<PAGE>
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                   FORM 10-K-A

---------------

(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, 1999
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 or principal executive              (Zip Code)
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 (Section 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.

  $2,988,670.50                           Class
                                    COMMON STOCK $.10 PAR VALUE

                                    Outstanding at July 1, 2000
                                           442,766 SHARES

DOCUMENTS INCORPORATED BY REFERENCE

  None.

The total number of pages in this report is 39.
<PAGE>
                                TABLE OF CONTENTS

                         FORM 10-K ANNUAL REPORT - 1999

                             MID-STATE RACEWAY, INC.


<TABLE>
<CAPTION>
Part I                                                                                              Page
                                                                                                    ----
<S>                                                                                                 <C>
  Item 1. Business ............................................................................       1

  Item 2. Properties ..........................................................................       2

  Item 3. Legal Proceedings ...................................................................       2

  Item 4. Submission of Matters to a vote of Security Holders .................................       3

Part II

  Item 5. Market for the Registrant's Common Stock and Related Security Holder Matters ........       3

  Item 6. Selected Financial Data .............................................................       5

  Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations       6

  Item 8. Financial Statements and Supplementary Data .........................................      10

  Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure       23

Part III

 Item 10. Directors and Executive Officers of the Registrant ..................................      24

 Item 11. Executive Compensation ..............................................................      28

 Item 12. Security Ownership of Certain Beneficial Owners and Management ......................      28

 Item 13. Certain Relationships and Related Transactions ......................................      28



Part IV

 Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K .....................      29
</TABLE>

Exhibits

<TABLE>
<S>                                                                             <C>
November 12, 1999 Current Report pursuant to Section 13 or 15(d) of the
Securities and Exchange Act of 1934 (Form 8-K)                                  Exhibit 32.1
</TABLE>
<PAGE>
                                     PART I

Item 1.  Business.

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.

During 1999, the Company was engaged in the business of harness racing. In 2000,
the Company acquired the Comfort Suites Hotel which is located adjacent to the
track.

The Company intends to be a leading participant in the harness racing industry
by making its races attractive to off-track betting and simulcasting venues
throughout the country. This will be accomplished through expanding the track
from a 3/4-mile oval with a 1/4-mile chute to a 7/8-mile oval, drawing higher
quality horses to the facility and establishing a program to make the track more
attractive to high roller bettors. The program will utilize the Comfort Suites
Hotel along with a betting point system to attract high rollers to be on its
races. The Company also plans to reorganize its wagering programs in an
innovative and exciting manner to attract additional wagering. Currently,
approximately one-third of the fifteen billion dollars a year wagered on hors
racing is wagered in New York State, either at race tracks or simulcast
facilities. Management believes that the Company can capture a grater portion of
this betting.

The Company is planning to focus its efforts in the year 2000 on developing a
hospitality company on its grounds to accommodate both gaming and other forms of
entertainment for wagering, junkets and special events hosted and promoted by
the Company.

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. The Company continues to compete with the New York State Lottery and the
Oneida Indian Nation's Turning Stone Casino, approximately 7 miles away in
Verona, New York.

The Company's Board of Directors approved a year 2000 compliance action plan on
December 15,1998. The Company completed the plan prior to December 31,2000. The
cost of making the Company year 2000 compliant was less than $20,000 and was not
material.

The Company employed 177 persons during the fiscal year.
<PAGE>
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, 1999, $505,042 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.

In June of 2000, the Company completed construction of an expanded 7/8 mile oval
stone dust track which is comparable with tracks located in major metropolitan
areas. Previously the track was a 3/4 mile oval stone dust track with a 1/4 mile
chute and a passing lane running from the last turn to the finish line. The
chute and passing lane have been eliminated. 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. Major improvements were
made to the Company's simulcast dining and wagering areas in preparation for the
2000 season.

Item 3.  Legal Proceedings.

(a)   In 1999, the Company settled a lawsuit brought by Richard C. Breeden,
      Trustee of the Bennett Funding Group, Inc., bankruptcy, where the Trustee
      claimed that $1,182,636.85 of corporate sponsorships previously paid to
      the Company were fraudulent transfers. The suit was settled for payment to
      the Trustee of 38,000 shares of the Company's stock.

(b)   Jerome Wilson, Frank White, Sr., and Robert Jaquint, former Officers of
      the Company, commenced an action against the Company alleging breach of
      contract and fiduciary duty for the Company's decision to eliminate its
      Supplemental Retirement Benefit Plan (the "Plan") in March of 1998.
      Messrs. Wilson, White and Jaquint are the primary beneficiaries of the
      Plan which was established in 1977 as a supplemental retirement plan for
      Officers and Directors of the Company. The suit was settled by the Company
      for payment of a total of 4,380 shares of the Company's Stock.

(c)   The Company 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.


                                       2
<PAGE>
Item 4.  Submission of Matters to a Vote of Securities Holders.

The annual meeting of the shareholders of the Company was held on June 25, 1999.
At the meeting, four directors were elected to three-year terms that will expire
in the year 2002. The four directors were Edward A. Kiley, Jeremiah Law, Robert
Legler, DVM and Wesley E. Wendt.

The voting tabulation for the election of directors was as follows:

<TABLE>
<CAPTION>
                                For              Abstain
                                ---              -------
<S>                           <C>                <C>
      Edward A. Kiley         144,190               428
      Jeremiah Law            142,776             1,842
      Robert Legler, DVM      143,642               976
      Wesley E. Wendt, Sr.    143,686               932
</TABLE>

                                     PART II

Item 5.  Market for the Registrant's Common Stock and Related Security Holder
Matters.


(a)   Price Range of Stock

      The Company's common stock trades on the market over-the-counter under the
      symbol "MRWYE.OB".

      The following table shows the high and low bid prices for the quarters
      indicated for the Company's common stock in the over-the-counter market
      for the calendar quarters indicated. The prices are based upon reported
      quotes only, as the stock is not listed or reported by NASDAQ. The
      quotations may not necessarily represent actual transactions and do not
      necessarily reflect retail mark-up, mark-down or commission.

<TABLE>
<CAPTION>
                                                            Bid Prices
                                                            ----------

                                                   Year Ended December 31, 1999
                                                   ----------------------------

                                                     Low                  High
                                                     ---                  ----

<S>                                                <C>                  <C>
            Quarter Ended March 31                 $  6.00              $  7.00

            Quarter Ended June 30                  $  7.00              $  7.00

            Quarter Ended September 30             $  6.75              $ 12.00

            Quarter Ended December 31              $  6.75              $  6.75
</TABLE>


                                       3
<PAGE>
<TABLE>
<CAPTION>
                                                           Bid Prices
                                                           ----------

                                                  Year Ended December 31, 1998
                                                  ----------------------------

                                                    Low                 High
                                                    ---                 ----

<S>                                               <C>                   <C>
            Quarter Ended March 31                 $5.00                $5.00

            Quarter Ended June 30                  $5.00                $5.00

            Quarter Ended September 30             $5.00                $5.00

            Quarter Ended December 31              $5.00                $5.00
</TABLE>

(b)   Approximate Number of Equity Security Holders

<TABLE>
<CAPTION>
            Title of Class                Number of Record Holders
            --------------                ------------------------
<S>                                       <C>
            Common Stock, $.10                      540
            par value per share
</TABLE>

(c)   Dividends

      There were no dividends paid during the years ended December 31, 1999 and
      1998.

      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.



                                       4
<PAGE>
Item 6.  Selected Financial Data.



