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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, 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
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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
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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, 2002
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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
-June 30, 2002 and December 31, 2001.............................. 3
Consolidated Statements of Operations
-Three months ended June 30, 2002 and June 30, 2001
-Six months ended June 30, 2002 and June 30, 2001................. 5
Consolidated Statements of Cash Flows
-Six months ended June 30, 2002 and June 30, 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
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(UNAUDITED)
JUNE 30, DECEMBER 31,
ASSETS 2002 2001
----------- -----------
CURRENT ASSETS
Cash and cash equivalents $ 306,432 $ 41,287
Restricted cash 303,953 192,903
Other receivables, net of allowance for
doubtful accounts of $10,000 in 2002 and 2001 450,159 242,527
Prepaid interest and other 1,182,079 118,937
----------- -----------
Total current assets 2,242,623 595,654
PROPERTY, PLANT AND EQUIPMENT
Land, racing plant and equipment 17,598,916 17,439,753
Other properties 121,671 121,671
----------- -----------
17,720,587 17,561,424
Less accumulated depreciation 12,162,923 11,990,897
----------- -----------
5,557,664 5,570,527
OTHER ASSETS 492,443 --
----------- -----------
$ 8,292,730 $ 6,166,181
=========== ===========
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 2002 2001
----------- -----------
CURRENT LIABILITIES
Lines of credit $ -- $ 674,678
Current portion of long term debt 447,344 96,110
Accounts payable and accrued expenses 1,922,072 1,767,782
Uncashed winning tickets 2,403 63,736
Purse funds payable -- --
Deposits and other current liabilities 187,547 138,391
Retention for capital improvements 63,450 45,267
Deferred grant revenue 64,000 160,000
----------- -----------
Total current liabilities 2,686,816 2,945,964
LONG-TERM DEBT, NET OF CURRENT PORTION 8,801,831 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 (5,325,103) (4,324,058)
Total shareholders' equity (3,195,917) (2,194,872)
----------- -----------
$ 8,292,730 $ 6,166,181
=========== ===========
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 Six Months Ended
June 30, June 30, June 30, June 30,
2002 2001 2002 2001
27 Racing 27 Racing 27 Racing 27 Racing
Days Days Days Days
----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
Operating Revenues $ 2,407,606 $ 2,217,027 $ 4,027,566 $ 3,867,417
Operating Expenses 2,946,428 2,738,118 4,441,266 4,362,456
----------- ----------- ----------- -----------
Income (loss) from operations (538,822) (521,091) (413,700) (495,039)
----------- ----------- ----------- -----------
Other income (loss):
Special events income (loss), net 5,438 -- 42,887 70,206
Commissions for capital improvements -- -- -- --
Aid from state and local governments -- 550 -- 550
Gain (loss) on Sale of Other Assets 190 -- 343 --
Investment (expense) income -- 1,182 -- 2,093
Interest expense (342,299) (155,016) (496,776) (278,819)
Financing costs (132,599) -- (132,599)
----------- ----------- ----------- -----------
Total other income (loss) (469,270) (153,284) (586,145) (205,970)
----------- ----------- ----------- -----------
Income (loss) before provision for federal
and state income taxes (1,008,092) (674,375) (999,845) (701,009)
Provision for federal and state income taxes
currently payable -- -- (1,200) (2,756)
----------- ----------- ----------- -----------
Net income (loss) $(1,008,092) $ (674,375) $(1,001,045) $ (703,765)
=========== =========== =========== ===========
Net income (loss) per common share -
basic and diluted $ (2.28) $ (1.52) $ (2.26) $ (1.59)
=========== =========== =========== ===========
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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SIX MONTHS ENDED
JUNE 30, JUNE 30,
2002 2001
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(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,001,045) $ (703,765)
Adjustments to reconcile net income (loss) to net
cash provided by (used) in operating activities:
Depreciation 172,026 160,078
Realized and unrealized (gain) loss on investments -- 4,777
Imputed interest expense 69,243 123,295
Loss on sale/disposal of equipment -- --
Changes in:
Restricted cash (111,050) (74,338)
Accounts and grants receivable (207,632) (158,992)
Prepaid interest and other (1,063,142) (28,121)
Other assets (492,443) 6,597
Accounts payable 154,290 34,370
