<PAGE>

                                  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, 2003

                                       OR

         []       TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                  SECURITIES EXCHANGE ACT OF 1934

                  For the transition period from ________to___________

                      Commission File No.  0-1607

                             MID-STATE RACEWAY, INC.
--------------------------------------------------------------------------------
      (Exact name of Registrants as specified in their respective charters)

                 New York                                15-0555258
---------------------------------------------  ---------------------------------
(State or Other Jurisdiction of Incorporation  (IRS Employer Identification No.)
              or Organization)

       PO Box 860, Vernon, New York                        13476
--------------------------------------------   ---------------------------------
  (Address of Principal Executive Offices)               (Zip Code)

           Registrant's Telephone Number, Including Area Code:  (315) 829-2201

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[ ] YES         [X] NO

         Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act).
[ ] YES         [X] NO

         Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:

         Class                             Outstanding September 30, 2003
         -----                             ------------------------------
common stock, $0.10 par value                     442,766 shares

This report contains information that is not a statement of historical fact, but
merely reflects our intent, belief or expectations regarding the anticipated
effect of events, circumstances and trends. Such statements should be considered
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Although we believe that our expectations are
based on reasonable assumptions within the bounds of our knowledge of our
business and

<PAGE>

operations, there can be no assurance that actual results will not differ
materially from our expectations. Meaningful factors which could cause actual
results to differ from expectations include, but are not limited to, risks
related to the following: successful completion of capital projects; the
activities of our competitors; the existence of attractive acquisition
candidates; our ability to maintain regulatory approvals for our existing
businesses and to receive regulatory approvals for our new businesses; the
passage of state or federal legislation that would expand, restrict, further tax
or prevent gaming operations in the jurisdiction in which we operate; our
dependence on key personnel; our inability to realize the benefits of any
acquired entity; the maintenance of agreements with our horsemen and pari-mutuel
clerks; adverse business and economic conditions; the impact of terrorism and
other international hostilities and other factors as discussed in our other
filings with the United States Securities and Exchange Commission. We do not
intend to update publicly any forward-looking statements except as required by
law.

                                       2

<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                            PAGE
                                                                                            ----
<S>               <C>                                                                       <C>
PART I.               FINANCIAL INFORMATION
Item 1.           Financial Statements

                  Condensed Consolidated Balance Sheets
                  -September 30, 2003 and December 31, 2002...............................    4

                  Condensed Consolidated Statements of Operations
                  -Three months ended September 30, 2003 and September 30, 2002
                  -Nine months ended September 30, 2003 and September 30, 2002............    6

                  Condensed Consolidated Statements of Cash Flows
                  -Nine months ended September 30, 2003 and September 30, 2002............    7

                  Notes to Consolidated Financial Statements..............................    8

Item 2.           Management's Discussion and Analysis of the Financial
                      Condition and Results of Operations.................................   12

Item 3.           Quantitative and Qualitative Disclosures About Market Risk..............   14

Item 4.           Controls and Procedures.................................................   15

PART II.              OTHER INFORMATION

Item 1.           Legal Proceedings.......................................................   15

Item 2.           Changes in Securities and Use of Proceeds...............................   16

Item 3.           Defaults Upon Senior Securities.........................................   16

Item 4.           Submission of Matters to a Vote of Security Holders.....................   16

Item 5.           Other Information.......................................................   16

Item 6.           Exhibits and Reports on Form 8-K........................................   16

Signatures
Certifications
</TABLE>

                                       3

<PAGE>

PART I.  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

MID-STATE RACEWAY, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED  BALANCE SHEET

<TABLE>
<CAPTION>
                                                        (UNAUDITED)
                                                       SEPTEMBER 30,     DECEMBER 31,
                                                         2003               2002
                                                       -------------    --------------
<S>                                                    <C>              <C>
                         ASSETS
CURRENT ASSETS
   Cash and cash equivalents                           $     119,823    $       89,907
   Restricted cash                                           225,209           253,794
   Other receivables, net of allowance for doubtful
      accounts of $10,000 in 2003 and 2002                   323,679           401,135
   Prepaid interest and other                              1,610,306         1,821,727
                                                       -------------    --------------
             Total current assets                          2,279,017         2,566,563