<TABLE>
<CAPTION>
                                                                                                                          9 Months
                                                                                                                           Ended
                                                                     Years Ended December 31,                           December 31,
                                                    1999              1998              1997              1996              1995
                                                -----------       -----------       -----------       -----------       -----------
<S>                                             <C>               <C>               <C>               <C>               <C>
OPERATING RESULTS
Number of racing days                                   114               122                77               115               122
Operating revenues:
 Pari-mutuel commissions and breakage           $ 6,014,277       $ 6,570,523       $ 5,626,308       $ 7,050,079       $ 7,121,567
                                                -----------       -----------       -----------       -----------       -----------
 Less payments to New York State                    266,508           265,102           231,965           297,001           219,317
 Breeders' Fund                                     185,167           220,886           180,167           238,859           271,316
 Purses                                             123,131           144,035           106,323           188,888           223,586
                                                -----------       -----------       -----------       -----------       -----------
                                                    574,806           630,023           518,455           724,748           786,219
                                                -----------       -----------       -----------       -----------       -----------
Net pari-mutual commissions and breakage          5,439,471         5,940,500         5,107,853         6,325,331         6,335,348
Admissions                                           68,843            70,925            61,740            92,655           123,522
Concessions and other revenues                      445,233           390,491           211,734           311,094           679,410
                                                -----------       -----------       -----------       -----------       -----------
  Total operating revenues                        5,953,547         6,401,916         5,381,327         6,729,080         7,138,280
                                                -----------       -----------       -----------       -----------       -----------
Operating expenses:
 Purses                                           1,992,214         1,886,450         1,298,244         2,259,038         2,378,086
 Other                                            5,461,606         5,335,835         4,694,672         5,880,547         5,223,229
                                                -----------       -----------       -----------       -----------       -----------
 Settlement of Lawsuit                             (380,000)               --                --                --                --
  Total operating expenses                        7,453,820         7,222,285         5,992,916         8,139,585         7,601,315
                                                -----------       -----------       -----------       -----------       -----------
  Loss from operations                           (1,500,273)         (820,369)         (611,589)       (1,410,505)         (463,035)
                                                -----------       -----------       -----------       -----------       -----------
Other income:
Special event income (loss), net                     41,418            97,846
 Commissions for capital improvements                    --            86,330            81,952           146,224           140,985
 Investment income (loss)                             6,598           (17,378)          (21,470)            6,367            31,434
 Interest Expense                                  (146,708)          (79,236)               --                --                --
Aid from state and local governments                233,751           372,750                --                --                --
Gain on sale of land                                     --           399,999                --                --                --
Gain on sale of other assets                             --            73,500                --                --                --
                                                -----------       -----------       -----------       -----------       -----------
  Total other income                               (135,059)          933,811            60,482           152,591           172,419
                                                -----------       -----------       -----------       -----------       -----------
  (Loss) before taxes on income                  (1,368,967)          113,442          (551,107)       (1,257,914)         (290,616)
Provision for taxes on income                         3,753               404          (329,758)          103,524            18,163
                                                -----------       -----------       -----------       -----------       -----------
  NET (LOSS) INCOME                             $(1,365,214)      $   113,038       $  (880,865)      $(1,361,438)      $  (308,779)
                                                ===========       ===========       ===========       ===========       ===========

Per share of common stock:
 Net (loss) income*                                  ($4.89)            $0.45            ($3.52)           ($5.44)          ($ 1.23)
 Cash dividends                                       $0.00             $0.00             $0.00             $0.00            $ 0.00
 Shareholders' equity                                ($3.25)            $1.75             $1.30             $4.82            $10.26

*Based on weighted average shares outstanding



FINANCIAL CONDITION
Current assets                                    2,206,442         1,274,200           466,963           694,165         1,228,020
Marketable securities - due after 1 year                 --                --                --            89,100           270,770
Net property, plant and equipment                 2,151,020         1,837,962         1,857,557         2,066,520         1,933,496
Other assets                                         29,265            77,606           105,903           454,062           576,462
                                                -----------       -----------       -----------       -----------       -----------
                                                  4,386,727         3,189,768         2,430,423         3,303,847         4,008,748
                                                ===========       ===========       ===========       ===========       ===========
Current liabilities                               1,183,734           634,814         1,090,507         1,186,621           508,558
Non-current liabilities                           2,293,861         2,115,861         1,013,861           908,011           929,731
Shareholders' equity                                909,132           439,093           326,055         1,209,215         2,570,459
                                                -----------       -----------       -----------       -----------       -----------
                                                  4,386,727         3,189,768         2,430,423         3,303,847         4,008,748
                                                ===========       ===========       ===========       ===========       ===========
</TABLE>




                                       5
<PAGE>
Item 7. Management's Discussion and Analysis.

Results of Operations

Year Ended December 31, 1999 as Compared to Year Ended December 31, 1998

During the year ended December 1999, operating revenues decreased by $504,797,
as compared with the year ended December 31, 1998. A substantial portion of the
decreased operating revenues was due to eight less live racing days during the
1999 racing season and a substantial drop in commissions and breakage from
wagering at the Comfort Suites hotel, located on the Company's track property.

The Company operates a mutual operation in the hotel, which provided net
pari-mutuel commissions and breakage from wagering in the approximate amount of
$450,000 during 1999 which is down from $1,060,000 during 1998. The Company
gained control of the hotel in May of 2000 and as a result thereof expects a
substantial increase in commissions and breakage from the hotel in 2000 due to
planned capital improvements, improved service and establishment of a program to
attract high rollers to the hotel. Net corporate sponsorship of racing events
decreased $4,886 from the previous racing season.

The current year operating expenses increased $231,535 compared to the year
ended December 31, 1998. The principal cause for the increase was the settlement
of a lawsuit. The Company incurred a $380,000 charge in connection with the
settlement of a lawsuit commenced by Richard C. Breeden, Trustee of the Bennett
Funding Group, Inc. and other related entities to recover payments in the amount
$1,182,636.85 made to the Company from Bennett Funding Group and related
entities between June 30, 1990 and January 26, 1996. That law suit was settled
in 1999 by the transfer of 38,000 shares of the Company's common stock to the
Trustee which were valued at $10 a share.

The Company's simulcast operations continued to offer a variety of racing from
over 51 different harness and thoroughbred tracks from around the country and
internationally during the year ended December 31, 1999. While the simulcast
operation operates at a profitable margin, the revenues are not sufficient to
cover the losses experienced through live racing.

Track management plans to substantially increase its core businesses of
simulcasting and live racing by expanding the track to 7/8ths mile. This will
make racing at the track more attractive to on track betters and betters from
other locations. The expanded track will also draw higher quality horses to the
facility which will in turn increase betting handle at the track. Management has
established a program to utilize the Comfort Suites hotel along with a betting
points system to attract high rollers to its facilities on a

                                       6
<PAGE>
regular basis. Management also has extensive plans to utilize its facilities to
sponsor and promote special events.

The Company was fully year 2000 compliant prior to the end of 1999 and
experienced no year 2000 problems. The maximum cost to the Company of year 2000
compliance was less than $25,000. The Company does not have a contingency plan
because it fully expected to be year 2000 compliant without material additional
work required of it or its vendors.

Statistical Comparison:

12 Months Ended December 31, 1999 vs. 12 Months Ended December 31, 1998

<TABLE>
<CAPTION>
                                     Twelve Months Ended
                                         December 31,
                                                                        INCREASE
                                    1999              1998             (DECREASE)
                                    ----              ----             ----------
<S>                             <C>               <C>                <C>
GROSS HANDLE:
 Live Harness                   $  7,036,061      $  8,230,547       $ (1,194,486)
 OTB & ITW                        10,625,173        12,266,211         (1,641,038)
 Thoroughbred Simulcast            4,696,240         4,619,987             76,253
 Harness Simulcast                 8,851,663        11,180,594         (2,328,931)
                                ------------      ------------       ------------
                                $ 31,209,137      $ 36,297,339       $ (5,088,202)

DAILY AVERAGE:
 Live Harness Handle            $     61,720      $     67,464       $     (5,744)
 OTB & ITW Handle                     93,203           100,543             (7,339)
 Attendance (155,279 in
   1999 & 183,949 in 1998)             1,362             1,508               (146)

 LIVE RACING DAYS                        114               122                 (8)
</TABLE>


Year Ended December 31, 1998 as Compared to Year Ended December 31, 1997

During the year ended December 1998, operating revenues increased by $1,121,660,
as compared with the year ended December 31, 1997. A substantial portion of the
increased operating revenues was due to 45 more live racing days during the 1998
racing season. Net corporate sponsorship of racing events increased $17,614 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,

                                       7
<PAGE>
which provided net pari-mutuel commissions and breakage from wagering in the
approximate amount of $1,060,000.

