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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 March 31, 2002
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 Incorporation (IRS Employer Identification No.)
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 March 31, 2002
----- --------------------------
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
-March 31, 2002 and December 31, 2001...........................................................3
Consolidated Statements of Operations
-Three months ended March 31, 2002 and March 31, 2001...........................................5
Consolidated Statements of Cash Flows
-Three months ended March 31, 2002 and March 31, 2001...........................................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......................................9
Item 4. Controls and Procedures.........................................................................9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings..............................................................................10
Item 2. Changes in Securities and Use of Proceeds......................................................10
Item 3. Defaults Upon Senior Securities................................................................10
Item 4. Submission of Matters to a Vote of Security Holders............................................10
Item 5. Other Information..............................................................................10
Item 6. Exhibits and Reports on Form 8-K...............................................................10
Signatures
Certifications
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MID-STATE RACEWAY, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
- --------------------------------------------------------------------------------
(UNAUDITED)
MARCH 31, DECEMBER 31,
ASSETS 2002 2001
------------------ -----------------
CURRENT ASSETS
Cash and cash equivalents $ 249,149 $ 41,287
Restricted cash 106,277 192,903
Other receivables, net of allowance for doubtful
accounts of $10,000 in 2002 and 2001 275,399 242,527
Prepaid interest and other 616,978 118,937
------------------ -----------------
Total current assets 1,247,803 595,654
PROPERTY, PLANT AND EQUIPMENT
Land, racing plant and equipment 17,365,860 17,439,753
Other Properties 121,671 121,671
------------------ -----------------
17,487,531 17,561,424
Less accumulated depreciation 12,076,909 11,990,897
------------------ -----------------
5,410,622 5,570,527
OTHER ASSETS 337,982 -
------------------ -----------------
$ 6,996,407 $ 6,166,181
================== =================
See notes to unaudited consolidated financial statements
3
MID-STATE RACEWAY, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
- --------------------------------------------------------------------------------
(UNAUDITED)
MARCH 31, DECEMBER 31,
LIABILITIES AND SHAREHOLDERS' EQUITY 2002 2001
----------------- ------------------
CURRENT LIABILITIES
Lines of credit $ 700,000 $ 674,678
Current portion of long term debt 2,838,374 96,110
Accounts payable and accrued expenses 1,352,046 1,767,782
Uncashed winning tickets 1,943 63,736
Purse funds payable - -
Deposits and other current liabilities 137,639 138,391
Retention for capital improvements 45,399 45,267
Deferred grant revenue 112,000 160,000
----------------- ------------------
Total current liabilities 5,187,401 2,945,964
LONG-TERM DEBT, NET OF CURRENT PORTION 3,996,831 5,415,089
SHAREHOLDERS' EQUITY
Common stock, par value $.10 per share;authorized 10,000,000 shares;
issued and outstanding 442,766 in 2002 and 2001 44,277 44,277
Additional paid-in-capital 2,084,909 2,084,909
Accumulated deficit (4,317,011) (4,324,058)
Total shareholders' equity (2,187,825) (2,194,872)
----------------- ------------------
$ 6,996,407 $ 6,166,181
================= ==================
See notes to unaudited consolidated financial statements
4
MID-STATE RACEWAY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
Three Months Ended
March 31, 2002 March 31, 2001
0 Racing Days 0 Racing Days
--------------------- ----------------------
(Unaudited)
Operating Revenues $ 1,619,960 $ 1,650,390
Operating Expenses 1,494,838 1,624,338
--------------------- ----------------------
Income (loss) from operations 125,122 26,052
--------------------- ----------------------
Other income (loss):
Special events income (loss), net 37,449 70,206
Commissions for capital improvements - -
Aid from state and local governments - -
Investment income (expense) 153 -
Investment (expense) income - 911
Interest expense (154,477) (123,803)
Financing costs -
---------------------
----------------------
Total other income (loss) (116,875) (52,686)
--------------------- ----------------------
Income (loss) before provision for federal and state
income taxes 8,247 (26,634)
Provision for federal and state income taxes
currently payable (1,200) (2,756)
--------------------- ----------------------
Net income (loss) $ 7,047 $ (29,390)
===================== ======================
Income (loss) per common share - basic and diluted $ 0.02 $ (0.07)
===================== ======================
Cash dividend per share $ - $ -
===================== ======================
See notes to unaudited consolidated financial statements
5
MID-STATE RACEWAY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
THREE MONTHS ENDED
MARCH 31, MARCH 31,
