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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, 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
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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, 2001
----- ------------------------------
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, 2001 and December 31, 2000......................... 3
Consolidated Statements of Operations
-Three months ended September 30, 2001 and September 30, 2000
-Nine months ended September 30, 2001 and September 30, 2000...... 5
Consolidated Statements of Cash Flows
-Six months ended September 30, 2001 and September 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................................................. 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................................................. 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)
SEPTEMBER 30, DECEMBER 31,
ASSETS 2001 2000
------------ -----------
CURRENT ASSETS
Cash and cash equivalents $ 302,605 $ 146,180
Restricted cash 184,550 127,568
Other receivables, net of allowance for doubtful
accounts of $10,000 in 2001 and 2000 1,034,579 311,372
Investments 38,150 501,475
Other current assets 242,222 164,429
----------- -----------
Total current assets 1,802,106 1,251,024
PROPERTY, PLANT AND EQUIPMENT
Land, racing plant and equipment 17,306,874 17,162,848
Other Properties 121,671 121,671
----------- -----------
17,428,545 17,284,519
Less accumulated depreciation 11,791,189 11,551,072
----------- -----------
5,637,356 5,733,447
OTHER ASSETS 2,307 8,904
----------- -----------
$ 7,441,769 $ 6,993,375
=========== ===========
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 2001 2000
------------ -----------
CURRENT LIABILITIES
Lines of credit $ 350,411 $ 347,333
Current portion of long term debt 5,050,578 1,963,622
Accounts payable and accrued expenses 2,338,887 1,636,262
Uncashed winning tickets 1,816 56,336
Deposits and other current liabilities 92,719 26,585
Retention for capital improvements 82,789 39,892
Deferred grant revenue 192,000 --
----------- -----------
Total current liabilities 8,109,200 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 (3,179,309) (2,061,867)
Accumulated other comprehensive income 16,766 9,026
----------- -----------
Total shareholders' equity (deficit) (1,033,357) 76,345
----------- -----------
$ 7,441,769 $ 6,993,375
=========== ===========
See notes to unaudited consolidated financial statements
4
MID-STATE RACEWAY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
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Three Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
2001 2000 2001 2000
40 Racing Days 50 Racing Days 67 Racing Days 73 Racing Days
-------------- -------------- -------------- --------------
(Unaudited) (Unaudited)
Operating Revenues $ 2,836,607 $ 2,615,666 $ 6,704,024 $ 5,727,031
Operating Expenses 3,306,522 3,133,972 7,668,978 6,448,977
----------- ----------- ----------- -----------
Income (loss) from operations (469,915) (518,306) (964,954) (721,946)
----------- ----------- ----------- -----------
Other income (loss):
Special events income (loss), net 175,248 (408,083) 245,454 (408,083)
Commissions for Capital Improvements -- (22,753) -- --
Aid from state and local governments -- 101,960 550 138,209
Investment income 12,163 (17,691) 14,256 17,735
Interest expense (131,173) (121,228) (409,992) (206,962)
----------- ----------- ----------- -----------
Total other income (loss) 56,238 (467,795) (149,732) (459,101)
----------- ----------- ----------- -----------
Income (loss) before provision for
taxes on income and extraordinary
item (413,677) (986,101) (1,114,686) (1,181,047)
----------- ----------- ----------- -----------
Provision for taxes on income:
Currently payable -- (708) (2,756) (708)
Deferred benefit -- -- -- 376,800
----------- ----------- ----------- -----------
-- (708) (2,756) 376,092
----------- ----------- ----------- -----------
Income (loss) before extraordinary item (413,677) (986,809) (1,117,442) (804,955)
Extraordinary item - Gain on
extinguishment of deferred
retirement benefit liability, net
of deferred income taxes -- -- -- 593,261
----------- ----------- ----------- -----------
Net loss $ (413,677) $ (986,809) $(1,117,442) $ (211,694)
=========== =========== =========== ===========
Income (loss) per common share - basic
and diluted:
Income (loss) before extraordinary item $ (0.93) $ (2.23) $ (2.52) $ (1.82)
=========== =========== =========== ===========
Extraordinary item -- -- -- $ 1.34
=========== =========== =========== ===========
Net income (loss) $ (0.93) $ (2.23) $ (2.52) $ (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
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NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2001 2000
------------ ------------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,117,442) $ (211,694)
Adjustments to reconcile net loss to net cash used
in operating activities:
Extinguishment of deferred benefit liability -- (593,261)
Deferred tax benefit -- (376,800)
Depreciation 240,117 161,707
Change in allowance for doubtful accounts -- (87,000)