PROPERTY, PLANT AND EQUIPMENT
   Land, racing plant and equipment                       19,944,026        17,778,070
   Other Properties                                          121,671           121,671
                                                       -------------    --------------
                                                          20,065,697        17,899,741
   Less accumulated depreciation                          12,668,011        12,412,951
                                                       -------------    --------------
                                                           7,397,686         5,486,790
OTHER ASSETS                                               1,753,448           574,083
                                                       -------------    --------------
                                                       $  11,430,151    $    8,627,436
                                                       =============    ==============
</TABLE>

            See notes to unaudited consolidated financial statements

                                       4

<PAGE>

MID-STATE RACEWAY, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
                                                                             (UNAUDITED)
                                                                            SEPTEMBER 30,       DECEMBER 31,
                                                                                2003               2002
                                                                           ---------------     --------------
<S>                                                                        <C>                 <C>
             LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
   Lines of credit                                                         $             -     $            -
   Deferred payments (V. I. P.)                                                  1,785,042                  -
   Current portion of long term debt                                                42,234            113,569
   Accounts payable and accrued expenses                                         1,570,545          1,638,161
   Uncashed winning tickets                                                         10,472             66,333
   Purse funds payable                                                                   -            495,000
   Deposits and other current liabilities                                          190,470            196,110
   Retention for capital improvements                                               32,011             27,534
   Deferred grant revenue                                                                -             80,000
                                                                           ---------------     --------------

             Total current liabilities                                           3,630,774          2,616,707

LONG-TERM DEBT, NET OF CURRENT PORTION                                          20,505,901         13,174,825

SHAREHOLDERS' EQUITY (DEFICIT)
   Common stock, par value $.10 per share;authorized 10,000,000 shares;
    issued and outstanding 442,766 in 2003 and 2002                                 44,277             44,277
   Additional paid-in-capital                                                    2,084,909          2,084,909
   Accumulated deficit                                                         (14,835,710)        (9,293,282)

             Total shareholders' deficit                                       (12,706,524)        (7,164,096)
                                                                           ---------------     --------------

                                                                           $    11,430,151     $    8,627,436
                                                                           ===============     ==============
</TABLE>

            See notes to unaudited consolidated financial statements

                                       5

<PAGE>

MID-STATE RACEWAY, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>

                                                      Three Months Ended                 Nine Months Ended
                                                September 30,     September 30,    September 30,    September 30,
                                                    2003              2002             2003             2002
                                                 38 Racing          39 Racing       65 Racing        66 Racing
                                                    Days               Days            Days             Days
                                                -------------     -------------    -------------    -------------
                                                          (Unaudited)                        (Unaudited)
<S>                                             <C>               <C>              <C>              <C>
Operating revenues                              $   2,704,891     $   2,763,367    $   6,551,599    $   6,790,933

Operating expenses                                  3,899,185         3,316,615        8,494,278        7,757,881
                                                -------------     -------------    -------------    -------------

Loss from operations                               (1,194,294)         (553,248)      (1,942,679)        (966,948)
                                                -------------     -------------    -------------    -------------

Other income (loss):
   Special events income (loss), net                   71,041            22,131          255,325           65,018
   Commissions for capital improvements                27,625            18,934           27,625           18,934
   Aid from state and local governments                     -                 -                -                -
   Gain (loss) on sale of other assets                      -                 -                -                -
   Investment (expense) income                          2,169             1,435           30,783            1,778
   Interest expense                                  (596,723)         (379,726)      (1,604,898)        (876,502)
   Financing costs                                   (249,483)         (629,226)      (2,308,584)        (761,825)
                                                -------------     -------------    -------------    -------------

      Total other income (loss)                      (745,371)         (966,452)      (3,599,749)      (1,552,597)
                                                -------------     -------------    -------------    -------------

Income (loss) before provision for federal
   and state income taxes                          (1,939,665)       (1,519,700)      (5,542,428)      (2,519,545)

Provision for federal and state income taxes
   currently payable                                        -                 -                            (1,200)
                                                -------------     -------------    -------------    -------------

Net loss                                        $  (1,939,665)    $  (1,519,700)   $  (5,542,428)   $  (2,520,745)
                                                =============     =============    =============    =============
Net loss per common share -
  basic and diluted                             $       (4.38)    $       (3.43)   $      (12.52)   $       (5.89)
                                                =============     =============    =============    =============
Cash dividend per share                         $           -     $           -    $           -    $           -
                                                =============     =============    =============    =============
</TABLE>

