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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

COMMISSION FILE NO.: 0-20508

MTR GAMING GROUP, INC.
(Exact name of registrant as specified in its charter)

STATE ROUTE 2 SOUTH, P.O. BOX 358, CHESTER, WEST VIRGINIA 26034
(Address of principal executive offices)

(304) 387-8300
(Registrant's telephone number, including area code)

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

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

COMMON STOCK, $.00001 PAR VALUE
Class

Outstanding at November 8, 2002

27,390,908

MTR GAMING GROUP, INC.
INDEX FOR FORM 10-Q

PART 1

FINANCIAL INFORMATION

ITEM 1—FINANCIAL STATEMENTS

MTR GAMING GROUP, INC.

CONDENSED AND CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

1

MTR GAMING GROUP, INC.

CONDENSED AND CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

2

MTR GAMING GROUP, INC.

CONDENSED AND CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

3

MTR GAMING GROUP, INC.

NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1—BASIS OF PRESENTATION

        The accompanying unaudited condensed and consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of only normal recurring accruals) considered necessary for a fair presentation have been included herein. Operating results for the nine months ended September 30, 2002 are not necessarily indicative of the results that may be expected for the year ended December 31, 2002. For further information, refer to the consolidated financial statements and notes thereto included in the Registrant's Annual Report on Form 10-K for the year ended December 31, 2001.

NOTE 2—NEW ACCOUNTING PRONOUNCEMENTS

        On January 1, 2002, the Company adopted Financial Accounting Standards Board Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS No. 142). Under the new rules goodwill is no longer amortized but is subject to annual impairment tests. Other intangible assets continue to be amortized over their useful lives. Application of the nonamortization provisions of SFAS No. 142 resulted in an increase in net income of $62,500 and $187,500 for the three months and nine months ended September 30, 2002, respectively and is expected to increase net income for 2002 by $250,000. The Company performed the first of its required impairment tests of goodwill and indefinite-lived intangible assets during the three months ended March 31, 2002. The results of this test indicated that no transition impairment charge was necessary. The Company will perform its annual impairment test during the fourth quarter of 2002.

        On January 1, 2002, the Company also adopted Financial Accounting Standards Board Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS No. 144). SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and Long-lived Assets to be Disposed Of and APB Opinion No.30, Reporting the Results of Operations, for a disposal of a segment of a business. The adoption of SFAS No. 144 did not have a significant impact on the earnings or the financial position of the Company for the three or nine months ended September 30, 2002.

        On January 1, 2001, the Company adopted Financial Accounting Standards Board Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities, (SFAS No. 133) as amended. This Statement requires the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives will either be offset against the change in fair value of the hedged assets, liabilities or firm commitments through earnings, or recognized in Other Comprehensive Income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value is recognized in earnings. The adoption of SFAS No. 133 on January 1, 2001 resulted in a pretax loss of $139,000 ($92,000 loss net of taxes) from the cumulative effect of this accounting change being charged to earnings. The terms of the Company's financing required the Company to enter into an interest rate cap agreement, which expires on December 31, 2003, to manage interest rate risk and to lower its cost of borrowing. This contract falls within the scope of SFAS No. 133. The effect of adoption of the new accounting pronouncement was not material to the Company's results of operations or financial position.

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NOTE 3—GAMING OPERATIONS

        As more fully discussed in Management's Discussion and Analysis, in April 2001 West Virginia amended its video lottery statute. The changes included eliminating the reconciliation and refund of the unused portion of the administrative fee; establishing a new distribution scheme for the portion of the racetrack's net win in excess of the racetrack's net win for the twelve months ending June 30, 2001 (referred to as Excess Net Terminal Income); establishing a 10% surcharge after deducting the administrative fee on Excess Net Terminal Income; and creating a separate capital reinvestment fund for each racetrack to which the State will contribute 42% of the surcharge applicable to each track. Generally, for each dollar a racetrack expends on eligible capital improvements for the racetrack and adjacent property, the track will receive a dollar from the capital reinvestment fund. Depending upon the amount of a project, any amount expended in excess of the balance in the capital reinvestment fund may be carried forward three subsequent years. The Company recognizes amounts due from the capital reinvestment fund as qualifying capital expenditures are identified. The Company's qualifying capital expenditures exceeded amounts contributed to the capital reinvestment fund during the three months ended June 30, 2002. Accordingly, the Company recognized $1,580,000 representing its share of the capital reinvestment fund for the three months ended June 30, 2002. The surcharge and the reduction in the net win retention percentage as a result of the new distribution scheme, after consideration of the amounts due from the capital reinvestment fund discussed in the preceding paragraph, had the affect of increasing statutory payments included in the cost of gaming for the nine months ended September 30, 2002 by approximately $1.9 million. The new distribution scheme did not have any impact on the three months ended September 30, 2002.

