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, 1996        Commission File Number 0-1607
                          -----------------                               ------

                             MID-STATE RACEWAY, INC.
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)


          New York State                                         15-0555258
-------------------------------                                  ----------
(State or other jurisdiction of                             (I.R.S. Employer
incorporation or organization)                              Identification No.)


        VERNON, NEW YORK                                          13476
----------------------------------------                       ----------
(Address of principal executive offices)                       (Zip Code)

       Registrant's telephone number, including area code - (315) 829-2201
                                                            --------------

           Securities registered pursuant to Section 12(b) of the Act:

                                                       Name of each exchange
 Title of each class                                   on which registered
 -------------------                                   ---------------------
       None                                                    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.

     Indicate by check mark if disclosure of delinquent files pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained to the
best of the 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. YES  X    NO
                                 ---      ---

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.

             Class                              Outstanding at February 26, 1997
COMMON STOCK $.10 PAR VALUE                             250,386 SHARES
---------------------------                             --------------

                       DOCUMENTS INCORPORATED BY REFERENCE

                                                                   Part(s) where
                                                                   incorporated
                                                                   -------------
        Proxy Statement of the registrant to be filed April 30, 1997    III

                The total number of pages in this report is 24.


                                       1
<PAGE>

                                TABLE OF CONTENTS

                         FORM 10-K ANNUAL REPORT - 1996

                             MID-STATE RACEWAY, INC.



<TABLE>
<CAPTION>

Part I                                                                         Page
                                                                               ----
<S>                                                                            <C>
   Item 1.  Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

   Item 2.  Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

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

   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 . . . . . . . . . . . . . . . . . . .  4

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

   Item 7.  Management's Discussion and Analysis of Financial
                  Condition and Results of Operations . . . . . . . . . . . . . .7-8

   Item 8.  Financial Statements and Supplementary Data  . . . . . . . . . . . . 9-20

   Item 9.  Changes in and Disagreements with Accountants on
                  Accounting and Financial Disclosure  . . . . . . . . . . . . . 21

PART III
   Item 10.  Directors and Executive Officers of the Registrant   . . . . . . .  22

   Item 11.  Executive Compensation   . . . . . . . . . . . . . . . . . . . . .  22

   Item 12.  Security Ownership of Certain Beneficial Owners and Management . .  22

   Item 13.  Certain Relationships and Related Transactions   . . . . . . . . .  22


PART IV
   Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K . . 22-24

</TABLE>


                                       2
<PAGE>

                                     PART I


Item 1.  Business.
-----------------
(a) Mid-State Raceway, Inc., known as Vernon Downs in Vernon, New York, is
licensed under and subject to the regulations of the Pari-Mutuel Revenue Law and
supervision of the New York Racing and Wagering Board to conduct harness racing
at its track and to simulcast racing from other tracks.

(b) The company is engaged in one business segment.

(c) Generally, Mid-State Raceway is not in competition with other harness racing
tracks in New York State for patrons. A thoroughbred race track, which conducts
a day-time racing meet is located about 110 miles from Vernon, New York, and
competes to some extent for the Vernon Downs customers primarily on weekend
dates.

Increased off-track wagering on thoroughbred and harness racing due to a live
television signal being sent into OTB shops in Central New York, the New York
State Lottery and the Oneida Indian Nation's Turning Stone Casino, approximately
7 miles away in Verona, New York, were the principal causes to affect Vernon's
on-track daily averages of handle and attendance.

Competition for good horses with the resultant attractive racing programs, has
increased in recent years, particularly from the metropolitan New York - New
Jersey area. However, entries in Vernon Downs' early closing and stake events
continue at prior years' levels in both the number and quality of horses.

The Company employed 207 persons during the fiscal year.

Item 2.  Properties
-------------------
The Racing Plant is located in Vernon, Oneida County, New York. Since the
opening of the plant and related facilities in 1953, the Company has maintained
a policy of continuously improving and modernizing its facilities. In the period
ended December 31, 1996, approximately $379,000 was expended for equipment and
renovations to the plant.

The plant can accommodate approximately 14,000 patrons, which includes seating
for 2,000 in the Grandstand and 1,700 in the Clubhouse. There are parking
facilities for approximately 5,900 automobiles.

The track is a 3/4 mile oval stone dust track with a 1/4 mile chute. The track
is illuminated by a metal-halide and quartz lighting system. Most races are for
a distance of one mile. The stables accommodate approximately 1,000 horses and
are located adjacent to three exercise tracks and the main track.

Item 3.  Legal Proceedings.
---------------------------
The Company is a defendant in an action claiming damages in connection with an
injury claim. No estimate can yet be made of the potential for liability or
damages or the likely outcome of the litigation.

Item 4.  Submission of Matters to a Vote of Securities Holders.
--------------------------------------------------------------
There are no matters that were submitted during the quarter requiring a vote of
securities holders, therefore, this item is not applicable.



                                       3
<PAGE>

                                     PART II


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

(a)      Price Range of Stock

         The following table shows the range of closing bid prices for the
         Common Stock in the over-the-counter market for the calendar quarters
         indicated. The prices are based upon local quotes only, as the stock is
         not listed or reported by NASDAQ.

                                                    Bid Prices
                                    ----------------------------------------
                                        Year Ended            9 Months Ended
                                    December 31, 1996      December 31, 1995
                                        Low - High             Low - High
                                    -----------------      -----------------

         Quarter Ended March 31       $5.00 - 10.00

         Quarter Ended June 30         5.00 - 11.00         8.50 - 22.00

         Quarter Ended September 30    5.75 - 15.39        15.00 - 18.50

         Quarter Ended December 31     1.50 -  9.30         7.75 - 22.00



(b)       Approximate Number of Equity Security Holders

                         Title of Class                 Number of Record Holders
                         --------------                 ------------------------
                         Common stock, $.10                      539
                         par value per share



(c)      Dividends

         There were no dividends paid during the year ended December 31, 1996,
         or the nine months ended December 31, 1995.