The current year operating expenses increased $1,308,605 compared to the year
ended December 31, 1997. The principal cause for the increase was the increase
in the number of live racing days from 77 to 122.

The Company's simulcast operations continued to expand, offering a variety of
racing from over 55 different harness and thoroughbred tracks from around the
country and internationally during the year ended December 31, 1998. While the
simulcast operation operates at a profitable margin, the revenues are not
sufficient to cover the losses experienced through live racing.

Track management continues to focus on reducing operating expenses through a
variety of measures. Management is working to increase revenue through expanded
use of its track facilities with the following events planned: snow cross,
concerts, equestrian shows, and a rodeo. Management is working to increase
attendance through increased advertising and promotion.

The Company's Board of Directors adopted a year 2000 action plan at its Board of
Directors meeting on December 15, 1998. The plan determined that minor upgrades
to its existing computer hardware and software would be required to make it year
2000 compliant.

Subsequent Events

A suit was brought against Mid-State Raceway, Inc. alleging Breach of Contract
and Fiduciary Duty with respect to the Company's decision to eliminate its
Supplemental Retirement Benefit Plan in March of 1998. Subsequent to year end,
that suit was settled for the issuance of 4,380 shares of common stock to the
remaining beneficiaries under the Plan. The settlement of the lawsuit will
result in substantial income to the Company in the first quarter of 2000 due to
the elimination of a liability in the amount of $1,013,861 for deferred
liability in connection with the Supplemental Retirement Benefit Plan, which was
terminated.

Expansion of the track to 7/8ths of a mile has been successfully completed.
Betting handle has increased as a result of the expanded track and stables are
now entering higher quality courses in races at the track.

The track took over effective control of the Comfort Suites Hotel in May of
2000. The Company is currently renovating the restaurant and betting room at the
Hotel, and has plans to renovate the 7th floor of the Hotel to provide suites
for high rollers who they expect to attract to the facility. It is anticipated
that betting at the Hotel will substantially increase as a result of the plan
improvements to the hotel.


                                       8
<PAGE>
High Mountain Associates claims it has a valid mortgage on the hotel property
with a principal balance due of approximately $6,000,000. The Company disputes
this claim because at the time the mortgage was given, the owner of the hotel
did not own the underlying land for the hotel and accordingly, the mortgage is
not a valid lien on the hotel land and building. The trustee in the Bennett
bankruptcy also claims ownership of the hotel. Currently, the Company, the
Trustee of the Bennett bankruptcy, and High Mountain are in negotiations
regarding High Mountain's mortgage claim, and the Trustee's claim. No legal
action has been brought by any party, and the Company is optimistic that the
claims can be settled with Company paying fair market value for hotel building
in settlement of the Trustee's and High Mountain's claims.

Recent legislation in New York State allows Mid-State to institute a point
system to reward its high roller betters. The point system can be used to
attract high rollers in much the same way casinos attract high rollers. The
point system combined with renovations to the hotel and the planned high roller
program is expected to substantially increase simulcasting and live racing
revenues. Recent legislation also makes it unlikely that Batavia downs, a
harness racing facility in Batavia, New York, which is about 150 miles from the
Company's track, will re-open in the near future. This will likely increase
attendance and handle at the track.

Liquidity and Capital Resources

In the first three quarters of 2000, funding of business operation and capital
requirements for the Company will be substantially sourced from existing cash.
The Company anticipates that it will borrow up to $4,000,000 in the fourth
quarter of 2000 to fund ongoing capital improvements to the track and the hotel,
provide working capital necessary to institute plan programs and events, and to
replace the existing mortgages on the property totaling $1,250,000.

The Company's current ratio at December 31, 1999 was 1.86:1. The Company's
current ratio at December 31, 1998 was 2.0:1.

In 1998 the Company obtained a mortgage loan in the amount of $1,000,000 from a
private lender who is now a director of the Corporation. The loan bears interest
at 12%, and is due on May 15, 2001. In 1999, the Company obtained an additional
$250,000 mortgage loan from two Board Members, one of whom is an officer. The
loan bears 12% interest, and is due and payable on May 15, 2001.




                                       9
<PAGE>
Item 8.  Financial Statements and Supplementary Data.

The consolidated financial statements of the Company and the report of the
independent accountants included here should be read in conjunction with the
Company's Form 10-K filed concurrently for the years ended December 31, 2000,
2001, and 2002.



                                       10
<PAGE>

                             MID-STATE RACEWAY, INC.

                                 AND SUBSIDIARY

                                  CONSOLIDATED

                                FINANCIAL REPORT

                                DECEMBER 31, 1999



                       (URBACH KAHN AND WERLIN LLP LOGO)
<PAGE>
                                          MID-STATE RACEWAY, INC. AND SUBSIDIARY

                                                                        CONTENTS

<TABLE>
<CAPTION>
<S>                                                                     <C>
Independent Auditor's Report......................................            11


Financial Statements

  Consolidated balance sheets.....................................            12
  Consolidated statements of operations...........................            13
  Consolidated statements of changes in shareholders' equity......            14
  Consolidated statements of cash flows...........................            15
  Notes to consolidated financial statements......................         16-23
</TABLE>
<PAGE>
                                                    INDEPENDENT AUDITOR'S REPORT

To the Board of Directors and Shareholders
Mid-State Raceway, Inc. and Subsidiary

We have audited the accompanying consolidated balance sheets of Mid-State
Raceway, Inc. and Subsidiary as of December 31, 1999 and 1998, and the related
consolidated statements of operations, changes in shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 1999. 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Mid-State Raceway,
Inc. and Subsidiary as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with generally accepted accounting principles.


                                                  /s/ Urbach Kahn & Worlin LLP
                                                  ----------------------------

Albany, New York
June 6, 2000

                                       11
<PAGE>
                                          MID-STATE RACEWAY, INC. AND SUBSIDIARY

                                                     CONSOLIDATED BALANCE SHEETS
                                                      DECEMBER 31, 1999 AND 1998

<TABLE>
<CAPTION>
                                                                         1999            1998
                                                                         ----            ----
<S>                                                                <C>             <C>
ASSETS

CURRENT ASSETS

    Cash and cash equivalents                                      $  1,113,529    $    437,241
    Cash restricted for purses, capital improvements and
      uncashed winning tickets                                          157,909          87,478
    Grant receivable                                                    233,751         122,750
    Other receivables, net of allowance for doubtful accounts of
      $112,000 in 1999 and $22,000 in 1998                              339,864         373,854
    Investments                                                         200,125              --
    Other current assets                                                161,264         252,877
                                                                   ------------    ------------
            Total current assets                                      2,206,442       1,274,200
                                                                   ------------    ------------

PROPERTY, PLANT AND EQUIPMENT

    Land, racing plant and equipment                                 13,223,647      12,718,605
    Other properties                                                    121,671         121,671
                                                                   ------------    ------------
                                                                     13,345,318      12,840,276
    Less accumulated depreciation                                    11,194,298      11,002,314
                                                                   ------------    ------------
                                                                      2,151,020       1,837,962
                                                                   ------------    ------------

OTHER ASSETS

    Other assets                                                         29,265          77,606
                                                                   ------------    ------------
                                                                         29,265          77,606
                                                                   ------------    ------------
                                                                   $  4,386,727    $  3,189,768
                                                                   ============    ============
LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES

    Current portion of real estate taxes payable                   $     72,000    $     72,000
    Accounts payable and accrued expenses                               964,070         482,768
    Uncashed winning tickets                                             63,392          59,258
    Retention for capital improvements                                   84,272          20,788
                                                                   ------------    ------------
            Total current liabilities                                 1,183,734         634,814
                                                                   ------------    ------------
REAL ESTATE TAXES PAYABLE, less current portion                          30,000         102,000
                                                                   ------------    ------------
MORTGAGES PAYABLE                                                     1,250,000       1,000,000
                                                                   ------------    ------------
DEFERRED RETIREMENT BENEFITS (Note 15)                                1,013,861       1,013,861
                                                                   ------------    ------------

CONTINGENCIES (Note 15)

SHAREHOLDERS' EQUITY

    Common stock, par value $.10 per share;
      authorized 10,000,000 shares; issued and
      outstanding 438,386 shares in 1999, 250,386 in 1998                43,839          25,039
    Additional paid-in capital                                        2,041,547         225,347
    (Accumulated deficit) retained earnings                          (1,180,260)        188,707
    Accumulated other comprehensive income                                4,006              --
                                                                   ------------    ------------
            Total shareholders' equity                                  909,132         439,093
                                                                   ------------    ------------
                                                                   $  4,386,727    $  3,189,768
                                                                   ============    ============
</TABLE>


                                 See Notes to Consolidated Financial Statements.

                                       12
<PAGE>
                                          MID-STATE RACEWAY, INC. AND SUBSIDIARY

                                           CONSOLIDATED STATEMENTS OF OPERATIONS
                                   YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997

<TABLE>
<CAPTION>
                                                                   FOR THE YEAR           FOR THE YEAR           FOR THE YEAR
                                                                      ENDED                   ENDED                  ENDED
                                                                    DECEMBER 31,            DECEMBER 31,          DECEMBER 31,
                                                                       1999                    1998                   1997
                                                                (114 RACING DAYS)       (122 RACING DAYS)       (77 RACING DAYS)
                                                                -----------------       -----------------       ----------------
<S>                                                             <C>                     <C>                     <C>
Operating revenues:
    Net pari-mutuel commissions and breakage from wagering:

      Vernon Downs Harness                                             $ 1,230,005          $ 1,454,373          $ 1,054,039
      Off-track betting (OTB) and inter-track wagering (ITW )            1,613,935            1,514,899            1,369,151
      Simulcasting                                                       2,595,531            2,971,228            2,684,663
                                                                       -----------          -----------          -----------
                                                                         5,439,471            5,940,500            5,107,853
    Admissions                                                              68,843               70,925               61,740
    Concessions and special events                                         236,456              290,903              109,236
    Corporate sponsors                                                      27,500               22,614                5,000
    Other revenues                                                         222,695              174,820               97,498
                                                                       -----------          -----------          -----------
            Total operating revenues                                     5,994,965            6,499,762            5,381,327
                                                                       -----------          -----------          -----------
Operating expenses:
    Purses                                                               1,992,214            1,886,450            1,298,244
    Payroll                                                              1,524,236            1,484,055            1,240,253
    Taxes, other than income                                               401,921              386,807              384,469
    Outside services and rentals                                           209,434              563,342              381,483
    Utilities                                                              469,621              448,049              434,458
    Simulcasting expenses                                                  994,934            1,010,918              999,772
    Depreciation                                                           191,984              197,667              233,356
    Bad debts                                                               91,586               18,837                9,905
    Settlement of lawsuit (Note 15)                                        380,000                   --                   --
    Other expenses                                                       1,197,890            1,226,160            1,010,976
                                                                       -----------          -----------          -----------
            Total operating expenses                                     7,453,820            7,222,285            5,992,916
                                                                       -----------          -----------          -----------
Loss from operations                                                    (1,458,855)            (722,523)            (611,589)
                                                                       -----------          -----------          -----------
Other income (loss):
    Commissions for capital improvements                                        --               86,330               81,952
    Aid from state and local governments                                   233,751              372,750                   --
    Gain on sale of land                                                        --              399,999                   --
    Gain on sale of other assets                                                --               73,500                   --
    Investment income (loss)                                                 6,598              (17,378)             (21,470)
    Interest expense                                                      (146,708)             (79,236)                  --
                                                                       -----------          -----------          -----------
            Total other income (loss)                                       93,641              835,965               60,482
                                                                       -----------          -----------          -----------
(Loss) income before provision for federal and state
    income taxes                                                        (1,365,214)             113,442             (551,107)
                                                                       -----------          -----------          -----------
Provision for federal and state income taxes:
    Currently payable                                                        3,753                  404                2,326
    Deferred                                                                    --                   --              327,432
                                                                       -----------          -----------          -----------
            Total provision for federal and state income taxes               3,753                  404              329,758
                                                                       -----------          -----------          -----------
Net (loss) income                                                      $(1,368,967)         $   113,038          $  (880,865)
                                                                       ===========          ===========          ===========
(Loss) income per common share - based on weighted
    average shares outstanding                                         $     (4.89)         $      0.45          $     (3.52)
                                                                       ===========          ===========          ===========
Cash dividends per share                                               $        --          $        --          $        --
                                                                       ===========          ===========          ===========

</TABLE>



                                 See Notes to Consolidated Financial Statements.




                                       13
<PAGE>
                                          MID-STATE RACEWAY, INC. AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                                   YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997

<TABLE>
<CAPTION>
                                                 COMMON STOCK                       (ACCUMULATED   ACCUMULATED
                                                                        ADDITIONAL    DEFICIT)/       OTHER
                                              ISSUED AND OUTSTANDING     PAID-IN      RETAINED    COMPREHENSIVE
                                               SHARES      AMOUNT        CAPITAL      EARNINGS       INCOME          TOTAL
                                               ------      ------        -------      --------       ------          -----

<S>                                          <C>        <C>           <C>           <C>           <C>            <C>
Balances at January 1, 1997                   250,386   $    25,039   $   225,347   $   956,534    $  2,295       $ 1,459,601
Net loss for the year                              --            --            --      (880,865)         --          (880,865)
Change in unrealized gain on
 securities available for sale                     --            --            --            --      (2,295)           (2,295)
                                              -------   -----------   -----------   -----------    --------       -----------
Balances at December 31, 1997                 250,386        25,039       225,347        75,669          --           326,055
Net income for the year and
 comprehensive income                              --            --            --       113,038          --           113,038
                                              -------   -----------   -----------   -----------    --------       -----------
Balances at December 31, 1998                 250,386        25,039       225,347       188,707          --           439,093
Comprehensive income (loss)
    Net loss for the year                          --            --            --    (1,368,967)         --        (1,368,967)
    Unrealized gain on securities
      available for sale                           --            --            --            --       4,006             4,006
                                                                                    -----------    --------       -----------

          Total comprehensive income (loss)        --            --            --    (1,368,967)      4,006        (1,364,961)
Issuance of common stock through
    private placement, net of issuance
    costs of $45,000                          150,000        15,000     1,440,000            --          --         1,455,000
Issuance of common stock for settlement
  of lawsuit (Note 15)                         38,000         3,800       376,200            --          --           380,000
                                              -------   -----------   -----------   -----------    --------       -----------
Balances at December 31, 1999                 438,386   $    43,839   $ 2,041,547   $(1,180,260)   $  4,006       $   909,132
                                              =======   ===========   ===========   ===========    ========       ===========
</TABLE>




                                 See Notes to Consolidated Financial Statements.