NOTE 4—PROPOSED RACETRACK

        On September 26, 2002 the Company received a license from the Pennsylvania State Horse Racing Commission to build a thoroughbred horse racetrack and conduct parimutuel wagering in Erie, Pennsylvania. The license requires the Company to build the facility within three years of the date the license was granted. The Company has commenced the process of pursuing the necessary building permits and designing the racetrack and related facilities.

        On March 22, 2002, the Company advanced $2 million to a third-party for the purpose of acquiring certain real property in Erie County, Pennsylvania as a back-up site for the proposed racetrack (subject to regulatory approval, in the event the licensed site cannot be used). The loan matures on the earliest of March 31, 2005, the date on which the Company exercises its option to purchase the property for One Dollar ($1) plus the cancellation of the indebtedness, or the date on which the borrower puts the property to the Company in lieu of the debt. Interest accrues at a floating rate equal to the Federal short-term rate as periodically announced by the Internal Revenue Service. The loan is secured by a first lien on the property and all of the outstanding shares of the borrower. In connection with the evaluation of site locations for the racetrack, the Company will evaluate the development or purchase and sale alternatives regarding this property.

        The advance and other land acquisition and licensing costs of $4,021,000 are included in deposits and other in the accompanying balance sheet.

NOTE 5—EQUITY TRANSACTIONS

        During the three months ended September 30, 2002, holders of previously issued options to purchase the Company's common stock purchased a total of 304,000 shares of the Company's common stock at prices ranging from $1.3438 to $2.00 per share by delivery of cash proceeds totaling $411,000. During the three months ended September 30, 2001, holders of previously issued options and warrants to purchase the Company's common stock purchased a total of 801,076 shares of the Company's

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common stock at prices ranging from $1.06 to $7.30 per share by delivery of cash proceeds and promissory notes totaling $2,354,261.

        During the three months ended September 30, 2002, the Company did not grant any options or other rights to purchase shares of the Company's common stock.

        In the third quarter of 2002, the company repurchased 290,000 shares of its common stock in the open market for $2,401,300 pursuant to its approved $8 million stock repurchase program. In the third quarter of 2001, the company repurchased 171,100 shares of its common stock in the open market for $1,485,000. In addition, the Company received 20,318 shares of its common stock from a non-affiliate in connection with resolution of certain matters, which involved payment of $265,000. In October of 2001, the company repurchased 10,000 additional shares in the open market for $106,000. Since the start of the repurchase program in 2000, the Company has repurchased a total of 705,600 shares of common stock for a total cost of $5,397,000.

        All of the above-referenced transactions are reflected in the number of basic and diluted shares outstanding for purposes of calculating earnings per share in the accompanying unaudited statement of operations.

NOTE 6—RELATED PARTY TRANSACTIONS

        During the nine months ended September 30, 2002, certain officers and directors repaid in cash $4,065,000 of shareholder notes receivable. Currently, the Company has no loans outstanding to related parties.

NOTE 7—INCOME TAXES

        The Company accounts for its income taxes in accordance with Financial Accounting Standards Board Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes (SFAS No. 109). Under Statement 109, an asset and liability method is used whereby deferred tax assets and liabilities are determined based upon temporary differences between bases used for financial reporting and income tax reporting purposes. Income taxes are provided based on the enacted tax rates in effect at the time such temporary differences are expected to reverse. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the Company will not realize tax assets through future operations. There is no valuation allowance at September 30, 2002 and 2001. The Company and its subsidiaries file a consolidated federal income tax return.

NOTE 8—LONG-TERM DEBT AND CAPITAL LEASES

        On June 27, 2002, the Company entered into the Second Amended and Restated Credit Agreement with its bankers to increase the credit line from $85 to $100 million; increase the permitted borrowing for equipment from $13 million to $21 million; increase the amount permitted for investment/acquisitions from $15 million to $50 million; and increase the amount that can be invested for the expansion of Mountaineer by $35 million. The amendment also revised the commencement of the scheduled commitment reduction date from March 2003 to June 2003 and changed the permitted debt/EBITDA ratio for the second quarter of 2002 from 2.0:1 to 2.2:1. This facility allows for interest only payments through the commencement of the scheduled commitment reduction at which time the loan balance is to be amortized to $60 million over the remainder of the term, at which point the entire balance becomes due and payable.