         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>

                                              Year Ended   9 Months Ended        Years Ended March 31,
                                             December 31,    December 31,  ----------------------------------------
                                                 1996           1995           1995           1994          1993
                                             -----------     ----------    ----------     ----------     ----------
<S>                                           <C>            <C>           <C>            <C>            <C> 
OPERATING RESULTS
Number of racing days                            115            122            155            137           146
Operating revenues:
   Pari-mutuel commissions and breakage       $7,050,079     $7,121,567    $7,415,272     $7,174,657     $7,741,035
                                             -----------     ----------    ----------     ----------     ----------
   Less payments to New York State               297,001        291,317       543,773        609,281        602,663
   Breeders' Fund                                238,859        271,316       267,838        234,553        266,416
   Purses                                        188,888        223,586       320,981        363,010        418,211
                                             -----------     ----------    ----------     ----------     ----------
                                                 724,748        786,219     1,132,592      1,206,844      1,287,290
                                             -----------     ----------    ----------     ----------     ----------
Net pari-mutuel commissions and breakage       6,325,331      6,335,348     6,282,680      5,967,813      6,453,745
Admissions                                        92,655        123,522       240,667        251,313        232,956
Concessions and other revenues                   311,094        679,410     1,134,225        982,459        846,758
                                             -----------     ----------    ----------     ----------     ----------
     Total operating revenues                  6,729,080      7,138,280     7,657,572      7,201,585      7,533,459
                                             -----------     ----------    ----------     ----------     ----------
Operating expenses:
   Purses                                      2,259,038      2,378,086     2,583,262      2,239,368      2,366,657
   Other                                       5,880,547      5,223,229     5,980,559      5,781,239      5,520,993
                                             -----------     ----------    ----------     ----------     ----------
     Total operating expenses                  8,139,585      7,601,315     8,563,821      8,020,607      7,887,650
                                             -----------     ----------    ----------     ----------     ----------
     Loss from operations                     (1,410,505)      (463,035)     (906,249)      (819,022)      (354,191)
                                             -----------     ----------    ----------     ----------     ----------
Other income:
   Commissions for capital improvements          146,224        140,985       192,488        199,735        205,256
   Investment income                               6,367         31,434        30,380        107,216        140,006
                                             -----------     ----------    ----------     ----------     ----------
     Total other income                          152,591        172,419       222,868        306,951        345,262
                                             -----------     ----------    ----------     ----------     ----------
     Income (loss) before taxes on income     (1,257,914)      (290,616)     (683,381)      (512,071)        (8,929)

Provision (credit) for taxes on income           103,524         18,163       (11,770)      (199,871)       (19,690)
                                             -----------     ----------    ----------     ----------     ----------
     Income (loss) before cumulative effect   (1,361,438)      (308,779)     (671,611)      (312,200)        10,761
Cumulative effect                                                                           (100,000)
                                             -----------     ----------    ----------     ----------     ----------
     NET INCOME (LOSS)                       ($1,361,438)     ($308,779)    ($671,611)     ($412,200)       $10,761
                                             ===========     ==========    ==========     ==========     ==========
Per share of common stock:
  Income (loss) before cumulative effect*         ($5.44)        ($1.23)       ($2.68)        ($1.25)         $0.04
  Net income (loss)*                              ($5.44)        ($1.23)       ($2.68)        ($1.65)         $0.04
  Cash dividends                                   $0.00          $0.00         $0.00          $0.20          $0.65
  Shareholders' equity                             $4.82         $10.26        $11.47         $14.17         $16.02

</TABLE>

* Based on weighted average shares outstanding

                                                      5

<PAGE>


Item 6. Selected Financial Data  (Continued)
--------------------------------------------
<TABLE>
<CAPTION>


                                      Year Ended     9 Months Ended         Years Ended March 31,
                                      December 31,     December 31,   -----------------------------------
                                          1996           1995           1995          1994        1993
                                       ----------      ----------     ----------   ----------  ----------
<S>                                    <C>             <C>            <C>          <C>         <C>  
FINANCIAL CONDITION                                                  
Number of racing days                     115            122            155           137         146

Current assets                         $  694,165      $1,228,020     $1,582,667   $1,808,156  $2,562,208
Marketable securities -- due
  after one year                           89,100         270,770        248,722      651,341     561,098
Net property, plant and equipment       2,066,520       1,933,496      2,018,003    2,125,328   1,776,458
Other assets                              454,062         576,462        572,942      577,618     590,432
                                       ----------      ----------     ----------   ----------  ----------
                                       $3,303,847      $4,008,748     $4,422,334   $5,162,443  $5,490,196
                                       ==========      ==========     ==========   ==========  ==========

Current liabilities                    $1,186,621      $  508,558     $  520,195   $  582,391  $  390,031
Non-current liabilities                   908,011         929,731      1,030,857    1,031,304   1,089,140
Shareholders' equity                    1,209,215       2,570,459      2,871,282    3,548,748   4,011,025
                                       ----------      ---------      ----------   ----------  ----------
                                       $3,303,847      $4,008,748     $4,422,334   $5,162,443  $5,490,196
                                       ==========      ==========     ==========   ==========  ==========
                                                                   
</TABLE>


                                                     6
<PAGE>

Item 7. Management's Discussion and Analysis
--------------------------------------------

Results of Operations
---------------------

Fiscal Year Ended December 31, 1996 as Compared to Nine Months Ended
--------------------------------------------------------------------
December 31, 1995
-----------------

During the fiscal year ended December 31, 1996, operating a revenues decreased
by $409,200, as compared with the nine month period ended December 31, 1995. A
portion of the reduced operating revenues are due to seven fewer live racing
days during the current season, offset by increases in revenues derived from
off-track wagering on Vernon Downs races at both OTB's and at other race tracks.
Net corporate sponsorship of racing events decreased $235,984 from the previous
racing season.

The Comfort Suites hotel, located on the Raceway's property, continues to
benefit the Company's operations. The Raceway operates a mutuel operation in the
hotel, which provided in excess of $7 million in total wagers during 1996.

The current year operating expenses increased $538,270 compared to the nine
month period ended December 31, 1995. The principal cause for the increase was
that the current year included a full 12 month period, whereas the previous nine
month transitional period eliminated three months of fixed expenses.

The Company's simulcast operations continued to expand, offering a variety of
racing from over fifty different harness and thoroughbred tracks from around the
country and internationally during the year ended December 31, 1996. While the
simulcast operation operates at a profitable margin, the revenues are not
sufficient to cover the losses experienced through live racing.

With declining handles generating fewer revenues, track management has focused
on the reduction of operating expenses through a variety of measures. Several
live racing dates were removed from the fall schedule, and fewer live dates are
planned for the 1997 season. We have eliminated all of our outside stakes races
for the 1997 season, including the prestigious Founders Gold Cup trot and the
Thomas P. Gaines pace.