Uncashed winning tickets and other current liabilities (12,177) (6,486)
Deferred revenue (96,000) 240,000
Retention for capital improvements 18,183 18,339
----------- -----------
Net cash provided by (used) in operating activities (2,569,747) (384,246)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities and sales of available-for-sale
investment securities -- 476,092
Purchase of properties and equipment (159,163) (116,500)
----------- -----------
Net cash used in investing activities (159,163) 359,592
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt, net of issuance costs 8,900,000 508,472
Principal payments on line of credit and other debt (5,857,178) --
Principal payments on capital leases (48,767) (52,564)
----------- -----------
Net cash provided by financing activities 2,994,055 455,908
----------- -----------
Net increase (decrease) in cash and cash equivalents 265,145 431,254
Cash and cash equivalents at beginning of period 41,287 146,180
----------- -----------
Cash and cash equivalents at end of period $ 306,432 $ 577,434
=========== ===========
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, 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:
Six Months ended
June 30, 2002 June 30, 2001
------------- -------------
Net loss $(1,001,045) $ (703,765)
Other comprehensive income (loss):
Unrealized gain on securities available for
sale, net of tax effect of $10,996 in 2001
for the six months ended -- 16,494
----------- -----------
Comprehensive loss $(1,001,045) $ (687,271)
=========== ===========
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 $700,000 line of credit previously
discussed. In June 2002 management notified the group of
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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 June 30, 2002 operating revenue increased by $190,579
or 9% when compared to the quarter ended June 30, 2001 and by $160,149 or 4% for
the six months ended June 30, 2002 compared to the six months ended June 30,
2001. This increase in revenue results from increased wagering and increased
hotel and concession revenue mainly due to an increase in volume as both periods
(2002 and 2001) had 27 racing days. Increased activity in the second quarter
offset a decline from the prior year in revenue in the first quarter.
OPERATING EXPENSES
Operating expenses increased by $208,310 or 8% for the quarter ended June 30,
2002 when compared to the quarter ended June 30, 2001. For the six months ended
June 30, 2002, expenses increased by $78,810 or 2% when compared to the six
months ended June 30, 2001. These increases are mainly due to increases in
purses for 2002 offset by lower payroll and benefit costs and utility costs when
compared to 2001.
INTEREST EXPENSE
Increase in interest expense including financing costs of $319,882 in the
quarter ended June 30, 2002 compared to the quarter ended June 30, 2001 and
$350,556 in the six months ended June 30, 2002 compared to the six months ended
June 30, 2001, is due to the increase in the amount of long-term debt and the
increase in interest rates due to the refinancing of debt in 2002.
INCOME TAXES
Income tax expense was not significant in the quarter or six months ended June
30, 2002 or 2001 due to the loss incurred from operations.
8
NET INCOME (LOSS)
The net loss for the quarter ended June 30, 2002 was $333,717 higher than the
net loss in the quarter ended June 30, 2001. The loss for the six months ended
June 30, 2002 was $297,280 higher than the loss for the six months ended June
30, 2001. Both of these increases are attributable to the increased interest
expense and financing costs incurred in 2002 due to an increase in debt to fund
operating losses and the increase in interest rates as a result of the
refinancing.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2002 the Company had $306,432 of cash and cash equivalents versus
$41,287 at December 31, 2001. Operating losses for the six months ended June 30,
2002 were funded by debt proceeds of $3,100,000 net of financing costs and debt
repayments of $5,857,178.
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, 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
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.
9
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, 2002.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
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
Form 8-K dated April 3, 2002 reported the $8,500,000 refinancing of debt with
All Capital, LLC under Item 5.
Form 8-K dated April 3, 2002 reported additional information regarding the
ownership of All Capital, LLC under Item 5.
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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
11