        During the three months ended September 30, 2002, the Company's net borrowings under its Credit Agreement amounted to $1,397,213 (net of repayment of $602,787). The interest rate on these borrowings based upon the Base Rate Loan classification was 6.0%.

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        The Company received a waiver from its Bankers of the leverage ratio covenant as of September 30, 2002, so long as the actual leverage ratio calculation as of September 30, 2002 did not exceed 2.3. The Company was in compliance with the revised leverage ratio requirement.

        On July 1, 2002 the Company opened an additional gaming room which houses the 500 video lottery machines previously approved by the West Virginia Lottery Commission on April 30, 2002. The Company financed the acquisition of the 500 video lottery machines pursuant to lease agreements for $4,431,358 with PNC Leasing under the master lease agreement. The lease agreements have terms of three years with an interest rate of 4.99%.

NOTE 9—COMMITMENTS AND CONTINGENCIES

        On June 12, 2001, Mountaineer Park, Inc. entered an agreement with Just-Mark Construction, Inc. for the construction of a 260-room hotel (by amendment, the number of rooms was later reduced to 258). In order to accommodate the fast-track building schedule, the agreement was designed to be amended (through change orders) as to scope of work and contract price for each phase of the development as construction progressed. For example, phase I covered the basic structure, phase II mechanical, electrical and plumbing, and phase III interior finishes. The contract as amended likewise carved out from the scope of work interior finishes for two "super suites," the relocation of the spa to the hotel building, and the construction of the Mahogany Room bar and retail plaza, which the Company completed separately. To date, the Company has paid Just-Mark $23.5 million. Although the project architect has not yet certified a final contract sum for payment, he has recommended $25.4 million, subject to adjustment upon receipt of documentation requested from the contractor.

        On December 11, 2001, Mountaineer Park, Inc. entered into an agreement to purchase 256 acres of real property in Hancock County, West Virginia near Mountaineer Park. The purchase is expected to close in December 2002 (extended from original date of July 2002) with a payment of $3,500,000.

        The Company has entered into option agreements to purchase certain parcels of real property in Erie, Pennsylvania in connection with the development and construction of the licensed site for the racetrack. Upon exercise of all of the options, the Company would be required to pay up to approximately $7.7 million.

        The Company has also entered into an agreement to purchase approximately 130 acres of real property in Erie County, Pennsylvania for $2.4 million in connection with the back-up site for the racetrack discussed in Note 3. The Company's obligations, however, are subject to obtaining certain development rights for the property.

        The Company is party to various lawsuits, which have arisen in the normal course of its business. The liability arising from unfavorable outcomes of lawsuits is not expected to have a material impact on the Company's financial condition or financial results.

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

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION:

        This document includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact included in this document, including, without limitation, the statements under "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Liquidity and Sources of Capital" as well as the "Notes to Condensed and Consolidated Financial Statements" regarding the Company's strategies, plans, objectives, expectations, and future operating results are forward-looking statements. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable at this time, it can give no assurance that such expectations will prove to have been correct. Actual results could differ materially based upon a number of factors including, but not limited to, weather conditions or road conditions limiting access to the Company's properties, adverse changes in West Virginia video lottery laws or the rates of taxation of video lottery operations, market acceptance of the Company's new hotel and related amenities at Mountaineer, which involve higher price points than the Company's prior offerings, legalization of new forms of gaming in the Company's target markets, which would lead to increased competition, other competition, general economic conditions affecting the resort business, dependence upon key personnel, timely delivery and installation of slot machines, conversion of slot machines to higher bet limits, which is dependent upon vendors over whom the Company has no control, successful and timely completion of the Company's planned Pennsylvania racetrack and successful cross-marketing of that property with Mountaineer, changes in the number of diluted shares, leverage and debt service, expiration or non-renewal of gaming licenses, costs associated with maintenance and expansion of Mountaineer Park's infrastructure to meet the demands attending increased patronage, costs and risks attending construction, expansion of operations, market acceptance of the Company's Nevada Properties and maintenance of "grandfathered' status of those properties, cyclical nature of business, limited public market and liquidity, shares eligible for future sale, impact of anti-takeover measures, and other risks detailed from time to time in the Company's Securities and Exchange Commission filings and press releases. The Company does not intend to update publicly any forward-looking statements, except as may be required by law.