The Company has downsized significant numbers of employees in several
departments, and negotiated concessions in wages, health care benefits,
vacations and retirement benefits with unions representing our employees. A
resolution was passed by the Company's Board of Directors to discontinue
compensation to directors, and all officers of the Corporation have taken
significant salary reductions. We are continuing to work with the Raceway's
suppliers and vendors, to accommodate payment schedules and express our need for
additional cost cutting measures.

The New York State Department of Environmental Conservation issuance of an order
and consent, requiring the Raceway to construct a sewer line between the track
property and the Village of Vernon's sewer system, (at a cost in excess of
$300,000), and the defeat of the proposed casino legislation in the New York
State Senate's have necessitated further financial assistance. We are attempting
to sell non-operational properties owned by the Raceway, and have submitted a
proposal to the Oneida County Department of Economic Development seeking
financial assistance. Additionally we have contacted other local and state
representatives, attempting to obtain economic developmental relief, and have
appealed for a deferral of local and school taxes on real property.

We are currently continuing to explore our options for raising operating
capital.


                                       7
<PAGE>

Item 7. Management's Discussion and Analysis (Continued)
--------------------------------------------------------

Statistical Comparison:
-----------------------
12 Months Ended December 31, 1996 vs. 12 Months Ended December 31, 1995
-----------------------------------------------------------------------

                                    Twelve Months Ended
                                           December 31,             
                               --------------------------------     INCREASE
                                    1996              1995         (DECREASE)
                               --------------   ---------------    ----------
GROSS HANDLE:
  Live Harness                  $10,793,627        $14,128,540    ($3,334,913)
  OTB & ITW                      17,643,366         11,731,203      5,912,163
  Thoroughbred Simulcast          6,046,861          6,688,883       (642,022)
  Harness Simulcast               9,841,602         12,376,358     (2,534,756)

DAILY AVERAGE:
  Live Harness Handle               $93,858           $115,807       ($21,949)
  OTB & ITW Handle                  153,421             96,157         57,264
  Attendance                          1,742              1,685             57

   LIVE RACING DAYS                     115                122             (7)

9 Months Ended December 31, 1995 as Compared to Year Ended March 31, 1995
-------------------------------------------------------------------------

During the nine month period ended December 31, 1995, operating revenues
decreased by $519,292, compared with the fiscal year ended March 31, 1995. The
reduced operating revenues were the effect of the Company's change in year end,
resulting in a nine month transitional period. A portion of the decrease is due
to 33 less live racing days during the transitional period, offset by
significant increases in revenues, due to full-card simulcasting of both in
state and out of state harness and thoroughbred racing, over the entire
transitional period. Net corporate sponsorship of racing events decreased
$193,820 from the previous racing season, and are expected to diminish
significantly in the 1996 season.

Operating expenses decreased by $962,506 compared to the fiscal year ended March
31, 1995. The principal causes for the decrease were the reduction 33 days of
racing coupled with the shorter transitional period which eliminated three
months of fixed expenses.

The Omnibus Racing bill, originally passed in July, 1994, continued to generate
positive increases in the Company's simulcast operations. The bill, which lifted
several of the restrictions on receiving simulcast race signals and wagering on
out of state races, allowed Vernon Downs to offer a variety of harness and
thoroughbred races from more than thirty tracks around the country.

The Company continues to concentrate on the reduction of operating expenses.
Efforts such as the elimination of live race dates which have historically
proven to be unprofitable and the closing of the track's Grandstand during the
fall and winter, significantly reduced the related expenses. Negotiations with
collective bargaining units have produced concessions to both payroll and other
operational expenses.

Liquidity and Capital Resources
-------------------------------

In 1997, the funding of financing activities and capital requirements for
Mid-State Raceway's business will be substantially sourced by cash from
operations, although the Company's financial condition may require alternative
sources for cash requirements. The Company's current ratio at December 31, 1996
was approximately one to two.


                                       8
<PAGE>
[LOGO]   Urbach Kahn & Werlin PC
         CERTIFIED PUBLIC ACCOUNTANTS


                          INDEPENDENT AUDITOR'S REPORT


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

We have audited the accompanying balance sheets of Mid-State Raceway, Inc. as of
December 31, 1996 and 1995, and the related statements of operations, changes in
shareholders' equity, and cash flows for the year ended December 31, 1996 and
the nine months ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. The financial
statements of Mid-State Raceway, Inc. as of March 31, 1995, were audited by
other auditors whose report dated May 12, 1995, expressed an unqualified opinion
on those statements, and noted that as described in the notes to the financial
statements, the Company changed its accounting for investments in certain
securities in 1995.

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 December 31, 1996 and 1995 financial statements referred to
above present fairly, in all material respects, the financial position of
Mid-State Raceway, Inc. as of December 31, 1996 and 1995, and the results of its
operations and its cash flows for the year ended December 31, 1996 and the nine
months ended December 31, 1995, in conformity with generally accepted accounting
principles.


                                   /s/ URBACH KAHN & WERLIN PC

Albany, New York
February 26, 1997








     66 State Street, Albany, NY 12207-2595 (518)449-3166 FAX (518)449-5832


                                       9
<PAGE>


<TABLE>
<CAPTION>

                                            MID-STATE RACEWAY, INC.

                                                 BALANCE SHEETS
                                           DECEMBER 31, 1996 AND 1995

                                     ASSETS                                      1996                 1995
                                                                                 ----                 ----
<S>                                                                          <C>                   <C>
CURRENT ASSETS
  Cash                                                                       $   236,541           $   551,567
  Cash restricted for purses and uncashed winning tickets                        190,542               141,629
  Investments                                                                     14,075                 8,775
  Accounts receivable, net of allowance for doubtful accounts of
   $30,000 in 1996 and $0 in 1995                                                201,541               333,073
  Prepaid insurance, taxes and other expenses                                     49,111               171,293
  Refundable income taxes                                                          2,355                21,683
                                                                             -----------           -----------
           Total current assets                                                  694,165             1,228,020
                                                                             -----------           -----------
PROPERTY, PLANT AND EQUIPMENT
  Land, racing plant and equipment                                            12,538,616            12,159,787
  Other properties                                                               121,672               121,672
                                                                             -----------           -----------
                                                                              12,660,288            12,281,459
  Less accumulated depreciation                                               10,593,768            10,347,963
                                                                             -----------           -----------
                                                                               2,066,520             1,933,496
                                                                             -----------           -----------
OTHER ASSETS
  Investments                                                                     89,100               270,770
  Cash restricted for future stake events purses                                                        15,770
  Deferred income taxes                                                          325,902               426,032
  Other assets                                                                   128,160               134,660
                                                                             -----------           -----------
                                                                                 543,162               847,232
                                                                             -----------           -----------
                                                                             $ 3,303,847           $ 4,008,748
                                                                             ===========           ===========