                                       14
<PAGE>
                                          MID-STATE RACEWAY, INC. AND SUBSIDIARY

                                           CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
<TABLE>
<CAPTION>
                                                               FOR THE YEAR         FOR THE YEAR        FOR THE YEAR
                                                                   ENDED               ENDED                ENDED
                                                                DECEMBER 31,         DECEMBER 31,        DECEMBER 31,
                                                                    1999                1998                1997
                                                              (114 RACING DAYS)   (122 RACING DAYS)    (77 RACING DAYS)
                                                              -----------------   -----------------    ----------------
<S>                                                           <C>                 <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES
    Net (loss) income                                           $(1,368,967)        $   113,038         $  (880,865)
    Adjustments to reconcile net income (loss) to net
      cash used in operating activities:
         Settlement of lawsuit                                      380,000                 --                   --
         Depreciation                                               191,984             197,667             233,382
         Deferred income taxes                                           --                  --             327,432
         Allowance for (recoveries of) doubtful accounts             90,000              15,000             (23,000)
         Gain on sale of other assets                                    --             (73,500)             (4,769)
         Loss on sale/disposal of equipment                              --              14,596               1,431
         Gain on sale of land                                            --            (399,999)                 --
         Changes in:
            Restricted cash                                         (70,431)            (25,268)            128,332
            Accounts and grants receivable                         (167,011)           (324,588)             39,880
            Prepaid expenses                                         91,613            (231,137)             27,371
            Other assets                                             48,341             (20,703)             22,257
            Real estate taxes payable                               (72,000)            174,000                  --
            Accounts payable                                        481,302            (545,529)            146,413
            Purse funds                                                  --                  --            (103,210)
            Uncashed winning tickets                                  4,134              (2,952)            (25,122)
            Retention for capital improvements                       63,484              20,788                  --
            Deferred retirement benefits                                 --                  --              (1,715)
                                                                -----------         -----------         -----------
               Net cash used in operating activities               (327,551)         (1,088,587)           (112,183)
                                                                -----------         -----------         -----------
CASH FLOWS FROM INVESTING ACTIVITIES
    Proceeds from maturities and sales of available-for-
      sale investment securities                                         --                  --              104,093
    Purchase of available-for-sale investment securities           (196,119)                 --                  --
    Proceeds from sale of other assets                                   --             122,500                  --
    Proceeds from sale of equipment                                      --                 501               1,200
    Proceeds from sale of land                                           --             400,000                  --
    Purchase of properties and equipment                           (505,042)           (193,170)            (33,654)
                                                                -----------         -----------         -----------
               Net cash provided by (used in) investing
                 activities                                        (701,161)            329,831              71,639
                                                                -----------         -----------         -----------

CASH FLOWS FROM FINANCING ACTIVITIES
    Proceeds from mortgage loan                                     250,000           1,000,000                  --
    Net proceeds from sale of stock                               1,455,000                  --                  --
                                                                -----------         -----------         -----------
               Net cash provided by financing activities          1,705,000           1,000,000                  --
                                                                -----------         -----------         -----------
Net increase (decrease) in cash                                     676,288             241,244             (40,544)
Cash at beginning of year                                           437,241             195,997             236,541
                                                                -----------         -----------         -----------
Cash at end of year                                             $ 1,113,529         $   437,241         $   195,997
                                                                ===========         ===========         ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
    INFORMATION

      Cash paid during the year for:

         Interest                                               $   137,958         $   120,000         $        --
         Income taxes                                           $        --         $       712         $     2,353
                                                                ===========         ===========         ===========
SUPPLEMENTAL SCHEDULE OF NONCASH
    INVESTING AND FINANCING ACTIVITIES
      Equipment returned upon termination of capital
          lease agreement                                       $        --         $        --         $     6,630
                                                                ===========         ===========         ===========
</TABLE>

                                 See Notes to Consolidated Financial Statements.




                                       15
<PAGE>
                                          MID-STATE RACEWAY, INC. AND SUBSIDIARY
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      NATURE OF OPERATIONS:

            Mid-State Raceway, Inc. ("MSR"), known as Vernon Downs, operates a
            harness racing track in Vernon, New York. MSR is licensed by the New
            York State Racing and Wagering Board to conduct live harness racing
            at its track and to simulcast racing from other tracks. Such
            licenses are subject to annual renewal.

            Mid-State Development Corporation ("MSD"), formerly known as
            Mid-Year Sales, Inc., is a wholly owned subsidiary of MSR. Beginning
            in October 1999, MSD operated concessions at the harness racing
            track owned by MSR. Prior to 1999, MSD was an inactive company.

      PRINCIPLES OF CONSOLIDATION:

            The accompanying 1999 consolidated financial statements include the
            accounts of MSR and MSD. All significant intercompany accounts and
            transactions have been eliminated in the consolidation. Prior to
            1999, MSD was inactive and had no assets, liabilities, revenues or
            expenses.

      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.

      CASH EQUIVALENTS:

            For purposes of reporting cash flow, cash and cash equivalents
            include money market accounts and any highly liquid debt instruments
            purchased with a maturity of three months or less.

      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 to the various classes of assets on which
            current provisions were based are as follows:


<TABLE>
<S>                                              <C>
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
</TABLE>


                                       16
<PAGE>
                                          MID-STATE RACEWAY, INC. AND SUBSIDIARY
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
CONTINUED

      DEFERRED COMPENSATION PLAN:

            MSR terminated an unfunded deferred compensation plan during March
            1998 (Note 15). Subsequent to this termination, a lawsuit was
            brought against MSR by beneficiaries of this deferred compensation
            plan challenging the plan's termination. As a result of a settlement
            of this lawsuit reached in the first quarter of 2000, MSR issued
            4,380 shares of common stock (par value $0.10) to the beneficiaries
            in 2000.

      INCOME (LOSS) PER COMMON SHARE:

            Income (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 279,805
            during 1999, and 250,386 during the years ended December 31, 1998
            and 1997. Outstanding warrants (Note 13) at December 31, 1999 were
            anti-dilutive.

      ADVERTISING:

            MSR follows the policy of charging the costs of advertising to
            expense as incurred. Advertising expense was $116,750, $214,413, and
            $65,245, for the years ended December 31, 1999, 1998, and 1997,
            respectively.

      INCOME TAXES:

            The Companies recognize 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:

            MSR recognizes revenue for commissions from wagering, corporate
            sponsors, and admissions when the related racing event is run.
            Commissions for capital improvements are recognized when the related
            qualifying expenditures are incurred. Investment income is
            recognized on the accrual basis.

      RECLASSIFICATIONS:

            Certain balances in prior year financial statements have been
            reclassified for comparative purposes. The amount initially
            classified in previously issued financial statements as other loss,
            settlement of lawsuit (Note 15) has been reclassified to operating
            expenses.






                                       17
<PAGE>
                                          MID-STATE RACEWAY, INC. AND SUBSIDIARY
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2. GRANT RECEIVABLE

      Grant receivable represents amounts due MSR from New York State in
      relation to a 1999 and 1998 New York State Legislative grant appropriation
      for the purposes of preserving employment and increasing marketing. In
      connection with the 1999 grant, MSR was required to incur qualifying
      expenditures between July 1, 1999 and December 31, 1999 and submit a
      reimbursement request to New York State. All expenditures submitted for
      reimbursement were approved by New York State.

NOTE 3. OTHER RECEIVABLES

      Other receivables consist of the following at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
                                         1999       1998
                                         ----       ----
<S>                                    <C>        <C>
Shift adjustments                      $156,928   $113,390
Sale of other assets                       --      122,500
Commissions                              87,532     96,939
Other                                   207,404     63,025
                                        -------     ------
            Total                       451,864    395,854
Less allowance for doubtful accounts    112,000     22,000
                                        -------     ------
            Other receivables, net     $339,864   $373,854
                                        =======     ======
</TABLE>

NOTE 4. INVESTMENTS

        During 1999, MSR invested in corporate stocks. At December 31, 1999,
        these securities were classified as available-for-sale securities and
        are reported at fair value, with unrealized gains included in
        comprehensive income. At December 31, 1999, these securities had a fair
        value of $200,125, a cost of $196,119, and an unrealized gain of $4,006.
        MSR did not have an investment in securities at December 31, 1998.