OVERVIEW

        The Company, through wholly owned subsidiaries, owns and operates the Mountaineer Racetrack and Gaming Resort ("Mountaineer Park") in Chester, West Virginia, the Ramada Inn and Speedway Casino in North Las Vegas, Nevada (the "Speedway Property"), and a hotel in Reno, Nevada (the "Reno Property" or, collectively with the Speedway Property, the "Nevada Properties"). The Company's subsidiary, Presque Isle Downs, Inc., has received a license from the Pennsylvania Horse Racing Commission to build a thoroughbred racetrack and conduct parimutuel wagering in Erie, Pennsylvania. The Company expects to begin construction as soon as the required permits are received.

        The Company anticipates that Mountaineer Park, particularly gaming operations, will continue to be the dominant factor in the Company's financial condition. Increases in the number of slot machines and periodic legislative enhancements that have permitted more popular types of games and, most recently, higher wagering limits, as well as the investment in infrastructure and amenities, allow Mountaineer Park to provide patrons a high quality, diversified gaming and entertainment experience in a resort atmosphere. Although Mountaineer Park has achieved revenue growth in excess of 20% thus far during 2002, disruption from construction and inefficiencies inherent in commencing new operations affected margins. Nevertheless, management continues to believe that efficiencies will improve incrementally as the business related to the new amenities matures.

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        The three months ended September 30, 2002 marked the fourth consecutive quarter in which the Speedway Property recorded positive EBITDA, although nominal. The Company closed the casino at the Reno Property in July 2001 due to poor financial performance and listed the Reno Property for sale in April 2002. The Reno Property remains listed for sale and has generated interest from potential buyers. If these discussions do not result in a contract in the near future, the Company intends to close the property.

THREE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2001

OPERATING REVENUES AND COSTS

        The Company earned revenues for the respective three-month periods ended September 30, 2002 and 2001 as shown below:

        For the third quarter of 2002, the Company's total revenues increased by $15.7 million, an increase of 26% compared to the same period in 2001. Approximately $12.5 million of the increase was produced by gaming operations at Mountaineer Park. Total commissions from parimutuel wagering increased $71,000 or 3%. Mountaineer's lodging revenues increased by $1,262,000 or 249%; food and beverage revenues increased by $882,000 or 32% from $2.8 million to $3.6 million; and other revenues at Mountaineer Park increased by $898,000 or 74%. The Nevada Properties contributed $2.7 million in gross revenue, an increase of $61,000 as compared to the same period in 2001. The Nevada Properties' revenues consisted of $1.8 million from gaming at the Speedway Property, $569,000 from lodging, $395,000 from food and beverage, and $23,000 from other revenues in the third quarter of 2002. Total revenues generated by the Speedway Property were $2.4 million, while the Reno Property's total revenues were $328,000. The increase in Speedway Property revenue was 17% from $2.0 million in 2001, while the Reno Property's revenues decreased by $302,000 from $630,000 in 2001.

        The Company's $15.7 million increase in revenues resulted in higher total costs, as directly related expenses increased by $10.2 million to $49.2 million in the third quarter of 2002 compared to the same period in 2001. Costs of gaming operations, including applicable state taxes and fees, increased approximately $8.1 million. Pari-mutuel direct cost increased by $256,000, while cost of food, beverage and lodging increased by $641,000. West Virginia food and beverage operations and lodging accounted for $545,000 and $285,000 respectively of the increase in the cost of food, beverage and lodging. These increases were partially offset by a decrease in the cost of food, beverage and lodging at the Nevada Properties of $190,000, due principally to the closing of the casino and restaurant at the Reno Property during July 2001. The cost of other income increased by $1.2 million in 2002 to $2.9 million. The increase is due primarily to additional shows and special events at the Harv, the opening of the Convention Center in August 2001 and the new jewelry/gift shop and Spa in August 2002.

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        Operating costs and gross profits earned from operations for the three-month periods ended September 30, 2002 and 2001 are as follows:

GAMING OPERATIONS

        Revenues from gaming operations increased by $12.6 million, or 23%, from $53.8 million in 2001 to $66.4 million in 2002. This increase is attributed to the following factors: (1) the increase in machine count at Mountaineer Park from an average of 2,149 during the third quarter of 2001 to an average of 2,995 during the same period in 2002 (on July 1, 2002 the Company opened a new 10,000 square foot gaming room at Mountaineer Park with 500 additional slot machines); (2) the increase in patronage driven by new amenities as Mountaineer Park develops into a destination resort; (3) marketing and promotion campaigns; and (4) changing games and machines to meet changing patron interest and demand.

        A summary of gaming operations revenue at Mountaineer Park for the three months ended September 30, 2002 and 2001 is as follows: