10-K 1 nyny-12312015x10k.htm 10-K 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________ 
FORM 10-K
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2015
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from              to             
Commission file number 1-12522
_______________________________________ 
EMPIRE RESORTS, INC.
(Exact name of registrant as specified in its charter)
Delaware
 
13-3714474
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
c/o Monticello Casino and Raceway, 204 State Route 17B,
P.O. Box 5013, Monticello, NY 12701
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code (845) 807-0001
Securities registered under Section 12(b) of the Act:
Title of each class
 
Name of each exchange on which registered
Common Stock, $.01 par value per share
 
NASDAQ Global Market
Securities registered under Section 12(g) of the Act:
None
(Title of class)
_______________________________________ 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
¨
 
Accelerated filer
x

 
 
 
 
 
Non-accelerated filer
¨
 
Smaller reporting company
¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act)     Yes  ¨    No  x
The aggregate market value of the issuer’s common equity held by non-affiliates, as of June 30, 2015 was $79,470,964 based on the closing price of the registrant’s common stock on the NASDAQ Global Market.
As of March 3, 2016, there were 31,031,797 shares of the registrant’s common stock outstanding.
_______________________________________ 
DOCUMENTS INCORPORATED BY REFERENCE
None.



INDEX
 
 
 
 
ITEM 1.
ITEM 1A.
ITEM 1B.
ITEM 2.
ITEM 3.
ITEM 4.
 
 
 
 
 
ITEM 5.
ITEM 6.
ITEM 7.
ITEM 7A.
ITEM 8.
ITEM 9.
ITEM 9A.
ITEM 9B.
 
 
 
 
 
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.
 
 
 
 
 
ITEM 15.
 
 
 


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PART I
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements about management’s current expectations. Examples of such forward-looking statements include discussions of the expected results of various strategies. Although we believe that our expectations are based upon reasonable assumptions, there can be no assurance that our financial goals will be realized. Our forward-looking statements concern matters that involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements, or industry results, to be materially different from the future results, performance or achievements described or implied by such forward-looking statements. Numerous factors may affect our actual results and may cause results to differ materially from those expressed in the forward-looking statements made by us or on our behalf. Any statements that are not statements of historical fact may be forward-looking statements. Among others, we have used the words, “believes,” “anticipates,” “plans,” “estimates,” and “expects” to identify forward-looking statements. Such statements may be considered forward looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 27A of the Securities Act of 1933, as amended (the “Securities Act”). Factors that could cause actual results, performance or achievements to differ materially from those expressed or implied by these forward-looking statements include, but are not limited to, the risk factors set forth in Item 1A of this Annual Report on Form 10-K. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this filing. We assume no obligation to update the forward-looking statements to reflect actual results or changes in the factors affecting such forward-looking statements.
Item 1.
Business.
Overview
Empire Resorts, Inc. (“Empire,” and, together with its subsidiaries, the “Company,” “us,” “our” or “we”) was organized as a Delaware corporation on March 19, 1993, and since that time has served as a holding company for various subsidiaries engaged in the hospitality and gaming industries. All share and per share information in this annual report on Form 10-K gives retroactive effect to a one-for-five reverse stock split effective as of December 23, 2015.
Through Empire’s wholly-owned subsidiary, Monticello Raceway Management, Inc. ("MRMI"), we currently own and operate Monticello Casino and Raceway, a 45,000 square foot video gaming machine ("VGM") and harness horseracing facility located in Monticello, New York, 90 miles northwest of New York City. Monticello Casino and Raceway operates 1,110 VGMs, which includes 1,070 video lottery terminals ("VLTs") and 40 electronic table game positions ("ETGs"). VGMs are similar to slot machines, but they are connected to a central system and report financial information to the central system. The 2015-2016 New York State Budget (the "Budget") expands the statutory definition of Video Lottery Gaming which enables MRMI to operate ETGs of the games of blackjack and 3-card poker. MRMI has added ETGs of the games of blackjack and 3-card poker to its facility and will add other games as they are approved by the NYSGC (defined below). We also generate racing revenues through pari-mutuel wagering on the running of live harness horse races, the import simulcasting of harness and thoroughbred horse races from racetracks across the country and internationally, and the export simulcasting of our races to offsite pari-mutuel wagering facilities. In a letter dated February 12, 2016, the New York State Gaming Commission (the "NYSGC") assigned to MRMI the race dates requested through April 2016. Generally, the annual license renewal process requires the NYSGC to review the financial responsibility, experience, character and general fitness of MRMI and its management.

On December 21, 2015, our wholly-owned subsidiary, Montreign Operating Company, LLC ("Montreign"), was awarded a license (a “Gaming Facility License”) by the NYSGC to operate a resort casino (“Montreign Resort Casino” or the "Casino Project") to be located at the site of a four-season destination resort planned for the Town of Thompson in Sullivan County 90 miles from New York City (“Adelaar” or the “Adelaar Project”), which is described below. The award of the Gaming Facility License follows the Company’s selection in December 2014 by the New York State Gaming Facility Location Board (the “Siting Board”) as the sole Hudson Valley - Catskills Area casino applicant eligible to apply to the NYSGC for a Gaming Facility License. The Gaming Facility License became effective on March 1, 2016 (the "License Award Effective Date").
Recent Events    

Rights Offering

On January 4, 2016, we commenced a rights offering (the “January 2016 Rights Offering”) of transferable subscription rights to holders of record of our common stock and Series B Preferred Stock as of January 4, 2016 to purchase up to 20,138,888 shares of our common stock at $14.40 per share. The subscription rights were listed for trading on the NASDAQ

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Stock Market under the symbol "NYNYR" for the duration of the January 2016 Rights Offering. In connection with the January 2016 Rights Offering, on December 31, 2015, we and Kien Huat Realty III Limited (“Kien Huat”), our largest stockholder, entered into a standby purchase agreement (the “January 2016 Standby Purchase Agreement”). Pursuant to the January 2016 Standby Purchase Agreement, Kien Huat agreed to (i) exercise its basic subscription rights to acquire approximately $30 million of our common stock within ten (10) days of the commencement of the January 2016 Rights Offering with a closing proximate thereto and (ii) to exercise the remainder of its basic subscription rights prior to the expiration date of the January 2016 Rights Offering. In addition, Kien Huat agreed it would exercise all rights not otherwise exercised by the other holders in the January 2016 Rights Offering, which we refer to as the standby purchase, upon the same terms as other holders in an aggregate amount not to exceed $290 million. Pursuant to the January 2016 Standby Purchase Agreement, we paid Kien Huat a commitment fee in the amount of $1,450,000, which is equal to 0.5% of the maximum amount of the January 2016 Rights Offering, and reimbursed Kien Huat for its expenses in an amount not exceeding $50,000. The net proceeds of the January 2016 Rights Offering will be used for (i) the expenses relating to the development of the Casino Project, (ii) to redeem the outstanding shares of the Series E preferred stock of the Company in accordance with the terms of an existing settlement agreement and (iii) the expenses related to the development of the Golf Course and the Entertainment Village that are part of the initial phase of Adelaar and to support the working capital needs of the Company.

The January 2016 Rights Offering closed on February 17, 2016. The Company issued a total of 20,138,888 shares of common stock for aggregate gross proceeds of approximately $290 million. This includes 176,086 shares issued to holders upon exercise of their basic subscription and over-subscription rights and 13,136,817 shares issued to Kien Huat upon exercise of its basic subscription rights. Kien Huat also acquired the remaining 6,825,985 shares not sold in the January 2016 Rights Offering pursuant to the January 2016 Standby Purchase Agreement. The net proceeds of the January 2016 Rights Offering were approximately $285.9 million following the deduction of expenses.

Conversion of Kien Huat Note

On June 26, 2014, Kien Huat and the Company entered into a letter agreement, which was last amended on September 22, 2015 (as amended, the “Commitment Letter”), pursuant to which Kien Huat committed to support the Company’s equity financing needs with respect to the Casino Project and Adelaar. Kien Huat’s commitment to participate in, and backstop, the January 2016 Rights Offering was made in accordance with the Commitment Letter. Pursuant to the Commitment Letter, Kien Huat also agreed to convert in accordance with its terms that certain convertible promissory note in the principal amount of
$17.4 million (the “Kien Huat Note”) into shares of the Company’s common stock upon the earlier to occur of (i) the closing of the January 2016 Rights Offering and (ii) the maturity of the Kien Huat Note, which was March 15, 2016. Accordingly, upon consummation of the January 2016 Rights Offering, on February 17, 2016, the Kien Huat Note was converted into 1,332,058 shares of common stock, which conversion, along with the payment in cash of interest due, satisfied the Kien Huat Note in full (the “Note Conversion”). After giving effect to the January 2016 Rights Offering (including the standby purchase pursuant to the January 2016 Standby Purchase Agreement) and the Note Conversion, Kien Huat owns approximately 88.7% of the outstanding shares of the Company’s common stock.

Letter Agreement

As a result of Kien Huat’s increased proportionate ownership following the consummation of the January 2016 Rights Offering and the Note Conversion, at the request of the Company, on February 17, 2016, Kien Huat and the Company entered into a letter agreement (the “Letter Agreement”) pursuant to which, during the period commencing on February 17, 2016 and ending on the earlier of (i) the three year anniversary of the closing of the January 2016 Rights Offering and (ii) the one year anniversary of the opening of the Casino Project, Kien Huat has agreed not to take certain actions with respect to the Company. In particular, during such time period, Kien Huat has agreed not to, and to cause its affiliates other than the Company or its subsidiaries (collectively with Kien Huat, “Kien Huat Parties”) not to, take certain actions in furtherance of a “going-private” transaction (as such term is defined in the Letter Agreement) involving the Company unless such transaction is subject to the approval of (x) holders of a majority of the votes represented by the common stock, Series B preferred stock and any other capital stock of the Company entitled to vote together with the common stock in the election of the board of directors (the “Board”) of the Company (other than any such capital stock owned by any Kien Huat Parties) and (x) either (A) a majority of disinterested members of the Board or (y) a committee of the Board composed of disinterested members of the Board. In addition, during such period, the Company and Kien Huat have agreed to cooperate to ensure that, to the greatest extent possible, the Board includes no fewer than three (3) independent directors (the definition of independence as determined under the standards of The Nasdaq Stock Market or any other securities exchange on which the common stock of the Company is then listed).


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Redemption of Outstanding Series E Preferred Stock
On March 7, 2016, the Company redeemed the outstanding Series E Preferred Stock held by the Bryanston Group for approximately $30.7 million pursuant to the terms of the Settlement Agreement.
Monticello Casino and Raceway
Monticello Casino and Raceway began racing operations in 1958 and currently features:
1,070 VLTs and 40 ETGs (collectively 1,110 VGMs);
year-round live harness horse racing;
year-round simulcast pari-mutuel wagering on thoroughbred and harness horse racing from around the world;
a 3,000-seat grandstand with retractable windows and a 100-seat clubhouse;
parking spaces for 2,000 cars and 10 buses;
a buffet and two outlet food court with seating capacity for up to 350 patrons;
a 3,800 square foot multi-functional space used for events;
a casino bar and an additional clubhouse bar; and
an entertainment lounge with seating for 75 patrons.
VGM Operations
We operate a 45,000 square foot VGM facility known as Monticello Casino and Raceway. Revenues derived from our VGM operations consist of VGM revenues and related food and beverage revenues. The VGMs are owned by the State of New York. By statute, from April 1, 2008 until March 31, 2016, 41% of gross VGM revenue is distributed to us. Unless the 2016-2017 State Budget, which we anticipate will be adopted by March 31, 2016, contains a provision to extend this share percentage of gross VGM revenue to March 31, 2017, effective as of April 1, 2016, 39% of gross VGM revenue will be distributed to us. Gross VGM revenues consist of the total amount wagered at our VGMs, less prizes awarded. The statute provides a marketing allowance for racetracks operating video lottery programs of 10% on the first $100 million of net revenues generated and 8% thereafter. Video lottery gaming shall only be permitted for no more than twenty consecutive hours per day and on no day shall such operation be conducted past 6:00 a.m.
VGM activities in the State of New York are overseen by the NYSGC.
Raceway Operations
We derive our racing revenue principally from:
wagering at Monticello Casino and Raceway on live races run at Monticello Casino and Raceway;
fees from wagering at out-of-state locations and internationally on races run at Monticello Casino and Raceway using export simulcasting;
revenue allocations, as prescribed by law, from betting activity at off-track betting facilities in the State of New York;
wagering at Monticello Casino and Raceway on races broadcast from out-of-state racetracks using import simulcasting; and
program and certain other ancillary activities.
Simulcasting
Import and, particularly, export simulcasting, are an important part of our business. Simulcasting is the process by which a live horse race held at one facility (the “host track”) is transmitted to another location that allows patrons of such other location to wager on that race. Amounts wagered at each off-track betting location are combined into the appropriate pools at the host track’s tote facility where the final odds and payouts are determined. With the exception of a few holidays, we offer year-round simulcast wagering from racetracks across the country. In addition, races of national interest, such as the Kentucky Derby, Preakness Stakes and Breeders’ Cup supplement our regular simulcast programming. We also export live broadcasts of our own races to race tracks, casinos and off-track betting facilities in the United States and internationally.


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On November 3, 2014, MRMI and the Monticello Harness Horsemen’s Association (the “MHHA") entered into an agreement that governs the conduct of MRMI and MHHA relating to horseracing purse payments, the simulcasting of horse races and certain other payments (the "2014 MHHA Agreement"). The 2014 MHHA Agreement had an initial term of two (2) years. However, because Montreign was awarded a Gaming Facility License, the 2014 MHHA Agreement was extended for an additional seven (7) years beginning on the date that the NYSGC approves the Casino Project to engage in legalized gaming. On that same date, MHHA will also receive 200,000 shares of Empire common stock and a warrant to purchase 60,000 shares of common stock, the proceeds of any sales of which will provide additional monies for the harness horsemen’s purse account.
Pari-mutuel Wagering
Our racing revenue is derived from pari-mutuel wagering at our track and government mandated revenue allocations from certain New York State off-track betting locations. In pari-mutuel wagering, patrons bet against each other rather than against the operator of the facility or with pre-set odds. The amounts wagered form a pool of funds from which winnings are paid based on odds determined by the wagering activity. The racetrack acts as a stakeholder for the wagering patrons and deducts from the amounts wagered a “take-out” or gross commission from which the racetrack pays state and county taxes and racing purses. Our pari-mutuel commission rates are fixed as a percentage of the total handle or amounts wagered.
Raceway Operations, Simulcasting and Pari-mutuel Wagering activities in the State of New York are overseen by the NYSGC.
Adelaar and Montreign Resort Casino
The Adelaar Project is to be located on approximately 1,700 acres (the “EPT Property”) owned by EPT Concord II, LLC (“EPT”) and EPR Concord II, L.P. (“EPR LP”), two wholly-owned subsidiaries of EPR Properties (“EPR”). Montreign Resort Casino is part of the initial phase of the Adelaar Project, which will also include an Indoor Waterpark Lodge (the "Waterpark"), Rees Jones redesigned “Monster” Golf Course (the “Golf Course”) and an Entertainment Village, which will include retail, restaurant, shopping and entertainment (the “Entertainment Village” and, together with the Casino Project, the Waterpark and the Golf Course, the “Initial Projects”). Although construction has commenced, over the past four years, the Company has expended substantial time and resources on designing Montreign Resort Casino and, in conjunction with EPR, working with local, state and federal agencies and officials to obtain the necessary permits and approvals for the construction of the Initial Projects.
Montreign Resort Casino
Montreign Resort Casino is designed to meet 5-star and 5-diamond standards and is expected to include:
A 90,000 square foot casino floor featuring 2,150 slot machines, 102 table games and a 14 – 16 table poker room (inclusive of the poker room and VIP and high-limit areas);
Designated VIP/high-limit areas within such gaming floor which will offer a minimum of 26 slot machines, 8 table games, and a player’s lounge offering food and beverage;
An 18 story hotel tower containing 332 luxury rooms (including at least eight 1,000 – 1,200 square foot garden suites, seven 1,800 square foot, two story townhouse villas, and 12 penthouse-level suites), indoor pools and fitness center;
A VIP floor containing 6 private VIP gaming salons, a private gaming cage, and butler service;
27,000 square feet of multi-purpose meeting and entertainment space with seating capacity for 1,300 people and a mezzanine level that includes the 14 -16 table poker room, access to outdoor terraces and approximately 7,000 square feet of meeting room space;
A 7,500 square foot spa located on the VIP level; and
Seven restaurants and four bars.
Gaming Facility License

The Gaming Facility License became effective on March 1, 2016. The Gaming Facility License will have an initial duration of ten years from the License Award Effective Date. It shall be renewable thereafter for a period of at least an

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additional ten years, as determined by the NYSGC. The Gaming Facility License is also subject to certain conditions established by the NYSGC, which conditions require Montreign, and any successors and assigns, to:
•     pay an aggregate license fee of $51 million within 30 days of the License Award Effective Date;
deposit via cash or bond 10% of the Minimum Capital Investment (as defined below) on the License Award Effective Date (the "Minimum Capital Investment Deposit");
invest, or cause to be invested, no less than approximately $854 million (the “Minimum Capital Investment”) in the development of the initial phase of Adelaar in accordance with the submitted plans for Montreign Resort Casino and Adelaar;
own or acquire, including by lease, the land where Montreign Resort Casino will be built within 60 days of the License Award Effective Date;
•     fulfill substantially the commitments and execute the submitted plans for Montreign Resort Casino and Adelaar;
commence gaming operations within 24 months following the License Award Effective Date upon the NYSGC’s approval to open Montreign Resort Casino for gaming following a determination that the submitted plans for Montreign Resort Casino has been substantially completed in accordance with the construction plans, specifications and timelines submitted by Montreign;
comply with Article 15-A of the Executive Law and minority and woman business enterprise requirements and regulations for Montreign Resort Casino capital projects;
take all reasonable steps to obtain and comply in all material respects with all permits and zoning approvals required for the initial phase of the Adelaar Project;
maintain and comply in all material respects with the terms and conditions of agreements relating to live entertainment agreements; project labor agreements; labor peace agreements; cross-marketing agreements with local partners; and affirmative action program agreements, with notice and a reasonable opportunity to cure any defects or failures to comply;
create a minimum of 1,425 full time jobs and 96 part time jobs and undertake to establish workforce development and affirmative action programs that conform, at a minimum to the programs submitted by Montreign that comply with applicable regulations;
undertake to establish a problem gambling program conforming, at a minimum, to the program submitted by Montreign that complies with applicable regulations;
within 30 days of the Award Date and thereafter on a quarterly basis, update the NYSGC on the status of certain litigation to which Montreign or certain entities and individuals that are required to be qualified by the NYSGC is a party;
comply with debt to equity ratios to be established by the NYSGC;
promptly inform the NYSGC of any declared default or any failure to meet any material payment of interest or principal when due under any existing or future debt;
provide written notification to the NYSGC if Montreign intends to refinance existing debt or incur additional capital debt of $50 million or more during any consecutive twelve-month period;
comply with NYSGC regulations concerning the submission of audited financial statements;
submit to the NYSGC at least 90 days prior to the anticipated opening date of Montreign Resort Casino and thereafter implement and maintain a plan to comply with the federal anti-money laundering statute and applicable regulations; and
apply for a casino alcoholic beverage license in accordance with applicable regulations.