                                  LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
  Accounts payable                                                           $   888,514           $   259,364
  Current portion of deferred retirement benefits                                107,565               107,565
  Uncashed winning tickets                                                        87,332                58,229
  Early closing and stake events purse funds                                     103,210                83,400
                                                                             -----------           -----------
           Total current liabilities                                           1,186,621               508,558
                                                                             -----------           -----------
DEFERRED RETIREMENT BENEFITS                                                     908,011               913,961
                                                                             -----------           -----------
FUTURE STAKE EVENTS PURSE FUNDS                                                    --                   15,770
                                                                             -----------           -----------
SHAREHOLDERS' EQUITY
  Common stock, par value $.10 per share;
   authorized 10,000,000 shares;
   issued and outstanding 250,386 shares                                          25,039                25,039
  Additional paid-in capital                                                     225,347               225,347
  Retained earnings                                                              956,534             2,317,972
  Unrealized gain on investments                                                   2,295                 2,101
                                                                             -----------           -----------
             Total shareholders' equity                                        1,209,215             2,570,459
                                                                             -----------           -----------
                                                                             $ 3,303,847           $ 4,008,748
                                                                             ===========           ===========

</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

                                                                     10

<PAGE>

<TABLE>
<CAPTION>
                                            MID-STATE RACEWAY, INC.

                                            STATEMENTS OF OPERATIONS
                                         YEAR ENDED DECEMBER 31, 1996,
                                    NINE MONTHS ENDED DECEMBER 31, 1995 AND
                                           YEAR ENDED MARCH 31, 1995

                                                      For the             For the Nine           For the
                                                    Year Ended            Months Ended          Year Ended
                                                December 31, 1996      December 31, 1995      March 31, 1995
                                                (115 Racing Days)      (122 Racing Days)     (155 Racing Days)
                                                -----------------      -----------------     -----------------
<S>                                                 <C>                    <C>                  <C>  
Operating revenues
    Net pari-mutuel commissions and breakage
      from wagering
         Vernon Downs Harness                       $1,840,413             $2,201,200           $3,014,863
         Off-track betting                           1,468,103              1,109,876            1,468,874
         Simulcasting                                3,016,815              3,024,272            1,798,943
                                                    ----------            -----------           ----------
                                                     6,325,331              6,335,348            6,282,680
    Admissions                                          92,655                123,522              240,667
    Concessions                                        142,721                223,782              456,715
    Corporate sponsors                                  18,224                354,208              548,028
    Other revenues                                     150,149                101,420              129,482
                                                    ----------            -----------           ----------
            Total operating revenues                 6,729,080              7,138,280            7,657,572
                                                    ----------            -----------           ----------
Operating expenses
    Purses                                           2,259,038              2,378,086            2,583,262
    Payroll                                          1,588,250              1,467,316            1,897,334
    Taxes, other than income                           357,590                287,151              394,347
    Outside services and rentals                       562,175                518,764              672,252
    Utilities                                          330,620                248,441              403,292
    Simulcasting expenses                            1,350,902              1,260,726              788,405
    Depreciation                                       245,805                180,478              254,794
    Bad debts                                           33,769
    Other expenses                                   1,411,431              1,260,353            1,570,135
                                                    ----------            -----------           ----------
            Total operating expenses                 8,139,585              7,601,315            8,563,821
                                                    ----------            -----------           ----------
Loss from operations                                (1,410,505)              (463,035)            (906,249)
                                                    ----------            -----------           ----------
Other income
    Commissions for capital improvements               146,224                140,985              192,488
    Investment income                                    6,367                 31,434               30,380
                                                    ----------            -----------           ----------
            Total other income                         152,591                172,419              222,868
                                                    ----------            -----------           ----------

Loss before provision (credit) for federal and
    state income taxes                              (1,257,914)              (290,616)            (683,381)
                                                    ----------            -----------           ----------
Provision (credit) for federal and state
  income taxes
    Currently payable                                    3,524                  1,838                2,676
    Deferred                                           100,000                 16,325              (14,446)
                                                   -----------             ----------           ----------
                                                       103,524                 18,163              (11,770)
                                                   -----------             ----------           ----------
Net loss                                           $(1,361,438)            $ (308,779)          $ (671,611)
                                                   ===========             ==========           ========== 
Loss per common share                              $     (5.44)            $    (1.23)          $    (2.38)
                                                   ===========             ==========           ========== 

</TABLE>



SEE NOTES TO FINANCIAL STATEMENTS.


                                       11

<PAGE>

<TABLE>
<CAPTION>


                                                     MID-STATE RACEWAY, INC.
                                        
                                          STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                                                  YEAR ENDED DECEMBER 31, 1996,
                                             NINE MONTHS ENDED DECEMBER 31, 1995 AND
                                                    YEAR ENDED MARCH 31, 1995

                                          Common Stock
                                           Issued and
                                           Outstanding          Additional                       Unrealized Gain
                                         -----------------       Paid-In         Retained           (Loss) on
                                         Shares     Amount       Capital         Earnings          Investments         Total
                                         ------     ------      ----------       --------        ----------------      -----
<S>                                      <C>        <C>          <C>             <C>                 <C>             <C>
Balances at March 31, 1994               250,386    $250,386                     $3,298,362                          $3,548,748

Unrealized loss on investments
  upon adoption of SFAS
  No. 115 on April 1, 1994 (see Note 1)                                                              ($3,468)            (3,468)
Net loss for the year                                                              (671,611)                           (671,611)
Increase in unrealized loss on
  investments                                                                                         (2,387)            (2,387)
Effect of change in common
  stock par value to $.10 per
  share from $1.00 per share                        (225,347)    $225,347
                                         -------    --------     --------        ----------          -------         ----------

Balances at March 31, 1995               250,386      25,039      225,347         2,626,751           (5,855)         2,871,282
Net loss for the nine months                                                       (308,779)                           (308,779)

Change in unrealized gain
  (loss) on investments                                                                                7,956              7,956
                                         -------    --------     --------        ----------          -------         ----------

Balances at December 31, 1995            250,386      25,039      225,347         2,317,972            2,101          2,570,459

Net loss for the year                                                            (1,361,438)                         (1,361,438)

Change in unrealized gain
  (loss) on investments                                                                                  194                194
                                         -------    --------     --------        ----------          -------         ----------

Balances at December 31, 1996            250,386    $ 25,039     $225,347        $  956,534           $2,295         $1,209,215
                                         =======    ========     ========        ==========          =======         ==========

</TABLE>


SEE NOTES TO FINANCIAL STATEMENTS.

