306) (692,535) (721,946) (898,497)
----------- ----------- ----------- -----------
Other income (loss):
Special events income (loss), net (408,083) 36,420 (408,083) 44,630
Commissions for Capital Improvements (22,753) -- -- --
Aid from state and local governments 101,960 -- 138,209 --
Investment income (17,691) 1,793 17,735 9,787
Interest expense (121,228) (37,084) (206,962) (105,000)
----------- ----------- ----------- -----------
Total other income (loss) (467,795) 1,129 (459,101) (50,583)
----------- ----------- ----------- -----------
Income (loss) before provision for taxes on
income and extraordinary income (986,101) (691,406) (1,181,047) (949,080)
----------- ----------- ----------- -----------
Provision for taxes on income:
Currently payable (708) -- (708) --
Deferred benefit -- -- 376,800 --
----------- ----------- ----------- -----------
-- -- 376,092 --
----------- ----------- ----------- -----------
Income (loss) before extraordinary item (986,809) (691,406) (804,955) (949,080)
Extraordinary item - Gain on
extinguishment of deferred
benefit liability,net of deferred
income taxes -- -- 593,261 --
----------- ----------- ----------- -----------
Net income (loss) $ (986,809) $ (691,406) $ (211,694) $ (949,080)
=========== =========== =========== ===========
Income (loss) per common share - basic
and diluted:
Income (loss) before extraordinary item $ (1.71) $ (2.76) $ (2.67) $ (3.79)
=========== =========== =========== ===========
Extraordinary item -- -- $ 1.34 --
=========== =========== =========== ===========
Net income (loss) $ (1.71) $ (2.76) $ (0.48) $ --
=========== =========== =========== ===========
Cash dividend per share $ -- $ -- $ -- $ --
=========== =========== =========== ===========
See notes to unaudited consolidated financial statements
5
MID-STATE RACEWAY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999
------------- -------------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (211,694) $(949,080)
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation 161,707 125,150
Extinguishment of deferred benefit liability (593,261) --
Deferred tax benefit (376,800) --
Realized and unrealized (gain) loss on investments 2,543 --
Imputed interest expense 67,299 --
Change in allowance for doubtful accounts (87,000) --
Changes in:
Restricted cash 76,490 (61,894)
Accounts and grants receivable 221,393 305,004
Other current expenses 81,714 39,592
Other assets (31,511) 36,149
Real estate taxes payable 82,053 (54,000)
Accounts payable 346,250 618,961
Uncashed winning tickets (53,532) (50,767)
Retention for capital improvements (53,973) 56,105
----------- ---------
Net cash used in operating activities (368,322) 65,220
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities and sales of available-for-sale
investment securities 228,451 --
Purchase of available-for-sale investment securities (330,893) --
Purchase of properties and equipment (868,667) (280,688)
----------- ---------
Net cash used in investing activities (971,109) (280,688)
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt 524,328 250,000
Principal payments on capital leases (23,704) --
----------- ---------
Net cash provided by financing activities 500,624 250,000
----------- ---------
Net increase (decrease) in cash (838,807) 34,532
Cash, beginning of period 1,113,529 437,241
----------- ---------
Cash, end of period $ 274,722 $ 471,773
=========== =========
See notes to unaudited consolidated financial statements
6
MID-STATE RACEWAY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements of Mid-State Raceway, Inc.
and Subsidiary (the "Company") have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by accounting
principles generally accepted in the United States of America for complete
financial statements. The balance sheet as of December 31, 1999 has been derived
from the audited balance sheet included in the Company's annual report filed on
Form 10-K. In the opinion of management, quarterly results include all
adjustments (consisting of only normal recurring adjustments) that the Company
considers necessary for a fair presentation of such information for interim
periods. Results shown for the latest interim period are not necessarily
indicative of the results to be obtained for a full fiscal year.