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Golf Course and Entertainment Village

Our subsidiaries are responsible for the development and construction of the Golf Course and the Entertainment Village. The development of the Entertainment Village is expected to be built-out in phases with the initial phase being approximately 50,000 square feet. If full build-out occurs, the Entertainment Village will be approximately 150,000 - 200,000 square feet, depending on market demand. We have agreed to invest a minimum of $15 million in the development and construction of the Golf Course and $25 million in the development and construction of the Entertainment Village. The Company is currently preparing the design plans for the Entertainment Village. The redesign of the Golf Course has been approved by the Company and construction work has begun.
Master Development Agreement and Completion Guaranties

On December 28, 2015 (the “MDA Effective Date”), Montreign, Empire Resorts Real Estate I, LLC (“GC Tenant”) and Empire Resorts Real Estate II LLC (“EV Tenant," and together with Montreign and GC Tenant, the “Project Parties”), each a wholly-owned subsidiary of the Company, on the one hand, and EPT, EPR LP and Adelaar Developer, LLC (“Adelaar Developer,” together with EPT and EPR LP collectively, “EPR”), on the other hand, entered into an Amended and Restated Master Development Agreement (as amended, the “MDA”), which amends and restates that certain master development agreement by and between EPT and MRMI originally executed on December 14, 2012. The MDA defines and governs the overall relationship between EPR and the Project Parties with respect to the development, construction, operation, management and disposition of Adelaar. The MDA generally provides that the development of Adelaar will comply with all requirements set forth in the Gaming Facility License. The term of the MDA, as amended, commenced on the MDA Effective Date and, with the exception of certain provisions relating to the operation of the facilities which survive for the term of the Gaming Facility License, shall expire on the earlier to occur of the (i) the completion and opening to the general public for business of the Initial Projects and (ii) sooner termination pursuant to the terms of the MDA, as described below.

In accordance with the terms of the MDA, the Project Parties shall each be responsible for the development and construction of their portion of the Initial Projects. Montreign is responsible for the Casino Project, GC Tenant is responsible for the Golf Course and EV Tenant is responsible for the Entertainment Village. The Project Parties have agreed to invest a minimum of $611 million in the development and construction of the Casino Project, $15 million in the development and construction of the Golf Course and $25 million in the development and construction of the Entertainment Village. The Project Parties have agreed to construct the Casino Project, Golf Course and Entertainment Village such that each project is completed within the project schedule agreed to by the parties (the “Project Schedule”). During the term of the Gaming Facility License, the Project Parties will be responsible for maintaining and operating the Casino Project, Golf Course and Entertainment Village in material compliance with all requirements set forth in the Gaming Facility License. In connection with the MDA, on December 28, 2015, Empire entered into a Completion Guaranty, guaranteeing completion of the development and construction obligations of the Project Parties described in this paragraph.

In accordance with the terms of the MDA, EPR is responsible for the development and construction of the Waterpark and the common infrastructure-related improvements (such as streets, sidewalks, sanitary and storm sewer lines, water, gas, electric, telephone and other utility lines, systems, conduits and other similar facilities) that are required to be constructed to enable the Initial Projects to be open and fully operational in accordance with the Project Schedule (the “Infrastructure”). EPR has agreed to be responsible for the development and construction of the Waterpark with a minimum capital investment of $120 million, and the Infrastructure. EPR plans to finance the costs of the Infrastructure through tax exempt bonds issued by a local development corporation. The debt service for the Infrastructure Bonds will be funded through special district tax assessments, a portion of which will be allocated to the Empire Project Parcels (as defined below). EPR and the Project Parties have agreed to a capped dollar amount for each of the Empire Project Parcels (the “Empire Cap”) above which the Project Parties shall not be responsible. Furthermore, EPR has agreed to construct the Waterpark and the Infrastructure in accordance with the Project Schedule. On December 28, 2015, EPR Properties, a real estate investment trust and the parent company of EPR, entered into a Completion Guaranty, guaranteeing completion of the development and construction obligations of EPR described in this paragraph.

Neither party has the right to terminate the MDA unless both (a) the Casino Lease (as defined below) terminates prior to the Commencement Date (defined below) in accordance with its terms and (b) Montreign fails to exercise the Purchase Option (as defined below) prior to its expiration in accordance with the terms and conditions of the Purchase Option Agreement (as defined below).


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Empire Project Parcel Leases and Purchase Option Agreement

On December 21, 2011, MRMI entered into an option agreement with EPT, which was last amended by a letter agreement dated June 20, 2014, between EPT and MRMI (as amended, the “Option Agreement”). Pursuant to the Option Agreement, EPT granted us a sole and exclusive option (the “Option”) to lease the parcel on which Montreign Resort Casino would be built (the "Casino Parcel") pursuant to the terms of a form of casino lease negotiated between the parties. Among other things, the Option Agreement also reflected the parties' agreement of when the Company must decide whether it would lease the Casino Parcel for purposes of constructing the Casino Project. The Option Agreement also provided the Company the ability to extend the date by which it would be required to make that decision in consideration for monthly option payments (the "Option Payments") that increased every twelve months. The Company made Option Payments to EPT of $750,000 and $472,603, on December 21, 2011 and March 8, 2013, respectively. In September 2013, the Board of Directors of EPT acted to provide an irrevocable notice to proceed with the development of the Casino Parcel and the Company's Board of Directors acted to waive the Company's right to terminate the MDA. As a result, pursuant to the terms of the Option Agreement, the aggregate Option Payments of $1,222,603 made prior to September 2013 became non-refundable. In addition to the $1,222,603 paid prior to September 2013, we made additional Option Payments of approximately $3.1 million and approximately $4.6 million in 2014 and 2015, respectively. The Option Agreement also granted the Company the option to purchase the Casino Parcel, together with the other property owned by EPT at the site of the former Concord Resort at the purchase prices described in the Option Agreement.

On September 3, 2015, MRMI and EPT entered into a non-binding term sheet (the “Term Sheet”) reflecting general terms of a proposed amendment to the Option Agreement. The Term Sheet contemplated, among other things, amendments to the Option Agreement that would require MRMI and/or its affiliates to lease the parcels containing the Golf Course (the "Golf Course Parcel") and Entertainment Village (the "Entertainment Village Parcel" and, together with the Casino Parcel and the Golf Course Parcel, the "Empire Project Parcels") in addition to the Casino Project Parcel. The Term Sheet also contemplates a separate purchase option agreement granting MRMI and/or its affiliates the right to purchase all three, but not less than all three, of the Empire Project Parcels. As a result, on December 28, 2015, the Project Parties entered into the Casino Lease, the Golf Course Lease, the Entertainment Village Lease (as these terms are defined below), each of which is substantially similar to the form of casino lease attached to the Option Agreement, and the Purchase Option Agreement (each as defined and described below), which collectively supersede the Option Agreement. In addition, the Option Payments made by the Company pursuant to the Option Agreement, which aggregate to a total of $8.5 million, shall be applied against rent amounts due to EPT as rent under the Casino Lease as more fully described below.

Casino Lease

On December 28, 2015, Montreign entered into a lease (the “Casino Lease”) with EPT for the lease of the Casino Parcel. The Casino Lease has a term that expires on the earlier of: (i) March 31, 2086, and (ii) upon Montreign giving EPT written notice of its election to terminate the Casino Lease (the “Termination Option”) at least twelve (12) months prior to any one of five Option Dates (as defined below). The option dates (each an "Option Date") under the Casino Lease mean each of the twentieth (20th), thirtieth (30th), fortieth (40th), fiftieth (50th) and sixtieth (60th) anniversaries of the commencement of the Casino Lease. Upon Montreign's timely notice of exercise of its Termination Option, the Casino Lease shall be automatically terminated effective as of the applicable Option Date.

The annual fixed rent payments under the Casino Lease are as follows: (i) prior to March 1, 2016, Montreign's sole rent obligation under the Casino Lease was to continue making the same payments it would have made under the Option Agreement; (ii) for the first year following March 1, 2016, certain prior payments made under the Option Agreement will be deemed to satisfy all rental obligations under the Casino Lease during this period and so Montreign will have no rental payments due; (iii) beginning March 2017 and continuing through August 2018, annual fixed rent shall equal $1 million per month; and (iv) beginning September 2018 and through the remainder of the term of the Casino Lease (the “Percentage Rent Period”), annual fixed rent shall equal $7.5 million. The annual fixed rent will escalate every five years by eight percent (8%). Montreign is also obligated to pay an annual percentage rent equal to five percent (5%) of the Eligible Gaming Revenue (as such term is defined in the Casino Lease) for the Percentage Rent Period. Additionally, Montreign has an obligation to pay the special district tax assessment allocated to the Casino Parcel, not to exceed the capped dollar amount applicable to the Casino Parcel.

Pursuant to the Casino Lease, Montreign is permitted to use the leased premises solely as a regional destination casino resort, consisting of gaming operations, and the management and operations of all functions as may be necessary or appropriate to conduct the gaming operations. In addition, both EPT and Montreign are required to be in compliance with requirements of gaming authorities and if applicable, other governmental authorities related to the Gaming License and operation of the leased premises. In the event that Montreign is prevented from conducting gaming operations on the Casino Parcel solely due to a failure of the Waterpark Project to materially comply with the Gaming Facility License requirements, Montreign will be

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entitled to an abatement of annual fixed rent, percentage rent and all other amounts due until the earlier of the date when Montreign is permitted to conduct gaming operations or 30 days following the date Montreign takes over the operations of the Waterpark Project. Montreign is also required to provide EPT with various periodic financial statements and additional information upon EPT’s request.

In the event that EPT desires to sell, transfer, or assign its interests in the Casino Parcel and/or the Casino Lease to a competitor of Montreign (a “Competitor Transfer”), Montreign has the right to exercise its Purchase Option (as defined in the Purchase Option Agreement) solely with respect to the Casino Parcel, in accordance with the terms and conditions of the Purchase Option Agreement at any time following EPT’s delivery of a written notice (“Competitor Transfer Notice”) of no less than 30 days prior to the consummation of the Competitor Transfer and for as long as a competitor is the landlord under the Casino Lease. If Montreign delivers the Buyer’s Purchase Notice (as defined in the Option Purchase Agreement) within 15 days following the delivery of the Competitor Transfer Notice, EPT will be prohibited from consummating the Competitor Transfer and Montreign will acquire the Casino Parcel in accordance with the terms of the Purchase Option Agreement.

The Casino Lease also contains customary provisions allowing the Landlord to terminate the Lease if Montreign fails to remedy a breach of any of its obligations within specified time periods, or upon bankruptcy or insolvency of Montreign or abandonment by Montreign of the leased property for certain period of time.

Golf Course Lease

On December 28, 2015, GC Tenant entered into a sublease (the “Golf Course Lease”) with Adelaar Developer for the lease of the Golf Course Parcel. The terms of the Golf Course Lease are substantially similar to the Casino Lease, subject to the following material differences: (a) there is no percentage rent under the Golf Course Lease, and annual fixed rent is equal to: (i) $0 prior to the date the Golf Course opens for business to the public (the “Golf Course Opening Date”), (ii) $150,000 for the first ten years following the Golf Course Opening Date, and (iii) $250,000 thereafter for the remainder of the term of the Golf Course Lease, plus GC Tenant’s portion of the special district tax assessments relating to the Infrastructure up to the capped amount applicable to the Golf Course Parcel, which shall not be assessed against GC Tenant prior to 60 months following the Commencement Date; (b) the Golf Course Lease does not contain any affirmative financial reporting obligations of GC Tenant or an operating covenant of GC Tenant beyond compliance with the Gaming License and other statutory regulations, as required for Montreign to maintain its Gaming License; and (c) an event of default under the Casino Lease triggers an event of default under the Golf Course Lease (but not vice versa) so long as GC Tenant is an affiliate of Montreign.

Entertainment Village Lease

On December 28, 2015, EV Tenant entered into a sublease (the “Entertainment Village Lease”) with Adelaar Developer, for the lease of the Entertainment Village Parcel. The terms of the Entertainment Village Lease are substantially similar to the Casino Lease, subject to the following material differences: (a) there is no percentage rent under the Entertainment Village Lease, and annual fixed rent is equal to: (i) $0 prior to the date any portion of entertainment village first opens for business to the public (the “EV Opening Date”), (ii) $150,000 for the first ten years following the EV Opening Date, and (iii) $250,000.00 thereafter for the remainder of the term of the Entertainment Village Lease, plus EV Tenant’s portion of the special district tax assessments relating to the Infrastructure up to the capped amount applicable to the Entertainment Village Parcel, which shall not be assessed prior to 60 months following the Commencement Date; (b) the Entertainment Village Lease does not contain any financial reporting obligations of EV Tenant or an operating covenant of EV Tenant beyond compliance with the Gaming License and other statutory regulations, as required for Montreign to maintain its Gaming License; and (c) an event of default under the Casino Lease triggers an event of default under the Entertainment Village Lease (but not vice versa) so long as EV Tenant is an affiliate of Montreign.

Purchase Option Agreement

On December 28, 2015, Montreign and EPR entered into a Purchase Option Agreement (the “Purchase Option Agreement”), pursuant to which EPR granted to Montreign the option (the “Purchase Option”) to purchase all, but not fewer than all, of the Empire Project Parcels for a purchase price of $175 million ($200 million after the sixth anniversary of the License Award Effective Date), less a credit of up to $25 million for certain previous payments made by the Project Parties.
The Purchase Option commenced on December 28, 2015 and shall expire on the earlier to occur of (i) the natural expiration of the term of the Casino Lease and (ii) 90 days following the earlier termination of the Casino Lease, if otherwise terminated in accordance with its terms (the “Purchase Option Period”).

Under the Purchase Option Agreement, EPR also granted to Montreign the option (the “Resort Project Purchase Option”) to purchase not less than all of the balance of the EPR Property, excluding the Empire Project Parcels and the Waterpark (the

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“Resort Property”) for an additional fee. The Resort Project Purchase Option may be exercised only simultaneously with or after the exercise of the Purchase Option. The Resort Project Purchase Option commenced on December 28, 2015, and shall expire on the earlier to occur of (a) the expiration of the Purchase Option Period or (b) March 1, 2026.

Under the Purchase Option Agreement, EPR also granted to Montreign a right of first offer (“ROFO”) with respect to all or any portion of the Resort Property. Under the terms of the ROFO, if EPR makes an offer to or rejects an offer made by Montreign then EPR shall be precluded for a period of six months from transferring the designated portion of the Resort Property at a price and on terms which are on the whole substantially equivalent to or worse than those proposed or accepted by Montreign. The ROFO commenced on December 28, 2015 and shall continue in full force and effect until EPR has sold, leased, licensed or otherwise transferred all of the Resort Property.

JCJ Architecture

Montreign has entered into a professional services agreement with JCJ Architecture PC, which is a standard architectural agreement, with normal and customary terms, and addresses, among other things, architectural services, dates of completion of the Casino Project and minority and woman owned business enterprise ("MWBE") participation in the Casino Project.

LP Ciminelli

Montreign has entered into a construction manager agreement with LP Ciminelli, Inc., which is a standard construction manager agreement, with normal and customary terms, and addresses, among other things, the guaranteed maximum price of approximately $511 million for the Casino Project, completion commitments and MWBE participation in the Casino Project. 

Regulation
VGM and Racing Operations
Our VGM and harness horseracing and simulcast operations are overseen by the NYSGC. The legislation that created the NYSGC provides that the Board of the NYSGC shall consist of seven members. The NYSGC has the authority and responsibility to promulgate rules and regulations that affect the operations of our business. Our VGM, harness horseracing and simulcast activities in the State of New York are overseen by the NYSGC, Division of Lottery and Division of Horse Racing, respectively.