                                                            12

<PAGE>


                                            MID-STATE RACEWAY, INC.

                                            STATEMENTS OF CASH FLOWS
                                         YEAR ENDED DECEMBER 31, 1996,
                                    NINE MONTHS ENDED DECEMBER 31, 1995 AND
                                           YEAR ENDED MARCH 31, 1995

<TABLE>
<CAPTION>
                                                      For the             For the Nine           For the
                                                    Year Ended            Months Ended          Year Ended
                                                December 31, 1996      December 31, 1995      March 31, 1995
                                                (115 Racing Days)      (122 Racing Days)     (155 Racing Days)
                                                -----------------      -----------------     -----------------
<S>                                                 <C>                    <C>                  <C>  
CASH FLOWS FROM OPERATING ACTIVITIES
  Net loss                                          $(1,361,438)           $(308,779)           $ (671,611)
  Adjustments to reconcile net loss to net
    cash used in operating activities:
      Depreciation                                      245,805              180,478               254,794
      Net amortization/accretion of investments           4,705                  697                 1,826
      Deferred income taxes                             100,000               16,325               (14,446)
      Allowance for doubtful accounts                    30,000
      Changes in:
        Restricted cash                                 (33,143)              83,494                34,880
        Accounts receivable                             101,532             (187,592)              (23,421)
        Prepaid expenses                                122,182               (8,954)                5,155
        Other assets                                      6,500               (9,379)               23,026
        Accounts payable                                629,150               10,230               (31,672)
        Purse funds                                       4,040             (141,723)              (34,880)
        Uncashed winning tickets                         29,103               58,229                  --
        Refundable income taxes                          19,328               (2,355)               93,313
        Deferred retirement benefits                     (5,950)             (39,499)                3,909
                                                    -----------            ---------            ---------- 
          Net cash used in operating activities        (108,186)            (348,828)             (359,127)
                                                    -----------            ---------            ---------- 

CASH FLOWS FROM INVESTING ACTIVITIES
  Proceeds from maturities of held-to-maturity
    investment securities                                 --                    --               1,249,715
  Proceeds from maturities and sales of available-
    for-sale investment securities                      456,989              556,000                  --
  Purchase of available-for-sale investment
    securities                                         (285,000)            (179,295)             (449,642)
  Purchase of properties and equipment                 (378,829)             (95,972)             (147,469)
                                                    -----------            ---------            ---------- 
          Net cash (used in) provided by
            investing activities                       (206,840)             280,733               652,604
                                                    -----------            ---------            ---------- 

Net increase (decrease) in cash and cash equivalents   (315,026)             (68,095)              293,477

Cash at beginning of year                               551,567              619,662               326,185
                                                    -----------            ---------            ---------- 

Cash at end of year                                 $   236,541            $ 551,567            $  619,662
                                                    ===========            =========            ==========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW
  INFORMATION
    Cash paid (received) during the year for:
      Income taxes                                  $   (13,824)           $   2,274            $  (92,000)
                                                    ===========            =========            ========== 
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS.

                                                       13
<PAGE>

                             MID-STATE RACEWAY, INC.

                          NOTES TO FINANCIAL STATEMENTS

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

              NATURE OF OPERATIONS:

              Mid-State Raceway, Inc. (the "Company"), known as Vernon Downs,
              operates a harness racing track in Vernon, New York. The Company
              is licensed by the New York Racing and Wagering Board to conduct
              harness racing at its track and to simulcast racing from other
              tracks.

              USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS:

              The preparation of financial statements in conformity with
              generally accepted accounting principles requires management to
              make estimates and assumptions that affect the reported assets and
              liabilities and disclosure of contingent assets and liabilities at
              the date of the financial statements and the reported amounts of
              revenues and expenses during the reporting period. Actual results
              could differ from those estimates.

              CHANGE IN FISCAL YEAR:

              In 1995 the Company changed its fiscal year end to December 31
              from March 31. Consequently, the statements of operations, changes
              in shareholders' equity, and cash flows for the period ended
              December 31, 1995 present the activities for nine months.

              INVESTMENT SECURITIES:

              Effective April 1, 1994, the Company adopted Statement of
              Financial Accounting Standards ("SFAS") No. 115, Accounting for
              Certain Investments in Debt and Equity Securities. As required by
              this pronouncement, the Company has classified its investments in
              securities as held-to-maturity or available-for-sale.
              Held-to-maturity securities are those for which the Company has
              the positive intent and ability to hold to maturity, and are
              reported at cost, adjusted for amortization of premiums and
              accretion of discounts. Securities not classified as
              held-to-maturity are classified as available-for-sale and reported
              at fair value, with net unrealized gains and losses reflected as a
              separate component of shareholders' equity, net of the applicable
              income tax effect. None of the Company's investment securities
              have been classified as trading securities. The effect of this
              change in accounting as of April 1, 1994 was to decrease
              investment securities by $5,780 and shareholders' equity by
              $3,468, net of deferred taxes of $2,312.

              PROPERTY, PLAN AND EQUIPMENT:

              Property, plant and equipment are carried at cost less accumulated
              depreciation computed by the straight-line and accelerated
              methods.

              The estimated useful life of the various classes of assets on
              which current provisions were based are as follows:

                  Land improvements                           5 to 20 years
                  Buildings and improvements                 10 to 40 years
                  Other structures                       15 to 31 1/2 years
                  Equipment                                   3 to 20 years



                                       14
<PAGE>

                             MID-STATE RACEWAY, INC.

                          NOTES TO FINANCIAL STATEMENTS

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

              RETIREMENT PLANS:

              The Company sponsors a number of retirement plans that cover
              substantially all employees. One group of union employees are
              covered under an industry-wide union pension plan. The other group
              of union employees are covered under a defined contribution
              individual account retirement severance plan which is funded
              currently. The total contribution under both plans for the year
              ended December 31, 1996, the nine months ended December 31, 1995
              and the year ended March 31, 1995 was $35,996, $44,080, and
              $66,726, respectively.

              The remaining employees are covered by a defined contribution
              currently funded individual account retirement plan or an unfunded
              deferred compensation plan. The total expense charged to
              operations for these plans amounted to $113,615, $51,925, and
              $125,325 for the year ended December 31, 1996, the nine months
              ended December 31, 1995 and the year ended March 31, 1995,
              respectively. The deferred compensation plan's projected benefit
              obligation approximates the accrued liability. The defined
              contribution currently funded individual account retirement plan
              was terminated by the Company, effective December 31, 1996.

              LOSS PER COMMON SHARE:

              Loss per share of common stock has been calculated based on the
              weighted average shares outstanding during each year. The weighted
              average number of common shares outstanding was 250,386 during the
              year ended December 31, 1996, the nine months ended December 31,
              1995 and the year ended March 31, 1995.

              ADVERTISING:

              The Company follows the policy of charging the costs of
              advertising to expenses as incurred. Advertising expense was
              $269,953, $359,464 and $352,816 for the year ended December 31,
              1996, the nine months ended December 31, 1995 and the year ended
              March 31, 1995, respectively.

              INCOME TAXES:

              The Company recognizes deferred income taxes for the tax
              consequences in future years of differences between the tax bases
              of assets and liabilities and their financial reporting amounts at
              each year-end based on enacted tax laws and statutory tax rates
              applicable to the periods in which the differences are expected to
              affect taxable income. Valuation allowances are established when
              necessary to reduce deferred tax assets to the amount expected to
              be realized. Income tax expense is the tax payable for the period
              and the change during the period in deferred tax assets and
              liabilities.

              REVENUE RECOGNITION:

              The Company recognizes revenue for commissions from wagering,
              corporate sponsors, admissions, and commissions for capital
              improvements when the related racing event is run. Investment
              income is recognized on the accrual basis.


                                       15
<PAGE>

                             MID-STATE RACEWAY, INC.

                          NOTES TO FINANCIAL STATEMENTS


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

              PAR VALUE OF COMMON STOCK:

              The Company decreased its common stock par value from $1.00
              at March 31, 1994 to $.10 per share at March 31, 1995. The
              Company also increased shares authorized from 612,000 at
              March 31, 1994 to 10,000,000 shares at March 31, 1995.

              RECLASSIFICATIONS:

              Certain balances in prior year financial statements have been
              reclassified for comparative purposes.


NOTE 2.       PROPERTY, PLANT AND EQUIPMENT

              Property, plant and equipment consists of the following:

                                                    DECEMBER 31,   DECEMBER 31,
                                                        1996           1995
                                                        ----           ----
              Land, racing plant, and equipment
                 Land                               $     77,802   $     77,802
                 Land improvements                     1,257,909        929,931
                 Buildings and improvements            5,682,906      5,682,906
                 Race plant structures                 1,258,915      1,235,065
                 Equipment                             4,249,438      4,219,946
                 Construction in progress                 11,646         14,137
                                                    ------------   ------------
                                                      12,538,616     12,159,787
              Other properties
                 Land                                    121,672        121,672
                                                    ------------   ------------
                     Total properties                 12,660,288     12,281,459
              Less accumulated depreciation           10,593,768     10,347,963
                                                    ------------   ------------
                                                    $  2,066,520   $  1,933,496
                                                    ------------   ------------


                                       16
<PAGE>

                             MID-STATE RACEWAY, INC.

                          NOTES TO FINANCIAL STATEMENTS


NOTE 3        INCOME TAXES

              Net deferred tax assets in the accompanying balance sheets have
              been provided for the temporary differences between the tax bases
              of assets and liabilities and their financial reporting amounts.
              The temporary differences that give rise to a significant portion
              of the deferred tax liability and deferred tax asset and their
              approximate tax effects are as follows:

<TABLE>
<CAPTION>

                                                  DECEMBER 31,1996                   DECEMBER 31, 1995
                                              --------------------------       -----------------------------
                                              TEMPORARY          TAX           TEMPORARY             TAX
                                              DIFFERENCE         EFFECT        DIFFERENCE           EFFECT
                                              ----------         ------        ----------           ------
<S>                                           <C>             <C>               <C>                <C> 
Deferred compensation                         $1,015,000      $  378,502        $1,022,000         $380,008
Net operating loss carryforwards               2,400,000         816,000         1,255,000          427,000
Other                                            (44,500)        (16,700)          (50,615)         (18,976)
                                              ----------      ----------        ----------         --------
                                               3,370,500       1,177,802         2,226,385          788,032
Less valuation allowance                          --            (851,900)           --             (362,000)
                                              ----------      ----------        ----------         --------
                                              $3,370,500      $  325,902        $2,226,385         $426,032
                                              ==========      ==========        ==========         ========
</TABLE>

              The Company owns certain assets whose market values are
              significantly greater than their book values. The Company has not
              recorded a valuation allowance against certain of its deferred tax
              assets on the basis of its available tax planning strategies,
              including the potential for sale of the above noted assets at
              gains significant enough to enable realization of certain tax
              benefits.

              The net operating loss carry forward will expire at various dates
              from December 31, 2009, through December 31, 2011.

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

<TABLE>
<CAPTION>
                                           FOR THE YEAR          FOR THE NINE MONTHS       FOR THE YEAR
                                         ENDED DECEMBER 31,      ENDED DECEMBER 31,       ENDED MARCH 31,
                                               1996                    1995                    1995
                                         ------------------      -------------------      ---------------
                                         AMOUNT          %       AMOUNT           %       AMOUNT        %
<S>                                      <C>           <C>      <C>            <C>       <C>         <C>   
Statutory federal income tax             ($438,000)    (34.0)   ($99,000)      (34.0)    ($232,000)  (34.0)
Variances from statutory rate
  Add state income tax,
    net of federal tax benefit               3,524       0.3       4,193         1.4         4,800     0.7
  Increase in valuation allowance          489,900      38.0     139,000        47.8       223,000    32.7
  Prior year's tax                          24,000       1.9     (13,430)       (4.6)        7,000     1.0
  Less reduction for
     Tax exempt income                                                                      (4,000)   (0.6)
     Other                                  24,100       1.8     (12,600)       (4.4)      (10,570)   (1.5)
                                          --------       ---     -------         ---      --------    ---- 
Effective tax (credit)                    $103,524       8.0     $18,163         6.2      ($11,770)   (1.7)
                                          ========       ===     =======         ===      ========    ==== 


</TABLE>

                                       17
<PAGE>

                             MID-STATE RACEWAY, INC.

                          NOTES TO FINANCIAL STATEMENTS


NOTE 4.       MARKETABLE SECURITIES

              As discussed more fully in Note 1, the Company adopted SFAS No.
              115, Accounting for Certain Investments in Debt and Equity
              Securities effective April 1, 1994.

              The amortized cost, gross unrealized gains, gross unrealized
              losses, and market values for current marketable securities and
              marketable securities maturing in greater than one year are as
              follows:

<TABLE>
<CAPTION>


                                                    DECEMBER 31, 1996                           DECEMBER 31, 1995 
                                      ---------------------------------------------    -------------------------------------------
                                                      GROSS UNREALIZED                                GROSS UNREALIZED
                                      AMORTIZED       ----------------                 AMORTIZED      ----------------
                                        COST          GAIN       LOSS      MARKET        COST         GAIN        LOSS      MARKET
                                      ---------       ----       -----     ------      ---------      ----        ----      ------
<S>                                   <C>            <C>        <C>       <C>           <C>         <C>          <C>       <C>     
Securities Available-for-Sale
  Municipal bonds                     $90,421        $  --      $1,321    $ 89,100      $272,115    $  237       $1,582    $270,770
  Other                                 8,929         5,146       --        14,075         3,929     4,846         --         8,775
                                      -------        ------     ------    --------      --------    ------       ------    --------
     Total Available-
       for-Sale                       $99,350        $5,146     $1,321    $103,175      $276,044    $5,083       $1,582    $279,545
                                      =======        ======     ======    ========      ========    ======       ======    ========
</TABLE>

              The carrying value and estimated market value of investment
              securities at December 31, 1996 by contractual maturity are shown
              below:


                                                         AVAILABLE FOR SALE
                                                    ----------------------------
                                                                       ESTIMATED
                                                     CARRYING            MARKET
                                                      VALUE              VALUE
                                                     --------           --------
              Due in one year or less                $  8,929           $ 14,075
              Due in one through five years            90,421             89,100
                                                     --------           --------
                                                     $ 99,350           $103,175
                                                     ========           ========
                                                                   

              Market value equals quoted market price, if available. If a quoted
              market price is not available, market value is estimated using
              quoted market prices for similar securities.


NOTE 5.       LEASES

              The Company leases certain equipment for use during each racing
              season including an agreement for pari-mutuel totalisator
              equipment and services.

              The total rent expense for the year ended December 31, 1996, the
              nine months ended December 31, 1995, and the year ended March 31,
              1995 amounted to $654,780, $566,786, and $604,127 of which
              $415,178, $311,038, and $259,751 was paid on the totalisator
              contract for the respective years.

              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.


                                       18
<PAGE>

                             MID-STATE RACEWAY, INC.

                          NOTES TO FINANCIAL STATEMENTS


NOTE 6.       COMMISSION FOR CAPITAL IMPROVEMENTS

              On July 26, 1983, legislation was passed permitting Upstate New
              York harness tracks to apply for an increase of 1% of on-track
              regular and multiple bet pools and 1/2 of 1% from OTB regular and
              multiple bet pools. Under the law and subject to the approval of
              the New York State Racing and Wagering Board, these additional
              funds must be used exclusively for capital improvements. The
              Company elected to increase such commissions effective September
              14, 1983. Expenditures for the related capital improvements
              through December 31, 1996 under this program have exceed total
              commissions received by approximately $571,000, and are
              effectively reimbursable in future years if sufficient commissions
              are generated.


NOTE 7.       INVESTMENT INCOME

              Investment income consisted of the following for the year ended
              December 31, 1996, the nine months ended December 31, 1995 and the
              year ended March 31, 1995:

<TABLE>
<CAPTION>

                                                DECEMBER 31,    DECEMBER 31,      MARCH 31,
                                                    1996            1995            1995
                                                ------------    ------------      ---------
<S>                                               <C>              <C>              <C>    
              Interest and dividends              $12,867          $22,054          $53,407
              Equity in earnings (loss) of
                Syracuse Mile, Inc. (an
                insignificant subsidiary)          (6,500)           9,380          (23,027)
                                                   ------          -------          -------
                                                   $6,367          $31,434          $30,380
                                                   ======          =======          =======
</TABLE>

NOTE 8.       CORPORATE SPONSORS

              During the year ended December 31, 1996, the nine months ended
              December 31, 1995 and the year ended March 31, 1995, the Company
              received a total of $18,234, $382,000, and $634,400 (before
              expenses), respectively, for corporate sponsorship of races.
              Various companies affiliated with the Company's former majority
              shareholder purchased an aggregate of $148,000, and $76,500
              (before expenses) of these sponsorships in the nine months ended
              December 31, 1995 and the year ended March 31, 1995, respectively.
              There were no purchases in 1996.


NOTE 9.       HOTEL LEASE

              During fiscal year 1994, the Company, as lessor, entered into a
              lease agreement with a partnership that includes the Company's
              majority shareholder. The Company has leased, for an initial
              period of twenty years, a certain portion of their property for
              the purpose of permitting the partnership to construct, own, and
              operate a hotel. Anytime during the lease or any renewal period
              of the lease, the Company may elect to assume all of the lessee's
              duties, obligations, rights and responsibilities under the lease.
              Lease payments during the initial twenty year period are $10,000
              per year. Construction of the hotel by the partnership


                                       19

<PAGE>

                             MID-STATE RACEWAY, INC.

                          NOTES TO FINANCIAL STATEMENTS


NOTE 9.       HOTEL LEASE (CONTINUED)

              was completed in October 1994. The Company also operates
              pari-mutuel wagering on the hotel premises. Net pari-mutuel
              commissions and breakage from wagering on these premises
              approximated $1,203,000 for the year ended December 31, 1996
              ($1,597,000 for the nine months ended December 31, 1995 and
              $263,000 for the year ended March 31, 1995).

NOTE 10.      CONTINGENCIES

              The Company is a defendant in an action claiming damages in
              connection with an injury claim. No estimate can yet be made of
              the potential for liability or damages, or the likely outcome of
              the litigation.


NOTE 11.      FINANCIAL CONDITION

              The Company sustained a significant operating loss in the year
              ended December 31, 1996, and working capital has significantly
              decreased during this period.

              Management has developed the following plans to deal with the
              Company's deteriorating financial condition, and actions necessary
              to support operations for at least the next 12 months:

                o     Decrease operating expenses through a reduction of live
                      racing days, eliminating outside stake races from the 1997
                      season, downsizing a number of employees in several
                      departments and negotiating concessions in wages, health
                      care benefits, vacations and retirement benefits with
                      unions and non-union employees.
               
                o     Explore options for raising operating capital, including
                      the sale of property not used in operations, and applying
                      for economic developmental relief funds.
               
                o     Increase marketing of concerts, fairs and festivals to
                      promote Vernon Downs as a family and young adult
                      entertainment center.
             


                                       20
<PAGE>


Item 9. Changes in Registrant's Certifying Accountant.
------------------------------------------------------

On April 17, 1996, Coopers & Lybrand, LLP, the firm of accountants previously
engaged to audit Registrant's financial statements, resigned. The resignation
was unilateral and was first communicated orally without explanation. The
resignation was confirmed in a letter of the same date received by facsimile and
regular mail. The resignation was not requested or prompted by Registrant.

The day after the resignation, it was publicly announced that Richard C.
Breeden, a partner with the firm of Coopers & Lybrand, LLP, was a candidate for
appointment as trustee in a Chapter 11 bankruptcy proceeding involving Bennett
Funding Group, Inc. and two related companies, all owned by Patrick Bennett and
members of his family. Patrick Bennett was, at the time, owner with his wife of
54 percent of the outstanding common stock of Registrant.

Coopers & Lybrand, LLP's reports on Registrant's financial statements for the
past two years contained no adverse opinion or disclaimer of opinion, nor were
they qualified or modified for any reason.

During Registrant's two most recent fiscal years and the subsequent interim
period up to the date of the resignation there were no disagreements with
Coopers & Lybrand of the character described in paragraph (a)(1)(iv) nor any
reportable events of the character described in paragraph (a)(i)(v) of
Regulation ss.229.304, Item 304, except as follows: Coopers & Lybrand, LLP
advised Registrant of the need to expand significantly the scope of its audit
for the reason discussed in Item 5 of Form 8-K dated April 8, 1996, and due to
Coopers & Lybrand, LLP's resignation, such expanded work was not completed.

The Board of Directors ratified Urbach Kahn & Werlin PC, Certified Public
Accountants as independent auditors for the period ended December 31, 1995 at
the Board of Directors meeting on May 23, 1996, subject to the receipt of a
letter of engagement. On May 29, 1996 such letter of engagement was received and
the services of Urbach Kahn & Werlin PC, Certified Public Accountants were
retained.

An accountant's opinion letter from Coopers & Lybrand, LLP as of March 31, 1995
and for the year then ended does not accompany this filing. There is a
continuing dispute with Coopers & Lybrand, LLP. The Registrant does not
anticipate a resolution of this matter which would result in Coopers & Lybrand,
LLP re-issuing its opinion letter from March 31, 1995.


                                       21
<PAGE>

PART III
--------

The information required by Items 10, 11, and 12 relating to directors and
executive officers of Mid-State Raceway, Inc. is incorporated by reference to
pages 2 through 9 of the Company's definitive Proxy Statement dated April 30,
1997.


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

The information required by Item 13 is incorporated by reference to Notes 8 and
9 of the financial statements included in this Form 10-K.



                                     PART IV
                                     -------

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
------------------------------------------------------------------------


(a)  1. Financial Statements                                              Page
        --------------------                                              ----

         Included in Part II, Item 8 of this report
              Independent Auditors' Report                                9

              Balance Sheets, December 31, 1996 and 1995                 10

              Statements of Operations,
                Years Ended December 31, 1996, and March 31, 1995 and
                Nine Months Ended March 31, 1995                         11

              Statements of Changes in Shareholders' Equity,
                Years Ended December 31, 1996, and March 31, 1995 and
                Nine Months Ended March 31, 1995                         12

              Statements of Cash Flows,
                Years Ended December 31, 1996, and March 31, 1995 and
                Nine Months Ended March 31, 1995                         13

     Notes to Financial Statements                                       14 - 20


     2. Financial Statement Schedules
        -----------------------------

     Schedules have been omitted because they are not required, not
     applicable, or the required information is shown in the financial
     statements or notes thereto.

(b)  Reports on Form 8-K
     -------------------

     None were filed for the quarter ended December 31, 1996.




                                       22
<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 its
behalf by the undersigned, thereunto duly authorized in the Village of Vernon,
State of New York, on the 21st day of March __, 1997.
                          ----       ---------

                                           MID-STATE RACEWAY, INC.


                                           by    /S/  FRANK O. WHITE, JR.
                                           -------------------------------------
                                           Frank O. White, Jr.
                                           President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.


Signature                                  Title                        Date
---------                                  -----                        ----

   /s/   FRANK O. WHITE, JR.      President, Chief Executive          03/21/97
------------------------------    Officer and Director
Frank O. White, Jr.


   /s/   JAMES J. MORAN           Vice President,                     03/21/97
------------------------------    Secretary and Director
James J. Moran


   /s/   THOMAS P. HEGEMAN        Treasurer - (Principal              03/21/97
------------------------------    Financial and Accounting Officer)
Thomas P. Hegeman


   /s/   DAVID H. BROWN           Assistant to the                    03/21/97
------------------------------    President and Director
David H. Brown


   /s/ DOUGLAS BURCH              Director                            03/21/97
------------------------------
Douglas Burch


   /s/   CARL J. EILENBERG        Director                            03/21/97
------------------------------
Carl J. Eilenberg


   /s/   ROBERT W. JAQUINT        Director                            03/21/97
------------------------------
Robert W. Jaquint


   /s/   JEREMIAH C. LAW          Director                            03/21/97
------------------------------
Jeremiah C. Law


   /s/   ROBERT V. McSWEENEY      Director                            03/21/97
------------------------------
Robert V. McSweeney


   /s/   JAMES E. RAYMONDA        Director                            03/21/97
------------------------------
James E. Raymonda



                                       23

<PAGE>


                             SIGNATURES (continued)
                             ----------



Signature                                  Title                        Date
---------                                  -----                        ----


   /s/   DAVID SLYMAN, SR.        Director                            03/21/97
------------------------------
David Slyman, Sr.


   /s/   FRANK O. WHITE           Director                            03/21/97
------------------------------
Frank O. White


   /s/   JEROME M. WILSON         Director                            03/21/97
------------------------------
Jerome M. Wilson



                                       24