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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, 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
--------------
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, 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
-September 30, 2002 and December 31, 2001..........................3
Consolidated Statements of Operations
-Three months ended September 30, 2002 and September 30, 2001
-Nine months ended September 30, 2002 and September 30, 2001.......5
Consolidated Statements of Cash Flows
-Nine months ended September 30, 2002 and September 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
- --------------------------------------------------------------------------------
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
ASSETS 2002 2001
------------- ------------
CURRENT ASSETS
Cash and cash equivalents $ 482,758 $ 41,287
Restricted cash 515,847 192,903
Other receivables, net of allowance for doubtful
accounts of $10,000 in 2002 and 2001 230,368 242,527
Prepaid interest and other 2,530,565 118,937
----------- -----------
Total current assets 3,759,538 595,654
PROPERTY, PLANT AND EQUIPMENT
Land, racing plant and equipment 17,719,750 17,439,753
Other Properties 121,671 121,671
----------- -----------
17,841,421 17,561,424
Less accumulated depreciation 12,248,935 11,990,897
----------- -----------
5,592,486 5,570,527
OTHER ASSETS 789,365 --
----------- -----------
$10,141,389 $ 6,166,181
=========== ===========
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 2002 2001
------------- ------------
CURRENT LIABILITIES
Lines of credit $ -- $ 674,678
Current portion of long term debt 21,245 96,110
Accounts payable and accrued expenses 1,588,662 1,767,782
Uncashed winning tickets 8,048 63,736
Purse funds payable -- --
Deposits and other current liabilities 238,280 138,391
Retention for capital improvements 68,940 45,267
Deferred grant revenue 80,000 160,000
------------ -----------
Total current liabilities 2,005,175 2,945,964
LONG-TERM DEBT, NET OF CURRENT PORTION 12,851,831 5,415,089
SHAREHOLDERS' EQUITY (DEFICIT)
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 (6,844,803) (4,324,058)
Total shareholders' deficit (4,715,617) (2,194,872)
------------ -----------
$ 10,141,389 $ 6,166,181
============ ===========
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,
2002 2001 2002 2001
39 Racing 40 Racing 66 Racing 67 Racing
Days Days Days Days
------------- ------------- ------------- -------------
(Unaudited) (Unaudited)
Operating revenues $ 2,763,367 $ 2,836,607 $ 6,790,933 $ 6,704,024
Operating expenses 3,316,615 3,306,522 7,757,881 7,668,978
----------- ----------- ----------- -----------
Loss from operations (553,248) (469,915) (966,948) (964,954)
----------- ----------- ----------- -----------
Other income (loss):
Special events income (loss), net 22,131 175,248 65,018 245,454
Commissions for capital improvements 18,934 -- 18,934 --
Aid from state and local governments -- -- -- 550
Gain (loss) on sale of other assets 1,435 -- 1,778 --
Investment (expense) income -- 12,163 -- 14,256
Interest expense (379,726) (131,173) (876,502) (409,992)
Financing costs (629,226) -- (761,825) --
----------- ----------- ----------- -----------
Total other income (loss) (966,452) 56,238 (1,552,597) (149,732)
----------- ----------- ----------- -----------
Income (loss) before provision for federal
and state income taxes (1,519,700) (413,677) (2,519,545) (1,114,686)
Provision for federal and state income taxes
currently payable -- -- (1,200) (2,756)
----------- ----------- ----------- -----------
Net loss $(1,519,700) $ (413,677) $(2,520,745) $(1,117,442)
=========== =========== =========== ===========
Net loss per common share -
basic and diluted $ (3.43) $ (0.93) $ (5.69) $ (2.52)
=========== =========== =========== ===========
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,
2002 2001
------------- -------------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,520,745) $(1,117,442)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation 258,038 240,117
Realized and unrealized gain on investments -- (5,027)
Imputed interest expense 69,243 184,943
Changes in:
Restricted cash (322,944) (56,982)
Accounts and grants receivable 12,159 (723,207)
Prepaid interest and other (2,411,628) (77,793)
Other assets (789,365) 6,597
Accounts payable (179,120) 702,625
Uncashed winning tickets and other current liabilities 44,201 11,614
Deferred revenue (80,000) 192,000
Retention for capital improvements 23,673 42,897
------------ -----------
Net cash used in operating activities (5,896,488) (599,658)
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities and sales of available-for-sale
investment securities -- 476,092
Purchase of properties and equipment (279,997) (144,026)
------------ -----------
Net cash provided by (used in) investing activities (279,997) 332,066
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt, net of issuance costs 22,450,000 503,344
Principal payments on line of credit and other debt (15,757,178) --
Principal payments on capital leases (74,866) (79,327)
------------ -----------
Net cash provided by financing activities 6,617,956 424,017
------------ -----------
Net increase (decrease) in cash and cash equivalents 441,471 156,425
Cash and cash equivalents at beginning of period 41,287 146,180
------------ -----------
Cash and cash equivalents at end of period $ 482,758 $ 302,605
============ ===========
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:
Nine Months ended
Sept. 30, 2002 Sept. 30, 2001
-------------- --------------
Net loss $(2,520,745) $(1,117,442)
Other comprehensive loss:
Unrealized gain on securities available for
sale, net of tax effect of $5,160 in 2001 -- 7,740
----------- -----------
Comprehensive loss $(2,520,745) $(1,109,702)
=========== ===========
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
Operating revenues for the nine months ended September 30, 2002 increased by
$86,909 or 1% and decreased by $73,240 or 3% for the quarter ended September 30,
2002 when compared to the same periods ending September 30, 2001.
The decrease in the revenue for the quarter ended September 30, 2002 is due to
one less racing day in 2002 versus 2001 (39 days versus 40 days). The overall
increase in revenue for the nine months ended September 30, 2002 versus nine
months ended September 30, 2001 is due to increased room and concessions revenue
offsetting lower simulcast and wagering revenue.
OPERATING EXPENSES
Operating expenses for the quarter ended September 30, 2002 were comparable to
expenses incurred in the quarter ended September 30, 2001 ($3,316,615 versus
$3,306,522).
For the nine months ended September 30, 2002, operating expenses were $88,903,
or 1% higher than for the same period in 2001 and are comparable ($7,757,881
versus $7,668,978).
INTEREST EXPENSE
Interest expense and financing costs for the quarter ended September 30, 2002
was $1,008,952 versus $131,173 for the same quarter in 2001. The expense for the
nine months ended September 30, 2002 was $1,638,327 versus $409,992 for the nine
months ended September 30, 2001 and is due to increases in the amount of
long-term debt in the last twelve months to fund operations as well as increases
in the effective interest rate and financing costs related to the debt.
8
INCOME TAXES
Income tax expense was not significant in the quarter or nine months ended
September 30, 2002 and September 30, 2001 because of operating losses incurred.
NET INCOME (LOSS)
The net loss for the quarter and nine months ended September 30, 2002 was more
than the loss incurred for the same periods in 2001, by $1,106,023 and
$1,403,303, respectively, mainly due to the increase interest expense and
financing costs discussed above.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2002 the Company had $482,758 of cash and cash equivalents
versus $41,827 at December 31, 2001. Operating losses for the nine months ended
September 30, 2002 were funded by proceeds of additional debt of $6,692,822
which are net of repayments of existing debt of $15,757,178.
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 September 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
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
September 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 filed on July 2, 2002 disclosed, the approval of the license to operate
as a harness track and simulcast facility for the remainder of 2002, the
approval of the licensure of six directors, the resignation and appointment of
several officers and directors and the commencement of a lawsuit related to the
termination of the purchase option agreement discussed in Note 4 of the notes to
the financial statements, under Item 5 - Other Events.
10
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 H. FRAWERT
------------------------------------
Rose H. Frawert
Principal Financial and
Accounting Officer
11