In addition to receiving 41% of our VGM revenue from our operations at Monticello Casino and Raceway through March 31, 2016, the law provides for a subsidized free play allowance of 15%.
Casino Gaming
The Upstate New York Gaming and Economic Development Act ("Gaming Act"), among other things, provides the statutory framework for the regulation of full-scale casino gaming. The Gaming Act authorizes the NYSGC to award up to four (4) Gaming Facility Licenses. Gaming Facilities are authorized in three (3) regions of the state: the Columbia, Delaware, Dutchess, Greene, Orange, Sullivan and Ulster counties, which is referred to as the "Hudson Valley-Catskills Area" and in which we are located; the Albany, Fulton, Montgomery, Rensselaer, Saratoga, Schenectady, Schoharie and Washington counties (the "Capital Region"); and the Broome, Chemung (east of State Route 14), Schuyler (east of State Route 14), Seneca, Tioga, Tompkins, and Wayne (east of State Route 14) counties (the "Finger Lakes Region"). Up to two (2) Gaming Facilities can be located in any of the three (3) regions. The Gaming Act provides that no Gaming Facilities shall be authorized in Bronx, Kings, New York, Queens or Richmond counties. The state may, however, legislatively authorize additional gaming facility licenses.
Further, the Gaming Act authorizes Nassau Off-Track Betting Corporation ("Nassau OTB") and Suffolk Regional Off-Track Betting Corporation ("Suffolk OTB") to file video lottery gaming license applications to establish one (1) VGM facility each, at an Off-Track Betting site operated by Nassau OTB and Suffolk OTB respectively, with a maximum of 1,000 VGMs at each site.
In accordance with the Gaming Act, the Siting Board was charged with selecting applicants qualified to receive a Gaming Facility License and determining the location of such Gaming Facilities. On December 17, 2014, the Siting Board selected one applicant in each region. On October 14, 2015, the Siting Board selected an additional applicant for the Finger Lakes Region. On December 21, 2015, the NYSGC granted three Gaming Facilities Licenses, of which we received the license for the Hudson Valley-Catskills Area, and one license was granted in each of the Capital Region and the Finger Lakes Region. The additional Gaming Facility License for the Finger Lakes Region is pending with the NYSGC. There will be a seven (7) year exclusivity

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period for holders of Gaming Facility Licenses, commencing with the License Award Effective Date, during which no further Gaming Facilities will be licensed by the NYSGC. If the Legislature authorizes additional Gaming Facility Licenses within this period, licensees shall have the right to recover a pro-rata portion of the license fee paid.
In connection with the Company's application for a Gaming Facility License in response to the Siting Board's Request for Application (the "RFA"), we paid to the NYSGC an application fee of $1 million ("Application Fee") to help defray the costs associated with the processing and investigation of our application. However, if the costs of processing, investigation and related costs exceed the Application Fee, we shall be required to pay the additional amount to the NYSGC within thirty (30) days after notification of insufficient fees. If the investigation costs are below the amount of the Application Fee paid, any unexpended portion shall be returned to us.
On March 1, 2016, the Minimum Capital Investment Deposit, in the aggregate amount of $85.4 million, was made. Montreign's portion of the Minimum Capital Investment Deposit was made in the form of a deposit bond representing approximately $65 million, which is 10% of the Company's Minimum Capital Investment in the Casino Project, Golf Course and Entertainment Village and EPR's portion was made in the form of a deposit bond representing approximately $20 million, which is 10% of their Minimum Capital Investment in the Infrastructure and the Waterpark. We are required to pay the minimum licensing fee within thirty (30) days of the License Award Effective Date, which in our case is $51 million. The development of the Casino Project and Adelaar and the maintenance of our Gaming Facility License is subject to the conditions of the Gaming Facility License established by the NYSGC. The NYSGC will oversee regulation of our casino gaming operations when Montreign Resort Casino opens for business.

The tax rate on slot machines at Montreign Resort Casino will be 39% and the tax rate on table games will be 10%. The tax rate on VGM operations at Monticello Casino and Raceway will remain at the existing NYSGC commission rate and is expected to include an additional commission from NYSGC based on a rate related to the effective tax rate on all gross gaming revenue at the Gaming Facility developed by Montreign. Existing payments to the racing industry for purses and breeding will be maintained. The minimum gambling age for Montreign Resort Casino will be 21, and no smoking will be authorized.
The Gaming Act imposes a $500 annual fee on each slot machine and table game. In addition, the Gaming Act requires the maintenance of the horsemen and breeder payments at the 2013 dollar level to be adjusted annually pursuant to changes in the consumer price index.

Regulatory Permits and Approvals Relating to Adelaar

Town of Thompson

In January, 2013, the Town Board of the Town of Thompson, in which the EPT Property is located, unanimously approved certain zoning amendments necessary for the development of the Adelaar Project and the Comprehensive Development Plan for the entire project site. Moreover, in July 2013, the Planning Board granted final site plan approval for the Casino Project. On April 17, 2014, an application for a Minor Amendment to the Site Development Plan Approval for the Casino Project was made to the Planning Board. The Minor Site Plan Amendment included a minor design change, and an increase in the number of hotel rooms and additional parking for the Casino Project. By Resolution dated June 3, 2014, the Town Board determined that no further environmental review under the State Environmental Quality Review Act ("SEQRA") was required in connection with the proposed Minor Site Plan Amendment and issued a Negative Declaration of Environmental Significance. The Planning Board approved the Minor Site Plan Amendment by Resolution dated June 11, 2014. On August 13, 2014, the Planning Board adopted a resolution approving the Final Subdivision Plot for the Adelaar Project and the Casino Project parcels. On January 5, 2015, the New York State Department of Environmental Conservation issued a Freshwater Wetlands Permit, Stream Disturbance Permit and Water Quality Certification authorizing disturbances to certain state regulated wetlands and stream corridors necessary to facilitate the development. On January 6, 2015, the Town issued a local building department permit authorizing the removal of certain trees necessary to facilitate the development. On February 20, 2015, the U.S. Army Corps of Engineers issued a Wetlands Permit authorizing discharges to certain federally regulated wetlands on the EPT Property.

On June 3, 2015, the Company, as co-Applicant, submitted to the Planning Board an application for a minor amendment to the final site plan approval for the Casino Project reflecting certain changes to the Casino Project (the “Proposed Amendment”). By Resolution dated July 21, 2015, the Town Board determined that no further environmental review under SEQRA was required in connection with the Proposed Amendment and issued a Negative Declaration of Environmental Significance. The Planning Board approved the Proposed Amendment by Resolution dated July 22, 2015. Also on July 22, 2015, the Planning Board adopted a resolution granting Preliminary Site Plan Approval for the Golf Course. The Company anticipates submitting

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an application for Final Site Plan Approval for the Golf Course in the coming months. The Company further anticipates submitting an application for Final Site Plan Approval for the Entertainment Village upon finalization of design details and specific environmental impacts of the Entertainment Village will be reviewed concurrent with the application for Final Site Plan Approval.

County of Sullivan Industrial Development Agency

On March 19, 2013, the County of Sullivan Industrial Development Agency ("IDA") approved a Resolution (1) taking official action authorizing the issuance of revenue bonds to enable the Company to use the industrial development revenue bonds for the financing of the Casino Project; (2) appointing the Company as IDA's agent to undertake the Casino Project; and (3) describing the forms of financial assistance being contemplated by the IDA to include: (i) an exemption from New York State ("State") and local sales and use taxes with respect to certain items used in, or for the acquisition, construction and
equipping of, the Casino Project (the "Tax Benefit"), (ii) the grant of one or more mortgage liens on IDA's interest in the Casino Project to secure the bonds and/or any other indebtedness incurred by or for the benefit of the Company in connection with the Casino Project, which Mortgages would be exempt from all mortgage recording taxes imposed in the State and (iii) a partial (or full) real property tax abatement over sixteen (16) years. In connection with the IDA application, the benefit of the exemption from the mortgage recording taxes imposed in the State was estimated to be $1.1 million, and the partial (or full) real property tax abatement was estimated to be $126 million over sixteen (16) years. The benefit of the exemption from the mortgage recording taxes will be based upon the mortgage amount and the amount of the real property tax abatement will be based upon a formula that considers the assessed value determined by the Town. Fees for the utilization of the bonds and other financial assistance would be paid by the Company to the IDA. In September 2014, MRMI, Montreign, and the IDA entered into agreements providing certain financial benefits for the acquisition, construction and financing of the Casino Project consistent with the IDA’s Destination Resort Program policy. The IDA authorized the execution of these agreements pursuant to a resolution adopted on September 3, 2014. Consistent with the IDA resolution, the IDA, MRMI and Montreign executed an Agent Agreement, Lease Agreement, Leaseback Agreement, payment in lieu of tax ("PILOT") Agreement, and related documents, (together the "IDA Documents") which will become effective upon certain conditions, including the awarding of a Gaming Facility License to Montreign.

On May 26, 2015, the IDA took action to allow the Company to obtain the Tax Benefit with respect to its eligible Casino Project expenses immediately. In connection with this authorization, the Company paid to the IDA an administrative fee of $150,000 and was permitted to defer an escrow payment in the amount of $100,000 until a building permit for the construction of the Casino Project is issued.

On August 14, 2015, the Company applied to the IDA to increase the Tax Benefit as a result of the Proposed Changes. On September 18, 2015, the IDA adopted a Resolution approving (i) an increase in the Tax Benefit from approximately $15 million so that such benefit does not exceed $35 million; (ii) a proportionate increase in the annual rent to the IDA to $166,000; (iii) an increase in the Total Value Subject to PILOT from $53.5 million to $65 million; and (iv) a proportionate increase in the IDA transaction fee by $82,500, subject to the issuance of a Gaming Facility License. The Company and the IDA entered into and amended, as required, the IDA Documents consistent with the IDA Resolution as a result of the Proposed Changes.
Competition

Monticello Casino and Raceway

Our gaming operations are located in the Catskills region in the State of New York, which has historically been a resort area, although its popularity declined with the growth of destinations such as Atlantic City and Las Vegas. We are located approximately ninety (90) miles northwest of New York City. Specifically, Monticello Casino and Raceway is directly adjacent to New York State Route 17 (the future Interstate 86), has highly visible signage and convenient access, and is less than 1,000 feet from the highway’s exit. There are approximately 17.5 million adults who live within 100 miles of the Catskills area. Pursuant to information from the US Census Bureau, in Sullivan County, the median household income from 2009 to 2013 was approximately $48,000.

Racing Competition

Generally, Monticello Casino and Raceway does not compete directly with other harness racing tracks in New York State for live racing patrons. However, Monticello Casino and Raceway does face intense competition for off-track and other legalized wagering at numerous gaming sites within the State of New York and the surrounding region. The inability to compete with larger purses for the races at Monticello Casino and Raceway and the limitation on other forms of legalized

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wagering that Monticello Casino and Raceway may offer has been a significant limitation on our ability to compete for off-track and other legalized wagering revenues. Moreover, our inability to simulcast races to and from facilities outside of New York State, between February 1st and July 20th of 2014 because we did not have a horsemen's agreement in place with MHHA and delays in reinstating the interstate simulcasting after such suspension, adversely impacted our racing operations revenues in 2014 and continues to negatively impact racing revenues even though we are now able to engage in the interstate simulcasting of races.

New York

In New York, we face competition for guests from Orange, Duchess and Ulster Counties for our VGM operation from a VGM facility at Yonkers Raceway, located within the New York City metropolitan area. Yonkers Raceway has a harness horse racing facility, approximately 5,300 VGMs, food and beverage outlets and other amenities. We may face further competition because the Gaming Act authorizes Nassau Off-Track Betting Corporation ("Nassau OTB") and Suffolk Regional Off-Track Betting Corporation ("Suffolk OTB") to file video lottery gaming license applications to establish one (1) VGM facility each, at an Off-Track Betting site operated by Nassau OTB and Suffolk OTB respectively, with a maximum of 1,000 VGMs at each site.

New York legislators have introduced bills related to Internet gaming and Internet poker. We are unable to determine whether and which, if any, legislation will be enacted and what effect it would have on our current operations.

Pennsylvania

To a lesser extent, Monticello Casino and Raceway faces competition from two (2) casinos that are in Pennsylvania. Pennsylvania casinos may operate table games and slot machines, have the ability to grant credit to guests of the casino and have access to unlimited non-taxable free play. Pennsylvania legalized the operation of up to 61,000 slot machines at fourteen (14) locations throughout the state. As of March 3, 2016, there were twelve (12) casinos in operation within Pennsylvania, with six (6) located at racetracks. One such racetrack facility is Mohegan Sun at Pocono Downs, which has approximately 2,332 slot machines and 91 table games, including 18 poker tables, and a hotel and spa. The Mohegan Sun at Pocono Downs in Wilkes-Barre, Pennsylvania, is approximately seventy (70) miles southwest of Monticello. In addition, the Mount Airy Casino Resort has approximately 1,868 slot machines and 81 table games, including 8 poker tables, a hotel, spa and a golf course. Mount Airy Casino Resort is located in Mount Pocono, Pennsylvania, approximately sixty (60) miles southwest of Monticello. The Pennsylvania Gaming Control Board ("PGCB") selected Stadium Casino, LLC to be awarded the thirteenth (13th) license for a casino to be located in Philadelphia, PA.

Pennsylvania legislators have introduced bills related to Internet gaming and the conduct of lottery on the Internet. Such bills have been referred to committees. We are unable to determine whether and which, if any, legislation will be enacted and what effect it would have on our current operations.

New Jersey

From time to time, New Jersey has reviewed options to place slot machines in various locations, including the Meadowlands Racetrack located in Bergen County, New Jersey. Currently no slot machines or legalized full-scale casino gambling is permitted at the privately-operated Meadowlands Racetrack. It is possible that a referendum will be placed on the ballot in November 2016 to enable voters to vote whether or not to amend the New Jersey State Constitution to permit two casinos in northern New Jersey. Depending on the size, location and scope and gaming tax rate, if casinos are built in northern New Jersey, they may adversely impact our current operations and the prospects for the Casino Project.
In November 2011, the voters in New Jersey approved a constitutional amendment permitting the Legislature to authorize by law wagering at casinos in Atlantic City and at current or former racetracks, on the results of professional, certain college, and amateur sport and athletic events. There is legislation that would allow the state Casino Control Commission to issue licenses to casinos and racetracks to accept bets on some professional and collegiate events. However, there is ongoing litigation regarding whether under federal law New Jersey racetracks and casinos can accept such sports wagers. We are uncertain if legalized sports wagering in New Jersey would have an impact on our current or future operations.
New Jersey law permits Atlantic City casinos to conduct Internet gaming by accepting wagers from individuals who are physically present in New Jersey and provides that such wagers may be accepted from individuals who are not physically present in New Jersey if the Division of Gaming Enforcement ("DGE") determines that such wagering is not inconsistent with federal law or the law of the jurisdiction, including any foreign nation, in which any such person is located. Additionally, mobile gaming is permitted in any area located within the property boundaries of a casino hotel facility, including any

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recreation or swimming pool and excluding parking garages and parking areas. Further, New Jersey law permits racetrack customers to place bets on live or simulcast racing while they are on racetrack property, including the restaurants and outdoor areas, such as the paddock.

On October 14, 2014, the DGE issued a statement in which it said that the DGE "is currently authorized to approve skill-based games and is eager to receive skill-based game submissions for review. Social and skill-based gaming options such as Candy Crush and Words with Friends type games appeal to a new generation of players. Both the casino regulators and industry are trying to find ways to incorporate this type of play into the casino wagering environment." The DGE said that the law would permit the DGE to test such games and, if approved, permit them to be placed on casino floors within 14 days.

Other Gaming

Currently electronic gaming machines are operated in thirty-nine (39) states and there are fifteen (15) states with commercial casinos that also offer table games. Legislation permitting other forms of casino gaming is proposed, from time to time, in various states, including those bordering the State of New York. Our business could be adversely affected by such competition.

The expansion of gaming into Pennsylvania, Maryland and Massachusetts substantially increased the availability of gaming options into jurisdictions in the northeastern United States that did not previously have legalized casinos. These jurisdictional expansions, many of which are convenience gaming facilities as opposed to destination gaming facilities, resulted in an increased supply of gaming options without a corresponding matching increase in gaming revenues. Additionally, there is the possibility of future gaming opportunities in northern New Jersey near the New York border. Therefore, these current and future gaming operations may have an adverse financial and operational impact on our current property and our proposed Casino Project.
In December 2011, the United States Department of Justice (“Department”) confirmed the reversal of a long-standing precedent that applied a 1961 federal gambling law to Internet gambling. The Wire Act, 18 U.S.C § 1084, et. seq., prevents wagers from taking place over phone lines. Deputy Attorney General James Cole wrote in a letter to William J. Murray, then Deputy Director and General Counsel for New York Lottery, “The Department’s Office of Legal Counsel (‘OLC’) has analyzed the scope of the Wire Act, 18 U.S.C § 1084, and concluded that it is limited only to sports betting.” We are uncertain if the Department’s position would have any effect on our operations.
Employees
As of March 3, 2016, the Company employed approximately 277 people.
Website Access
Our website address is www.empireresorts.com. Our filings with the Securities and Exchange Commission are available at no cost on our website as soon as practicable after the filing of such reports with the Securities and Exchange Commission.
Item 1A.
Risk Factors.

In addition to the other information contained in this report on Form 10-K, the following Risk Factors should be considered carefully in evaluating our business. If any of the following risks actually occur, our business, financial condition and results of operations could be materially and adversely affected.
Risks Relating to our Business
The development of Montreign Resort Casino, the Golf Course and Entertainment Village require additional equity capital and debt financing.  If the Company is unable to raise the additional financing needed to complete these projects, the Company’s business will be materially adversely affected.
The development of Montreign Resort Casino, the Golf Course and the Entertainment Village require additional equity capital and debt financing. We have received a commitment to participate in, and backstop, the Follow-On Rights Offering in the amount of $35 million, from Kien Huat. In addition, the CS Commitment Letter provides a commitment from Credit Suisse to provide debt financing in the amount of up to $545 million. We will need to complete both the additional equity and debt financings in order to complete the development of the Development Projects. If we are unable to obtain the necessary financing on terms and conditions acceptable to the Company, whether pursuant to the Follow-on Rights Offering and the CS Commitment Letter, or other sources of financing, our business, financial condition and prospects will be materially adversely affected.

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If revenues and operating income from our operations at Monticello Casino and Raceway do not increase, it could adversely affect our financial performance.
There can be no assurance that our current operations will draw sufficient patrons to Monticello Casino and Raceway to increase our revenues to the point that we will recognize net income. The operations and placement of our VGMs, including the layout and distribution, are under the jurisdiction of the NYSGC and the program contemplates that a significant share of the responsibility for marketing the program will be borne by the NYSGC. The NYSGC is not required to make decisions that we feel are in our best interest and, as a consequence, the profitability of our VGM operations may not reach the levels that we believe to be feasible or may be slower than expected in reaching those levels. By statute, from April 1, 2008 until March 31, 2016, 41% of gross VGM revenue is distributed to us. Unless the 2016-2017 State Budget, which we anticipate will be adopted before March 31, 2016, contains a provision to extend this share percentage of gross VGM revenue to March 31, 2017, effective as of April 1, 2016, only 39% of gross VGM revenue will be distributed to us beginning on April 1, 2016. No assurance can be given that such revenue will be sufficient to generate a profit or continue to do so. Our operations are subject to many regulatory, competitive, economic and business risks beyond our control, and a change in this regard could have a material adverse impact on our operations and our business prospects.
As a holding company, we are dependent on the operations of our subsidiary, MRMI, to pay dividends or make distributions in order to generate internal cash flow. Moreover, until the development of the Casino Project and portions of Adelaar are complete, our subsidiaries involved in such development will generate no revenue, which will adversely impact our cash flow.
We are a holding company with no revenue generating operations. In addition, three of our subsidiaries are involved in the development of the Casino Project and portions of Adelaar and will generate no revenues or cash flow until the completion of such projects. Consequently, our ability to meet our working capital requirements and to service our debt obligations depends on the earnings and the distribution of funds from our sole operating subsidiary, MRMI. While our current operations generate sufficient cash flow to fund our current obligations, there can be no assurance that MRMI will generate sufficient revenue to make cash distributions in an amount necessary for us to satisfy our working capital requirements or our obligations under any current or future indebtedness. In addition, MRMI or any other subsidiary may enter into contracts that limit or prohibit its ability to make distributions. Should our subsidiaries be unable to make distributions, our ability to meet our ongoing obligations would be jeopardized. Specifically, without the making of distributions, we would be unable to pay our employees, accounting professionals or legal professionals, all of whom we rely on to manage our operations, ensure regulatory compliance and sustain our public company status.
Changes in the laws, regulations, and ordinances (including local laws) to which the gaming industry is subject, and the application or interpretation of existing laws and regulations, or our inability or the inability of our subsidiaries, key personnel, significant stockholders, or joint venture partners to obtain or maintain required gaming regulatory licenses, permits or approvals could prevent us from pursuing future development projects or otherwise adversely impact our results of operation.
The ownership, management and operation of our current and any future gaming facilities are and will be subject to extensive federal, state, provincial, and/or local laws, regulations and ordinances that are administered by the relevant regulatory agency or agencies in each jurisdiction. These laws, regulations and ordinances vary from jurisdiction to jurisdiction, but generally concern the responsibilities, financial stability and character of the owners and managers of gaming operations as well as persons financially interested or involved in gaming operations, and often require such parties to obtain certain licenses, permits and approvals. In addition, some of the licenses that we and our subsidiaries, officers, directors and principal stockholders hold expire after a relatively short period and thus require frequent renewals and reevaluations. Obtaining these licenses in the first place and the renewal process involves a subjective determination by the regulatory agencies. If we or our subsidiaries do not obtain and maintain the required licenses, permits and approvals, we may be required to divest our interest in our current or future gaming facilities or our current gaming facility risks losing its licenses. These laws, regulations and ordinances may also affect the operations of our gaming facilities or our plans in pursuing future projects.
The Racing, Pari-Mutuel Wagering and Breeding Law of New York State requires our stockholders to possess certain qualifications. If the NYSGC believes a stockholder does not meet their subjective determination, a stockholder may be forced to sell any stock they hold and such sale may result in a material loss of investment value for the stockholder.
The Racing, Pari-Mutuel Wagering and Breeding Law of New York State requires our stockholders to possess certain qualifications. A failure to possess such qualifications could lead to a material loss of investment by either us or our stockholders, as it would require divestiture of the stockholder’s direct or indirect interest in us. Consequently, should any stockholder ever fail to meet the qualifications necessary to own a direct or indirect interest in us by NYSGC, such stockholder

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could be forced to liquidate all interests in us. Should such stockholder be forced to liquidate these interests within a relatively short period of time, such stockholder would likely be forced to sell at a discount, causing a material loss of investment value.
The gaming industry in the northeastern United States is highly competitive, with many of our competitors better known and better financed than us.
The gaming industry in the northeastern United States is highly competitive and increasingly dominated by multinational corporations or Native American tribes that enjoy widespread name recognition, established brand loyalty, decades of casino operation experience, and a diverse portfolio of gaming assets and substantially greater financial resources.
We face competition for our VGM operations from Yonkers Raceway which is located within the New York City metropolitan area. The Yonkers facility, which is much closer to New York City, has a harness horseracing facility, approximately 5,300 VGMs, food and beverage outlets and other amenities. In contrast, we have limited financial resources and currently operate our harness horse racing facility and VGMs in Monticello, New York, which is approximately a one and a half hour drive from New York City.
Pennsylvania casinos may operate table games and slot machines, have the ability to grant credit to guests of the casino and have the ability to award an unlimited amount of non-taxable free play to their guests. Pennsylvania legalized the operation of up to 61,000 slot machines at 14 locations throughout the state. As of March 3, 2016, there were twelve casinos in operation within Pennsylvania, with six located at race tracks. One such racetrack facility is the Mohegan Sun at Pocono Downs, which has approximately 2,300 slot machines and 87 table games, including 18 poker tables, and a hotel and spa. The Mohegan Sun at Pocono Downs in Wilkes-Barre, Pennsylvania, is approximately 70 miles southwest of Monticello. In addition, the Mount Airy Casino Resort has approximately 1,870 slot machines and 80 table games, including 9 poker tables, a hotel, spa, and a golf course. The Mount Airy Casino Resort is located in Mount Pocono, Pennsylvania, approximately 60 miles southwest of Monticello. Any expansion of these casinos in Pennsylvania will likely increase the degree of competition within our market and may have an adverse effect on our business and future operating performance.
No assurance can be given that we will be able to compete successfully for gaming customers with the established casinos in Pennsylvania or the competing VGM facility at Yonkers Raceway.
The continuing decline in the popularity of horse racing, decline of the horse population and increasing competition in simulcasting could adversely impact the business of Monticello Casino and Raceway.
Since the mid-1980s, there has been a general decline in the number of people attending and wagering at live horse races at North American racetracks due to a number of factors, including increased competition from other forms of gaming, unwillingness of guests to travel a significant distance to racetracks and the increasing availability of off-track wagering. The declining attendance at live horse racing events has prompted racetracks to rely increasingly on revenues from inter-track, off-track and account wagering markets. The industry-wide focus on inter-track, off-track and account wagering markets has increased competition among racetracks for outlets to simulcast their live races. In 2015, 2014 and 2013, we generated approximately $3.3 million, $1.8 million and $4.0 million, respectively, of revenues from the import and export simulcasting of out-of-state racing, of which approximately $1.7 million, $900,000 and $2.0 million, respectively, were due to the horsemen. A continued decrease in attendance at live events and in on-track wagering, continued decline in the horse population and increased competition in the inter-track, off-track and account wagering markets, could lead to a decrease in the amount wagered at Monticello Casino and Raceway. Our business plan anticipates the possibility of Monticello Casino and Raceway attracting new guests to our racetrack wagering operations through VGMs in order to offset the general decline in raceway attendance. However, even if our VGM operations attract new guests to our racetrack, we may not be able to generate profit from operations. Public tastes are unpredictable and subject to change. Any further decline in interest in horse racing or any change in public tastes may adversely affect our revenues and, therefore, limit our ability to make a positive contribution to our results of operation.
We depend on our key personnel and the loss of their services would adversely affect our operations and business strategy.
If we are unable to maintain our key personnel and attract new employees with high levels of expertise in the gaming areas in which we engage and propose to engage, or are unable to do so without unreasonably increasing our labor costs, the execution of our business strategy may be hindered and our growth limited. We believe that our success is largely dependent on the continued employment of our executive management and the hiring of strategic key personnel at reasonable costs. Competition for qualified executives is intense and we can give no assurance that we would be able to hire a qualified replacement with the required level of experience and expertise for any current members of our senior management, if required to do so. Accordingly, if any of our current key executives were unable or unwilling to continue in his or her present position, or we were unable to attract a sufficient number of qualified employees at reasonable rates, our business, results of operations

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and financial condition will be materially adversely affected. Additionally, recruiting and hiring a replacement for any executive management position could divert the attention of other senior management and increase our operating expenses.
Risks Relating to the Casino Project and Adelaar

The development of the Montreign Resort Casino, the Golf Course and Entertainment Village will be capital intensive and we may not be able to proceed with the development project because of market conditions, which could put us at a competitive disadvantage.

The development of Montreign Resort Casino will require substantial additional capital and will generate no cash flow until the project is complete. The Company is required to make a Minimum Capital Investment of $651 million in the Initial Projects and on March 1, 2016, the Minimum Capital Investment Deposit, in the aggregate amount of $85.4 million, was made. Montreign's portion of the Minimum Capital Investment Deposit was made in the form of a deposit bond representing approximately $65 million, which is 10% of the Company's Minimum Capital Investment in the Casino Project, Golf Course and Entertainment Village and EPR's portion was made in the form of a deposit bond representing approximately $20 million, which is 10% of their Minimum Capital Investment in the Infrastructure and the Waterpark. The January 2016 Rights Offering generated net proceeds of $285.9 million, which will be used (i) for the expenses relating to the development of the Casino Project, (ii) to redeem the Series E Preferred Stock in accordance with an existing settlement agreement and (iii) for the expenses related to the development of the Golf Course and Entertainment Village and to support the working capital needs of the Company. Kien Huat has agreed to participate in, and backstop, a further rights offering in an amount not to exceed $35 million in support of the Initial Projects, which commitment is discussed further below. In addition, the Company obtained the CS Credit Commitment (as defined below), pursuant to which Credit Suisse AG ("Credit Suisse") has committed to provide up to $545 million of debt financing. However, the Company has reserved the flexibility to reassess financing alternatives and either proceed with such debt financing or pursue alternative means of debt financing on terms and conditions more beneficial to the Company. However, we may not be able to obtain such alternative debt financing because of market conditions. If we are unable to obtain the additional financing necessary to complete the development of the Initial Projects on terms and conditions that are acceptable to the Company, our business, financial condition and results of operations will be materially adversely affected. The level of indebtedness will likely have several important effects on future operations, including, without limitation:

a portion of cash flow from current operations may be dedicated to the payment of any interest and/or principal required with respect to outstanding indebtedness while we are developing the Casino Project;
the debt documents may contain restrictive covenants curtailing operations and finances;
increases in outstanding indebtedness and leverage may increase vulnerability to adverse changes in general economic and industry conditions, as well as to competitive pressure;
depending on the levels of outstanding indebtedness, our ability to obtain additional financing for working capital, general corporate and other purposes may be limited, and
covenants may restrict dividends and transfer of funds from the operating entity to Empire.

The ability to make payments of principal and interest on indebtedness will depend upon future performance, which is subject to general economic conditions, industry cycles and financial, business and other factors affecting our operations, many of which are beyond our control. If sufficient cash flow is not generated from operations to service such debt, requirements among other things, may be to:

seek additional financing in the debt or equity markets;
delay, curtail or abandon altogether our development plans;
refinance or restructure all or a portion of our indebtedness; or
sell selected assets.

Such measures might be insufficient to service the indebtedness. In addition, any such financing, refinancing or sale of assets may not be available on commercially reasonable terms, or at all. If funds are not available when needed, or available on acceptable terms, we may be required to delay, scale back or eliminate some of our obligations with respect to the Adelaar Project and our Casino Project. In addition, we may not be able to grow market share, take advantage of future opportunities or respond to competitive pressures or unanticipated requirements, which could negatively impact our business, operating results and financial condition.

Failure to finalize and draw upon our CS Credit Commitment would mean we would need to find alternative funding sources, could result in less attractive financing terms and could delay or preclude the construction of Montreign Resort Casino.


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The Company has entered into a commitment letter with Credit Suisse for the provision of a senior secured credit facility of up to $545 million to construct the Montreign Resort Casino (the "CS Credit Commitment"). The CS Credit Commitment is not a binding agreement to provide us loans and remains subject to the execution of definitive documentation, negotiation of material terms and conditions and syndication, due diligence, receipt of certain credit ratings and several other material conditions precedent to closing and funding. There can be no assurance that the definitive terms and conditions of the credit facility under the CS Credit Commitment will not differ materially from those currently contemplated or that all the conditions to close and fund will be met by that time or at all. If we were unable to finalize and borrow under the CS Credit Commitment, we may have to find a new group of lenders and negotiate new financing terms or consider other financing alternatives. If required, it is possible that new financing would not be available or would have to be procured on substantially less attractive terms, which could damage the economic viability of Montreign Resort Casino. The need to arrange such alternative financing would likely also delay the construction of Montreign Resort Casino, which would affect our cash flows, results of operations and financial condition.

The development costs associated with our portion of the Initial Projects may increase due to significant risks inherent in construction projects.

The development of our portion of the Initial Projects subjects us to significant risks inherent in the construction of a new facility, including unanticipated design, construction, regulatory and environmental problems. Our portion of the Initial Projects could also experience:
changes to plans and specifications (some of which may require the approval of the NYSGC);
delays and significant cost increases;
shortages of materials;
shortages of skilled labor or work stoppages for contractors and subcontractors;
inability of contractors and subcontractors to obtain and maintain required licenses issued by the NYSGC;
inability to meet minority and women owned business entity participation goals;
labor disputes or work stoppages;
disputes with and defaults by contractors and subcontractors;
health and safety incidents and site accidents;
engineering problems, including defective plans and specifications;
poor performance or nonperformance by any third parties on whom we place reliance;
changes in laws and regulations, or in the interpretation and enforcement of laws and regulations, applicable to gaming;
facilities, real estate development or construction projects;
unforeseen construction scheduling, engineering, environmental, permitting, construction or geological problems;
environmental issues, including the discovery of unknown environmental contamination;
weather interference, floods, fires or other casualty losses;
other unanticipated circumstances or cost increases; and
failure to obtain necessary licenses, permits, entitlements or other governmental approvals.

The occurrence of any of these development and construction risks could increase the total costs of our portion of the Initial Projects and Adelaar or delay or prevent the construction or opening or otherwise affect the design and features of our portion of the Initial Projects and Adelaar, all of which could materially adversely affect our financial condition and cause us to require additional external financing.
In combination with existing and proposed casinos in New York State and nearby states, Montreign Resort Casino will face intense competition that may adversely impact our ability to meet our development goals.
A number of Native American tribes and gaming entrepreneurs are seeking to develop casinos in New York and Connecticut in areas that are 90 miles from New York City such as Bridgeport, Connecticut and Southampton, New York. Further, it is possible that a referendum will be placed on the ballot in November 2016 to enable voters in New Jersey to vote whether or not to amend the New Jersey State Constitution to permit two casinos in northern New Jersey. We are unable to predict when or if laws would be amended to permit such tribes and entrepreneurs to develop casinos in New York and nearby states. Depending on the size, location and scope and gaming tax rate, if casinos are built in northern New Jersey, they may adversely impact our current operations and the prospects for the Casino Project. Based on proximity, a gaming facility in any of the nearby states, which would include a casino, hotel, restaurants and retail shops, could likely significantly increase the competition we face and have a material adverse effect on our business operations and future performance.
Montreign Resort Casino has no operating history and our projections on the operations of such property may not serve as an adequate basis to judge our future operating results and prospects.

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There is no limited historical information available about Montreign Resort Casino upon which you can base your evaluation of business and prospects of such project. The development of Montreign Resort is in the very early stages and will generate no revenue until the completion of the project. As a result, you should consider our business and prospects in light of the risks, expenses and challenges that we will face as a company seeking to develop and operate a major new development project and gaming businesses in a rapidly growing and intensely competitive market.
We have encountered and will continue to encounter risks and difficulties frequently experienced by companies developing a major new project, and those risks and difficulties may be heightened in a rapidly developing market such as the gaming market in the northeastern United States. Some of the risks relate to our ability to:
complete our construction projects within their anticipated time schedules and budgets;
attract and retain customers and qualified employees;
operate, support, expand and develop our operations and our facilities;
maintain effective control of our operating costs and expenses;
raise the additional capital necessary to complete Montreign Resort Casino;
develop and maintain internal personnel, systems and procedures to assure compliance with the extensive regulatory requirements applicable to the gaming business;
respond to changes in our regulatory environment; and
respond to competitive market conditions.
If we are unable to complete any of these tasks, we may be unable to complete and operate Montreign Resort Casino in the manner we contemplate and generate revenues in the amounts and by the times we anticipate. We may also be unable to meet the conditions to draw on one or more of our financing facilities to be obtained in order to fund our development and construction activities or may suffer a default under one or more of our financing facilities. If any of these events were to occur, it would cause a material adverse effect on our business and prospects, financial condition, results of operation and cash flows.
Work stoppages, labor problems and unexpected shutdowns may limit our operational flexibility and negatively impact our future profits.
We expect the labor used in the construction of the Initial Projects will be members of various unions. If we are unable to negotiate agreements with these labor unions on mutually acceptable terms, the affected employees may engage in a strike or other job actions, which could have a materially adverse effect on our results of operations and financial condition. Any unexpected shutdown of the development and construction of the Initial Projects from a work stoppage or strike action could have a material adverse effect on our businesses and results of operations. Moreover, strikes, work stoppages or other job actions could also result in adverse media attention or otherwise discourage customers, including convention and meeting groups, from visiting our other property, Monticello Raceway and Casino. We cannot assure that we can be adequately prepared for labor developments that may lead to a temporary or permanent shutdown of any of our development project.

Even if Montreign Resort Casino, the Entertainment Village and the Golf Course are completed as planned and opened, they may not be financially successful, which would limit our cash flow and would adversely affect our operations and our ability to repay our debt.
Even if Montreign Resort Casino, the Entertainment Village and the Golf Course are completed as planned and opened, one or more still may not be a financially successful venture or generate the cash flows that we anticipate. We may not attract the level of patronage that we are seeking. If Montreign Resort Casino, the Entertainment Village or the Golf Course do not attract sufficient business, this will limit our cash flow and would adversely affect our operations and our ability to service payments under our loan facilities.

Construction at Montreign Resort Casino, the Entertainment Village and the Golf Course is subject to hazards that may cause personal injury or loss of life, thereby subjecting us to liabilities and possible losses, which may not be covered by insurance.
The construction of large scale properties such as Montreign Resort Casino, the Entertainment Village and the Golf Course can be dangerous. Construction workers at our projects are subject to hazards that may cause personal injury or loss of life, thereby subjecting the contractor and us to liabilities, possible losses, delays in completion of the projects and negative publicity. In the event of such accidents, we may stop construction for several days to allow for safety inspections and investigations. We and our contractors will take safety precautions that are consistent with industry practice, but these safety precautions may not be adequate to prevent serious personal injuries or further loss of life, damage to property or delays. If

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accidents occur during the construction of Montreign Resort Casino, the Entertainment Village or the Golf Course, we may be subject to delays, including delays imposed by regulators, liabilities and possible losses, which may not be covered by insurance, and our business, prospects and reputation may be materially and adversely affected.

Our business depends substantially on the continuing efforts of our senior management, and our business may be severely disrupted if we lose their services or their other responsibilities cause them to be unable to devote sufficient time and attention to the development of the Initial Projects.
We will place substantial reliance on the gaming, project development and hospitality industry experience and knowledge of the Northeast U.S. gaming market possessed by members of our senior management team. The loss of the services of one or more of these members of our senior management team could hinder our ability to effectively manage our business and implement our growth and development strategies. Finding suitable replacements for members of our senior management could be difficult, and competition for personnel of similar experience could be intense.

