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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(Mark One)
- ----------
[X] Annual report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (fee required) or
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (no fee required)
For the fiscal year ended December 31, 1997
Commission File Number 0-1607
MID-STATE RACEWAY, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
NEW YORK 15-0555258
- --------------------------------- ----------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
VERNON, NEW YORK 13476
--------------------- ----------
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code:
---------------------------------------------------
(315) 829-2201
Securities registered pursuant to Section 12(b) of the Act:
-----------------------------------------------------------
None.
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK $.10 PAR VALUE PER SHARE
-------------------------------------
(Title of Class)
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 and (2) has been subject to the filing requirements for
the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent files pursuant to Item 405 of
Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ ]
State the aggregate market value of the voting stock held by non-affiliates of
the registrant as of a specified date within 60 days prior to the date of
filing.
$1,251,930.00
Class
---------------------------
COMMON STOCK $.10 PAR VALUE
Outstanding at February 27, 1998
--------------------------------
250,386 SHARES
DOCUMENTS INCORPORATED BY REFERENCE
None.
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The total number of pages in this report is 28
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<PAGE>
TABLE OF CONTENTS
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FORM 10-K ANNUAL REPORT -- 1997
MID-STATE RACEWAY, INC.
PART I Page
----
Item 1. Business....................................................... 3
Item 2. Properties..................................................... 3
Item 3. Legal Proceedings ............................................. 4
Item 4. Submission of Matters to a vote of Security Holders ........... 4
PART II
Item 5. Market for the Registrant's Common Stock and Related
Security Holder Matters ..................................... 4
Item 6. Selected Financial Data ....................................... 6
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations ......................... 7
Item 8. Financial Statements and Supplementary Data ................... 10
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure ......................... 22
PART III
Item 10. Directors and Executive Officers of the Registrant ............ 22
Item 11. Executive Compensation ........................................ 24
Item 12. Security Ownership of Certain Beneficial Owners
and Management .............................................. 24
Item 13. Certain Relationships and Related Transactions ................ 25
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K ................................................. 25
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<PAGE>
PART I
ITEM 1. BUSINESS.
(a) Mid-State Raceway, Inc., known as Vernon Downs, in Vernon, New York, is
licensed under and subject to the regulations of Pari-Mutuel Revenue Law and
supervision of the New York Racing and Wagering Board to conduct harness racing
at its track and to simulcast racing from other tracks.
(b) The Company is engaged in one business segment.
(c) Generally, Mid-State Raceway is not in competition with other harness racing
tracks in New York State for patrons. A thoroughbred race track, which conducts
a day-time racing meet, is located about 110 miles from Vernon, New York, and
competes to some extent for the Vernon Downs customers primarily on weekend
dates.
(d) At the current time, the Company does not have a plan to be year 2000
compliant. The Company expects to develop a plan during the year 1998 and
implement it by the end of 1999. The Company does not know at this time if the
cost of making its computer systems year 2000 compliant is material.
Increased off-track wagering on thoroughbred and harness racing due to a live
television signal being sent into OTB shops in Central New York, the New York
State Lottery and the Oneida Indian Nation's Turning Stone Casino, approximately
7 miles away in Verona, New York, were the principal causes to affect Vernon's
on-track daily averages of handle and attendance.
Competition for good horses with the resultant attractive racing programs, has
increased in recent years, particularly from the metropolitan New York and New
Jersey area. However, entries in Vernon Downs' early closing and stake events
continue at prior years' levels in both the number and quality of horses.
The Company employed 157 persons during the fiscal year.
ITEM 2. PROPERTIES.
The Racing Plant is located in Vernon, Oneida County, New York. Since the
opening of the plant and related facilities in 1953, the Company has maintained
a policy of continuously improving and modernizing its facilities. In the period
ended December 31, 1997, approximately $34,000 was expended for equipment and
renovations to the plant.
The plant can accommodate approximately 14,000 patrons, which includes seating
for 2,000 in the Grandstand and 1,700 in the Clubhouse. There are parking
facilities for approximately 5,900 automobiles.
The track is a 3/4 mile oval stone dust track with a 1/4 mile chute. The track
is illuminated by a metal-halide and quartz lighting system. Most races are for
a distance of one mile. The stables accommodate approximately 1,000 horses and
are located adjacent to three exercise tracks and the main track.
-3-
<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
The Company is a defendant in an action claiming damages in connection with a
personal injury claim. No estimate can yet be made of the potential for
liability or damages or the likely outcome of the litigation. The Company's
liability insurance carrier is defending the Company in this matter.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS.
On December 29, 1997, a special meeting of the shareholders of the Company was
held in order to elect Directors to fill four vacancies in the directorship for
the class of 2000, one vacancy in the directorship for the class of 1998, and
one vacancy in the directorship for the class of 1999. Justice Cheney, Abe Acee,
Thomas Hunter and Edward Leffler were elected as Directors for the class of
2000. Thomas Fiore was elected Director for the class of 1998, and Neil Wager
was elected Director for the class of 1999. The newly elected Directors
represent one-half of the twelve-member board. No further business was conducted
at the meeting.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK
AND RELATED SECURITY HOLDER MATTERS.
(a) Price Range of Stock
There is no established public trading market for the Company's common
stock. The Company is not aware of any trades of the Company's stock in
1997 except for a trade listed on the Internet at $5.00 per share in
January, 1997. The stock is not listed nor reported by NASDAQ.
The following table shows the range of closing bid prices for the Common
Stock in the over-the-counter market for the calendar quarters indicated.
The prices are based upon local quotes only, as the stock is not listed or
reported by NASDAQ.
Bid Prices
----------------------------
Year Ended December 31, 1996
----------------------------
Low - High
----- -----
Quarter Ended March 31 .............. $5.00 - 10.00
Quarter Ended June 30 ............... $5.00 - 11.00
Quarter Ended September 30 .......... $5.75 - 15.39
Quarter Ended December 31 ........... $1.50 - 9.30
-4-
<PAGE>
(b) Approximate Number of Equity Security Holders
Title of Class Number of Record Holders
-------------- ------------------------
Common Stock, $.10 par value per share .... 549
(c) Dividends
There were no dividends paid during the years ended December 31, 1997 and
1996.
There are no restrictions on the payment of dividends on the Company's
common stock. Future payment of dividends will be within the discretion of
the Company's Board of Directors and will depend on earnings, capital
requirements and the operating and financial condition of the Company.
-5-
<PAGE>
<TABLE>
ITEM 6. SELECTED FINANCIAL DATA.
<CAPTION>
9 Months
Years Ended December 31, Ended Years Ended March 31,
------------------------- December 31, -------------------------
1997 1996 1995 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS
Number of racing days .............................. 77 115 122 155 137
Operating revenues:
Pari-mutuel commissions and breakage .............. $5,626,308 $7,050,079 $7,121,567 $7,415,272 $7,174,657
---------- ---------- ---------- ---------- ----------
Less payments to New York State ................... 231,965 297,001 291,317 543,773 609,281
Breeders' Fund .................................... 180,167 238,859 271,316 267,838 234,553
Purses ............................................ 106,323 188,888 223,586 320,981 363,010
---------- ---------- ---------- ---------- ----------
518,455 724,748 786,219 1,132,592 1,206,844
---------- ---------- ---------- ---------- ----------
Net pari-mutual commissions and breakage ........... 5,107,853 6,325,331 6,335,348 6,282,680 5,967,813
Admissions ......................................... 61,740 92,655 123,522 240,667 251,313
Concessions and other revenues ..................... 211,734 311,094 679,410 1,134,225 982,459
---------- ---------- ---------- ---------- ----------
Total operating revenues ......................... 5,381,327 6,729,080 7,138,280 7,657,572 7,201,585
---------- ---------- ---------- ---------- ----------
Operating expenses:
Purses ............................................ 1,298,244 2,259,038 2,378,086 2,583,262 2,239,368
Other ............................................. 4,694,672 5,880,547 5,223,229 5,980,559 5,781,239
---------- ---------- ---------- ---------- ----------
Total operating expenses ......................... 5,992,916 8,139,585 7,601,315 8,563,821 8,020,607
---------- ---------- ---------- ---------- ----------
Loss from operations ............................. (611,589) (1,410,505) (463,035) (906,249) (819,022)
---------- ---------- ---------- ---------- ----------
Other income:
Commissions for capital improvements .............. 81,952 146,224 140,985 192,488 199,735
Investment income (loss) .......................... (21,470) 6,367 31,434 30,380 107,216
---------- ---------- ---------- ---------- ----------
Total other income ............................... 60,482 152,591 172,419 222,868 305,951
---------- ---------- ---------- ---------- ----------
Loss before taxes on income ...................... (551,107) (1,257,914) (290,616) (683,381) (512,071)
Provision (credit) for taxes on income ............. 329,758 103,524 18,163 (11,770) (199,871)
---------- ---------- ---------- ---------- ----------
Loss before cumulative effect .................... (880,865) (1,361,438) (308,779) (671,611) (312,200)
Cumulative effect .................................. -- -- -- -- (100,000)
---------- ---------- ---------- ---------- ----------
NET LOSS ......................................... (880,865) (1,361,438) (308,779) (671,611) (412,200)
========== ========== ========== ========== ==========
Per share of common stock:
Income (loss) before cumulative effect* ........... ($3.52) ($5.44) ($1.23) ($2.68) ($1.25)
Net income (loss)* ................................ ($3.52) ($5.44) ($1.23) ($2.68) ($1.65)
Cash dividends .................................... $0.00 $0.00) $0.00 $0.00 $0.20
Shareholders' equity .............................. $1.30 $4.82 $10.26 $11.47 $14.17
- ----------
*Based on weighted average shares outstanding
<CAPTION>
9 Months
Years Ended December 31, Ended Years Ended March 31,
------------------------- December 31, -------------------------
1997 1996 1995 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
FINANCIAL CONDITION
Number of racing days .............................. 77 115 122 155 137
Current assets ..................................... 466,963 694,165 1,228,020 1,582,667 1,808,156
Marketable securities - due after 1 year ........... -- 89,100 270,770 248,722 651,341
Net property, plant and equipment .................. 1,857,557 2,055,520 1,933,496 2,018,003 2,125,328
Other assets ....................................... 105,803 454,062 576,462 572,942 577,618
---------- ---------- ---------- ---------- ----------
2,430,423 3,303,847 4,007,748 4,422,334 5,162,443
========== ========== ========== ========== ==========
Current liabilities ................................ 1,198,072 1,186,621 508,558 520,195 582,391
Non-current liabilities ............................ 906,296 908,011 929,731 1,030,857 1,031,304
Shareholders' equity ............................... 326,055 1,209,215 2,570,459 2,871,282 3,548,748
---------- ---------- ---------- ---------- ----------
2,430,423 3,303,847 4,007,748 4,422,334 5,162,443
========== ========== ========== ========== ==========
</TABLE>
-6-
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997 AS COMPARED TO
YEAR ENDED DECEMBER 31, 1996
During the year ended December 1997, operating revenues decreased by $1,347,753,
as compared with the year ended December 31, 1996. A substantial portion of the
reduced operating revenues was due to 38 fewer live racing days during the 1997
racing season. Net corporate sponsorship of racing events decreased $13,224 from
the previous racing season.
The Comfort Suites hotel, located on the Company's track property, continues to
benefit the Company's operations. The Company operates a mutuel operation in the
hotel, which provided net pari-mutuel commissions and breakage from wagering in
the approximate amount of $840,000.
The current year operating expenses decreased $2,146,669 compared to the year
ended December 31, 1996. The principal cause for the decrease was the reduction
in the number of racing days.
The Company's simulcast operations continued to expand, offering a variety of
racing from over 56 different harness and thoroughbred tracks from around the
country and internationally during the year ended December 31, 1997. While the
simulcast operation operates at a profitable margin, the revenues are not
sufficient to cover the losses experienced through live racing.
With declining handles generating fewer revenues, track management has focussed
on the reduction of operating expenses through a variety of measures, including
a reduction in payroll and outside services.
The Company has continued to downsize significant numbers of employees in
several departments, and negotiated concessions in wages, health care benefits,
vacations and retirement benefits with unions representing our employees. A
resolution was passed by the Company's Board of Directors to discontinue
unfunded deferred compensation to retired directors and executives, compensation
to directors, and all officers of the Company have taken significant salary
reductions. The Company is continuing to work with the Raceway's suppliers and
vendors, to accommodate payment schedules and express our need for additional
cost cutting measures.