NOTE 5. PROPERTY, PLANT AND EQUIPMENT

        Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
                                                                          CONSOLIDATED
                                                  MSD          MSR            1999            1998
                                                  ---          ---            ----            ----
<S>                                           <C>           <C>           <C>             <C>
Land, racing plant, and equipment:

    Land                                      $        --   $    77,802   $    77,802     $    77,802
    Land improvements                                  --     1,414,619     1,414,619       1,366,319
    Buildings and improvements                         --     7,240,478     7,240,478       7,022,160
    Equipment                                      11,960     4,309,347     4,321,307       4,250,006
    Construction in progress                         --         169,441       169,441           2,318
                                              -----------   -----------   -----------     -----------
                                                   11,960    13,211,687    13,223,647      12,718,605
Other properties:
    Land                                          121,671            --       121,671         121,671
                                              -----------   -----------   -----------     -----------
                                                  133,631    13,211,687    13,345,318      12,840,276
Less accumulated depreciation                       1,709    11,192,589    11,194,298      11,002,314
                                              -----------   -----------   -----------     -----------
                                              $   131,922   $ 2,019,098   $ 2,151,020     $ 1,837,962
                                              ===========   ===========   ===========     ===========
</TABLE>




                                       18
<PAGE>
                                          MID-STATE RACEWAY, INC. AND SUBSIDIARY
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6.   REAL ESTATE TAXES PAYABLE

          In May 1998, Oneida County and MSR entered into an agreement whereby
          MSR would make 36 monthly installments of $6,000, commencing May 29,
          1998, to satisfy its liability to Oneida County for nonpayment of 1997
          property taxes, totaling $216,000, levied against MSR by Oneida County
          in 1997.

          Future payments required under this agreement are as follows:
<TABLE>
<S>                                                         <C>
2000                                                        $  72,000
2001                                                           30,000
                                                            ---------
Total real estate taxes payable                               102,000
Less current portion                                           72,000
                                                            ---------
Real estate taxes payable, net of current portion           $  30,000
                                                            =========
</TABLE>



NOTE 7.   MORTGAGE PAYABLE

          On May 15, 1998, MSR obtained a $1,000,000 loan from a private lender,
          who is also a board member. The loan is collateralized by a first
          mortgage on MSR's racing plant, buildings and improvements. The loan
          bears interest at 12% and repayment is due on May 15, 2001. No
          principal payments are required until the final due date.

          The loan agreement required MSR to pay the lender $47,500 in financing
          fees at closing. At December 31, 1999, the unamortized portion of
          financing fees is included in other assets.

          On the fifteenth of each month until the due date of the loan,
          interest payments of $10,000 are due to the lender. Financing fees
          paid at closing are being amortized over the term of the loan and are
          included in interest expense. Interest expense incurred by the Raceway
          in 1999 and 1998 related to this loan totaled $135,833 and $79,236,
          respectively.

          In August 1999, MSR obtained $250,000 in loans from two board members,
          one of whom is an officer. The loans bear interest at 12%, are secured
          by a second mortgage on MSR's racing plant, buildings, and
          improvements, and mature in August 2001. No interest has been paid as
          of December 31, 1999. Unpaid interest related to these loans
          approximating $7,500 through December 31, 1999, is included in
          accounts payable and accrued expenses.



                                       19
<PAGE>
                                          MID-STATE RACEWAY, INC. AND SUBSIDIARY
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 8.   INCOME TAXES

          Net deferred tax assets are 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 effect are as follows. The net
          deferred tax asset at December 31, 1999 and 1998 has been offset by an
          equivalent valuation allowance.

<TABLE>
<CAPTION>
                                                          DECEMBER 31
                                              1999                            1998
                                    ---------------------------   ---------------------------
                                     TEMPORARY                     TEMPORARY
                                    DIFFERENCE      TAX EFFECT     DIFFERENCE    TAX EFFECT
                                    ----------      ----------     ----------    ----------
<S>                                  <C>           <C>            <C>           <C>
Deferred compensation                $ 1,013,000   $    376,800   $ 1,013,000   $     376,800
Net operating loss carryforwards       4,080,000      1,387,000     2,800,000         952,000
Other                                     14,000          5,600       (4,000)         (1,600)
                                     -----------   ------------   -----------   -------------
                                       5,107,000      1,769,400     3,809,000       1,327,200
Less valuation allowance                       -    (1,769,400)             -     (1,327,200)
                                     -----------   ------------   -----------   -------------
                                     $ 5,107,000   $          -   $ 3,809,000   $           -
                                     ===========   ============   ===========   =============
</TABLE>



          MSR determined that an increase in the valuation allowance at December
          31, 1999 was appropriate because of uncertainty concerning the MSR's
          ability to utilize net operating loss carryforwards in future years.

          The net operating loss carryforward will expire at various dates from
          December 31, 2009 through December 31, 2013.

          A reconciliation of the provision for income taxes to the statutory
          amount is as follows:

<TABLE>
<CAPTION>
                               [                      FOR THE YEAR ENDED DECEMBER 31                  ]
                                           1999                     1998                  1997
                                ---------------------     --------------------    --------------------
                                    AMOUNT        %         AMOUNT          %       AMOUNT        %
                                    ------        -         ------          -       ------        -
<S>                             <C>             <C>       <C>            <C>      <C>            <C>
Statutory federal income tax
 (benefit)                      $   (465,000)   (34.0)    $   38,500      34.0    $ (188,000)    (34.0)
Variances from statutory rate:
 Add state income tax, net
  of federal tax benefit               3,753      0.3            404       0.4         2,326       0.4
Increase (decrease) in
 valuation allowance                 442,000     32.3        (26,800)    (23.6)      502,100      91.0
Prior year's tax                           -        -              -         -             -         -
Other                                 23,000      1.7        (11,700)    (10.4)       13,332       2.4
                                ------------    -----     ----------      ----    ----------     -----
Effective tax                   $      3,753      0.3     $      404       0.4    $  329,758      59.8
                                ============    =====     ==========      ====    ==========     =====
</TABLE>



NOTE 9.   LEASES

          The Raceway 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, 1999, 1998, and
          1997 amounted to $512,568, $654,910, and $495,481 of which $280,105,
          $399,263, and $331,716 was paid on the totalisator contract for the
          respective years.


                                       20
<PAGE>

                                          MID-STATE RACEWAY, INC. AND SUBSIDIARY
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 9.   LEASES, CONTINUED

          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 10.  COMMISSIONS FOR CAPITAL IMPROVEMENTS

          In July 1983, legislation was passed permitting Upstate New York
          harness tracks to apply for an increase of 1% 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. MSR
          elected to increase such commissions effective September 14, 1983.

NOTE 11.  INVESTMENT (LOSS) INCOME

          Investment (loss) income consisted of the following for the years
          ended December 31, 1999, 1998, and 1997:

<TABLE>
<CAPTION>
                                                                    DECEMBER 31
                                                       1999            1998          1997
                                                       ----            ----          ----
<S>                                                <C>             <C>            <C>
Interest and dividends                             $    27,921     $     6,753    $      787
Equity in earnings (loss) of 50%-owned company         (21,323)        (24,131)      (22,257)
                                                   -----------     -----------    ----------
                                                   $     6,598     $   (17,378)   $  (21,470)
                                                   ===========     ===========    ==========
</TABLE>

NOTE 12.  AID FROM STATE AND LOCAL GOVERNMENTS

          This amount consists of New York State Legislative grants for 1999 and
          1998. MSR also received a grant from Oneida County, New York in 1998.

NOTE 13.  PRIVATE PLACEMENT AND STOCK WARRANTS

          During 1999, MSR issued 150,000 shares of common stock, at $10 per
          share, through a private placement offering. Additionally, in November
          1999, MSR entered into a common stock warrant agreement with two
          officers, who are also board members, granting them the option to
          purchase at least 150,000 but not more than 175,000 shares of MSR
          common stock at $10 per share. This warrant agreement expires on
          November 15, 2000. No warrants have been exercised.

NOTE 14.  HOTEL LEASE

          During fiscal year 1994, MSR, as lessor, entered into a lease
          agreement with a company affiliated with MSR's former majority
          shareholder. MSR leased, for an initial period of twenty years, a
          certain portion of their property for the purpose of permitting the
          company to construct, own, and operate a hotel. Construction of the
          hotel by the company was completed in October 1994. Anytime during the
          lease or any renewal period of the lease, MSR could have elected to
          assume all of the lessee's duties, obligations, rights, and
          responsibilities under the lease for a nominal amount. Lease payments
          during the initial twenty year period were $10,000 per year.



                                       21
<PAGE>
                                          MID-STATE RACEWAY, INC. AND SUBSIDIARY
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 14.  HOTEL LEASE, CONTINUED

          In May 2000, the lease was terminated, and MSR purchased all of the
          issued and outstanding shares of stock of the aforementioned company
          for $5,510, plus an additional $48,000 acquisition fee. MSD
          subsequently commenced operating the hotel.

          MSR operates pari-mutuel wagering on the hotel premises. Net
          pari-mutuel commissions and breakage from wagering on these premises
          approximated $450,000 for the year ended December 31, 1999 ($1,060,000
          for the year ended December 31, 1998 and $840,000 for the year ended
          December 31, 1997).

NOTE 15.  CONTINGENCIES

          NEW YORK STATE RACING AND WAGERING BOARD COMPLIANCE AUDIT

          During early 1998, the New York State Racing and Wagering Board (the
          Board) reviewed MSR's compliance with the Board's policies and
          procedures. Based upon the Board's findings, MSR was fined $416,000 on
          March 9, 1998 for instances of non-compliance and was also directed to
          reimburse MSR's capital improvement account for any unqualified
          capital expenditures. The Board indicated its willingness to abate the
          fine if MSR demonstrated compliance during the subsequent (1998)
          racing season.

          On November 13, 1998, the Board retroactively approved all of MSR's
          capital expenditures made from 1994 to 1997. As a result, MSR was not
          required to reimburse its capital improvement account because all
          capital expenditures made during the aforementioned period were deemed
          qualified.

          On December 17, 1998, based on the receipt of a satisfactory report
          from a Board approved compliance monitor, on the status of MSR's
          compliance with the Board's policies and procedures subsequent to the
          imposition of the fine, the Board discharged the aforementioned
          $416,000 fine.

          FORMER MAJORITY SHAREHOLDER

          In March 1998, MSR provided financial information to a bankruptcy
          trustee relating to approximately $1,200,000 of corporate sponsorships
          it received over a period of years from bankrupt affiliates of its
          former majority shareholder. Subsequently, the trustee commenced a
          lawsuit against MSR to recover these payments, based on the theory of
          fraudulent conveyance. On November 5, 1999, MSR issued 38,000 shares
          of common stock, valued at $10 per share, to the trustee in full
          settlement of the claim. The settlement of this lawsuit, classified in
          previously issued financial statements as an other loss, has been
          reclassified to operating expenses in the December 31, 1999
          consolidated statement of operations.



                                       22
<PAGE>

                                          MID-STATE RACEWAY, INC. AND SUBSIDIARY
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 15.  CONTINGENCIES, CONTINUED

          OTHER

          In March 1998, MSR voted to terminate its unfunded deferred
          compensation plan (Note 1). At December 31, 1999 and 1998, there was a
          $1,013,861 liability recorded in MSR's consolidated balance sheet
          related to this plan. Subsequent to this termination, a lawsuit was
          brought against MSR by beneficiaries of the deferred compensation plan
          challenging the plan's termination and seeking damages of $1,200,000.
          The lawsuit was settled subsequent to December 31, 1999 with the
          beneficiaries receiving 4,380 shares of stock, valued for financial
          reporting purposes at $10 per share, in full settlement of their
          claim. The gain on this settlement, of approximately $970,000, was
          recognized in the first quarter of 2000.

          OTHER LITIGATION

          MSR is a defendant in various litigation matters arising from its
          operations. No estimate can yet be made of the potential liability or
          damages, or the likely outcome of the litigation. Management believes
          that liabilities resulting from these lawsuits, if any, will be
          immaterial or will be completely covered by insurance policies.

NOTE 16.  OTHER RELATED PARTY TRANSACTION

          In March 1998, MSR sold idle land with nominal book value, to an
          affiliate of a member of MSR's Board of Directors for $400,000. The
          corresponding gain from this sale is reflected in the statement of
          operations for the year ended December 31, 1998.


Item 9.  Changes in Registrant's Certifying Accountant.

There are no current changes in or disagreements with the Registrant's
certifying accountant.

                                       23
<PAGE>
                                    PART III

Item 10. Directors and Executive Officers of the Registrant.

The directors and executive officers of the Company as of August 1, 2000 are as
follows:

<TABLE>
<CAPTION>
                                                Common Shares
                                                Beneficially
                           Became               Owned as of
  Name and Age             Director         December 31, 1998        Percent
  ------------             --------         -----------------        -------
<S>                        <C>              <C>                      <C>
  Abe Acee, Jr.            1997                      200                **

  Patrick Bombardo         1998                      100                **

* Justice M. Cheney        1997                      270                **

* Dominic Giambona         1999                   68,833             15.70%

* Thomas M. Hunter         1997                        0                **

  Edward A. Kiley          1999                      250                **

* Jeremiah Law             1997                      510                **

  Dr. Robert Legler, DVM   1999                        0                **

  James J. Moran           1986                      100                **

  Paul V. Noyes            1998                   10,600              2.42%

* John J. Signorelli       1999                   68,833             15.70%

  Wesley E. Wendt, Sr.     1999                    1,134                **

  James R. Wise            ----                      100                **
</TABLE>


*     Member of Executive Committee

**    Less than one percent

                                       24
<PAGE>
<TABLE>
<CAPTION>
                                                Common Shares
                                                Beneficially
                           Became               Owned as of
  Name and Age             Director         December 31, 1998        Percent
  ------------             --------         -----------------        -------
<S>                        <C>              <C>                      <C>
All officers and
 directors as a group
 (including individuals
 named above)                                        151,030           34.45%
</TABLE>


ABE ACEE, JR. (age 54) has served as a Director since December, 1997. Mr. Acee
has been a resident of Vernon, New York for 20 years and owns the Nothin' Fancy
Cafe and Country Edition in Vernon, New York. From 1977 to 1993, Mr. Acee
provided 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.

PATRICK BOMBARDO (age 57) has served as a Director since August 1998. In
addition to his current position as Chief Operating Officer of the Company, he
has served as Director of Gaming and Interim Chief Financial Officer of the
Company. Prior to joining the Company in September 1999, he was General Manager
of the Comfort Suites Hotel at Vernon Downs. Mr. Bombardo is an experienced
professional with more than 20 years of business experience, specializing in
accounting, operations, management, training and finance. He served as Chief
Financial Officer/Controller at J-K Independent Lumber Corporation in New
Hartford from 1986 to February 1998. He possesses leadership experience in
retailing, manufacturing and service organizations.

JUSTICE M. CHENEY (age 67) is currently Vice-President and General Manager of
the Company and has served as a Director since 1997. Mr. Cheney was President
and Chief Executive Officer of the Company from December, 1997 to September,
1999. He was an adjunct professor with the Department of Vocational/Technical
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.

DOMINIC A. GIAMBONA (age 61) has been Executive Vice President of the Company
since August 1999 and has served as a Director since August 1999. Mr. Giambona
is a private investor and business consultant. Born and raised in Rome, NY, Mr.
Giambona now resides in Vero Beach, Florida. He is a graduate of Syracuse
University and has 40 years experience with building construction, facilities
management and development and marketing.

THOMAS M. HUNTER (age 53) has served as a Director since December, 1997. Mr.
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.


                                       25
<PAGE>
EDWARD A. KILEY (age 58) has served as a Director since June 1999. He is a 1964
graduate of Brown University and Dean's List and Cum Laude graduate of the
Syracuse University School of Law. A member of the New York, Florida and United
States Supreme Court bars before retiring from the practice of law in 1995, he
is currently employed as a financial planner. He is the eldest son of Vernon
Downs founder William F. Kiley.

JEREMIAH LAW (age 48) has served as a Director since December, 1997. He is the
proprietor of the Squat and Gobble Restaurant in Vernon, New York.

DR. ROBERT LEGLER, DVM (age 53) has served as a Director since June 1999. Dr.
Legler underwent his pre-med studies at Siena College after four years of United
States Submarine Service where he attained the rank of Petty Officer 1st Class.
He is a 1965 graduate of Cornell University's College of Veterinary Medicine. He
worked at the Gluck Equine Research Station-University of Kentucky as an intern,
and as an assistant to Dr. John Steele in Vernon. He set up his own veterinary
practice in 1968 and has been employed as the track veterinarian at Vernon Downs
since 1995. He has owned and managed the Bar-Log, Inc. logging and building
operation and the Barb Farm, which is devoted to the breeding and racing of
standardbreds. He also maintained a competitive stable of several horses. He is
presently the owner and general manager of the Vernon Apartments. Dr. Legler
serves on the Town of Vernon Zoning Board of Appeals.

JAMES J. MORAN (age 60) has been Director of Publicity/Public Relations since
1975 and Track Announcer since 1964 and has served as a Director since 1986. Mr.
Moran was Secretary of the Company from 1994 to September 1999 and Assistant
Secretary from 1985 to September 1999. He is past President and Chairman of the
Board of the North American Harness Publicists Association and
Secretary/Treasurer of the Vernon Chapter of the United States Harness Writers
Association.

PAUL V. NOYES (age 68) is a prominent area lawyer with an office in Sherrill,
New York. Mr. Noyes, a former shareholder of Mid-State Raceway, Inc.
(1968-1993), is a graduate of Hamilton College and Cornell University Law
School. He is a Board Member of the Mid-York Foundation, Kenwood Benevolent
Society, Oneida Community Mansion House, Madison County Children's Camp,
Mid-York Library System, and serves as a Treasurer for the Madison County
Democrat Committee.

JOHN J. SIGNORELLI (age 58) has been President and Chief Executive Officer of
the Company since September 1999 and has served as Director since August 1999.
Mr. Signorelli is a senior partner of Success Financial Group, a business
consulting firm located in Mt. Kisko, New York. Mr. Signorelli has engaged in
venture capital and business consulting activities in the equine, securities and
health care industries. Mr. Signorelli is also the founder and a current board
member of Transpirator Technologies,


                                       26
<PAGE>
Inc. Mr. Signorelli's standardbred activities include Chief Executive Officer
and founder of Saratoga Standardbreds, Inc., a breeding facility, from
1979-1991; founder and president of Preferred Equine Marketing, Inc. (PEM);
founder of Saratoga Fence, Inc., specializing in PVC fencing and president of
the Spring Garden Ranch training center. Mr. Signorelli has also been a
prominent owner of harness racehorses, brood mares and stallions since 1978.

WESLEY E. WENDT, SR. (age 53) has served as a Director since June 1999. He is a
self-made and successful businessman. Mr. Wendt has bought, improved and then
sold many properties in Oneida and Madison Counties. In addition, he has owned
and operated several restaurants, most notably Dibbles Inn in Vernon, New York.
In the Spring of 1998, when this track was close to financial collapse, he
organized on short notice a loan of one million dollars to the track. For many
years, he has supported very quietly and generously many civic causes.

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; provided, however, such recommendations must be received at least 20
days prior to the annual shareholders meeting to be considered at that meeting.

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.


                                       27
<PAGE>
11.  Executive Compensation.

The following table sets forth the annual and long-term compensation of the
Company's Chief Executive Officer for services to the Company during the three
fiscal years ended December 31, 1999.

<TABLE>
<CAPTION>
Name and Principal Position         Year     Salary     Bonus     Other
---------------------------         ----     ------     -----     -----
<S>                                 <C>     <C>         <C>      <C>
John J. Signorelli                  1999                         $26,000
(President and Chief Executive
Officer from September 8, 1999)

Justice M. Cheney                   1999    $42,692
(President and Chief Executive
Officer to September 8, 1999)
</TABLE>

No other executive officer received an annual salary and bonus in excess of
$100,000 over the last three fiscal years. John J. Signorelli is currently
receiving a monthly consulting fee of $6,500 ($78,000 annually).

12. Security Ownership of Certain Beneficiary Owners and Management.

At the close of business on December 31, 1999, the Company had outstanding
438,386 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:

<TABLE>
<CAPTION>
                                    Amount and Nature
 Name and Address                      of Beneficial          Percent
of Beneficial Owner                     Ownership             Class
-------------------                     ---------             -----
<S>                                 <C>                      <C>
Standardbred Enterprises, Ltd.        126,657 shares         28.89%
3837 Peterboro Road
Oneida, NY 13421

Dominic A. Giambona                    68,833 shares         15.70%

John J. Signorelli                     68,833 shares         15.70%
</TABLE>


Item 13.  Certain Relationships and Related Transactions.

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.


                                       28
<PAGE>
In addition, Notes 12, 13, and 14 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.


<TABLE>
<CAPTION>
(a)       1.      Financial Statements                                                  Page
                  --------------------                                                  ----
<S>       <C>     <C>                                                                  <C>
                      Included in Part II, Item 8 of this report
                    Independent Auditor's Report                                          10

                      Consolidated Balance Sheets,
                    December 31, 1999 and 1998                                            11

                     Consolidated Statements of Operations,

                    Years Ended December 31, 1999, 1998 and 1997                          12

                      Consolidated Statements of Changes in Shareholders'
                    Equity, Years Ended December 31, 1999,
                    December 31, 1998 and December 31, 1997                               13

                     Consolidated Statements of Cash Flows,

                    Years Ended December 31, 1999, 1998 and 1997                          14

                      Notes to Consolidated Financial Statements                       15-22

          2.      Consolidated 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
</TABLE>

      A Form 8-K was filed for the quarter ended December 31, 1999. The Form 8-K
is attached as Exhibit "A".

ITEM 15.  Exhibit 32.1  Sarbanes-Oxley Certifications


                                       29
<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 8th day of August, 2000.

                                              MID-STATE RACEWAY, INC.

                                              By:  /s/John J. Signorelli
                                                 -------------------------
                                                 John J. Signorelli,
                                                 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.


<TABLE>
<CAPTION>
Signature                                   Title                      Date
---------                                   -----                      ----
<S>                                 <C>                               <C>
S/_______________________           President, Chief Executive        8/8/00
John J. Signorelli                          Officer and Director

S/_______________________           Executive Vice President          8/8/00
Dominic A. Giambona                 and Director

S/_______________________           Vice President, General           8/8/00
Justice M. Cheney                   Manager and Director

S/___________________               Secretary and Director            8/8/00
Paul V. Noyes

S/___________________               Treasurer (Principal              8/8/00
James R. Wise                       Financial and Accounting
                                            Officer

S/___________________               Director                          8/8/00
Abe Acee, Jr.

S/___________________               Director                          8/8/00
Patrick Bombardo
</TABLE>


                                       30
<PAGE>
<TABLE>
<CAPTION>
Signature                                   Title                      Date
---------                                   -----                      ----
<S>                                 <C>                               <C>
_____________________               Director                          8/  /00
Thomas M. Hunter

S/___________________               Director                          8/8/00
Edward A. Kiley

_____________________               Director                          8/  /00
Jeremiah Law

S/___________________               Director                          8/8/00
Dr. Robert Legler, DVM

S/___________________               Director                          8/8/00
James J. Moran

_____________________               Director                          8/  /00
Wesley E. Wendt, Sr.
</TABLE>


                                       31