Gaming is a highly regulated industry and adverse changes or developments in gaming laws or regulations could be difficult to comply with or significantly increase our costs, which could cause our projects to be unsuccessful.
Gaming is a highly regulated industry. Current laws, such as licensing requirements, tax rates and other regulatory obligations, including for anti-money laundering, could change or become more stringent resulting in additional regulations being imposed upon the development of Montreign Resort Casino and the gaming operations or a further liberalization of competition being introduced in the gaming industry. Any such adverse developments in the regulation of the gaming industry in New York could be difficult to comply with and significantly increase our costs, which could cause Montreign Resort Casino to be unsuccessful.

New York State could grant additional gaming facility licenses in our Area or in New York City or the surrounding counties earlier than the expected seven-year blackout period, which could significantly increase the already intense competition in the Northeast U.S. and cause us to lose or be unable to gain market share.
The Upstate Gaming and Economic Development Act provides for the award of up to four (4) gaming facility licenses in three regions of upstate New York, including our Area, and prohibits the issuance of gaming facility licenses in the “downstate” region, which includes New York City and its surrounding counties. The award of such a gaming facility license is intended to be exclusive for a period of seven (7) years commencing on the date of award. We can provide no assurance that the New York State government will not change this law and issue additional gaming facility licenses before the expiration of this seven-year exclusivity period. If the New York State government were to allow additional competitors to operate in our Area or in other regions of New York through the grant of additional gaming facility licenses, we would face additional competition, which could significantly increase the already intense competition in the Northeast U.S. and cause us to lose or be unable to gain market share.
On March 7, 2012, Concord filed a complaint against EPR and us seeking monetary damages and permanent injunctive relief against EPR and us relating to our joint development of the EPT Property. This litigation may delay or alter our plans for the development of the Adelaar Project.
On September 18, 2013, the United States District Court for the Southern District of New York (“SDNY”) granted Motions to Dismiss filed by us and all other defendants. This lawsuit was filed in March 2012 by Concord and various affiliates in the SDNY and asserted in an amended complaint various federal antitrust claims against us, EPR, EPT, Genting NY LLC and Kien Huat. The lawsuit arises out of our exclusivity agreement and option agreement with EPT to develop the site of the EPT Property located in Sullivan County, New York. Concord brought federal antitrust claims alleging conspiracy in restraint of trade, conspiracy to monopolize and monopolization. Concord also brought state law claims for tortious interference with contract and business relations. Concord sought damages in an amount to be determined at trial but not less than subject to automatic trebling under federal antitrust laws), unspecified punitive damages and permanent injunctive relief. In its decision, the SDNY dismissed Concord’s federal antitrust claims with prejudice and dismissed Concord's state law claims without prejudice. On October 2, 2013, Concord filed a Motion for Reconsideration and on October 18, 2013, Concord filed a Notice of Appeal. On October 22, 2013, the United States Court of Appeals for the Second Circuit ("2nd Circuit Court") issued a Notice of Stay of Appeal pending the outcome of the Motion for Reconsideration. On November 3, 2014, SDNY denied Concord's Motion for Reconsideration. The 2nd Circuit Court lifted the Stay of Appeal and the Appeal has been fully briefed.  Oral argument was heard by the 2nd Circuit Court on April 29, 2015. Although we believe this lawsuit is without merit and we will aggressively defend our interests, it may delay or alter our plans with respect to the Casino Project or Project.

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Risk Relating to our Ownership Structure
Stockholders’ ability to influence corporate decisions may be limited because our major stockholder owns a large percentage of our common stock.
Kien Huat Realty III Limited (“Kien Huat”) is the beneficial holder of 27,533,067 shares of our common stock, representing approximately 88.7% of our voting power as of February 17, 2016. This reflects Kien Huat's participation and backstop of the January 2016 Rights Offering pursuant to the January 2016 Standby Purchase Agreement and the conversion of the Kien Huat Note pursuant to the terms of a loan agreement dated November 10, 2010, by and between the Company and Kien Huat (the "Loan Agreement"). Under the terms of an investment agreement, dated November 12, 2009 (the “Investment Agreement”), between the Company and Kien Huat, if any option or warrant outstanding as of the final closing under the Investment Agreement, or the first 200,000 granted to directors or officers who served in such capacity as of the final closing date under the Investment Agreement, are exercised, Kien Huat has the right (following notice of such exercise) to purchase an equal number of additional shares of our common stock as are issued upon such exercise at the exercise price for the applicable option or warrant (such rights the "Option Matching Rights"). On February 17, 2016, Kien Huat declined to exercise its Option Matching Rights to acquire 204,706 shares of our common stock.
Under the terms of the Investment Agreement, Kien Huat is also entitled to recommend three directors whom we are required to cause to be elected or appointed to our Board of Directors (“Board”), subject to the satisfaction of all legal and governance requirements regarding service as a director and to the reasonable approval of the Corporate Governance and Nominations Committee of our Board. Kien Huat will continue to be entitled to recommend three directors for so long as it owns at least 24% of our voting power outstanding at such time, after which the number of directors whom Kien Huat will be entitled to designate for election to our Board will be reduced proportionally to Kien Huat’s percentage of ownership. Under the Investment Agreement, for so long as Kien Huat is entitled to recommend nominees to serve as board members, among other things, Kien Huat will have the right to nominate one of its director designees to serve as the Chairman of the Board. Mr. Pearlman has been appointed to serve as Chairman of the Board pursuant to Kien Huat’s recommendation. Until such time as Kien Huat ceases to own capital stock with at least 30% of our voting power outstanding at such time, our Board will be prohibited under the terms of the Investment Agreement from taking certain actions relating to fundamental transactions involving us and our subsidiaries and certain other matters without the affirmative vote of the directors recommended by Kien Huat and elected by shareholders. Consequently, Kien Huat has the ability to exert significant influence over our policies and affairs, including the election of our Board and the approval of any action requiring a stockholder vote, such as approving amendments to our certificate of incorporation and mergers or sales of substantially all of our assets, as well as other matters. Although Kien Huat has expressed no interest in doing so, Kien Huat is not restricted from acquiring additional shares of our common stock, including through open-market purchases. However, on February 17, 2016, we entered into a Letter Agreement with Kien Huat wherein Kien Huat agreed, for a period of three years, to seek certain approvals of the Board of Directors and minority shareholders in connection with any "going-private" transaction. Notwithstanding the Letter Agreement, this concentration of voting power could delay or prevent an acquisition of our Company on terms that other stockholders may desire or force the sale of our company on terms undesirable to other stockholders.
Risks Relating to the Market Value of Our Common Stock
The market price of our common stock is volatile, leading to the possibility of its value being depressed at a time when our stockholders want to sell their holdings.
The market price of our common stock has in the past been, and may in the future continue to be, volatile. For instance, between January 1, 2015 and March 3, 2016, the closing price of our common stock has ranged between $12.17 and $37.95 per share. A variety of events may cause the market price of our common stock to fluctuate significantly, including but not necessarily limited to:
quarter to quarter variations in operating results;
day traders;
adverse or positive news reports or public announcements; and
market conditions for the gaming industry.
In addition, the stock market in recent years has experienced significant price and volume fluctuations. This volatility has had a substantial effect on the market prices of companies, at times for reasons unrelated to their operating performance. These market fluctuations may adversely affect the price of our common stock and other interests in the Company at a time when our stockholders want to sell their interest in us.

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If we fail to meet the applicable continued listing requirements of NASDAQ Global Market, NASDAQ may delist our common stock, in which case the liquidity and market price of our common stock could decline.
Our common stock is currently listed on the NASDAQ Global Market. In order to maintain that listing, we must satisfy certain continued listing requirements. If we are deficient in maintaining the necessary listing requirements, our common stock may be delisted. If our stock is delisted, an active trading market for our common stock may not be sustained and the market price of our common stock could decline.
We do not anticipate declaring any dividends in the foreseeable future.
During the past three fiscal years, we did not declare or pay any cash dividends with respect to our common stock and we do not anticipate declaring any cash dividends on our common stock in the foreseeable future. We intend to retain all future earnings for use in the development of our business. In addition, the payment of cash dividends to the holders of our common stock is restricted by undeclared dividends on our Series E preferred stock. There can be no assurance that we will have, at any time, sufficient surplus under Delaware law to be able to pay any dividends.

Future sales of our common stock by our insiders may cause our stock price to decline.
A portion of our outstanding shares are held by directors and executive officers. Resales of a substantial number of shares of our stock by these stockholders, announcements of the proposed resale of substantial amounts of our stock, or the perception that substantial resales may be made by such stockholders could adversely impact the market price of our stock. Some of our directors and executive officers have entered into Rule 10b5-1 trading plans pursuant to which they have arranged to sell shares of our common stock from time to time in the future. Actual or potential sales by these insiders, including those under a pre-arranged Rule 10b5-1 trading plan may adversely impact the market price of our stock.
Future sales of shares of our common stock in the public market could adversely affect the trading price of shares of our common stock and our ability to raise funds in new stock offerings.
Future sales of substantial amounts of shares of our common stock in the public market, including pursuant to the Second Amendment to the Commitment Letter or the effective shelf registration statement, or the perception that such sales or conversion are likely to occur could affect the market price of our common stock. Kien Huat’s stock ownership may also discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of us, which in turn could reduce our stock price or prevent our stockholders from realizing a premium over our stock price.

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General Business Risks
Instability and volatility in the financial markets could have a negative impact on our business, financial condition, results of operations and cash flows.
The demand for entertainment and leisure activities tends to be highly sensitive to consumers’ disposable income. Discretionary consumer spending habits have been adversely affected by the recent economic conditions and the actual or perceived economic conditions could lead to further decrease in spending by our guests. We cannot predict at what level these negative trends will continue, worsen or improve and the ultimate impact it will have on our future results of operations. The continued weakness in our market and the deterioration of the broader global economy would have a material adverse effect on our industry and our business, including our revenues, profitability, operating results and cash flow.
Moreover, we will need to raise additional capital or incur additional indebtedness to finance our plans for growth. Recent turmoil in the credit markets and the resulting impact on the liquidity of certain large financial institutions has had, and may continue to have, an effect through the U.S. economy, including limiting access to credit markets for certain borrowers at reasonable rates. Due to fluctuations in the credit markets from time to time, we may be unable to incur additional indebtedness to fund our business strategy, in the public or private markets, on terms we believe to be reasonable, if at all. Such instability and volatility in the financial markets may adversely impact our ability to obtain the financing necessary to pursue the development of the Casino Project.
We are subject to greater risks than a geographically diverse company.
Our operations are limited to the Catskills region of the State of New York, which has been affected by decades-long decline in economic conditions. As a result, in addition to our susceptibility to adverse global and domestic economic, political and business conditions, any economic downturn in the region could have a material adverse effect on our operations. An economic downturn would likely cause a decline in the disposable income of consumers in the region, which could result in a decrease in the number of patrons at our facility, the frequency of their visits and the average amount that they would be willing to spend at our facility. We are subject to greater risks than more geographically diversified gaming or resort operations, including:
a downturn in national, regional or local economic conditions;
an increase in competition in New York State or the northeastern United States and Canada, particularly for day-trip patrons residing in New York State, including as a result of any new tribal Class III casinos, destination gaming resorts or VGMs at certain racetracks and other locations in New York, Connecticut and New Jersey and casinos in Pennsylvania;
impeded access due to road construction or closures of primary access routes; and
adverse weather and natural and other disasters in the northeastern United States.
The occurrence of any one of the events described above could cause a material disruption in our business and make us unable to generate sufficient cash flow to make payments on our obligations.
Our business is particularly sensitive to energy prices and a rise in energy prices could harm our operating results.
We are a large consumer of electricity and other energy and, therefore, higher energy prices may have an adverse effect on our results of operations. Accordingly, increases in energy costs may have a negative impact on our operating results. Additionally, higher electricity and gasoline prices which affect our customers may result in reduced visitation to Monticello Casino and Raceway and a reduction in our revenues.
Our business could be affected by weather-related factors and seasonality.
Our results of operations may be adversely affected by weather-related and seasonal factors. Severe winter weather conditions may deter or prevent patrons from reaching our gaming facilities or undertaking day trips. In addition, some recreational activities are curtailed during the winter months. Although our budget assumes these seasonal fluctuations in our gaming revenues to ensure adequate cash flow during expected periods of lower revenues, we cannot ensure that weather-related and seasonal factors will not have a material adverse effect on our operations.
We are vulnerable to natural disasters and other disruptive events that could severely disrupt the normal operations of our business and adversely affect our earnings.
Our operations are located at a facility in Monticello, New York. Although this area is not prone to earthquakes, floods, tornadoes, fires or other natural disasters, the occurrence of any of these events or any other cause of material disruption in our

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operation could have a material adverse effect on our business, financial condition and operating results. Moreover, although we do maintain insurance customary for our industry, including a policy with $10 million limit of coverage for the perils of flood and earthquake, we cannot ensure that this coverage will be sufficient in the event of one of the disasters mentioned above.
We may be subject to material environmental liability as a result of unknown environmental hazards.
We currently own 232 acres of land. As a significant landholder, we are subject to numerous environmental laws. Specifically, under the Comprehensive Environmental Response, Compensation and Liability Act, a current or previous owner or operator of real estate may be required to investigate and clean up hazardous or toxic substances or chemical releases on or relating to its property and may be held liable to a governmental entity or to third parties for property damage, personal injury and for investigation and cleanup costs incurred by such parties in connection with the contamination. Such laws typically impose cleanup responsibility and liability without regard to whether the owner knew of or caused the presence of contaminants. The costs of investigation, remediation or removal of such substances may be substantial.
Potential changes in the regulatory environment could harm our business.
From time to time, legislators and special interest groups have proposed legislation that would expand, restrict or prevent gaming operations in the jurisdictions in which we operate or intend to operate. In addition, from time to time, certain anti-gaming groups propose referenda that, if adopted, could force us to curtail operations and incur significant losses.
Our information technology and other systems are subject to cyber security risk including misappropriation of customer information or other breaches of information security.
We rely on information technology and other systems to maintain and transmit customers' personal and/or financial information, credit card information, mailing lists and other information. We have taken steps designed to safeguard our customers' personal and financial information and have implemented systems designed to meet all requirements of the Payment Card Industry standards for data protection. However, our information and processes are subject to the ever-changing threat of compromised security, in the form of a risk of potential breach, system failure, computer virus or unauthorized or fraudulent access or use by unauthorized individuals. The steps we take to deter and mitigate these risks may not be successful, and any resulting compromise or loss of data or systems could adversely impact operations or regulatory compliance and could result in remedial expenses, fines, litigation and loss of reputation, potentially impacting our financial results. Although we have invested in and deployed security systems and developed processes that are designed to protect all sensitive data, prevent data loss and reduce the impact of any security breach, such measures cannot provide absolute security.
Item 1B.
Unresolved Staff Comments.
None. 
Item 2.
Properties.
Monticello Land
Our primary asset, which is held in fee by MRMI, is a 232 acre parcel of land in Monticello, New York. Facilities at the site include Monticello Casino and Raceway, which includes a 3,000-seat enclosed grandstand, a clubhouse bar, pari-mutuel wagering facilities (including simulcasting), a paddock, exterior barns and related facilities for the horses, drivers, and trainers. In addition, our VGM operation is conducted in the renovated lower level of the grandstand portion of Monticello Casino and Raceway, which includes an 45,000 square foot gaming floor with a central bar and lounge and a separate high stakes VGM area, a buffet and a two outlet food court with seating capacity for up to 350 patrons, employee changing areas, storage and maintenance facilities, surveillance and security facilities and systems, cashier’s cage and accounting and marketing areas, as well as parking areas for cars and buses. The corporate offices of the Company are located on the second floor of the building at Monticello Casino and Raceway.

EPT Property

Empire Project Parcel Leases and Purchase Option Agreement

On December 21, 2011, the Company entered into the Option Agreement. Pursuant to the Option Agreement, EPT granted us the Option to lease the Casino Parcel pursuant to the terms of a form of casino lease negotiated between the parties. Among other things, the Option Agreement also reflected the parties' agreement of when the Company must decide whether it would lease the EPT Property for purposes of constructing the Casino Project. The Option Agreement also provided the Company the

23


ability to extend the date by which it would be required to make that decision in consideration for monthly Option Payments that increased every twelve months. The Company made Option Payments to EPT of $750,000 and $472,603, on December 21, 2011 and March 8, 2013, respectively. In September 2013, the Board of Directors of EPT acted to provide an irrevocable notice to proceed with the development of the EPT Property and the Company's Board of Directors acted to waive the Company's right to terminate the MDA. As a result, pursuant to the terms of the Option Agreement, the aggregate Option Payments of $1,222,603 made prior to September 2013 became non-refundable. In addition to the $1,222,603 paid prior to September 2013, we made additional Option Payments of approximately $3.1 million and approximately $4.6 million in 2014 and 2015, respectively. The Option Agreement also granted the Company the option to purchase the EPT Property, together with the other property owned by EPT at the site of the former Concord Resort at the purchase prices described in the Option Agreement.

On September 3, 2015, MRMI and EPT entered into the Term Sheet reflecting general terms of a proposed amendment to the Option Agreement. The Term Sheet contemplated, among other things, amendments to the Option Agreement that would require MRMI and/or its affiliates to lease the Empire Project Parcels. The Term Sheet also contemplates a separate purchase option agreement granting MRMI and/or its affiliates the right to purchase all three, but not less than all three, of the Empire Project Parcels. As a result, on December 28, 2015, the Project Parties entered into the Casino Lease, the Golf Course Lease, the Entertainment Village Lease, each of which is substantially similar to the form of casino lease attached to the Option Agreement, and the Purchase Option Agreement, which collectively supersede the Option Agreement. In addition, the Option Payments made by the Company pursuant to the Option Agreement, which aggregate to a total of $8.5 million, shall be applied against rent amounts due to EPT as rent under the Casino Lease as more fully described below.
    
Casino Lease

On December 28, 2015, Montreign entered into the Casino Lease with EPT for the lease of the Casino Parcel. The Casino Lease is in substantially the same form as the form of ground lease underlying and attached as an exhibit to the amendment dated June 20, 2014 to the Option Agreement. The Casino Lease has a term that expires on the earlier of: (i) March 31, 2086, and (ii) upon Montreign giving EPT written notice of its election to terminate the Casino Lease (the “Termination Option”) at least twelve (12) months prior to any one of five Option Dates (as defined below). The Option Dates under the Casino Lease mean each of the twentieth (20th), thirtieth (30th), fortieth (40th), fiftieth (50th) and sixtieth (60th) anniversary of the commencement of the Casino Lease. Upon Montreign's timely notice of exercise of its Termination Option, the Casino Lease shall be automatically terminated effective as of the applicable Option Date.