The unaudited financial statements include the accounts of the Company and its
subsidiary. These financial statements have not been reviewed by independent
accountants as required. Upon completion of a review, an amendment to this Form
10Q will be filed if necessary. All material intercompany transactions and
balances have been eliminated in consolidation.
2. COMPREHENSIVE INCOME
The components of comprehensive income (loss) were as follows:
Nine Months ended
Sept. 30, 2000 Sept. 30, 1999
-------------- --------------
Net loss $(211,694) $(949,080)
Other comprehensive loss:
Unrealized gain on securities available for
sale, net of tax effect of $1,695 in 2000 2,543 --
--------- ---------
Comprehensive loss $(209,151) $(949,080)
========= =========
3. REAL ESTATE TAXES PAYABLE
Amounts recorded for real estate taxes at September 30, 2000 as a result of an
agreement with Oneida County in 1998 were not paid in 2001 and became
delinquent. Certain of these amounts were repaid in 2002 and the remaining
amounts will be paid in monthly instalments of $10,000 per month from March 2003
to December 2003 and $16,974 per month from January 2004 to December 2005
pursuant to a revised agreement with the County of Oneida.
4. LINE OF CREDIT
The revolving line of credit in the amount of $351,000 was terminated in October
2001 and fully repaid in January 2002.
7
5. LONG-TERM DEBT
During 2000 and 2001 the Company was in default on certain long-term debt due to
non-payment of interest and/or principal. In March 2002 substantially all of the
Company's long-term debt was refinanced through an $8,500,000 mortgage loan
agreement with ALL Capital, LLC (an unaffiliated company). The refinancing
included repayment of a $700,000 line of credit agreement which was initiated in
2001.
6. PURCHASE OPTION AGREEMENT
In September 2001 the Board of Director's authorized its President and Chief
Executive Officer to execute an exclusive option agreement for the sale of the
Company to a group of private purchasers. Consistent with the execution of the
option agreement the purchasers provided a $700,000 line of credit previously
discussed. In June 2002 management notified the group of purchasers that option
agreement had been terminated. As a result of the termination the Company may be
required to pay $130,000 to the group.
7. STOCK WARRANTS
In November 2000 the Company voted to issue two warrants to two former officers
of the Company to allow them to purchase until November 4, 2004 150,000 shares
at $10 per share.
In addition, in November 2000 a board member was granted a warrant to purchase
7,500 shares at $10 per share with an expiration date of November 2004 and
another board member was granted a warrant to purchase 2,500 shares of stock at
$10 per share through August 2004.
None of the above warrants were ever issued by the Company.
8. DELINQUENT SECURITIES AND EXCHANGE COMMISSION (SEC) FILINGS
The Company is delinquent in filing a number of periodic reports, including
annual and quarterly financial information, required to be filed with the SEC.
The consequences of the Company's failure to file these reports and the actions,
if any, that the SEC might initiate against the Company in this connection, are
not presently determinable.
9. NEW YORK STATE RACING AND WAGERING BOARD COMPLIANCE AUDIT
During early 2001, the New York State Racing and Wagering Board (the Board)
reviewed the Company's compliance with the Board's policies and procedures. In
March 2001, the Board issued a report documenting numerous instances of
non-compliance with applicable Board statutes, rules, and regulations. This
report was also critical of certain business and managerial practices. The Board
also fined the Company's President and CEO $5,000 for non-compliance. On March
28, 2001, the Board granted a limited 90-day track and simulcast license.
Further, the Board required the Company to demonstrate compliance and continued
financial viability over the 90-day period in order to receive a racing license
for the 2001 live racing season. On June 21, 2001, the Board approved the
Company's track and simulcast license for the remainder of 2001.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
OPERATING REVENUES
Operating revenues for the nine months ended September 30, 2000 increased by
$941,656 or 20% and increased by $699,039 or 36% for the quarter ended September
30, 2000 when compared to the same periods ending September 30, 1999.