2002 2001
----------------- -----------------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 7,047 $ (29,390)
Adjustments to reconcile net income (loss) to net
cash provided by (used) in operating activities:
Depreciation 86,012 80,039
Realized and unrealized (gain) loss on investments - 3,569
Imputed interest expense 69,243 61,647
Loss on sale/disposal of equipment - -
Changes in:
Restricted cash 86,626 (5,646)
Accounts and grants receivable (32,872) (64,384)
Prepaid interest and other (498,041) (30,710)
Other assets (337,982) 3,958
Accounts payable (415,736) (203,002)
Uncashed winning tickets and other current liabilities (62,545) 7,832
Real estate taxes payable - 10,918
Deferred revenue (48,000) -
Retention for capital improvements 132 299
----------------- -----------------
Net cash provided by (used) in operating activities (1,146,116) (164,870)
----------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities and sales of available-for-sale
investment securities - 293,000
Proceeds from sale of equipment - -
Purchase of properties and equipment, net 73,893 (55,351)
----------------- -----------------
Net cash used in investing activities 73,893 237,649
----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt, net of issuance costs 4,120,322 4,637
Principal payments on line of credit and other debt (2,816,000) -
Principal payments on capital leases (24,237) (23,027)
----------------- -----------------
Net cash provided by financing activities 1,280,085 (18,390)
----------------- -----------------
Net increase (decrease) in cash and cash equivalents 207,862 54,389
Cash and cash equivalents at beginning of period 41,287 146,180
----------------- -----------------
Cash and cash equivalents at end of period $ 249,149 $ 200,569
================= =================
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, 2001 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:
Three Months ended Three Months ended
March 31, 2002 March 31, 2001
-------------- --------------
Net Income (loss) $ 7,047 $ (29,390)
Other comprehensive income (loss):
Unrealized gain (loss) on securities available for sale, net of tax
effect of $9,613 in 2001 - 14,420
------------ ---------------
Comprehensive income (loss) $ 7,047 $ (14,970)
============ ===============
3. LONG-TERM DEBT
At December 31, 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. The $8,500,000 loan, along with a $1,000,000 loan made by All Capital in
July 2002 and a $400,000 loan made by Vernon LLC (an affiliate of All Capital)
in March 2002, were refinanced with All Capital, LLC in August 2002 with a
$15,000,000 loan.
4. 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
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$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.
5. WARRANTS
In connection with the refinancing of long-term debt discussed above, All
Capital was issued warrants to purchase shares of stock at $2 per share. In
March 2002, July 2002 and August 2002, warrants for 500,000, 100,000 and
1,100,000 shares, respectively, were issued. These warrants expire five years
from the respective date of issuance.
6. 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 March 31, 2002, operating revenue decreased by $30,430
or 2% when compared to the quarter ended March 31, 2001. Increases in hotel
revenue of $103,291 and food concessions revenue of $14,070 were offset by a
decline in simulcast revenues of $146,906. The decrease is attributable to
general economic conditions.
OPERATING EXPENSES
Operating expenses decreased by $129,500 or 8% and consisted mainly of decreases
in payroll and benefits and utility costs. These decreases are the result of
lower head count and better utilization of personnel. Utility costs were lower
due to a milder winter.
INTEREST EXPENSE
Increase in interest expense of $30,674 in the quarter ended March 31, 2002
compared to the quarter ended March 31, 2001 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 ended March 31, 2002 or
the quarter ended March 31, 2001 due to the loss incurred from operations.
8
NET INCOME (LOSS)
The net income of $7,047 for the quarter ended March 31, 2002 was $36,437 higher
than the net loss of $29,390 in the quarter ended March 31, 2001. This is mainly
the result of lower operating expenses as discussed above.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2002 the Company had $249,149 of cash and cash equivalents versus
$41,287 at December 31, 2001. Operating loss for the quarter ended March 31,
2001 was funded by additional long-term borrowings discussed previously.
The Company's current portion of long-term debt has increased from $96,110 at
December 31, 2001 to $2,838,374 at March 31, 2001. The increase is due to
$2,816,000 due to a third party bankruptcy trustee and the Company for the
purchase of the hotel in June 2000. This amount was due on February 18, 2002 and
was subsequently paid through the $8,500,000 mortgage debt refinancing in March
2002 as discussed in 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 March 31, 2002.
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
9
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
March 31, 2002.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
See Note 3 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
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
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