The annual fixed rent payments under the Casino Lease are as follows: (i) prior to March 1, 2016, Montreign's sole rent obligation under the Casino Lease will be to continue making the same payments it would have made under the Option Agreement; (ii) for the first year following March 1, 2016, Montreign shall have no rental payments due, with certain prior payments made under the Option Agreement being deemed to satisfy all rental obligations under the Casino Lease during this period; (iii) beginning April 2017 and continuing through September 2018, annual fixed rent shall equal $1.0 million per month; and (iv) beginning October 2018 and through the remainder of the term of the Casino Lease (the “Percentage Rent Period”), annual fixed rent shall equal $7.5 million. The annual fixed rent will escalate every five years by eight percent (8%). Montreign is also obligated to pay an annual percentage rent equal to five percent (5%) of the Eligible Gaming Revenue (as such term is defined in the Casino Lease) for the Percentage Rent Period. Additionally, Montreign has an obligation to pay the special district tax assessment allocated to the Casino Parcel, not to exceed the capped dollar amount applicable to the Casino Parcel.

Pursuant to the Casino Lease, Montreign is permitted to use the leased premises solely as a regional destination casino resort, consisting of gaming operations, and the management and operations of all functions as may be necessary or appropriate to conduct the gaming operations. In addition, both EPT and Montreign are required to be in compliance with requirements of gaming authorities and if applicable, other governmental authorities related to the Gaming License and operation of the leased premises. In the event that Montreign is prevented from conducting gaming operations on the Casino Parcel solely due to a failure of the Waterpark Project to materially comply with the gaming facility license requirements, Montreign will be entitled to an abatement of annual fixed rent, percentage rent and all other amounts due until the earlier of the date when Montreign is permitted to conduct gaming operations or 30 days following the date Montreign takes over the operations of the Waterpark Project. Montreign is also required to provide EPT with various periodic financial statements and additional information upon EPT’s request.

In the event that EPT desires to enter into a Competitor Transfer, Montreign has the right to exercise its Purchase Option (as defined in the Purchase Option Agreement) in accordance with the terms and conditions of the Purchase Option Agreement at any time following EPT’s delivery of a Competitor Transfer Notice of no less than 30 days prior to the consummation of the Competitor Transfer and for as long as a competitor is the landlord under the Casino Lease. If Montreign delivers the Buyer’s

24


Purchase Notice (as defined in the Option Purchase Agreement) within 15 days following the delivery of the Competitor Transfer Notice, EPT will be prohibited from consummating the Competitor Transfer and Montreign will acquire the Casino Parcel to Montreign in accordance with the terms of the Purchase Option Agreement.

The Casino Lease also contains customary provisions allowing the Landlord to terminate the Lease if Montreign fails to remedy a breach of any of its obligations within specified time periods, or upon bankruptcy or insolvency of Montreign or abandonment by Montreign of the leased property for certain period of time.

Golf Course Lease

On the Effective Date, GC Tenant entered into the Golf Course Lease with Adelaar Developer for the lease of the Golf Course Parcel. The terms of the Golf Course Lease are substantially similar to the Casino Lease, subject to the following material differences: (a) there is no percentage rent under the Golf Course Lease, and annual fixed rent is equal to: (i) $0 prior to the date the Golf Course opens for business to the public (the “Golf Course Opening Date”), (ii) $150,000 for the first ten years following the Golf Course Opening Date, and (iii) $250,000 thereafter for the remainder of the term of the Golf Course Lease, plus GC Tenant’s portion of the special district tax assessments relating to the Infrastructure up to the capped amount applicable to the Golf Course Parcel, which shall not be assessed against GC Tenant prior to 60 months following the Commencement Date; (b) the Golf Course Lease does not contain any affirmative financial reporting obligations of GC Tenant or an operating covenant of GC Tenant beyond compliance with the Gaming License and other statutory regulations, as required for Montreign to maintain its Gaming License; and (c) an event of default under the Casino Lease triggers an event of default under the Golf Course Lease (but not vice versa) so long as GC Tenant is an affiliate of Montreign.

Entertainment Village Lease

On the Effective Date, EV Tenant entered into the Entertainment Village Lease with Adelaar Developer, for the lease of the Entertainment Village Parcel. The terms of the Entertainment Village Lease are substantially similar to the Casino Lease, subject to the following material differences: (a) there is no percentage rent under the Entertainment Village Lease, and annual fixed rent is equal to: (i) $0 prior to the EV Opening Date, (ii) $150,000 for the first ten years following the EV Opening Date, and (iii) $250,000 thereafter for the remainder of the term of the Entertainment Village Lease, plus EV Tenant’s portion of the special district tax assessments relating to the Infrastructure up to the capped amount applicable to the Entertainment Village Parcel, which shall not be assessed prior to 60 months following the Commencement Date; (b) the Entertainment Village Lease does not contain any financial reporting obligations of EV Tenant or an operating covenant of EV Tenant beyond compliance with the Gaming License and other statutory regulations, as required for Montreign to maintain its Gaming License; and (c) an event of default under the Casino Lease triggers an event of default under the Entertainment Village Lease (but not vice versa) so long as EV Tenant is an affiliate of Montreign.

Purchase Option Agreement

On December 28, 2015, Montreign, EPT and EPR LP entered into the Purchase Option Agreement, pursuant to which EPT and EPR LP collectively granted to Montreign the Purchase Option to purchase all, but not fewer than all, of the Empire Project Parcels for a purchase price of $175 million ($200 million after the sixth anniversary of the License Award Effective Date), less a credit of up to $25 million for certain previous payments made by the Project Parties.

Under the Purchase Option Agreement, EPR LP also grants to Montreign the Resort Project Purchase Option to purchase not less than all of the balance of the EPR Property, excluding the Resort Property for an additional fee. The Resort Project Purchase Option may be exercised only simultaneously with or after the exercise of the Purchase Option. The Resort Project Purchase Option commenced on December 28, 2015 and shall expire on the earlier to occur of (a) the expiration of the Purchase Option Period or (b) March 1, 2026.

Under the Purchase Option Agreement, EPR LP also granted to Montreign a ROFO with respect to all or any portion of the Resort Property. Under the terms of the ROFO, if EPR LP makes an offer to or rejects an offer made by Montreign, then EPR LP shall be precluded for a period of six months from transferring the designated portion of the Resort Property at a price and on terms which are on the whole substantially equivalent to or worse than those proposed or accepted by Montreign. The ROFO commenced on December 28, 2015 and shall continue in full force and effect until EPR LP has sold,
leased, licensed or otherwise transferred all of the Resort Property.
Item 3.
Legal Proceedings.

25



Monticello Raceway Management, Inc. v. Concord Associates L.P.
On January 25, 2011, our subsidiary, MRMI, filed a complaint in the Sullivan County Court against Concord, an affiliate of Louis R. Cappelli who was a significant stockholder. The lawsuit seeks amounts that we believe are owed to us under an agreement between Concord, MRMI and the MHHA (the “2008 MHHA Agreement”). Pursuant to the 2008 MHHA Agreement, until the earlier to occur of the commencement of operations at the gaming facilities to be developed by Concord at the site of the former Concord hotel and former Concord resort or July 31, 2011, we were to continue to pay to the MHHA 8.75% of the net win from VGM activities at Monticello Casino and Raceway, and Concord was to pay the difference, if any, between $5 million per year and 8.75% of the net win from VGM activities (“VGM Shortfall”) during such period. As of December 31, 2010, we believe Concord owed us approximately $300,000 for the VGM Shortfall. Concord has contested its responsibility to make such VGM Shortfall payments to us. In its Decision and Order, dated January 15, 2014, the Sullivan County Supreme Court awarded damages to MRMI in the approximate amount of $308,000 plus interest and costs. On February 4, 2014, Concord filed a Notice of Appeal with the Appellate Division of the New York Supreme Court, Third Department ("Third Department"). The oral argument on the appeal was heard by the Third Department on April 28, 2015 and the Third Department determined that the damages to MRMI should be reduced to $122,562. On July 8, 2015, we filed a Notice of Motion for Re-Argument and Leave to Appeal (the "Motion") regarding the decision of the Third Department. The Motion was denied by the Third Department on September 2, 2015. On October 9, 2015, we filed a Motion for Leave to Appeal with the Court of Appeals. In an opinion dated November 24, 2015, the Court of Appeals denied our Motion for Leave to Appeal. The Appellate Division had remanded the case to the trial court for a recomputation of the amount of the judgment. In an Order and Amended Judgment dated December 22, 2015, MRMI was awarded a judgment in the amount of $183,096.91. We will aggressively pursue our judgment.
Concord Associates, L.P. v. Entertainment Properties Trust

On September 18, 2013, the SDNY granted Motions to Dismiss filed by us and all other defendants. This lawsuit was filed in March 2012, by Concord and various affiliates in the SDNY and asserted in an amended complaint various federal antitrust claims against us, EPR, EPT, Genting NY LLC and Kien Huat. The lawsuit arises out of our exclusivity agreement and option agreement with EPT to develop the site of the EPT Property located in Sullivan County, New York. Concord brought federal antitrust claims alleging conspiracy in restraint of trade, conspiracy to monopolize and monopolization. Concord also brought state law claims for tortious interference with contract and business relations. Concord sought damages in an amount to be determined at trial but not less than $500 million subject to automatic trebling under federal antitrust laws, unspecified punitive damages and permanent injunctive relief. In its decision, the SDNY dismissed Concord’s federal antitrust claims with prejudice and dismissed Concord's state law claims without prejudice. On October 2, 2013, Concord filed a Motion for Reconsideration and on October 18, 2013, Concord filed a Notice of Appeal. On October 22, 2013, the United States Court of Appeals for the Second Circuit (“2nd Circuit Court”) issued a Notice of Stay of Appeal pending the outcome of the Motion for Reconsideration. On November 3, 2014, SDNY denied Concord's Motion for Reconsideration. Oral argument was heard by the 2nd Circuit Court on April 29, 2015. We believe this lawsuit is without merit and we will aggressively defend our interests.
Other Proceedings
We are a party from time to time to various other legal actions that arise in the normal course of business. In the opinion of management, the resolution of these other matters will not have a material and adverse effect on our consolidated financial position, results of operations or cash flows.
Item 4.
Mine Safety Disclosures.
Not applicable.
PART II 

26



Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
Our common stock is listed on the NASDAQ Global Market under the symbol “NYNY”. The following table sets forth the high and low sale prices for the common stock for the periods indicated, as reported by the NASDAQ Global Market.
 
High
 
Low
Year ended December 31, 2013
 
 
 
First Quarter
$
12.25

 
$
9.55

Second Quarter
15.25

 
9.50

Third Quarter
19.00

 
12.20

Fourth Quarter
33.20

 
18.75

Year ended December 31, 2014
 
 
 
First Quarter
$
39.65

 
$
23.75

Second Quarter
45.40

 
29.00

Third Quarter
36.15

 
20.25

Fourth Quarter
41.10

 
28.55

Year ended December 31, 2015
 
 
 
First Quarter
$
37.95

 
$
21.90

Second Quarter
29.95

 
22.45

Third Quarter
27.15

 
19.70

Fourth Quarter
25.00

 
19.74

Holders
According to Continental Stock Transfer & Trust Company, there were approximately 211 holders of record of our common stock at March 3, 2016.
Dividends
During the past three fiscal years, we did not declare or pay any cash dividends with respect to our common stock and we do not anticipate declaring any cash dividends on our common stock in the foreseeable future. We intend to retain all future earnings for use in the development of our business. In addition, the payment of cash dividends to the holders of our common stock is restricted by undeclared dividends on our Series E preferred stock. There can be no assurance that we will have, at any time, sufficient surplus under Delaware law to be able to pay any dividends.
On March 2, 2016, our Board authorized the cash payment of dividends due for the year ended December 31, 2015 on our Series B Preferred Stock in the amount of approximately $167,000 and payment was made the same day. The cash dividend was calculated as if it were a dividend issued in shares of our comment stock, which in accordance with the terms of the Series B Preferred stock, means the amount of the cash payment is the annual cash dividend value (if it had been paid quarterly) multiplied by 1.3.
On February 9, 2015, our Board authorized the issuance of 5,102 shares of our common stock in payment of dividends due for the year ended December 31, 2014 on our Series B Preferred Stock. The recorded value of these shares was approximately $159,000. At December 31, 2014, the Company had undeclared dividends on the Series B Preferred Stock of approximately $159,000.
On February 19, 2014, our Board authorized the issuance of 6,167 shares of our common stock in payment of dividends due for the year ended December 31, 2013 on our Series B Preferred Stock. The recorded value of these shares was approximately $218,000. At December 31, 2013, the Company had undeclared dividends on the Series B Preferred Stock of approximately $218,000.


27



Performance Graph
The following graph shows a comparison of the five year total cumulative returns of an investment of $100 in cash on December 31, 2010 in (i) our common stock (ii) the Nasdaq Composite Index (iii) S&P 500 and (iv) the Dow Jones U.S. Gambling Index. All values assume reinvestment of the full amount of all dividends (to date, we have not declared any dividends).
This stock performance graph shall not be deemed “filed” with the SEC or subject to Section 18 of the Securities Exchange Act, nor shall it be deemed incorporated by reference in any of our filings under the Securities Act of 1933, as amended (the “Securities Act”).
Comparison of cumulative total return on investment since December 31, 2010:

 
Period Ending
 
12/31/2010
12/31/2011
12/31/2012
12/31/2013
12/31/2014
12/31/2015
Empire Resorts Inc.
100.00

48.54

71.20

156.63

251.13

116.50

S&P 500
100.00

101.47

116.91

153.80

173.78

175.08

Dow Jones U.S. Gambling Index
100.00

92.56

100.81

170.02

134.65

99.75

Nasdaq Composite Index
100.00

98.2

113.82

157.44

178.53

188.75



28



Securities Authorized for Issuance Under Equity Compensation Plans
The following table provides information as of December 31, 2015 with respect to the shares of our common stock that may be issued under our existing equity compensation plans.
 
(1)
 
 
 
(2)
 
Number of
securities to be
issued upon
exercise of
outstanding
options, warrants
and rights
 (column - a)
 
Weighted-
average exercise
price of
outstanding
options, warrants
and rights
(column - b)
 
Number of
securities
remaining
available for
future issuance
under equity
compensation
plans
(excluding
securities
reflected in
column (a))
(column - c)
2005 - Equity compensation plan approved by security holders
189,952

 
$
35.51

 

2015 - Equity compensation plan approved by security holders

 
$

 
937,498

Total
189,952

 
$
35.51

 
937,498

 (1)
These amounts reflect stock options and warrants granted under our 2005 Equity Incentive Plan (pursuant to which no grants may be made on or after May 23, 2015, but such grants may extend beyond that date) and options, warrants and rights that may be granted under our 2015 Equity Incentive Plan.
(2)
On March 8, 2016, pursuant to the terms of the 2015 Equity Incentive Plan, the Board of Directors determined to increase the number of shares available for grant under such plan by 1,663,209 shares for a total amount of shares available for grants of 2,600,707. Such change is effective as of March 20, 2016.
Item 6.
Selected Financial Data
The following table presents our selected consolidated financial data for the five most recent fiscal years, which is derived from our audited consolidated financial statements and the notes to those statements. Because the data in this table does not provide all of the data contained in our consolidated financial statements, including the related notes, you should read "Management's Discussion and Analysis of Financial Condition and Results of Operations," and our consolidated financial statements, including the related notes, contained elsewhere in this document and other data we have filed with the U.S. Securities and Exchange Commission.
 
 
Fiscal Year Ended December 31, (amounts in thousands, except per share data):
 
 
2015
2014
2013
2012
2011
Statement of Operations
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
Gaming
 
$
60,463

$
59,831

$
63,642

$
63,402

$
61,388

Food, beverage, racing and other
 
11,171

9,683

12,776

12,220

11,634

Gross revenues
 
71,634

69,514

76,418

75,622

73,022

Less: Promotional allowances
 
(3,468
)
(4,288
)
(5,457
)
(3,649
)
(2,826
)
Net revenues
 
68,166

65,226

70,961

71,973

70,196

Costs and expenses:
 
 
 
 
 
 
Gaming
 
44,525

44,160

47,129

45,700

44,497

Food, beverage, racing and other
 
10,493

9,986

11,470

10,959

10,388

Selling, general and administrative
 
12,648

11,599

12,734

12,895

11,534

Development expenses
 
32,514

12,207

18,009



Stock-based compensation
 
596

636

385

647

1,215

Depreciation
 
1,350

1,324

1,354

1,380

1,325

Total costs and expenses
 
102,126

79,912

91,081

71,581

68,959

Income/(loss) from operations
 
(33,960
)
(14,686
)
(20,120
)
392

1,237


29



Amortization of deferred financing costs
 
(27
)
(91
)
(74
)
(30
)

Interest expense
 
(2,616
)
(9,128
)
(1,331
)
(1,063
)
(1,225
)
Interest income
 



4

6

Income/(loss) before income taxes
 
(36,603
)
(23,905
)
(21,525
)
(697
)
18

Income tax provision
 
7

7

17

16

42

Net loss
 
(36,610
)
(23,912
)
(21,542
)
(713
)
(24
)
Undeclared dividends on preferred stock
 
(178
)
(188
)
(5,508
)
(1,551
)
(1,551
)
Net loss applicable to common shareholders
 
$
(36,788
)
$
(24,100
)
$
(27,050
)
$
(2,264
)
$
(1,575
)
Weighted average common shares outstanding, basic
 
10,749

9,286

8,501

5,990

5,469

Weighted average common shares outstanding, diluted
 
10,749

9,286

8,501

5,990

5,469

Loss per common share, basic
 
$
(3.42
)
$
(2.60
)
$
(3.18
)
$
(0.38
)
$
(0.29
)
Loss per common share, diluted
 
$
(3.42
)
$
(2.60
)
$
(3.18
)
$
(0.38
)
$
(0.29
)
Other Data:
 
 
 
 
 
 
Net cash provided by / (used in):
 
 
 
 
 
 
Operating activities
 
$
(31,380
)
$
(15,492
)
$
(4,342
)
$3,049
$
3,291

Investing activities, including capital costs
 
(20,298
)
(1,549
)
(6,567
)
(8,588
)
(1,473
)
Financing activities
 
51,655

15,950

9,372

1

(177
)
Capital expenditures
 
(767
)
(1,542
)
(1,036
)
(548
)
(711
)
Capitalized project development costs
 
(4,074
)




Development costs
 


(5,574
)
(8,197
)
(750
)
 
 
 
 
 
 
 
Balance Sheet Data:
 
 
 
 
 
 
Cash and cash equivalents
 
$
6,412

$
6,435

$
7,526

$
9,063

$
14,601

Total assets
 
65,418

39,867

39,047

52,449

49,834

Long-term debt
 
17,426

17,426

17,426

17,426

17,426

Series E Preferred stock payable, including current portion
 
30,480

30,480

22,800



Stockholders' (deficit) / equity
 
(1,459
)
(17,101
)
(9,775
)
24,813

24,879

 
 
 
 
 
 
 
Operating Data:
 
 
 
 
 
 
Total number of video gaming machines
 
1,110

1,110

1,110

1,110

1,110

Total number of video lottery terminals
 
1,070

1,090

1,090

1,090

1,090

Total number of electronic table game positions
 
40
20
20
20
20
 
Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion of our financial condition and results of operations should be read in conjunction with the consolidated Financial Statements and Notes thereto appearing elsewhere in this document. All share and per share information in this annual report on Form 10-K gives retroactive effect to a one-for-five reverse stock split effective as of December 23, 2015.