The increase in operating revenues for both periods is mainly the result of the
inclusion of revenue from room rentals from the hotel acquired in June 2000 and
food and beverage concessions now operated by the Company. This revenue offset a
decrease in wagering and simulcast revenue due to a decline in racing days for
the nine months ended September 30, 2000 from 104 to 73 when compared to the
nine months ended September 30, 1999.
OPERATING EXPENSES
Operating expenses for the quarter ended September 30, 2000 increased 20% or
$524,810 when compared to the quarter ended September 30, 1999 mainly due to
startup costs and increased food, beverage and utility costs from operating the
hotel acquired in June 2000.
For the nine months ended September 30, 2000, operating expenses were $765,105,
or 13% higher than for the same period in 1999. The increased expenses represent
increased costs of payroll and benefits, utilities, and food and beverage costs
related to the increase in revenue discussed previously.
INTEREST EXPENSE
Interest expense for the quarter ended September 30, 2000 was $121,228 versus
$37,084 for the same quarter in 1999. The expense for the nine months ended
September 30, 2000 was $206,962 versus $105,000 for the nine months ended
September 30, 1999 and is due to increases in the amount of long-term debt in
the last twelve months to fund operations, and startup costs related to
acquiring the hotel.
INCOME TAXES
Income tax expense was not significant in the quarter ended September 30, 2000
and September 30, 1999 because of operating losses incurred.
Income tax expense of $376,092 for the nine months ended September 30, 2000
represents the tax effect of the extraordinary gain recognized in 2000 for the
extinguishment of the deferred retirement liability. There was no provision for
the nine months ended September 30, 1999 due to operating losses incurred.
NET LOSS
The net loss for the quarter ended September 30, 2000 was more than the loss
incurred for the quarter ended September 30, 1999 by $295,403 mainly due to
losses from special events of $408,083 in the 2000 quarter because of poor
attendance and inclement weather.
9
For the nine months ended September 30, 2000 the net loss was $211,694 versus
$949,080 for the nine months ended September 30, 1999 mainly due to increased
interest expense in 2000 and the extraordinary gain on extinguishment of the
deferred retirement liability recognized in 2000.
The increased operating revenues in 2000 were offset by increased expenses and
did not provide increases in profitability in 2000.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000 the Company had $274,722 of cash and cash equivalents
versus $1,113,529 at December 31, 1999. Operating losses for the nine months
ended September 30, 2000 were funded by this cash as was the racing track
expansion. In addition the Company utilized proceeds of additional debt of
$524,328. Remaining investments at fair market value are $302,567 at September
30, 2000.
Increase in long-term debt at September 30, 2000 and particularly the current
portion of long-term debt when compared to December 31, 1999 is the result of
current year borrowings in the amount of $2,816,000 due to a third party
bankruptcy trustee in connection with the purchase of the hotel in June 2000.
This amount was due in February 2002 and was subsequently paid with proceeds
from the $15,000,000 mortgage debt refinancing in August 2002 as discussed in
the notes to the financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There were no material changes in the Company's market risk or related
strategies during the quarter ended September 30, 2000.
ITEM 4. CONTROLS AND PROCEDURES
(a) Disclosure Controls and Procedures.
Within the 90 days before the date of this Form 10-Q, we evaluated the
effectiveness of the design and operation of our "disclosure controls and
procedures". Mid-State Raceway, Inc. and Subsidiary conducted this evaluation
under the supervision and with the participation of management, including our
Chief Executive Officer and Principal Financial and Accounting Officer.
(i) Definition of Disclosure Controls and Procedures.
Disclosure controls and procedures are controls and other procedures that are
designed with the objective of ensuring that information required to be
disclosed in our periodic reports filed under the Exchange Act, such as this
report, is recorded, processed, summarized and reported within the time periods
specified in the SEC's rules and forms. As defined by the SEC, such disclosure
controls and procedures are also designed with the objective of ensuring that
such information is accumulated and communicated to our management, including
the Chief Executive Officer and Principal Financial and Accounting Officer, in
such a manner as to allow timely disclosure decisions.