Realized and unrealized (gain) loss on investments (5,027) 2,543
Imputed interest expense 184,943 67,299
Changes in:
Restricted cash (56,982) 76,490
Accounts and grants receivable (723,207) 221,393
Other current assets (77,793) 81,714
Other assets 6,597 (31,511)
Accounts payable 702,625 346,250
Uncashed winning tickets and other current liabilities 11,614 (53,532)
Deferred revenue 192,000 --
Retention for capital improvements 42,897 (53,973)
Real estate taxes payable -- 82,053
----------- -----------
Net cash used in operating activities (599,658) (368,322)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities and sales of available-for-sale
investment securities 476,092 228,451
Purchase of available-for-sale investment securities -- (330,893)
Purchase of properties and equipment (144,026) (868,667)
----------- -----------
Net cash used in investing activities 332,066 (971,109)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt 503,344 524,328
Principal payments on capital leases (79,327) (23,704)
----------- -----------
Net cash provided by financing activities 424,017 500,624
----------- -----------
Net increase (decrease) in cash and cash equivalents 156,425 (838,807)
Cash and cash equivalents at beginning of period 146,180 1,113,529
----------- -----------
Cash and cash equivalents at end of period $ 302,605 $ 274,722
=========== ===========
See notes to unaudited consolidated financial statements
6
MID-STATE RACEWAY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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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:
Nine Months ended
Sept. 30, 2001 Sept. 30, 2000
-------------- --------------
Net loss $(1,117,442) $ (211,694)
Other comprehensive loss:
Unrealized gain on securities available for
sale, net of tax effect of $5,160 in 2001 and
$1,695 in 2000 7,740 2,543
----------- -----------
Comprehensive loss $(1,109,702) $ (209,151)
=========== ===========
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
Operating revenues for the nine months ended September 30, 2001 increased by
$976,993 or 17% and increased by $220,941 or 8% for the quarter ended September
30, 2001 when compared to the same periods ending September 30, 2000.
The increase in operating revenues for both periods is the result of increased
simulcast wagering and the inclusion of revenue from room rentals from the hotel
acquired in June 2000 for the entire nine months ended September 30, 2001.
8
OPERATING EXPENSES
Operating expenses for the quarter ended September 30, 2001 were comparable to
expenses incurred in the quarter ended September 30, 2000 ($3,306,522 versus
$3,133,972).
For the nine months ended September 30, 2001, operating expenses were
$1,220,001, or 19% higher than for the same period in 2000. The increased
expenses represent increased costs of payroll and benefits, utilities, food and
beverage costs, and simulcast expenses related to the increase in revenue
discussed previously.
INTEREST EXPENSE
Interest expense for the quarter ended September 30, 2001 was $131,173 versus
$121,228 for the same quarter in 2000. The expense for the nine months ended
September 30, 2001 was $409,992 versus $206,962 for the nine months ended
September 30, 2000 and is due to increases in the amount of long-term debt in
the last twelve months to fund operations.
INCOME TAXES
Income tax expense was not significant in the quarter ended September 30, 2001
and September 30, 2000 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, 2001 due to operating losses incurred.
NET LOSS
The net loss for the quarter ended September 30, 2001 was less than the loss
incurred for the quarter ended September 30, 2000 by $573,132 mainly due to
special events income of $175,248 in the 2001 quarter versus a loss of $408,083
in the 2000 quarter.
For the nine months ended September 30, 2001 the net loss was $1,117,442 versus
$211,694 for the nine months ended September 30, 2000 mainly due to increased
interest expense in 2001 and the extraordinary gain on extinguishment of the
deferred retirement liability recognized in 2000.
The increased operating revenues in 2001 were offset by increased expenses and
did not provide increases in profitability in 2001.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2001 the Company had $302,605 of cash and cash equivalents
versus $146,180 at December 31, 2000. Operating losses for the nine months ended
September 30, 2001 were funded by the sale of investment securities in the
amount of $476,092 and the proceeds of additional debt of $503,344. Remaining
investments at fair market value are $38,150 at September 30, 2001.
Increase in long-term debt at September 30, 2001 and particularly the current
portion of long-term debt when compared to December 31, 2000 is the result of
current year borrowings and 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
9
$8,500,000 mortgage debt refinancing in March 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, 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.
10
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There were no material changes to any legal proceedings during the quarter ended
September 30, 2001.
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