30



Overview

Empire Resorts, Inc. (“Empire,” and, together with its subsidiaries, the “Company,” “us,” “our” or “we”) was organized as a Delaware corporation on March 19, 1993, and since that time has served as a holding company for various subsidiaries engaged in the hospitality and gaming industries. All share and per share information in this annual report on Form 10-K gives retroactive effect to a one-for-five reverse stock split effective as of December 23, 2015.
Through Empire’s wholly-owned subsidiary, Monticello Raceway Management, Inc. ("MRMI"), we currently own and operate Monticello Casino and Raceway, a 45,000 square foot video gaming machine ("VGM") and harness horseracing facility located in Monticello, New York, 90 miles northwest of New York City. Monticello Casino and Raceway operates 1,110 VGMs, which includes 1,070 video lottery terminals ("VLTs") and 40 electronic table game positions ("ETGs"). VGMs are similar to slot machines, but they are connected to a central system and report financial information to the central system. The 2015-2016 New York State Budget (the "Budget") expands the statutory definition of Video Lottery Gaming which enables MRMI to operate ETGs of the games of blackjack and 3-card poker. MRMI has added ETGs of the games of blackjack and 3-card poker to its facility and will add other games as they are approved by the NYSGC (defined below). We also generate racing revenues through pari-mutuel wagering on the running of live harness horse races, the import simulcasting of harness and thoroughbred horse races from racetracks across the country and internationally, and the export simulcasting of our races to offsite pari-mutuel wagering facilities.
In a letter dated February 12, 2016, the New York State Gaming Commission (the "NYSGC") assigned to MRMI the race dates requested through April 2016. Generally, the annual license renewal process requires the NYSGC to review the financial responsibility, experience, character and general fitness of MRMI and its management.
On December 21, 2015, our wholly-owned subsidiary, Montreign Operating Company, LLC ("Montreign"), was awarded a license (a “Gaming Facility License”) by the NYSGC to operate a resort casino (“Montreign Resort Casino” or the "Casino Project") to be located at the site of a four-season destination resort planned for the Town of Thompson in Sullivan County 90 miles from New York City (“Adelaar” or the “Adelaar Project”), which is described below. The award of the Gaming Facility License follows the Company’s selection in December 2014 by the New York State Gaming Facility Location Board (the “Siting Board”) as the sole Hudson Valley - Catskills Area casino applicant eligible to apply to the NYSGC for a Gaming Facility License. The Gaming Facility License became effective on March 1, 2016 (the "License Award Effective Date").

Off-Balance Sheet Arrangements

None.

Critical Accounting Policies

The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and judgments related to the application of certain accounting policies.

While we base our estimates on historical experience, current information and other factors deemed relevant, actual results could differ from those estimates. We consider accounting estimates to be critical to our reported financial results if (i) the accounting estimate requires us to make assumptions about matters that are uncertain and (ii) different estimates that we reasonably could have used for the accounting estimate in the current period, or changes in the accounting estimate that are reasonably likely to occur from period to period, would have a material impact on our financial statements.

We consider our policies for revenue recognition to be critical due to the continuously evolving standards and industry practice related to revenue recognition, changes which could materially impact the way we report revenues. Accounting polices related to: accounts receivable, impairment of long-lived assets, stock-based compensation, fair value and income taxes are also considered to be critical as these policies involve considerable subjective judgment and estimation by management. Critical accounting policies, and our procedures related to these policies, are described in detail below.

Revenue recognition and Promotional allowances

Revenues represent (i) gaming revenue and (ii) food and beverage sales, racing and other miscellaneous revenue. Gaming revenue is the net difference between gaming wagers and payouts for prizes from VGMs, non-subsidized free play and accruals related to the anticipated payout of progressive jackpots. Progressive jackpots contain base jackpots that increase at a progressive rate based on the credits played and are charged to revenue as the amount of the jackpots increase. We recognize gaming revenues before deductions of such related expenses as NYSGC share of VGM revenue and the Monticello Harness

31



Horsemen’s Association (the “MHHA”) and Agriculture and New York State Horse Breeding Development Fund’s contractually and/or statutory required percentages.

Food, beverage, racing and other revenue, includes food and beverage sales, racing revenue earned from pari-mutuel wagering on live harness racing and simulcast signals to and from other tracks and miscellaneous income. We recognize racing revenues before deductions of such related expenses as purses, stakes and awards. Some elements of the racing revenues from Off-Track Betting Corporations (“OTBs”) are recognized as collected, due to uncertainty of receipt of and timing of payments.

Net revenues are recognized net of certain sales incentives in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Certification (“ASC”) 605-50, “Revenue Recognition—Customer Payments and Incentives”.
The retail value of complimentary food, beverages and other items provided to our guests is included in gross revenues and then deducted as promotional allowances. The estimated cost of providing such food, beverage and other items as promotional allowances is included in food, beverage, racing and other expense. In addition, promotional allowances include non-subsidized free play offered to our guests based on their relative gaming worth.
Accounts receivable
Accounts receivable, net of allowances, are stated at the amount we expect to collect. When required, an allowance for doubtful accounts is recorded based on information on the collectability of specific accounts. Accounts are considered past due or delinquent based on contractual terms and how recently payments have been received and our judgment of collectability. In the normal course of business, we settle wagers for other racetracks and are exposed to credit risk. These wagers are included in accounts receivable. Account balances are charged against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.
Impairment of long-lived assets
We periodically review the carrying value of our long-lived assets in relation to historical results, as well as management’s best estimate of future trends, events and overall business climate. If such reviews indicate an issue as to whether the carrying value of such assets may not be recoverable, we will then estimate the future cash flows generated by such assets (undiscounted and without interest charges). If such future cash flows are insufficient to recover the carrying amount of the assets, then impairment is triggered and the carrying value of any impaired assets would then be reduced to fair value.

Stock-based compensation

The cost of all share-based awards to employees, including grants of employee stock options and restricted stock, is recognized in the financial statements based on the fair value of the awards at grant date. The fair value of stock option awards is determined using the Black-Scholes valuation model on the date of grant. The fair value of restricted stock awards is equal to the market price of our common stock on the date of grant. The fair value of share-based awards is recognized as stock-based compensation expense on a straight-line basis over the requisite service period from the date of grant.

Fair value

We follow the provisions of ASC 820, “Fair Value Measurement,” issued by the FASB for financial assets and liabilities. This standard defines fair value, provides guidance for measuring fair value, requires certain disclosures and discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow) and the cost approach (cost to replace the service capacity of an asset or replacement cost). We chose not to elect the fair value option as prescribed by FASB, for our financial assets and liabilities that had not been previously carried at fair value. Our financial instruments are comprised of current assets, current liabilities and a long-term loan. Current assets and current liabilities approximate fair value due to their short-term nature.

Project Development costs

Prior to the enactment of the Gaming Act (defined below) in 2013 and the subsequent referendum approving a constitutional amendment in November 2013 to permit full-scale commercial casinos in New York, the Casino Project was being developed as a VGM facility. In such context, we were able to capitalize the expenditures relating to the Casino Project because development was probable as we would have transferred our existing license to operate a VGM facility from the Monticello Casino and Raceway to the Casino Project. Subsequent to the enactment of the Gaming Act, our subsidiary

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Montreign submitted an application to the Siting Board for a Gaming Facility License with respect to the Casino Project, which Gaming Facility License would allow the Casino Project to operate as a full-scale casino rather than a VGM facility. Because our application for a Gaming Facility License was submitted in a competitive environment and it was not probable we would be awarded a Gaming Facility License, we could no longer capitalize the expenditures relating to the Casino Project incurred after November 2013. Therefore, during the fourth quarter of 2013, we expensed approximately $16.0 million of previously capitalized costs relating to the Casino Project, and, after that time, all costs incurred for the Casino Project were expensed until we were awarded a Gaming Facility License on December 21, 2015. As a result of being awarded the Gaming Facility License, the Company began capitalizing the expenditures on the Casino Project, as well as the Entertainment Village and Golf Course, during the fourth quarter of 2015.

33


Results of Operations - Fiscal 2015 Compared to Fiscal 2014
The results of operations for the year ended December 31, 2015 and 2014 are summarized below (dollars in the table in thousands):
 
2015
 
2014
 
Variance
$
 
Variance
%
Revenues:
 
 
 
 
 
 
 
Gaming
$
60,463

 
$
59,831

 
$
632

 
1
 %
Food, beverage, racing and other
11,171

 
9,683

 
1,488

 
15
 %
Gross revenues
71,634

 
69,514

 
2,120

 
3
 %
Less: Promotional allowances
(3,468
)
 
(4,288
)
 
820

 
19
 %
Net revenues
68,166

 
65,226

 
2,940

 
5
 %
Costs and expenses:
 
 
 
 
 
 
 
Gaming
44,525

 
44,160

 
(365
)
 
(1
)%
Food, beverage, racing and other
10,493

 
9,986

 
(507
)
 
(5
)%
Selling, general and administrative
12,648

 
11,599

 
(1,049
)
 
(9
)%
Development expenses
32,514

 
12,207

 
(20,307
)
 
(166
)%
Stock-based compensation
596

 
636

 
40

 
6
 %
Depreciation
1,350

 
1,324

 
(26
)
 
(2
)%
Total costs and expenses
102,126

 
79,912

 
(22,214
)
 
(28
)%
Loss from operations
(33,960
)
 
(14,686
)
 
(19,274
)
 
(131
)%
Amortization of deferred financing costs
(27
)
 
(91
)
 
64

 
70
 %
Interest expense
(2,616
)
 
(9,128
)
 
6,512

 
(71
)%
Loss before income taxes
(36,603
)
 
(23,905
)
 
(12,698
)
 
(53
)%
Income tax provision
7

 
7

 

 
 %
Net loss
$
(36,610
)
 
$
(23,912
)
 
$
(12,698
)
 
(53
)%
 
 
 
 
 
 
 
 
Gaming revenue
Gaming revenue increased by approximately $632,000 or 1%, for the twelve months ended December 31, 2015, as compared to the twelve months ended December 31, 2014 from $59.8 million to $60.5 million. Handle increased approximately $34.3 million or 4.0% for the same period and the average daily win per unit increased from $147.68 to $149.24 for the same period. VGM hold percentage decreased to 6.8% for the twelve months ended December 31, 2015 versus 7.0% for the same period in 2014.

Food, beverage, racing and other revenue
Food, beverage, racing and other revenue increased by approximately $1.5 million or 15%, for the twelve months ended December 31, 2015 as compared to the twelve months ended December 31, 2014 from $9.7 million to $11.2 million. Racing revenue increased by $1.5 million for the twelve months ended December 31, 2015 as compared to the twelve months ended December 31, 2014. The increase in racing revenue is due to the ability to simulcast races to and from facilities outside of New York State for all of fiscal 2015. During fiscal 2014, we could not simulcast outside New York State because we did not have a horsemen's agreement effective from February 1, 2014 through July 20, 2014.
Other revenue increased by approximately $83,000 for the twelve months ended December 31, 2015 as compared to the twelve months ended December 31, 2014 due to higher valet and ATM revenue.
The increases in racing and other revenue were offset by a decrease in food and beverage revenue of approximately $88,000 for the twelve months ended December 31, 2015 as compared to the twelve months ended December 31, 2014. The food and beverage revenue decrease is due to reduced covers and patron counts partially offset by an increase in the buffet price.


34


    
Promotional allowances

Promotional allowances decreased by approximately $820,000 or 19%, for the twelve months ended December 31, 2015, as compared to the twelve months ended December 31, 2014 from $4.3 million to $3.5 million, primarily due to an increase in subsidized free play. A legislative change in 2014 resulted in a decrease in gaming revenue due to a reduction in our use of non-subsidized free play (free play subject to NYSGC and other commissions), which resulted in a reduction of expenses subject to NYSGC and other commissions of approximately $756,000. Non-subsidized free play is the free play that is not included in the subsidized free play program and is included in the calculation of gaming revenue and promotional allowances. In addition, food and beverage complimentaries decreased by approximately $99,000. These decreases were partially offset by a increase in player club awards of approximately $35,000.
    
Gaming costs

Gaming costs increased by approximately $365,000 or 1%, for the twelve months ended December 31, 2015, as compared to the twelve months ended December 31, 2014 from $44.2 million to $44.5 million. NYSGC and other commissions increased approximately $990,000, resulting from higher cash gaming revenue, as compared to the same period in the prior year. Gaming wages and related benefits decreased by approximately $418,000 as compared to the same period in the prior year due to reduced labor and payroll related expenses. Other gaming expenses decreased by approximately $207,000 due to lower utilities and software repairs and maintenance.


Food, beverage, racing and other costs
Food, beverage, racing and other costs increased approximately $507,000 or 5% for the twelve months ended December 31, 2015, as compared to the twelve months ended December 31, 2014 from $10.0 million to $10.5 million, primarily due to higher purse expenses of $428,000. Purse expenses were lower in fiscal 2014 due to the inability to simulcast races to and from facilities outside of New York State because we did not have a horsemen's agreement between February 1, 2014 and July 20, 2014 whereas we were able to simulcast to and from facilities outside New York State for all of fiscal 2015. Additionally, racing payroll and related expenses increased, and food and beverage benefits and related expenses increased by $213,000. These increases were offset by decreased food and beverage cost of goods of $134,000 largely due to lower revenues.

Selling, general and administrative expenses
Selling, general and administrative expenses increased approximately $1.1million or 9%, for the twelve months ended December 31, 2015, as compared to the twelve months ended December 31, 2014 from $11.6 million to $12.7 million. Legal and consulting costs increased $456,000 in 2015. Other expenses increased $634,000 due to higher sales tax, real estates taxes, outside director compensation and insurance costs. Payroll and related benefits costs increased approximately $401,000 largely due to payroll and related costs and bonuses. These increases are offset by a decrease in marketing related expenses of $442,000 for the twelve months ended December 31, 2015, as compared to the December months ended December 31, 2014.

Development expenses
Development expenses increased approximately $20.3 million or 166% for the twelve months ended December 31, 2015 as compared to the twelve months ended December 31, 2014 from $12.2 million to $32.5 million. Architectural, engineering fees and construction manager costs increased $22.1 million. Non-refundable payments pertaining to the Option Agreement with EPR increased $1.5 million for the same period. These increases were off set by a $2.3 million decrease in legal, consultants and other professional services, which includes a $1.3 million write off of legal fee for previous development expenses and the $1.0 million application fee paid during 2014.

Interest expense
Interest expense decreased approximately $6.5 million or 71%, for the twelve months ended December 31, 2015, as compared to the twelve months ended December 31, 2014 from $9.1 million to $2.6 million. Increases in the redemption value of our mandatorily redeemable Series E preferred stock are recorded as a non-cash charge to interest expense. The amount of interest expense recorded was approximately $1.2 million and $7.7 million for the twelve months ended December 31, 2015 and 2014, respectively, to record the liability at its contractually stated redemption value at the end of the each reporting period pursuant to the terms of a settlement agreement.

35


Results of Operations - Fiscal 2014 Compared to Fiscal 2013
The results of operations for the year ended December 31, 2014 and 2013 are summarized below (dollars in thousands):
 
2014
 
2013
 
Variance
$
 
Variance
%
Revenues:
 
 
 
 
 
 
 
Gaming
$
59,831

 
$
63,642

 
$
(3,811
)
 
(6
)%
Food, beverage, racing and other
9,683

 
12,776

 
(3,093
)
 
(24
)%
Gross revenues
69,514

 
76,418

 
(6,904
)
 
(9
)%
Less: Promotional allowances
(4,288
)
 
(5,457
)
 
1,169

 
21
 %
Net revenues
65,226

 
70,961

 
(5,735
)
 
(8
)%
Costs and expenses:
 
 
 
 
 
 
 
Gaming
44,160

 
47,129

 
2,969

 
6
 %
Food, beverage, racing and other
9,986

 
11,470

 
1,484

 
13
 %
Selling, general and administrative
11,599

 
12,734

 
1,135

 
9
 %
Development expenses
12,207

 
18,009

 
5,802

 
32
 %
Stock-based compensation
636

 
385

 
(251
)
 
(65
)%
Depreciation
1,324

 
1,354

 
30

 
2
 %
Total costs and expenses
79,912

 
91,081

 
11,169

 
12
 %
Loss from operations
(14,686
)
 
(20,120
)
 
5,434

 
27
 %
Amortization of deferred financing costs
(91
)
 
(74
)
 
(17
)
 
(23
)%
Interest expense
(9,128
)
 
(1,331
)
 
(7,797
)
 
(586
)%
Loss before income taxes
(23,905
)
 
(21,525
)
 
(2,380
)
 
(11
)%
Income tax provision
7

 
17

 
(10
)
 
(59
)%
Net loss
$
(23,912
)
 
$
(21,542
)
 
$
(2,370
)
 
(11
)%
     Gaming revenue
Gaming revenue decreased by $3.8 million or 6% for the twelve months ended December 31, 2014, as compared to the twelve months ended 2013 from $63.6 million to $59.8 million. Handle decreased by approximately $17.3 million or 2.6% for the same period. The average daily win per unit decreased from $157.08 for the twelve months ended December 31, 2013 to $147.68 for the twelve months ended December 31, 2014. VGM hold percentage decreased to 7.0% for the twelve months ended December 31, 2014 versus 7.4% for the twelve months ended 2013. The decreased hold percentage represents approximately $2.6 million of the $3.8 million decrease in gaming revenue. The severe weather during the first quarter of 2014 significantly impacted gaming revenue. During the first quarter the property was closed three days and had several additional days impacted due to the severe weather causing a decrease of approximately $725,000. During the second and third quarters we made a concentrated effort to reduce our marketing to lower-tier unprofitable segments and we increased our marketing efforts to regain mid and high level tier players. While this results in lower overall win, it generally increases overall player profitability. 2014 had higher jackpots versus the prior year which resulted in an estimated decrease of $637,000 in gaming revenue and contributed to the lower hold percentage in 2014. On July 22, 2014, the Governor signed legislation to amend the New York tax law to increase the subsidized free play allowance from 10% to 15% of gross gaming revenue. This legislative change resulted in a decrease in gaming revenue due to a reduction in non-subsidized free play (free play subject to NYSGC and other commissions), and affected the period of July 22, 2014 to December 31, 2014. Non-subsidized free play is the free play that is not included in the subsidized free play program and is included in gaming revenue and promotional allowances. This increase resulted in a reduction of gaming revenue and complimentaries of approximately $532,000.
    