(ii) Limitations on the Effectiveness of Disclosure Controls and Procedures and
Internal Controls.
The Company recognizes that a system of disclosure controls
and procedures (as well as a system of internal controls), no matter how well
conceived and operated, cannot provide absolute
10
assurance that the objectives of the system are met. Further, the design of such
a system must reflect the fact that there are resource constraints, and the
benefits of controls must be considered relative to their costs. Because of the
inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues have been detected. These
inherent limitations include the realities that judgments in decision-making can
be faulty, and that breakdowns can occur because of simple error or mistake.
Additionally, controls can be circumvented in a number of ways. Because of the
inherent limitations in a cost-effective control system, system failures may
occur and not be detected.
(iii) Conclusions with Respect to Our Evaluation of Disclosure Controls and
Procedures. Subject to the limitations described above, our Chief Executive
Officer and Principal Financial and Accounting Officer have concluded that our
disclosure controls and procedures are effective in timely alerting them to
material information relating to Mid-State Raceway, Inc. and subsidiary required
to be included in The Company's periodic SEC filings.
(b) Changes in Internal Controls.
There have been no significant changes in The Company's internal controls or in
other factors that could significantly affect these controls subsequent to the
date of their evaluation.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There were no material changes to any legal proceedings during the quarter ended
September 30, 2000.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
See Note 5 of Notes to Consolidated Financial Statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of the Shareholders on September 8, 2000 for
the following purposes:
1. To elect four persons to the Company's Board of Directors to
serve until the Company's 2003 Annual Meeting of the Shareholders
or until their successors have been duly elected.
Following is a listing of the Directors of the Company after the
election and the expiration of their term as a Director:
Year 2001 Annual Meeting
------------------------
Patrick Bombardo
Gwen K. Bennett
Paul V. Noyes
James J. Moran
11
Year 2002 Annual Meeting
------------------------
Edward A. Kiley
Jeremiah Law
Dr. Robert Legler, DVM
Wesley E. Wendt, Sr.
Year 2003 Annual Meeting
------------------------
Leighton R. Burns
Justice M. Cheney
Joel Gosler
John J. Signorelli
2. To approve an Amendment to the Company's Certificate of
Incorporation and by-laws to increase the maximum number of
directors from 12 to 15. Since the Company's Certificate of
Incorporation requires an 80% vote of all shares issued and
outstanding to change this section of the Certificate of
Incorporation and since only 66% of all shares issued and
outstanding were present at the meeting, this Amendment was
defeated.
3. To approve an Amendment to the Company's Certificate of
Incorporation and by-laws to amend the objects and purposes for
which the company was formed to include the operation of a hotel
on the Company's premises, the conduct of events, festivals,
concerts, fairs, shows and the like on the Company's premises,
farming and ranching on the Company's premises and any activity
which will enhance and supplement the Company's horse racing
business. This item was approved.
4. To approve an Amendment to the Company's Certificate of
Incorporation and by-laws to establish the position of Chairman
of the Board as separate from the President of the Company. This
item was approved.
Proxies were not solicited from the Shareholders.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit 31.1 Certification of Chief Executive Officer
Exhibit 31.2 Certification of Principal Financial and Accounting Officer
Exhibit 32.1 Sarbanes-Oxley Chief Executive Officer
Exhibit 32.2 Sarbanes-Oxley Principal Financial and Accounting Officer
12
SIGNATURES
- ----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
MID-STATE RACEWAY, INC.
DATE: JANUARY 10, 2004 BY: /S/ DAVID E. WILSON
-------------------------------------
David E. Wilson
Chief Operating Officer
BY: /S/ ROSE FRAWERT
-------------------------------------
Rose Frawert
Principal Financial and
Accounting Officer
13