-7-
<PAGE>
STATISTICAL COMPARISON:
12 MONTHS ENDED DECEMBER 31, 1997 VS. 12 MONTHS ENDED DECEMBER 31, 1996
Twelve Months Ended
December 31,
-------------------------- INCREASE
1997 1996 (DECREASE)
---------- ----------- ------------
GROSS HANDLE:
Live Harness ................ $6,120,734 $10,793,627 $(4,672,893)
OTB & ITW ................... 8,182,247 17,643,366 (9,461,119)
Thoroughbred Simulcast ...... 5,765,799 6,046,861 (281,062)
Harness Simulcast ........... 8,794,185 9,841,602 (1,047,417)
DAILY AVERAGE:
Live Harness Handle ......... $ 79,490 $ 93,858 $ (14,368)
OTB & ITW Handle ............ 106,263 153,421 (47,158)
Attendance .................. 1,666 1,742 (76)
LIVE RACING DAYS ............ 77 115 (38)
FISCAL YEAR ENDED DECEMBER 31, 1996 AS COMPARED TO
NINE MONTHS ENDED DECEMBER 31, 1995
During the fiscal year ended December 31, 1996, operating revenues decreased by
$409,200, compared with the nine-month period ended December 31, 1995. The
reduced operating revenues were the effect of the Company change in year end,
resulting in a nine-month transitional period. A portion of the decrease is due
to seven less live racing days during the transitional period. Net corporate
sponsorship of racing events decreased $335,984 from the previous racing season.
Operating expenses increased by $538,270 compared to the nine-month period ended
December 31, 1995. The principal causes for the increase was the transition from
a nine-month period to a twelve-month period.
SUBSEQUENT EVENTS
In 1998, the Company was fined $416,000 by the New York State Racing and
Wagering Board (the "Board") for instances of non-compliance, and has been
directed to reimburse the Company's capital improvement fund for any unqualified
capital expenditures. However, the Board is indicating its willingness to abate
the fine if the Company demonstrates compliance during the 1998 racing season.
Management expects that appropriate compliance will be demonstrated and that,
accordingly, the fines will be abated. However, there can be no assurance that
the fines will be abated. The Company also believes that qualified capital
expenditures exceed the amount provided by the capital improvement fund and
that, accordingly, no reimbursement of unexpended funds will be required.
The Company continues to take action and explore its options to raise operating
capital, including but not limited to the following:
-8-
<PAGE>
a. In 1998, the Company realized $400,000 on the sale of surplus
undeveloped real estate located in Onondaga County.
b. The Company is pursuing loans and grants from various local and state
agencies.
c. The Company has closed on a One Million Dollar ($1,000,000) loan
secured by a mortgage on its race track property in Vernon, New York.
The Company will continue to explore any additional options to raise any
additional necessary funds for the Company's operations.
In addition to exploring funding options as set forth above, the Company plans
to do or has done the following to improve its financial condition and improve
the efficiency of its operations:
a. Hire new management.
b. Replace the food service concessioner.
c. Increase the number of events using the facility.
d. Eliminate expenditures not necessary to the operation of the facility
including certain deferred compensation payments.
There can be no assurance that efforts to improve the Company's financial
condition will be successful.
LIQUIDITY AND CAPITAL RESOURCES
In 1998, the funding of business operations and capital requirements for
Mid-State Raceway's business will be substantially sourced by cash from
operations, sale of non-operating assets, anticipated mortgage loans, and
anticipated loans and/or grants from government agencies. The Company's current
ratio at December 31, 1997 was approximately one to two and one-half.
-9-
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholders
Mid-State Raceway, Inc.
We have audited the accompanying balance sheets of Mid-State Raceway, Inc. as of
December 31, 1997 and 1996, and the related statements of operations, changes in
shareholders' equity, and cash flows for the years ended December 31, 1997 and
1996, and the nine months ended December 31, 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Mid-State Raceway, Inc. as of
December 31, 1997 and 1996, and the results of its operations and its cash flows
for the years ended December 31, 1997 and 1996, and the nine months ended
December 31, 1995, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 12 to the
financial statements, the Company incurred significant operating losses in 1997
and 1996, and is subject to several contingent liabilities as further explained
in Note 10, that raise substantial doubt about its ability to continue as a
going concern. Management's plans in regard to these matters are also described
in Note 12. The financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
Albany, New York
March 13, 1998
-10-
<PAGE>
<TABLE>
MID-STATE RACEWAY, INC.
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<CAPTION>
ASSETS
1997 1996
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash ............................................................. $ 195,997 $ 236,541
Cash restricted for purses and uncashed winning tickets .......... 62,210 190,542
Investments ...................................................... -- 14,075
Accounts receivable, net of allowance for doubtful accounts
of $7,000 in 1997 and $30,000 in 1996 ......................... 187,016 203,896
Prepaid insurance, taxes and other expenses ...................... 21,740 49,111
----------- -----------
Total current assets ................................ 466,963 694,165
----------- -----------
PROPERTY, PLANT AND EQUIPMENT
Land, racing plant and equipment ................................. 12,555,965 12,538,616
Other properties ................................................. 121,672 121,672
----------- -----------
12,677,637 12,660,288
Less accumulated depreciation .................................... 10,820,080 10,593,768
----------- -----------
1,857,557 2,066,520
----------- -----------
OTHER ASSETS
Investments ...................................................... -- 89,100
Deferred income taxes ............................................ -- 325,902
Other assets ..................................................... 105,903 128,160
----------- -----------
105,903 543,162
----------- -----------
$ 2,430,423 $ 3,303,847
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses ............................ $ 1,028,297 $ 888,514
Current portion of deferred retirement benefits (Note 10) ........ 107,565 107,565
Uncashed winning tickets ......................................... 62,210 87,332
Early closing and stake events purse funds ....................... -- 103,210
----------- -----------
Total current liabilities ........................... 1,198,072 1,186,621
----------- -----------
DEFERRED RETIREMENT BENEFITS (Note 10) .............................. 906,296 908,011
----------- -----------
CONTINGENCIES (Note 10)
SHAREHOLDERS' EQUITY
Common stock, par value $.10 per share;
authorized 10,000,000 shares;
issued and outstanding 250,386 shares ......................... 25,039 25,039
Additional paid-in capital ....................................... 225,347 225,347
Retained earnings ................................................ 75,669 956,534
Unrealized gain on investments ................................... -- 2,295
----------- -----------
Total shareholders' equity .......................... 326,055 1,209,215
----------- -----------
$ 2,430,423 $ 3,303,847
=========== ===========
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
-11-
<PAGE>
<TABLE>
MID-STATE RACEWAY, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997 AND 1996
AND NINE MONTHS ENDED DECEMBER 31, 1995
<CAPTION>
For the Nine
For the Year Ended For the Year Ended Months Ended
December 31, 1997 December 31, 1996 December 31, 1995
(77 Racing Days) (115 Racing Days) (122 Racing Days)
------------------ ------------------ -----------------
<S> <C> <C> <C>
Operating revenues
Net pari-mutuel commissions and breakage from
wagering
Vernon Downs Harness ........................... $1,054,039 $ 1,840,413 $2,201,200
Off-track betting .............................. 1,369,151 1,468,103 1,109,876
Simulcasting ................................... 2,684,663 3,016,815 3,024,272
---------- ----------- ----------
5,107,853 6,325,331 6,335,348
Admissions ........................................... 61,740 92,655 123,522
Concessions .......................................... 109,236 142,721 223,782
Corporate sponsors ................................... 5,000 18,224 354,208
Other revenues ....................................... 97,498 150,149 101,420
---------- ----------- ----------
Total operating revenues .................. 5,381,327 6,729,080 7,138,280
---------- ----------- ----------
Operating expenses
Purses ............................................... 1,298,244 2,259,038 2,378,086
Payroll .............................................. 1,240,253 1,588,250 1,467,316
Taxes, other than income ............................. 384,469 357,590 287,151
Outside services and rentals ......................... 381,483 562,175 518,764
Utilities ............................................ 434,458 627,096 505,571
Simulcasting expenses ................................ 999,772 1,054,426 1,003,596
Depreciation ......................................... 233,356 245,805 180,478
Bad debts ............................................ 9,905 33,769 --
Other expenses ....................................... 1,010,976 1,411,436 1,260,353
---------- ----------- ----------
Total operating expenses .................. 5,992,916 8,139,585 7,601,315
---------- ----------- ----------
Loss from operations .................................... (611,589) (1,410,505) (463,035)
---------- ----------- ----------
Other income
Commissions for capital improvements ................. 81,952 146,224 140,985
Investment income (loss) ............................. (21,470) 6,367 31,434
---------- ----------- ----------
Total other income ........................ 60,482 152,591 172,419
---------- ----------- ----------
Loss before provision for federal and
state income taxes ................................... (551,107) (1,257,914) (290,616)
---------- ----------- ----------
Provision for federal and state income taxes
Currently payable .................................... 2,326 3,524 1,838
Deferred ............................................. 327,432 100,000 16,325
---------- ----------- ----------
329,758 103,524 18,163
---------- ----------- ----------
Net loss ................................................ $ (880,865) $(1,361,438) $ (308,779)
========== =========== ==========
Loss per common share ................................... $ (3.52) $ (5.44) $ (1.23)
========== =========== ==========
Cash dividends per share ................................ $ -- $ -- $ --
========== =========== ==========
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
-12-
<PAGE>
<TABLE>
MID-STATE RACEWAY, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1996
AND NINE MONTHS ENDED DECEMBER 31, 1995
<CAPTION>
Common Stock Unrealized
Issued And Outstanding Additional Retained Gain
---------------------- Paid-in Earnings (Loss) on
Shares Amount Capital (Deficit) Investments Total
---------- --------- -------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balances at March 31, 1995 ...................... 250,386 $25,039 $225,347 $ 2,626,751 $(5,855) $ 2,871,282
Net loss for the nine months .................... -- -- -- (308,779) -- (308,779)
Change in unrealized gain (loss) on investments.. -- -- -- -- 7,956 7,956
------- ------- -------- ----------- ------- -----------
Balances at December 31, 1995 ................... 250,386 25,039 225,347 2,317,972 2,101 2,570,459
Net loss for the year ........................... -- -- -- (1,361,438) -- (1,361,438)
Change in unrealized gain (loss) on investments.. -- -- -- -- 194 194
------- ------- -------- ----------- ------- -----------
Balances at December 31, 1996 ................... 250,386 25,039 225,347 956,534 2,295 1,209,215
Net loss for the year ........................... -- -- -- (880,865) -- (880,865)
Change in unrealized gain (loss) on investments.. -- -- -- -- (2,295) (2,295)
------- ------- -------- ----------- ------- -----------
Balances at December 31, 1997 ................... 250,386 $25,039 $225,347 $ 75,669 $ -- $ 326,055
======= ======= ======== =========== ======= ===========
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
-13-
<PAGE>
<TABLE>
<CAPTION>
MID-STATE RACEWAY, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1996
AND NINE MONTHS ENDED DECEMBER 31, 1995
FOR THE NINE
FOR THE YEAR ENDED FOR THE YEAR ENDED MONTHS ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
(77 RACING DAYS) (115 RACING DAYS) (122 RACING DAYS)
-------------- --------------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ............................................... $(880,865) $(1,361,438) $(308,779)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation ..................................... 233,356 245,805 180,478
Net amortization/accretion of investments ........ 26 4,705 697
Deferred income taxes ............................ 327,432 100,000 16,325
Allowance for (recoveries of) doubtful
accounts ...................................... (23,000) 30,000 --
Gain on sale of investment securities ............ (4,769) -- --
Loss on disposal of equipment .................... 1,431 -- --
Changes in:
Restricted cash ............................... 128,332 (33,143) 83,494
Accounts receivable ........................... 39,880 120,860 (189,947)
Prepaid expenses .............................. 27,371 122,182 (8,954)
Other assets .................................. 22,257 6,500 (9,379)
Accounts payable .............................. 146,413 629,150 10,230
Purse funds ................................... (103,210) 4,040 (141,723)
Uncashed winning tickets ...................... (25,122) 29,103 58,229
Deferred retirement benefits .................. (1,715) (5,950) (39,499)
--------- ----------- ---------
Net cash used in operating activities ....... (112,183) (108,186) (348,828)
--------- ----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities and sales of available-
for-sale investment securities ....................... 104,093 456,989 556,000
Purchase of available-for-sale investment
securities ........................................... -- (285,000) (179,295)
Proceeds from sale of equipment ........................ 1,200 -- --
Purchase of properties and equipment ................... (33,654) (378,829) (95,972)
Net cash (used in) provided by --------- ----------- ---------
investing activities ..................... 71,639 (206,840) 280,733
--------- ----------- ---------
Net (decrease) in cash .................................... (40,544) (315,026) (68,095)
Cash at beginning of year ................................. 236,541 551,567 619,662
--------- ----------- ---------
Cash at end of year ....................................... $ 195,997 $ 236,541 $ 551,567
========= =========== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid (received) during the year for:
Income taxes ..................................... $ 2,353 $ (13,824) $ 2,274
========= =========== =========
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Equipment returned upon termination of
capital lease agreement .......................... $ 6,630 $ -- $ --
========= =========== =========
SEE NOTES TO FINANCIAL STATEMENTS.
-14-
</TABLE>
<PAGE>
MID-STATE RACEWAY, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS:
Mid-State Raceway, Inc. (the "Company"), known as Vernon Downs,
operates a harness racing track in Vernon, New York. The
Company is licensed by the New York Racing and Wagering Board
to conduct harness racing at its track and to simulcast racing
from other tracks.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported assets
and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
CHANGE IN FISCAL YEAR:
In 1995 the Company changed its fiscal year end to December 31
from March 31. Consequently, the statements of operations,
changes in shareholders' equity, and cash flows for the period
ended December 31, 1995 present the activities for nine months.
INVESTMENT SECURITIES:
Investments are classified as available-for-sale and reported
at fair value, with net unrealized gains and losses reflected
as a separate component of shareholders' equity, net of the
applicable income tax effect.
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment are carried at cost less
accumulated depreciation computed by the straight-line and
accelerated methods.
The estimated useful life of the various classes of assets on
which current provisions were based are as follows:
Land improvements ................. 5 to 20 years
Buildings and improvements ........ 10 to 40 years
Other structures .................. 15 to 31-1/2 years
Equipment ......................... 3 to 20 years
RETIREMENT PLANS:
The Company sponsors a number of retirement plans that cover
substantially all employees. One group of union employees are
covered under an industry-wide union pension plan. The other
group of union employees are covered under a defined
contribution individual account retirement severance plan which
is funded currently. The total contribution under both plans
for the year ended December 31, 1997, the year ended December
31, 1996, and the nine months ended December 31, 1995 was
$18,791, $35,996, and $44,080, respectively.
-15-
<PAGE>
MID-STATE RACEWAY, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES, CONTINUED
RETIREMENT PLANS, CONTINUED:
The remaining employees are covered by a defined contribution
currently funded individual account retirement plan or an
unfunded deferred compensation plan. Total expense charged to
operations for these plans amounted to $105,850, $113,615, and
$51,925 for the years ended December 31, 1997 and 1996, and the
nine months ended December 31, 1995, respectively. The deferred
compensation plan's projected benefit obligation approximates
the accrued liability. The Company terminated this plan during
March 1998 (Note 10) and believes that it will not incur any
additional expense or make additional payments against this
liability. The defined contribution currently funded individual
account retirement plan was terminated by the Company,
effective December 31, 1996.
LOSS PER COMMON SHARE:
Loss per share of common stock has been calculated based on the
weighted average shares outstanding during each year. The
weighted average number of common shares outstanding was
250,386 during the years ended December 31, 1997 and 1996, and
the nine months ended December 31, 1995.
ADVERTISING:
The Company follows the policy of charging the costs of
advertising to expense as incurred. Advertising expense was
$65,245, $269,953 and $359,464 for the years ended December 31,
1997 and 1996, and the nine months ended December 31, 1995,
respectively.
INCOME TAXES:
The Company recognizes deferred income taxes for the tax
consequences in future years of differences between the tax
bases of assets and liabilities and their financial reporting
amounts at each year-end based on enacted tax laws and
statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation
allowances are established when necessary to reduce deferred
tax assets to the amount expected to be realized. Income tax
expense is the tax payable for the period and the change during
the period in deferred tax assets and liabilities.
REVENUE RECOGNITION:
The Company recognizes revenue for commissions from wagering,
corporate sponsors, admissions, and commissions for capital
improvements when the related racing event is run. Investment
income is recognized on the accrual basis.
RECLASSIFICATIONS:
Certain balances in prior year financial statements have been
reclassified for comparative purposes.
-16-
<PAGE>
MID-STATE RACEWAY, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 2. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
DECEMBER 31, DECEMBER 31,
1997 1996
----------- -----------
Land, racing plant, and equipment
Land ...................................... $ 77,802 $ 77,802
Land improvements ......................... 1,278,854 1,257,909
Buildings and improvements ................ 5,682,906 5,682,906
Race plant structures ..................... 1,258,915 1,258,915
Equipment ................................. 4,246,667 4,249,438
Construction in progress .................. 10,821 11,646
----------- -----------
12,555,965 12,538,616
Other properties
Land ...................................... 121,672 121,672
----------- -----------
12,677,637 12,660,288
Less accumulated depreciation .............. 10,820,080 10,593,768
----------- -----------
$ 1,857,557 $ 2,066,520
=========== ===========
NOTE 3. INCOME TAXES
Net deferred tax assets in the accompanying balance sheets have been
provided for the temporary differences between the tax bases of assets
and liabilities and their financial reporting amounts. The temporary
differences that give rise to a significant portion of the deferred
tax liability and deferred tax asset and their approximate tax effects
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
-------------------------- -------------------------
TEMPORARY TAX TEMPORARY TAX
DIFFERENCE EFFECT DIFFERENCE EFFECT
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Deferred compensation ................... $1,013,000 $ 376,800 $1,015,000 $ 378,502
Net operating loss carryforwards ........ 2,900,000 986,000 2,400,000 816,000
Other ................................... (22,000) (8,800) (44,500) (16,700)
---------- ----------- ---------- ----------
3,891,000 1,354,000 3,370,500 1,177,802
Less valuation allowance ................ -- (1,354,000) -- (851,900)
---------- ----------- ---------- ----------
$3,891,000 $ -- $3,370,500 $ 325,902
========== =========== ========== ==========
</TABLE>
As of December 31, 1996, the Company owns certain assets whose market
values are significantly greater than their book values. The Company
did not record a valuation allowance against certain of its deferred
tax assets at that date on the basis of available tax planning
strategies, including the potential for sale of the above noted assets
at gains significant enough to enable realization of certain tax
benefits.
During 1997, the Company determined that an increase in the valuation
allowance was appropriate because of uncertainty associated with the
payment of its unfunded deferred compensation plan obligations.
-17-
<PAGE>
MID-STATE RACEWAY, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 3. INCOME TAXES, CONTINUED
The net operating loss carryforward will expire at various dates from
December 31, 2009 through December 31, 2012.
A reconciliation of the provision (credit) for income taxes to the
statutory amount is as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE NINE MONTHS ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
------------------- ------------------- -------------------------
AMOUNT % AMOUNT % AMOUNT %
--------- ---- --------- ---- -------- ----
<S> <C> <C> <C> <C> <C> <C>
Statutory federal income tax ........... $(188,000) (34.0) $(438,000) (34.0) (99,000) (34.0)
Variances from statutory rate
Add state income tax, net of
federal tax benefit ................ 2,326 0.4 3,524 0.3 4,193 1.4
Increase in valuation allowance ...... 502,100 91.0 489,900 38.0 139,000 47.8
Prior year's tax ..................... -- 0.0 24,000 1.9 (13,430) (4.6)
Less reduction for
Tax exempt income
Other .............................. 13,332 2.4 24,100 1.8 (12,600) (4.4)
--------- ---- --------- ---- -------- ----
Effective tax (credit) ................. $ 329,758 59.8 $ 103,524 8.0 $ 18,163 6.2
========= ==== ========= ==== ======== ====
</TABLE>
NOTE 4. MARKETABLE SECURITIES
The amortized cost, gross unrealized gains, gross unrealized losses,
and market values for current marketable securities and marketable
securities maturing in greater than one year are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- ------------------
GROSS UNREALIZED GROSS UNREALIZED
AMORTIZED ----------------- AMORTIZED ------------------
COST GAIN LOSS MARKET COST GAIN LOSS MARKET
----- ----- ------ ------ ---------- ------ ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Securities Available-
for-Sale
Municipal bonds ............. $ -- $ -- $ -- $ -- $ 90,421 $ -- $1,321 $ 89,100
Other ....................... -- -- -- -- 8,929 5,146 -- 14,075
----- ----- ----- ----- -------- ------ ------ --------
Total Available-
for-Sale ................. $ -- $ -- $ -- $ -- $ 99,350 $5,146 $1,321 $103,175
===== ===== ===== ===== ======== ====== ====== ========
</TABLE>
NOTE 5. LEASES
The Company leases certain equipment for use during each racing season
including an agreement for pari-mutuel totalisator equipment and
services.
Total rent expense for the years ended December 31, 1997 and 1996, and
the nine months ended December 31, 1995 amounted to $495,481, $654,780
and $566,786 of which $331,716, $415,178, and $311,038 was paid on the
totalisator contract for the respective years.
-18-
<PAGE>
MID-STATE RACEWAY, INC.
NOTES TO FINANCIAL STATEMENTS
The current totalisator lease agreement expires on May 31, 2000. Under
the agreement, rents charged for the equipment and services are
dependent upon the number of live racing meets held and the number of
tracks simulcasted. Future rental charges are dependent upon future
live racing and simulcast events.
NOTE 6. COMMISSIONS FOR CAPITAL IMPROVEMENTS
On July 26, 1983, legislation was passed permitting Upstate New York
harness tracks to apply for an increase of 1% of on-track regular and
multiple bet pools and 1/2 of 1% from OTB regular and multiple bet
pools. Under the law and subject to the approval of the New York State
Racing and Wagering Board, these additional funds must be used for
capital improvements or a portion may be used for advertising. The
Company elected to increase such commissions effective September 14,
1983. Expenditures for the years ended 1994 through 1997, have been
submitted to the New York State Racing and Wagering Board for approval
(Note 10).
NOTE 7. INVESTMENT INCOME (LOSS)
Investment income consisted of the following for the years ended
December 31, 1997 and 1996, and the nine months ended December 31,
1995:
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------ ------------ -----------
Interest and dividends ............ $ 787 $12,867 $22,054
Equity in earnings (loss) of
Syracuse Mile, Inc. (an
insignificant subsidiary) ....... (22,257) (6,500) 9,380
-------- ------- -------
$(21,470) $ 6,367 $31,434
======== ======= =======
NOTE 8. CORPORATE SPONSORS
During the years ended December 31, 1997 and 1996, and the nine months
ended December 31, 1995, the Company received a total of $5,000,
$18,234, and $382,000 (before expenses), respectively, for corporate
sponsorship of races. Various entities affiliated with the Company's
former majority shareholder purchased an aggregate of $148,000 (before
expenses) of these sponsorships in the nine months ended December 31,
1995. There were no corporate sponsorships purchased by affiliates in
1997 or 1996.
NOTE 9. HOTEL LEASE
During fiscal year 1994, the Company, as lessor, entered into a lease
agreement with a partnership that includes the Company's former
majority shareholder. The Company has leased, for an initial period of
twenty years, a certain portion of their property for the purpose of
permitting the partnership to construct, own, and operate a hotel.
Anytime during the lease or any renewal period of the lease, the
Company may elect to assume all of the lessee's duties, obligations,
rights and responsibilities under the lease. Lease payments during the
initial twenty year period are $10,000 per year.
-19-
<PAGE>
MID-STATE RACEWAY, INC.
NOTES TO FINANCIAL STATEMENTS
Construction of the hotel by the partnership was completed in October
1994. The Company also operates pari-mutuel wagering on the hotel
premises. Net pari-mutuel commissions and breakage from wagering on
these premises approximated $840,000 for the year ended December 31,
1997 ($1,203,000 for the year ended December 31, 1996 and $1,597,000
for the nine months ended December 31, 1995).
NOTE 10. CONTINGENCIES
NEW YORK STATE RACING AND WAGERING BOARD COMPLIANCE AUDIT
During 1998, the New York State Racing and Wagering Board (the Board)
reviewed the Company's compliance with the Board's policies and
procedures. Based upon the Board's findings, the Company was fined
$416,000 for instances of non compliance and has also been directed to
reimburse the Company's capital improvement account for any
unqualified capital expenditures. The Board had indicated its
willingness to abate the fine if the Company demonstrates compliance
during the subsequent racing season. Management believes that
appropriate compliance will be demonstrated and these fines have not
been accrued in the accompanying financial statements. The Company has
submitted supporting documentation to the Board documenting capital
expenditures incurred. The Company believes that qualified
expenditures exceed the amount provided by the capital improvement
fund and expects that the expenditures will be approved. The Board has
also assessed fines against former officers of the Company totaling
$93,000. The financial effect to the Company, if any, relating to this
assessment has not been determined.
VENDOR CLAIMS
As of December 31, 1997, the Company had received invoices
approximating $190,000 from a former food concessionaire. The
concessionaire is invoicing to receive payment from the Company in
excess of any amounts paid to the Company to cover the
concessionaire's losses. The Company contends that the concession
agreement does not contain such a provision covering losses either
expressed or implied and believes that the claim will not result in
any material liability.
FORMER MAJORITY SHAREHOLDER
During 1998, the Company was requested to and has provided financial
information to a bankruptcy trustee relating to approximately
$1,200,000 of corporate sponsorships (Note 8) it received over a
period of years from bankrupt affiliates of its former majority
shareholder. If any of the sponsorships are ultimately determined to
be fraudulent conveyances, the Company could be required to refund
such amounts.
OTHER
The Company may be liable for severance payments under an employment
agreement with a former officer who was terminated in March 1998.
In March 1998, the Company voted to terminate its unfunded deferred
compensation plan (Note 1) and believes that it will not incur any
additional expense or make any additional payments against this
liability.
-20-
<PAGE>
MID-STATE RACEWAY, INC.
NOTES TO FINANCIAL STATEMENTS
LITIGATION
The Company is a defendant in an action claiming damages in connection
with an injury claim. No estimate can yet be made of the potential for
liability or damages, or the likely outcome of the litigation.
NOTE 11. OTHER RELATED PARTY TRANSACTIONS
In March 1998, the Company sold idle land with nominal book value, to
an affiliate of a member of the Company's Board of Directors for
$400,000.
NOTE 12. FINANCIAL CONDITION
The Company has sustained significant operating losses for the years
ended December 31, 1997 and 1996, as well as for the nine months ended
December 31, 1995, resulting in a deterioration of working capital and
shareholders equity.
As a result of these losses, the Company has initiated plans to deal
with its deteriorating financial condition. These include the
following:
o Hiring of new management;
o Appointment of new officers and directors;
o Termination of the food service concessionaire;
o Sale of idle assets;
o Applications to local governmental agencies for grants and
subordinated debt (some of which are approved if long-term
financing is arranged);
o Applications to financial institutions for long-term
financing;
o Increasing the number of events using the facility; and
o Elimination of various expenditures.
There can be no assurances that these plans will be successfully
implemented, and the ability of the Company to support operations for
the next 12 months is not presently determinable. Further, the ability
of the Company to continue as a going concern will be dependent on the
successful resolution of the various contingencies disclosed in
Note 10.
-21-
<PAGE>
ITEM 9. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT.
There are no current changes in the Registrant's certifying accountant.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The directors and executive officers of the Company as of March 15, 1998 are as
follows:
Common Shares
Beneficially
Became Owned as of
Name and Age Director December 31, 1997
------------ -------- -----------------
Frank O. White, Jr. (43) ................... 1985 1,142
James J. Moran (57) ........................ 1986 100
* David Slyman, Sr. .......................... 1997 0
* Jeremiah Law ............................... 1997 1,010
* Justice M. Cheney (65) ..................... 1997 100
* Neil Wager ................................. 1997 126,659**
* Edward Leffler (55) ........................ 1997 0
Thomas M. Hunter (51) ...................... 1997 0
Abe Acee, Jr. .............................. 1997 0
Thomas Fiore ............................... 1997 0
James R. Wise (50) ......................... 0
- ----------
* Member of Executive Committee
** Mr. Wager is managing member of NW Investors II, LLC which claims
ownership of 126,657 shares in the name of Standardbred Enterprises,
Ltd. by virtue of those shares being pledged to it as security for a
loan and such loan being in default.
All officers and directors as a group ....................... 128,911 50.59%
(including individuals named above)
Justice M. Cheney has been President and Chief Executive Officer of the Company
since December, 1997. He is an adjunct professor with the Department of
Vocational/Technical
-22-
<PAGE>
Education, SUNY Oswego. He has been a member of the United States Trotting
Association since 1953 and is licensed as an owner, trainer, driver and breeder
of standardbred horses. He has raced harness horses as both a driver and trainer
at Vernon Downs, Saratoga Raceway and various New York State and County Fairs.
Edward Leffler has been Vice President of the Company since December, 1997. He
is the Chief Executive Officer of James Square Health and Rehabilitation Center,
Syracuse, New York and the Chief Executive Officer of E.L. Management of
Syracuse Corp. He has more than 25 years experience in health care services,
including planning, design, construction and operation of health care
facilities. Mr. Leffler is President of the Board of Visitors of the Syracuse
University School of Social Work.
James J. Moran has been Secretary of the Company since 1994 and Assistant
Secretary since 1985. He has been Director of Publicity/Public Relations since
1975 and Track Announcer since 1964. He is past President and Chairman of the
Board of the North American Harness Publicists Association and
Secretary/Treasurer of Vernon Chapter of the U.S. Harness Riders Association.
Thomas Hunter has been a licensed standardbred trainer from 1980 to the present
and is licensed as such by the New York State Racing and Wagering Board. Mr.
Hunter is currently employed by H&B Marketing working in the area of advertising
sales. Prior to 1992, Mr. Hunter was a self-employed businessman working in
telecommunications management, marketing sales and development.
Abe Acee, Jr. has been a resident of Vernon, New York for 20 years. Mr. Acee
owns the Nothin' Fancy Cafe and Country Edition which is a popular entertainment
center in Vernon which features a bar and dance hall. From 1977 to 1993, Mr.
Acee provided a feed service to Vernon Downs and also brokered hay and straw to
major standardbred and thoroughbred facilities and breeding farms in the
northeastern United States. Mr. Acee is one of the founders of the Vernon
Merchants Association and continues to be an active member of the Association.
Neil Wager is a Managing Member of NW Investors II, LLC.
James R. Wise has been Treasurer of the Company since November, 1997. Mr. Wise
is a certified public accountant licensed in New York State. He is a member of
the American Institute of Certified Public Accountants (AICPA) and New York
State Society of Certified Public Accountants (NYSSCPA). Prior to 1997, Mr. Wise
was Director of Finance/Administration for a multi-state law firm for 12 years
and worked for an international public accounting firm for 14 years.
The Board of Directors of the Company has Executive and Compensation Committees.
Although the Company does not have a Nominating Committee, the Board of
Directors, as a committee of the whole, performs the functions of such a
committee by reviewing nominations suggested by any of its members and then
making a recommendation to the shareholders. The Board of Directors will
consider shareholders' recommendations for directors sent to James J. Moran,
Vice President and Secretary, Mid-State Raceway, Inc., P.O. Box 860, Vernon, New
York 13476.
-23-
<PAGE>
The Executive Committee exercises all the powers of the Board of Directors
during the interval between meetings of the Board, subject to such limitations
as exist by law or as may be provided in the By-Laws or by resolution of the
Board of Directors. A majority of the Executive Committee is required to
constitute a quorum to conduct business.
COMPENSATION OF DIRECTORS
Directors of the Company are not paid any fees or remuneration for service as
members of the Board of Directors. During the year ended December 31, 1996, the
Board of Directors passed a resolution to discontinue compensation to
non-employee directors for Board meetings and Committee meetings attended. That
resolution continues in effect.
11. EXECUTIVE COMPENSATION.
The following table sets forth information concerning compensation paid by the
Company to those persons who were, at December 31, 1997 (i) the chief executive
officer and (ii) the other executive officers whose annual salary and bonus
exceeded $100,000 during the last three fiscal years.
Summary Compensation Table
Name and Principal Position Year Salary
--------------------------- ---- ------
Frank O. White, Jr. ................. 1997 $81,000
President & CEO 1996 $81,000
1995 $90,000
No executive officer received an annual salary and bonus in excess of $100,000
over the last three fiscal years.
The Company has an employment agreement with Frank O. White, Jr. providing for
his employment as the Company's President and Chief Executive Officer through
June 30, 1999, unless terminated early pursuant to the terms of the Agreement.
The Agreement provides that it may be terminated by the Board for good cause at
any time. On March 10, 1998, Mr. White was terminated for cause as a result of
the assessment of fines against the Company by the State Racing and Wagering
Board for substantial violations of its rules and regulations. Mr. White has
disputed the termination and has requested that the matter be arbitrated.
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIARY OWNERS AND MANAGEMENT.
At the close of business on December 31, 1997, the Company had outstanding
250,386 shares of common stock. No person or group is known by the Company to
beneficially own more than 5% of the Company's common stock except as set forth
in the following table:
-24-
<PAGE>
Amount and Nature
Name and Address of Beneficial Percent
of Beneficial Owner Ownership Class
------------------- ------------------ -------
Standardbred Enterprises, Ltd. 126,659 shares 51%
3837 Peterboro Road
Oneida, NY 13421
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In 1994, the Company entered into a lease agreement with a partnership that
includes the Company's former majority shareholder, Patrick R. Bennett. Pursuant
to the lease agreement, the Company leases a portion of its real property for
the purpose of permitting the lessee to operate a hotel adjacent to the
Company's facilities. The term of the lease is for 20 years, with renewal
options for an additional 20 years. Anytime during the lease, or any renewal
period of the lease, the Company may elect to assume all of the lessee's duties,
obligations, rights and responsibilities under the lease with respect to the
hotel. Lease payments during the initial 20-year period are $10,000 per year.
In March, 1998, the Company sold 126 acres of surplus vacant land on Collamer
Road in Onondaga County to E.L. Management of Syracuse Corp. for $400,000.
Edward Leffler, a Director of the Company, is the sole shareholder of E.L.
Management of Syracuse Corp.
In addition, Notes 8, 9, 10 and 11 of the financial statements included in this
Form 10-K are incorporated by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. FINANCIAL STATEMENTS Page
----
Included in Part II, Item 8 of this report
Independent Auditor's Report ................................ 9
Balance Sheets, December 31, 1997 and 1996 .................... 10
Statements of Operations,
Years Ended December 31, 1997 and 1996,
and the Nine Months Ended December 31, 1995 ................. 11
Statements of Changes in Shareholders'
Equity, Years Ended December 31, 1997 and
1996, and the Nine Months Ended
December 31, 1995 ........................................... 12
-25-
<PAGE>
Statements of Cash Flows,
Years Ended December 31, 1997 and 1996,
and the Nine Months Ended December 31, 1995 ................. 13
Notes to Financial Statements ................................. 14-20
2. FINANCIAL STATEMENT SCHEDULES
Schedules have been omitted because they are not required, not
applicable, or the required information is shown in the financial
statements or notes thereto.
(b) REPORTS ON FORM 8-K
None were filed for the quarter ended December 31, 1997.
-26-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on it
behalf by the undersigned, thereunto duly authorized in the Village of Vernon,
State of New York, on the 5th day of May, 1998.
MID-STATE RACEWAY, INC.
By: /s/ JUSTICE M. CHENEY
---------------------------
Justice M. Cheney,
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ JUSTICE M. CHENEY President, Chief Executive 5/5/98
- ---------------------------- Officer and Director
Justice M. Cheney
/s/ JAMES J. MORAN Secretary and Director 5/5/98
- ----------------------------
James J. Moran
/s/ EDWARD LEFFLER Vice President and Director 5/5/98
- ----------------------------
Edward Leffler
/s/ JAMES R. WISE Treasurer (Principal Financial 5/5/98
- ---------------------------- and Accounting Officer)
James R. Wise
Director 5/5/98
- ----------------------------
Neil Wager
/s/ THOMAS M. HUNTER Director 5/5/98
- ----------------------------
Thomas M. Hunter
/s/ ABE ACEE, JR. Director 5/5/98
- ----------------------------
Abe Acee, Jr.
/s/ JEREMIAH C. LAW Director 5/5/98
- ----------------------------
Jeremiah C. Law
Director 5/5/98
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David Slyman, Sr.
Director 5/5/98
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Frank O. White, Jr.
Director 5/5/98
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Thomas Fiore
-27-
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