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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 June 30, 2001
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
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 June 30, 2001
----- -------------------------
common stock, $0.10 par value 442,766 shares
TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
-June 30, 2001 and December 31, 2000...............................3
Consolidated Statements of Operations
-Three months ended June 30, 2001 and June 30, 2000
-Six months ended June 30, 2001 and June 30, 2000..................5
Consolidated Statements of Cash Flows
-Six months ended June 30, 2001 and June 30, 2000..................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.................................................10
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.................................................11
Item 6. Exhibits and Reports on Form 8-K..................................11
Signatures
Certifications
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MID-STATE RACEWAY, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
- --------------------------------------------------------------------------------
(UNAUDITED)
JUNE 30, DECEMBER 31,
ASSETS 2001 2000
----------- -----------
CURRENT ASSETS
Cash and cash equivalents $ 577,434 $ 146,180
Restricted cash 201,906 127,568
Other receivables, net of allowance for doubtful
accounts of $10,000 in 2001 and 2000 470,364 311,372
Investments 37,100 501,475
Other current assets 192,550 164,429
----------- -----------
Total current assets 1,479,354 1,251,024
PROPERTY, PLANT AND EQUIPMENT
Land, racing plant and equipment 17,279,348 17,162,848
Other Properties 121,671 121,671
----------- -----------
17,401,019 17,284,519
Less accumulated depreciation 11,711,150 11,551,072
----------- -----------
5,689,869 5,733,447
OTHER ASSETS 2,307 8,904
----------- -----------
$ 7,171,530 $ 6,993,375
=========== ===========
See notes to unaudited consolidated financial statements
3
MID-STATE RACEWAY, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
- --------------------------------------------------------------------------------
(UNAUDITED)
JUNE 30, DECEMBER 31,
LIABILITIES AND SHAREHOLDERS' EQUITY 2001 2000
----------- -----------
CURRENT LIABILITIES
Lines of credit $ 352,511 $ 347,333
Current portion of long term debt 5,018,721 1,963,622
Accounts payable and accrued expenses 1,670,632 1,636,262
Uncashed winning tickets 10,898 56,336
Deposits and other current liabilities 65,537 26,585
Retention for capital improvements 58,231 39,892
Deferred grant revenue 240,000 --
----------- -----------
Total current liabilities 7,416,530 4,070,030
LONG TERM DEBT, NET OF CURRENT PORTION 365,926 2,847,000
SHAREHOLDERS' EQUITY (DEFICIT)
Common stock, par value $.10 per share; authorized
10,000,000 shares; issued and outstanding
442,766 in 2001 and 2000 44,277 44,277
Additional paid-in-capital 2,084,909 2,084,909
Accumulated deficit (2,765,632) (2,061,867)
Accumulated other comprehensive income 25,520 9,026
----------- -----------
Total shareholders' equity (deficit) (610,926) 76,345
----------- -----------
$ 7,171,530 $ 6,993,375
=========== ===========
See notes to unaudited consolidated financial statements
4
MID-STATE RACEWAY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30, 2001 June 30, 2000 June 30, 2001 June 30, 2000
27 Racing 23 Racing 27 Racing 23 Racing
Days Days Days Days
-------------- ------------- -------------- -------------
(Unaudited) (Unaudited)
Operating Revenues $ 2,217,027 $ 2,109,783 $ 3,867,417 $ 3,111,365
Operating Expenses 2,738,118 2,436,159 4,362,456 3,315,005
----------- ----------- ----------- -----------
Income (loss) from operations (521,091) (326,376) (495,039) (203,640)
----------- ----------- ----------- -----------
Other income (loss):
Special events income -- -- 70,206 --
Settlement of lawsuits -- 22,753 -- 22,753
Aid from state and local governments 550 36,249 550 36,249
Investment income 1,182 14,947 2,093 35,426
Interest expense (155,016) (43,453) (278,819) (85,734)
----------- ----------- ----------- -----------
Total other income (loss) (153,284) 30,496 (205,970) 8,694
----------- ----------- ----------- -----------
Income (loss) before provision for taxes on
income and extraordinary item (674,375) (295,880) (701,009) (194,946)
----------- ----------- ----------- -----------
Provision for taxes on income:
Currently payable -- -- (2,756) --
Deferred benefit -- -- -- 376,800
----------- ----------- ----------- -----------
-- -- (2,756) 376,800
----------- ----------- ----------- -----------
Income (loss) before extraordinary item (674,375) (295,880) (703,765) 181,854
Extraordinary item - Gain on extinguishment
of deferred retirement benefit liability,
net of deferred income taxes -- -- -- 593,261
----------- ----------- ----------- -----------
Net income (loss) $ (674,375) $ (295,880) $ (703,765) $ 775,115
=========== =========== =========== ===========
Income (loss) per common share - basic
and diluted:
Income (loss) before extraordinary item $ (1.52) $ (0.67) $ (1.59) $ (0.41)
=========== =========== =========== ===========
Extraordinary item -- -- -- $ 1.34
=========== =========== =========== ===========
Net income (loss) $ (1.52) $ (0.67) $ (1.59) $ 1.75
=========== =========== =========== ===========
Cash dividend per share $ -- $ -- $ -- $ --
=========== =========== =========== ===========
See notes to unaudited consolidated financial statements
5
MID-STATE RACEWAY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
SIX MONTHS ENDED
JUNE 30, JUNE 30,
2001 2000
--------- -----------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(703,765) $ 775,115
Adjustments to reconcile net loss to net cash used
in operating activities:
Settlement of lawsuits -- (991,961)
Depreciation 160,078 86,430
Change in allowance for doubtful accounts -- (87,000)
Realized and unrealized (gain) loss on investments 4,777 --
Imputed interest expense 123,295 --
Changes in:
Restricted cash (74,338) 24,930
Accounts and grants receivable (158,992) 103,689
Other current assets (28,121) (151,371)
Other assets 6,597 (36,511)
Accounts payable 34,370 287,807
Real estate taxes payable -- 88,000
Uncashed winning tickets and other current liabilities (6,486) (53,732)
Deferred revenue 240,000 --
Retention for capital improvements 18,339 (78,679)
--------- -----------
Net cash used in operating activities (384,246) (33,283)
--------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities and sales of available-for-sale
investment securities 476,092 --
Purchase of available-for-sale investment securities -- (349,081)
Purchase of properties and equipment (116,500) (717,995)
Purchase of hotel, net of Trustee claim -- (25,399)
--------- -----------
Net cash used in investing activities 359,592 (1,092,475)
--------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt 508,472 125,385
Principal payments on capital leases (52,564) --
--------- -----------
Net cash provided by financing activities 455,908 125,385
--------- -----------
Net increase (decrease) in cash and cash equivalents 431,254 (1,000,373)
Cash and cash equivalents at beginning of period 146,180 1,113,529
--------- -----------
Cash and cash equivalents at end of period $ 577,434 $ 113,156
========= ===========
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, 2000 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:
Six Months ended
June 30, 2001 June 30, 2000
------------- -------------
Net Income (loss) $(703,765) $ 544,395
Other comprehensive income (loss):
Unrealized gain (loss) on securities
available for sale, net of tax effect of
$10,996 in 2001 and $16,213 in 2000 16,494 (24,320)
--------- ---------
Comprehensive income (loss) $(687,271) $ 520,075
========= =========
3. REAL ESTATE TAXES PAYABLE
Amounts recorded for real estate taxes at December 31, 2000 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 an agreement with the County of Oneida.
7
MID-STATE RACEWAY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
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.
5. LONG-TERM DEBT
During 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 a $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. 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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
OPERATING REVENUES
During the quarter ended June 30, 2001 operating revenue increased by $107,244
or 5% when compared to the quarter ended June 30, 2000 and by $756,052 or 24%
for the six months ended June 30, 2001 compared to the six months ended June 30,
2000. This increase in revenue results from an increase in number of racing days
in the quarter and six month period ended June 30, 2001 compared to June 30,
2000 (27 days versus 23 days) which increased wagering. In addition, the hotel
was acquired in June 2000 and the three and six months ended June 30, 2001
include revenue from room rentals and food and beverage concessions for the
entire period in 2001.
8
OPERATING EXPENSES
Operating expenses increased by $301,959 or 12% for the quarter ended June 30,
2001 when compared to the quarter ended June 30, 2000. For the six months ended
June 30, 2001, expenses increased by $1,047,451 or 32% when compared to the six
months ended June 30, 2000. These increases are mainly due to increases in
payroll and benefits, simulcast expenses, utilities, and food and beverage costs
due to the increased operating revenue discussed above.
INTEREST EXPENSE
Increase in interest expense of $111,563 in the quarter ended June 30, 2001
compared to the quarter ended June 30, 2000 and $193,085 in the six months ended
June 30, 2001 compared to the six months ended June 30, 2000 is due to the
increase in the amount of long-term debt in the prior twelve months to provide
funds for operations.
INCOME TAXES
Income tax expense was not significant in the quarter or six months ended June
30, 2001 due to the loss incurred from operations. Income tax expense of
$376,092 for the six months ended June 30, 2000 represents the tax effect of the
extraordinary gain on the extinguishment of the deferred retirement benefit
liability recognized in 2000.
NET INCOME (LOSS)
The net loss for the quarter ended June 30, 2001 was $378,495 higher than the
net loss in the quarter ended June 30, 2000. The loss for the six months ended
June 30, 2001 was $703,765 compared to income of $775,115 for the six months
ended June 30, 2000. This is the result of the extraordinary gain of $970,061
recognized in 2000 for the extinguishment of the deferred retirement liability
as well as increased interest expense in 2001. The increased operating revenues
in 2001 were offset by increased expenses and did not provide substantial
increases in profitability in 2001.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2001 the Company had $577,434 of cash and cash equivalents versus
$146,180 at December 31, 2000. Operating losses for the six months ended June
30, 2001 were funded by sales of investments in the amount of $476,092, and debt
proceeds. Remaining investments at fair market value are $37,100 at June 30,
2001.
Proceeds from debt were $508,472 for the six months ended June 30, 2001
increasing cash and cash equivalents by $431,254 for the six-month period.
Increase in current portion of long-term debt from December 31, 2000 is due to
$2,816,000 due to a third party bankruptcy trustee for the purchase of the
hotel. This amount was due February 2002 but repaid in March 2002 per
refinancing discussed in the notes to the financial statements.
9
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 June 30, 2001.
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 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
June 30, 2001.
10
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
None.
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
11
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
12