            See notes to unaudited consolidated financial statements

                                       6

<PAGE>

MID-STATE RACEWAY, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                              NINE MONTHS ENDED
                                                                      SEPTEMBER 30,        SEPTEMBER 30,
                                                                          2003                 2002
                                                                    ----------------     ----------------
                                                                                 (Unaudited)
<S>                                                                 <C>                  <C>
CASH FLOWS FROM OPERATING ACTIVITIES:

     Net loss                                                       $     (5,542,428)    $     (2,520,745)
     Adjustments to reconcile net loss to net cash used in
     operating activities:
        Depreciation                                                         255,060              258,038
        Realized and unrealized gain on investments                                -                    -
        Imputed interest expense                                                   -               69,243
     Changes in:

        Restricted cash                                                       28,585             (322,944)

        Accounts and grants receivable                                        77,456               12,159
        Prepaid interest and other                                           211,421           (2,411,628)
        Other assets                                                      (1,179,365)            (789,365)
        Accounts payable                                                     (67,616)            (179,120)
        Uncashed winning tickets and other current liabilities               (61,501)              44,201
        Purse funds payable                                                 (495,000)                   -
        Deferred revenue                                                     (80,000)             (80,000)
        Retention for capital improvements                                     4,477               23,673
                                                                    ----------------     ----------------
             Net cash used in operating activities                        (6,848,411)          (5,896,488)
                                                                    ----------------     ----------------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Proceeds from maturities and sales of available-for-sale
        investment securities                                                      -                    -
     Purchase of properties and equipment                                 (2,165,956)            (279,997)
                                                                    ----------------     ----------------
             Net cash provided by (used in) investing activities          (2,165,956)            (279,997)
                                                                    ----------------     ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
     Proceeds from debt, net of issuance costs                            39,650,080           22,450,000
     Principal payments on line of credit and other debt                 (30,531,538)         (15,757,178)
     Principal payments on capital leases                                    (73,759)             (74,866)
                                                                    ----------------     ----------------
             Net cash provided by financing activities                     9,044,783            6,617,956
                                                                    ----------------     ----------------

Net increase (decrease) in cash and cash equivalents                          29,916              441,471

Cash and cash equivalents at beginning of period                              89,907               41,287
                                                                    ----------------     ----------------

Cash and cash equivalents at end of period                          $        119,823     $        482,758
                                                                    ================     ================
</TABLE>

            See notes to unaudited consolidated financial statements

                                       7

<PAGE>

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, 2002 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. All material inter-company transactions and balances have been
eliminated in consolidation.

2.       REVENUE RECOGNITION

Racing revenues include the Company's share of pari-mutuel wagering on live
races after payment of amounts returned as winning wagers and the Company's
share of wagering from import and export simulcasting.

3.       LONG-TERM DEBT

$18,000,000 Loan Agreement

On January 29, 2003, MSR and MSD entered into an $18,000,000 Loan Agreement with
All Capital, LLC. This loan agreement is secured by a first mortgage on MSR and
MSD land, buildings, and improvements and is also secured by the personal
property of MSR and MSD. The $18,000,000 proceeds of this loan were applied to
the extent of (a) $11,903,831 to refinance and consolidate the $15,000,000 loan,
and (b) $3,689,169 for payment of loan commitment fees, a fund of one year
interest reserve, and for payment of the costs associated with the loan. The
remaining proceeds of the loan in the amount of $2,407,000 are to be disbursed
for working capital and in connection with and for the partial funding of
construction of facilities to be utilized for the installation and operation of
video lottery terminals. The loan bears interest at the rate of 12% per annum
and matures on July 31, 2004. The loan can be extended by MSR for up to four
successive quarters, until July 30, 2005, subject to the payment of applicable
extension fees. The loan agreement required MSR to create an interest reserve
account to hold the amount necessary to fund the payment of interest over the
initial one-year term of the loan. The interest reserve was funded by a portion
of the loan proceeds and a credit for the unused balance of interest reserve
maintained for the $15,000,000 loan. The loan agreement also required MSR to pay
a commitment and loan fee equal to 8% of the loan; which fee was paid by MSR out
of a portion of the loan proceeds. Additionally, in the event of VLT
installation at MSR, the loan agreement requires the Company to pay All Capital,
LLC the greater of 2% gross or 6% net VLT revenues earned by MSR though the term
of the loan in exchange for management services subject to the terms of a
separate management agreement between All Capital, LLC and MSR.

                                       8

<PAGE>

$23,000,000 Loan Agreement

On June 30, 2003, the MSR and MSD (collectively the "Borrower") entered into a
Loan Agreement (the "Loan Agreement") with Vestin Mortgage, Inc. (a Nevada
corporation) pursuant to which Vestin Mortgage, Inc. ("Vestin") agreed to lend
to the Borrower up to $23,000,000 (the "Vestin Loan"). The Vestin Loan is
evidenced by a Consolidated Secured Promissory Note (the "note") in the original
principal amount of $23,000,000 and is secured by (a) a first mortgage
encumbering all of the real property and improvements thereon owned by the
Borrowers and (b) a first priority security interest in all of the personal
property of the Borrower. Additionally, the owner of All Capital, LLC has agreed
to guarantee the payment of all interest (other than default interest) and
principal payments due under the note until such time as video lottery terminals
("VLTs") are installed and operating at Vernon Downs Racetrack. Neither All
Capital LLC nor its owner received any compensation in connection with the
issuance of such guaranty. The loan is due June 30, 2005. Additionally, Vestin
has the right to designate three members to the Board of Directors of the
applicant (none have been as of the date hereof exercised by Vestin).

On June 30, 2003, Vestin advanced $20,300,000 pursuant to the terms of the Loan
Agreement and the note. Such proceeds were applied as follows: (a) $15,834,485
to All Capital, LLC ("All Capital") in satisfaction of the Borrowers obligation
to All Capital pursuant to a certain $18,000,000 Consolidated Secured Promissory
Note dated January 29, 2003 (which promissory note was assigned to Vestin); (b)
$1,686,667 to fund the interest reserve; (c) $1,840,000 to the payment of loan
commitment fees; (d) $150,000 to the payment of closing costs, and (e) $788,848
to working capital of the applicant. An additional $2,700,000 of loan proceeds
may be subsequently drawn down by the Borrower in connection with the
construction of a facility to house the VLTs and working capital.

By agreement dated June 30, 2003, Vestin sold a $3,000,000 junior participation
in the Vestin Loan, the note (and the proceeds thereof) and the loan documents
evidencing and/or securing the Vestin Loan and the note (the "Junior
Participation") to All Capital LLC. Payments of interest and principal on or
with respect to the Junior Participation are junior and subordinate to the
payment of Vestin of interest and principal on or with respect to Vestin's
retained senior participation (the "Senior Participation") in and to the Vestin
Loan, the note and the loan documents evidencing and/or securing the Vestin Loan
and the note. During November 2003 Vestin repurchased the Junior Participation
from All Capital LLC. By agreement dated June 30, 2003, Vestin sold an undivided
interest in its Senior Participation to Owens Mortgage Investment Fund, a
California general partnership ("Owens"); and thereafter, on July 9, 2003,
repurchased such undivided interest from Owens.

During November 2003, the Vestin Loan Agreement was modified to increase the
maximum amount thereof to $26,000,000; and in connection with such modification
the Company is required to pay loan commitment fees of $300,000 to Vestin and a
loan broker. All of the remaining terms of the loan were unchanged.

V.I.P. Structures, Inc. Deferment

V.I.P. Structures, Inc. ("VIP"), the design/builder of the Company's VLT
Facility, has agreed to defer payment of $800,000 of the construction costs
until November 2004; and in connection therewith All Capital LLC has issued a
limited $500,000 guarantee of such obligation to VIP and the Company has agreed
to indemnify All Capital LLC for a liability under such guaranty. All Capital
LLC received no compensation in connection with the issuance of such guaranty.

                                       9

<PAGE>

$250,000 Sunset Management LLC Loan

During November 2003, Sunset Management LLC loaned to the Company on an
unsecured basis the sum of $250,000 at the rate of 24% per annum. The Company
promptly repaid this bridge loan and the interest expense with respect thereto
was less than $4,000.00.

4.       LITIGATION

(a)      When MSR purchased Gwen Bennett's stock in Comfort Associates, Inc.
("CAI") which operated the hotel on May 19, 2000, it agreed to indemnify her for
any liability she may have had with respect to the Comfort Inn franchise
agreement for the hotel. Following the purchase, MSR terminated the franchise
agreement and Gwen Bennett was sued by Choice Hotels International for damages
of approximately $557,000. She has answered the Complaint in such action
claiming, among other things, that the signature on the franchise agreement was
not hers. She has notified MSR of the claim and has requested indemnification if
the suit is successful. MSR believes that Mrs. Bennett did not sign the
agreement and accordingly believes it is likely that the lawsuit will not be
successful.

(b)      In 2001, the New York State Legislature approved video lottery terminal
(VLT) legislation to allow for the installation and operation of VLTs at New
York State harness race tracks. MSR is currently working with the New York State
Lottery Commission on implementation of the activities allowed by the VLT
legislation. MSR has been initially authorized to install 1,087 and up to 2,500,
based on activity performance, VLTs on its Track premises.

As a result of this legislation, MSR was named as a defendant in two separate
lawsuits challenging the legality of the legislation and the operation of VLTs
at harness race tracks. The outcome of these lawsuits is not presently
determinable.

(c)      In July 2002, MSR (along with certain MSR directors, Shawn A. Scott,
Vernon, LLC, and All Capital, LLC) was named as a defendant in a lawsuit filed
by a group of private purchasers. The lawsuit alleges bad faith and breach of
contract against MSR and seeks not less than $30 million in damages from the
Raceway plus interest. The lawsuit also alleges fraud by certain MSR directors
and seeks damages from those defendants to be determined at trial plus legal
fees. In addition, the lawsuit alleges tortuous interference with contracts by
certain MSR directors, Vernon, LLC, and All Capital, LLC and seeks $30 million
in damages from those defendants plus interest. The agreement upon which the
action is based contains a provision for the payment of a $130,000 "break up
fee". This action was dismissed for failure of prosecution by the plaintiff but
was subsequently reinstituted and is presently pending. The Company has notified
its insurance carrier of the commencement and pendency of the subject action.
The outcome of this lawsuit is not presently determinable and, as such, no
provision for any unfavorable outcome that may arise from this litigation has
been included in the financial statements.

(d)      On December 3, 2002, MSR was served with a summons and complaint from
both its former President (John Signorelli) and a current Board member and then
member of the Board's Audit Committee (Dominic Giambona) seeking, inter alia,
(i) monetary damages in the amount of $10 million and/or the issuance of
warrants to acquire up to 175,000 shares with a strike price of $10 per share
that would enable the plaintiffs to acquire such additional common stock upon
payment of $1.75 million; such warrants allegedly to have anti-dilution and
percentage

                                       10

<PAGE>

maintenance protection for their combined interests of 39.9%; (ii) the issuance
of 21,600 additional shares of common stock; the issuance of additional warrants
with a strike price of $5 per share to enable each of them to maintain his
present 17.19% interest in the future; and (iii) other declaratory, equitable,
and monetary relief. Such shares and warrants have not been issued and the
issuance of these shares and warrants has not been approved by the shareholders.
The Company believes that it has valid defenses to the lawsuit, has asserted
counterclaims against the plaintiffs based on various breaches of conduct and
duties and intends to seek dismissal of the case. Discovery is on-going.

(e)      MSR is a defendant in several litigation matters involving its
operations. Management believes that liabilities resulting from these lawsuits,
if any, will be immaterial or covered by insurance policies.

(f)      During November 2003 John Signorelli, a former officer of the Company
and two other stockholders (one of whom owns 200 recently acquired shares of
Common Stock) commenced an action in U.S. District Court for the Southern
District of New York ("Signorelli Action") against the Company, certain of its
directors and others alleging improprieties with respect to the below: "looting"
and mismanagement. The Company believes that it has valid defenses to this
action and, in addition, counterclaims and third party claims against one or
more of the plaintiffs and other third parties. The time for the Company and
other defendants to answer or otherwise move with respect to the complaint has
been extended to January 12, 2004 by stipulation. On March 5, 2004, this case
was dismissed. Plaintiffs have been given thirty (30) days to amend their
complaint.

5.       COMMITMENTS AND CONTINGENCIES

In December 2002, the New York State Racing and Wagering Board (the "Board")
denied MSR's application for 2003 racing and simulcast licenses. The Board's
determination with respect to MSR's 2003 licenses was stayed by court order.
2003 license negotiations between MSR and the Board continued through the first
quarter of 2003. In April 2003, MSR and the Board entered into a stipulation and
settlement (the "SS Agreement") which effectively granted MSR conditional racing
and simulcast licenses for the 2003 racing season. The SS Agreement requires
that MSR and an associate of MSR's then major creditor complete new applications
in a timely period and that the associate be subject to a background
investigation by the Board. The SS Agreement further provided for a $25,000 fine
(of which $15,000 was abated) for conduct committed by prior management in
violation of the Board's rules and regulations.

Concurrent with the SS Agreement, MSR and the associate entered into a separate
agreement whereby the associate (who otherwise had no obligation to do so)
agreed to file such application and cooperate with the Board's investigation.
MSR agreed to reimburse the associate for all reasonable costs associated with
complying with the Board's investigation. Further, as additional consideration,
MSR agreed to pay an incentive fee of $280,000 to the associate over a 28-month
period commencing May 2003. Also, in April 2003, in connection with the
agreement, MSR granted the associate a warrant to purchase 23,800 shares of MSR
common stock at a price of $8.58 per share. The warrant expires on April 8,
2008.

From the proceeds of the increase in the Vestin Loan from $23,000,000 to
$26,000,000, the Company paid in full (a) all sums due pursuant to the SS
Agreement and (b) the Sunset Management LLC $250,000 loan.

                                       11

<PAGE>

On March 22, 2004, the New York State Racing and Wagering Board ("NYSRWB")
granted Mid State Raceway, Inc. (the "Company") a racing license conditioned on
the following:

1) The formation of a Racing Division which would exercise sole and exclusive
authority with respect to operation and control of the Company's real and
personal property located in Vernon, New York (the "Track"), except for the
portion used for food and beverage, lodging, or corporate purposes.

2) The creation of the position of General Manager of the Racing Division who
shall have full operational control over the Racing Division and its employees.
The General Manager must be acceptable to and licensed by the NYSRWB. On March
18, 2004, the Company engaged Dennis Dowd, a former New Jersey Racing Commission
chairman to be its General Manager of the Racing Division. Controlling investor
Shawn Scott and track President Hoolae Paoa can't have any influence on racing
operations - direct or indirect - while they appeal the NYSRWB's December
decision to deny them licenses.

3) The Company will adopt a budget for the operation of the Racing Division
during 2004 subject to the approval of the General Manager and the NYSRWB.

4) The track must pass a final inspection by the state Office of Fire Prevention
and Control, which found 78 violations last year. According to the NYSRWB, all
but three of those violations have been corrected.

The Company will be bound by the conditions immediately upon the issuance of
2004 live racing and simulcast licenses and racing dates and the conditions will
remain in effect until the first to occur of Shawn Scott receiving a license
from the NYSRWB or Shawn Scott and Victoria Scott being divested of their shares
of Common Stock of the Company and warrants to acquire shares of Common Stock of
the Company.

The start of the racing season is anticipated to be sometime in April. The
specific start date will be determined at a meeting with the horsemen which is
expected to take place in the near future.

The Company's application to the New York Lottery for approval to operate video
lottery terminals is still pending.

6.       CERTAIN RISKS AND UNCERTAINTIES

The Company's operations are dependent on its continued licensing by the New
York State Racing and Wagering Board. The loss of a license could have a
material adverse affect on future results of operations. Upon the execution of
an agreement with the New York State Racing and Wagering Board, utilizing a
conditional racing license, racing operations will commence in 2004.

The Company is dependent on the local market for a significant number of its
patrons and revenues. If economic conditions in these areas deteriorate or
additional gaming or racing licenses are awarded in these markets, the Company's
results of operations could be adversely affected.

The Company is also dependent upon a stable tax structure in the New York. Any
change in the tax structure could have a material adverse affect on future
results of operations.

                                       12

<PAGE>

7.       STOCK WARRANTS

On November 11, 2003, a Board Director exercised stock warrants to purchase
450,000 shares of common stock at two dollars per share.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

                                    OVERVIEW

The following discussion of our financial condition and results of operations
should be read in conjunction with our Consolidated Financial Statements and the
related notes thereto included elsewhere in this report and in our Annual Report
on Form 10-K for the year ended December 31, 2002.

Our pari-mutuel revenues have been derived from wagering on our live races,
wagering on import simulcasts at our racetracks and through telephone account
wagering, and fees from wagering on export simulcasting of our races at
out-of-state locations. Our other revenues have been derived from admissions,
program sales, food and beverage sales, concessions and certain other ancillary
activities.

                              RESULTS OF OPERATIONS

OPERATING REVENUES

Operating revenues for the nine months ended September 30, 2003 decreased by
$239,334 or 4% and decreased by $58,476 or 2% for the quarter ended September
30, 2003 when compared to the same periods ending September 30, 2002.

The decrease in the revenue for the quarter ended September 30, 2003 is due to
one less racing day in 2003 versus 2002 (38 days versus 39 days). The overall
decrease in revenue for the nine months ended September 30, 2003 versus nine
months ended September 30, 2002 is due to lower pari-mutuel revenues, which
decreased by $328,926 offset by an increase in food, beverage and concessions
revenue of $93,267.

OPERATING EXPENSES

Operating expenses for the quarter ended September 30, 2003 increased by
$503,084 or 15% compared to the quarter ended September 30, 2002. This consisted
mainly of a decrease in purses of $41,339 offset by increases in payroll of
$54,820, outside services of $165,926, utilities of $76,832, food and beverage
cost of $28,974, taxes other than payroll of $28,353 and other expenses of
$163,215, which includes an increase in expenses paid to the Horseman's
Association, in accordance with their contract.

For the nine months ended September 30, 2003, operating expenses were $656,911,
or 8% higher than for the same period in 2002. This consisted of a decrease in
purses of $456,490 offset by increases in payroll of $144,791, outside services
of $513,589, a majority of which was legal fees associated with aforementioned
litigation, utilities of $146,237, simulcast expenses of $32,309, food and
beverage costs of $25,077, bad debts of $29,672, and other expenses of $208,788,
which includes an increase in expenses paid to the Horseman's Association, in
accordance with their contract.

                                       13

<PAGE>

INTEREST EXPENSE

Interest expense and financing costs for the quarter ended September 30, 2003
were $846,206 versus $1,008,952 for the same quarter in 2002. The expense for
the nine months ended September 30, 2003 was $3,913,482 versus $1,638,327 for
the nine months ended September 30, 2002 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.

INCOME TAXES

Income tax expense was not significant in the quarter ended September 30, 2003
or the quarter ended September 30, 2002 due to the loss incurred from
operations.

NET INCOME (LOSS)

The net loss for the quarter and nine months ended September 30, 2003 was more
than the loss incurred for the same periods in 2002, by $419,965 and $3,021,683,
respectively, mainly due to the increase interest expense and financing costs
discussed above.

                         LIQUIDITY AND CAPITAL RESOURCES

At September 30, 2003 the Company had $119,823 of cash and cash equivalents
versus $89,907 at December 31, 2002. Operating losses for the quarter ended
September 30, 2003 was funded by additional long-term borrowings discussed
previously.

                           CRITICAL ACCOUNTING ISSUES

Financial Reporting Release No. 60, which was recently released by the
Securities and Exchange Commission, encourages all companies to include a
discussion of critical accounting policies or methods used in the preparation of
financial statements. Our significant accounting policies are described in Note
1 of the Notes to the Consolidated Financial Statements in our Annual Report on
Form 10-K for the year ended December 31, 2002. The significant accounting
policies that we believe are the most critical to aid in fully understanding our
reported financial results include the following:

Revenue recognition

Racing revenues include our share of pari-mutuel wagering on live races after
payment of amounts returned as winning wagers, and our share of wagering from
import and export simulcasting. The vast majority of wagers are in the form of
cash and we do not grant credit to our customers to a significant extent. Our
receivables consist principally of amounts due from simulcasting of our races to
other racetracks and their OTWs. Historically, we have not experienced any
significant bad debts from uncollected receivables.

Valuation of long-lived tangible and intangible assets

At September 30, 2003 we had a net property and equipment balance of $7,397,686,
representing 65% of total assets. We depreciate property and equipment on a
straight-line basis over their estimated useful lives. The estimated useful
lives are based on the nature of the assets as well as our current operating
strategy. Future events such as property expansions, new

                                       14

<PAGE>

competition and new regulations, could result in a change in the manner in which
we are using certain assets requiring a change in the estimated useful lives of
such assets. In assessing the recoverability of the carrying value of property
and equipment, we must make assumptions regarding future cash flows and other
factors. If these estimates or the related assumptions change in the future, we
may be required to record impairment loss for these assets. Such an impairment
loss would be recognized as a non-cash component of operating income.

Accounting for income taxes

We account for income taxes in accordance with FASB Statement No. 109,
"Accounting for Income Taxes" ("SFAS 109"), which requires that deferred tax
assets and liabilities be recognized using enacted tax rates for the effect of
temporary differences between the book and tax basis of recorded assets and
liabilities. SFAS 109 also requires that deferred tax assets be reduced by a
valuation allowance if it is more likely than not that some portion or all of
the deferred tax asset will not be realized.

The realizability of the deferred tax assets is evaluated by assessing the
likelihood of realization and by adjusting the amount of the valuation
allowance, if necessary. The factors used to assess the likelihood of
realization are the forecast of future taxable income and available tax planning
strategies that could be implemented to realize the net deferred tax assets. In
our opinion, adequate provisions for income taxes have been made for all
periods.

RECENT ACCOUNTING STANDARDS

In January 2003, FASB issued Interpretation No. 46, "Consolidation of Variable
Interest Entities" ("Interpretation No. 46"), which clarifies the application of
Accounting Research Bulletin No. 51, "Consolidated Financial Statements," to
certain entities in which equity investors do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk for the
entity to finance its activities without additional subordinated financial
support from other parties. Interpretation No. 46 is applicable immediately for
variable interest entities created after January 31, 2003. For variable interest
entities created prior to January 31, 2003, the provisions of Interpretation No.
46 are applicable no later than July 1, 2003. Through September 30, 2003,
Interpretation No. 46 has not had any effect on the consolidated financial
statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There were no material changes in the Company's market risk or related
strategies during the quarter ended September 30, 2003.

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 Chief Financial 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

                                       15

<PAGE>

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 Chief Financial Officer,
in such a manner as to allow timely disclosure decisions.

(ii) Limitations on the Effectiveness of Disclosure Controls and Procedures and
Internal Controls.

The Company recognizes that a system of disclosure controls and procedures (as
well as a system of internal controls), no matter how well conceived and
operated, cannot provide absolute assurance that the objectives of the system
are met. Further, the design of such a system must reflect the fact that there
are resource constraints, and the benefits of controls must be considered
relative to their costs. Because of the inherent limitations in all control
systems, no evaluation of controls can provide absolute assurance that all
control issues have been detected. These inherent limitations include the
realities that judgments in decision-making can be faulty, and that breakdowns
can occur because of simple error or mistake. Additionally, controls can be
circumvented in a number of ways. Because of the inherent limitations in a
cost-effective control system, system failures may occur and not be detected.

(iii) Conclusions with Respect to Our Evaluation of Disclosure Controls and
Procedures.

Subject to the limitations described above, our Chief Executive Officer and
Chief Financial 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

Information in response to this item is incorporated by reference to the
information set forth in "Note 4 Litigation" in the Notes to Consolidated
Financial Statements in Part I of this Quarterly Report on Form 10-Q.

         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

                                       16

<PAGE>

None.

         ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

Exhibit 31.1 Certification of Chief Executive Officer

Exhibit 31.2 Certification of Chief Financial Officer

Exhibit 32.1 Sarbanes-Oxley Certification - Chief Executive Officer

Exhibit 32.2 Sarbanes-Oxley Certification - Chief Financial Officer

SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
and Exchange Act of 1934, the Registrant has duly caused this Report to be
signed on its behalf by the undersigned, thereunto duly authorized.


                                  MID-STATE RACEWAY, INC.

DATE: MARCH 22, 2004         BY:  /S/ HOOLAE PAOA
                                ------------------------------------------------
                                      Hoolae Paoa
                                      President and Chief Executive Officer

                             BY:  /S/ WILLIAM B. THORNTON
                                ------------------------------------------------
                                      William B. Thornton
                                      Principal Financial and Accounting Officer

                                       17