Food, beverage, racing and other revenue

Food, beverage, racing and other revenue decreased by $3.1 million or 24%, for the twelve months ended December 31, 2014 as compared to the twelve months ended December 31, 2013 from $12.8 million to $9.7 million. Racing revenue decreased by $2.9 million for the twelve months ended December 31, 2014 as compared to the twelve months ended December 31, 2013. The decrease in racing revenue was due to the inability to simulcast races to and from facilities outside of New York State from February 1, 2014 through July 20, 2014, because we did not have a horsemen's agreement during that period and,

36


even after the agreement was executed, our racing revenues continued to be adversely impacted due to delays in reinstating the interstate simulcasting signal after the suspension. A new horsemen's agreement was executed on November 3, 2014.

Food and beverage revenue decreased by $495,000 for the twelve months ended December 31, 2014 as compared to the twelve months ended December 31, 2013. This decrease is largely due to a 13% reduction in buffet covers for the twelve months ended December 31, 2014 as compared to the twelve months ended December 31, 2013. Additionally, there was a price decrease in the buffet during 2014 which amounted to an estimated $200,000 reduction in revenue.

Other revenue increased by approximately $275,000 principally due to an increase in ATM revenue.
    
Promotional allowances

Promotional allowances decreased by $1.2 million or 21%, for the twelve months ended December 31, 2014, as compared to the twelve months ended December 31, 2013 from $5.5 million to $4.3 million. Non-subsidized free play (free play subject to NYSGC and other commissions) decreased approximately $630,000. As discussed in detail above in gaming revenue, legislative changes on July 22, 2014 affected the percentage of subsidized free play which resulted in subsidized free play increased by approximately $532,000. The increased subsidized free play resulted in decreased non subsidized free play that is included in gaming revenue and promotional allowances. Players club awards decreased by $369,000 for the twelve months ended December 31, 2014, as compared to the twelve months ended December 31, 2013 partially due to a revision in the manner in which the liability was calculated and lower play club awards issued in 2014. Also, food and beverage complimentaries decreased by $170,000 due to fewer food coupons being issued for the twelve months ended December 31, 2014, as compared to the twelve months ended December 31, 2013.
    
Gaming costs

Gaming costs decreased by $3.0 million or 6%, for the twelve months ended December 31, 2014, as compared to the twelve months ended December 31, 2013 from $47.1 million to $44.2million, primarily due to lower NYSGC and other commissions of $2.9 million, resulting from lower gaming revenue.

Food, beverage, racing and other costs

Food, beverage, racing and other costs decreased approximately $1.5 million or 13% for the twelve months ended December 31, 2014, as compared to the twelve months ended December 31, 2013 from $11.5 million to $10.0 million. Racing and related expenses decreased by $1.5 million for the twelve months ended December 31, 2014, as compared to the twelve months ended December 31, 2013, primarily due to reduced purse expenses of $774,000 attributed to reduced racing revenue and the inability to simulcast races to and from facilities outside of New York State because we did not have a horsemen's agreement from February 1, 2014 through July 20, 2014. Additionally, subsequent to the agreement being executed, our racing revenues continued to be adversely impacted due to delays in reinstating the interstate simulcasting signal after the suspension. A new horsemen's agreement was executed on November 3, 2014. Additionally, racing payroll and benefits decreased by $348,000 and other racing expenses decreased by $410,000. Food and beverage related expenses decreased slightly by $48,000.    

Selling, general and administrative expenses

Selling, general and administrative expenses decreased by $1.1 million or 9% for the twelve months ended December 31, 2014, as compared to the twelve months ended December 31, 2013 from $12.7 million to $11.6 million. Legal and consulting fees decreased approximately $2.1 million, attributable to higher legal fees in 2013 associated with various legal matters, including the Bryanston litigation. Additionally, in 2014 we received a one time insurance settlement payment in the amount of $300,000 pertaining to a legal matter. The decrease in selling, general and administrative expenses was offset by an increase in marketing related expenses of $180,000. Other expenses increased $471,000 due to higher outside director compensation, real estate tax expense, insurance expense and an insurance cash receipt received in 2013 for storm damage. Payroll and related benefits costs increased approximately $326,000 largely due to higher bonus accruals, medical, dental, vision and other benefit related costs.     
    
Development expenses

In fiscal year 2014, the Casino Project development costs expensed were approximately $12.2 million and consisted of $5.1 million in legal, construction manager costs, consultants and other professional services, $3.1 million of non-refundable payments pertaining to the Option Agreement with EPR, $2.1 million in architectural fees, $1.0 million payment for the RFA application fee, and a $900,000 payment to Kien Huat for a commitment fee pursuant to the Commitment Letter.

37



In fiscal year 2013, the Adelaar Project and Casino Project development costs expensed were approximately $18.0 million and consisted of $10.4 million in architectural fees, $1.9 million for shared development expenses with EPR, $2.3 million in legal, $1.0 million in construction manager costs, $900,000 in consultants and other professional services, and $1.5 million of non-refundable payments pertaining to the Option Agreement with EPR.
    
Stock-based compensation expense

Stock-based compensation increased by $251,000 or 65% from $385,000 to $636,000, related to compensation expense attributable to options granted to directors during the fiscal year ended December 31, 2014 and the vesting of restricted stock granted to management during November 2013 that had a three year vesting period.
    
Interest expense

Interest expense increased $7.8 million, for the twelve months ended December 31, 2014, as compared to the twelve months ended December 31, 2013 from $1.3 million to $9.1 million in which the Company recognized interest expense of approximately $9.1 million, including an estimated $7.7 million of non-cash interest expense. As a result of the Settlement Agreement on June 30, 2013, and pursuant to ASC 480 the Series E Preferred Stock became contractually redeemable subject to the terms and conditions of the Settlement Agreement and has been classified as a liability on the accompanying balance sheet. The amount of the liability recorded on the balance sheet is the amount at which it would be settled if the redemption occurred as of the balance sheet date. The difference between the redemption amount and the amount recorded in the balance sheet as of the date of the Settlement Agreement has been reflected as a deemed dividend on that date. Changes in the redemption value of the liability subsequent to the date of the Settlement Agreement are recorded as interest expense. Interest expense associated with the change in the redemption amount of the liability were $7.7 million and $0 for the year ended December 31, 2014 and 2013, respectively.
Liquidity and Capital Resources
    
The accompanying consolidated financial statements have been prepared on a basis that contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The Company anticipates that its current cash and cash equivalents balances and cash generated from operations will be sufficient to meet working capital requirements, excluding expenditures on the Development Projects (as defined below), for at least the next twelve months. To finance a portion of the Development Project expenses, the Company consummated the January 2016 Rights Offering, from which the Company received net proceeds of $285.9 million. To complete the Development Projects, the Company will need to raise additional funds in support of the development of the Casino Project, the Entertainment Village and the Golf Course (collectively the “Development Projects”). Whether these resources are adequate to meet the Company’s liquidity needs beyond that period will depend on the Company’s growth and operating results and the progress of the Development Projects. To raise the additional capital necessary for the Development Projects, we may seek to enter into strategic agreements, joint ventures or similar agreements or we may sell additional debt or equity in public or private transactions, including pursuant to the Credit Suisse Commitment (defined below). The sale of additional equity could result in additional dilution to the Company’s existing stockholders and financing arrangements may not be available to us, or may not be available in amounts or on acceptable terms.

As of December 31, 2015, we had total current assets of approximately $13.8 million and current liabilities of approximately $20.5 million. As of December 31, 2015, our total assets included approximately $15.5 million of remaining net proceeds from the January 2015 Rights Offering (as defined and discussed below) which are presented on the balance sheet as a non-current asset. In the twelve months ended December 31, 2015, we incurred $32.5 million of development expenses and approximately $10.4 million in capitalized costs for the Development Projects, of which $34.0 million was paid through December 31, 2015.

We have had continuing net losses and negative cash flow from operating activities, including a loss from operations of $34.0 million for the twelve months ended December 31, 2015. The net loss for the twelve months ended December 31, 2015 was primarily related to the Company’s $32.5 million on-going development expenditures with respect to the Casino Project, which expenses could not be capitalized unless and until the Company was awarded a Gaming Facility License. As a result of being awarded the Gaming Facility License, the Company began capitalizing the expenditures on the Casino Project, as well as the Entertainment Village and Golf Course, during the fourth quarter of 2015.


38



In fiscal year 2015, total Development Projects costs incurred were approximately $42.9 million, of which $32.5 million was expensed and consisted of $2.7 million in legal, consultants and other professional services, $4.6 million of non-refundable payments pertaining to the Option Agreement with EPR, $24.1 million in architectural, engineering fees, construction manager costs and subcontractor costs, and $975,000 payment to Kien Huat for a commitment fee pursuant to the Commitment letter. The $42.9 million includes $10.4 million of capitalized project development costs during the fourth quarter of 2015.

In fiscal year 2014, the Casino Project development costs incurred were approximately $12.2 million and consisted of $5.1 million in legal, construction manager costs, consultants and other professional services, $3.1 million of non-refundable payments pertaining to the Option Agreement with EPR, $2.1 million in architectural fees, $1.0 million payment for the RFA application fee, and a $900,000 payment to Kien Huat for a commitment fee pursuant to the Commitment Letter.

In fiscal year 2013, the Adelaar Project and Casino Project development costs expensed were approximately $18.0 million. The $18.0 million consisted of $10.4 million in architectural fees, $1.9 million for shared development expenses with EPR, $2.3 million in legal, $1.0 million in construction manager costs, $900,000 in consultants and other professional services, and $1.5 million of non-refundable payments pertaining to the Option Agreement with EPR.

Following the Company’s selection by the Siting Board to apply to the NYSGC for a Gaming Facility License, the Company submitted to the NYSGC an upgraded plan for the Casino Project (the “Upgraded Casino Plan”) and other changes to the initial phase of the Adelaar Project, including changes to the Entertainment Village and the Golf Course (the “Amended Adelaar Plan”). The Upgraded Casino Plan and the Amended Adelaar Plan which are the basis for the Gaming Facility License the Company was awarded requires that we invest, or cause to be invested no less than approximately $854 million ("Minimum Capital Investment") in the development of the initial phase of Adelaar in accordance with the submitted plans for Montreign Resort Casino and Adelaar.

The Gaming Facility License became effective on the License Award Effective Date, which is March 1, 2016. The Gaming Facility License is subject to certain conditions established by the NYSGC, which conditions, in addition to the Minimum Capital Investment, require Montreign, and any successors and assigns, among other things, to (i) pay an aggregate license fee of $51 million within 30 days of the License Award Effective Date; and (ii) deposit via cash or bond 10% of the Minimum Capital Investment on the License Award Effective Date. On March 1, 2016, the Minimum Capital Investment Deposit, in the aggregate amount of $85.4 million, was made. The Company's portion of the Minimum Capital Investment Deposit was made in the form of a deposit bond representing approximately $65.1 million, which is 10% of the Company's Minimum Capital Investment in the Casino Project, Golf Course and Entertainment Village and EPR's portion was made in the form of a deposit bond representing approximately $20 million, which is 10% of their Minimum Capital Investment in the Infrastructure and the Waterpark. The NYSGC will release the Minimum Capital Investment Deposit upon confirmation that 85% of the Company's proposed Minimum Capital Investment has been expended. The collateral security for the bond shall be paid to the surety in installments as follows: (i) $15 million was paid on February 26, 2016; (ii) $20 million on July 1, 2017; and (iii) approximately $30.1 million on January 15, 2018, unless the surety has been discharged and released from all liability under the bond and (ii) the surety has determined that all obligations to the surety under an indemnity agreement have been fully paid, performed and satisfied.

To support the Upgraded Casino Plan and the costs related to the development of the Golf Course and Entertainment Village, the Company entered into amendments to the debt and equity financing commitments initially obtained in June 2014 in support of Montreign’s application for a Gaming Facility License. For the debt portion of the Company’s financing, in June 2014, Credit Suisse AG (“Credit Suisse”) committed to provide a senior secured credit facility (the “CS Credit Commitment”) of up to a maximum amount of $478 million. On September 22, 2015, Credit Suisse and the Company entered into a further amendment to the CS Credit Commitment increasing the financing commitment Credit Suisse provided up to a maximum of $545 million, which amount may be reduced by no more than $70 million depending on the amount of furniture, fixtures and equipment financing the Company otherwise obtains. The CS Credit Commitment provides that it may change the terms of the credit facility to ensure successful syndication. The CS Credit Facility is subject to various conditions precedent, including evidence of an equity investment in the Company of not less than $301 million, of which $50 million was raised in a rights offering conducted by the Company in 2015 and approximately $290 was raised in a rights offering conducted by the Company in 2016. The Company obtained the CS Credit Commitment to demonstrate its ability to finance the costs and expenses of the Casino Project. However, the Company has reserved the flexibility to reassess financing alternatives and either proceed with the debt financing described herein or pursue alternative means of debt financing on terms and conditions more beneficial to the Company, subject to payment of a fee to Credit Suisse.

For the equity investment portion of the Company’s financing for the Development Projects and to redeem the outstanding Series E Preferred Stock in accordance with an existing settlement agreement, in June 2014, the Company and Kien Huat entered into the Commitment Letter. Pursuant to the Commitment Letter, Kien Huat initially agreed to participate in, and

39



backstop, a rights offering in an amount up to $150 million plus the amount needed to redeem the Series E Preferred Stock if the Company commenced a rights offering on the terms described in the Commitment Letter in support of the Casino Project. For such commitment, the Company agreed to pay Kien Huat a fee of 1.0% of the maximum amount raised, of which 0.5% was paid upon execution of the Commitment Letter and the remaining 0.5% being due if a rights offering was launched. In addition, the Company agreed to pay for or reimburse Kien Huat for all of its out-of-pocket expenses in connection with the negotiation, execution and delivery of the Commitment Letter and the consummation of the transactions contemplated thereby. In partial satisfaction of Kien Huat’s obligations pursuant to the Commitment Letter, Kien Huat participated in, and backstopped, the January 2015 Rights Offering (as defined below) in the amount of $50 million. The proceeds of the January 2015 Rights Offering were used for the expenses relating to the pursuit of the Gaming Facility License for the Casino Project and for development purposes. The Company paid Kien Huat a portion of the commitment fee described in the Commitment Letter in the amount of $250,000 (representing 0.5% of the $50 million amount raised in the January 2015 Rights Offering) and reimbursed Kien Huat for its expenses in an amount of $40,000.

To support the Upgraded Casino Plan, the expenses related to the development of the Golf Course and Entertainment Village, to redeem the Series E Preferred Stock and to provide working capital for the Company, the Company and Kien Huat entered into a second amendment to the Commitment Letter (the “Second Amendment” or the “Second Amendment to the Commitment Letter”) on September 22, 2015. Pursuant to the Second Amendment to the Commitment Letter, Kien Huat increased its overall equity investment commitment to the Company from $150 million plus the amount necessary to redeem the Series E Preferred Stock to an aggregate total of $375 million, which amounts include the $50 million invested in the January 2015 Rights Offering. In particular, Kien Huat agreed to participate in, and backstop, two additional rights offerings, the first of which is the January 2016 Rights Offering, which Kien Huat has agreed to backstop in an amount not to exceed $290 million. Kien Huat also agreed to participate in, and backstop, a follow-on rights offering on the same terms and conditions and at the same subscription price as the January 2016 Rights Offering, in an amount not to exceed $35 million (the "Follow-On Rights Offering"). Except for the increase in the overall commitment amount, the terms and conditions of the Commitment Letter remain unchanged.

On January 5, 2016, the Company commenced a rights offering for aggregate gross proceeds of $290 million. In partial satisfaction of Kien Huat's obligations pursuant to the Second Amendment to the Commitment Letter, in connection with the January 2016 Rights Offering, on December 31, 2015, the Company and Kien Huat entered into a standby purchase agreement (the “January 2016 Standby Purchase Agreement”). Pursuant to the January 2016 Standby Purchase Agreement, Kien Huat agreed (i) to exercise its basic subscription rights to acquire approximately $30 million of our common stock within ten (10) days of the commencement of the January 2016 Rights Offering with a closing proximate thereto and (ii) to exercise the remainder of its basic subscription rights prior to the expiration date of the January 2016 Rights Offering. In addition, Kien Huat agreed it would exercise all rights not otherwise exercised by the other holders in an aggregate amount not to exceed $290 million. Under the January 2016 Standby Purchase Agreement, the Company paid Kien Huat a portion of the commitment fee described in the Commitment Letter in the amount of $1,450,000 and reimbursed Kien Huat for its expenses in an amount not exceeding $50,000. The January 2016 Rights Offering closed on February 17, 2016. The Company issued a total of 20,138,888 shares of common stock at $14.40 per share. This includes 176,086 shares issued to holders upon exercise of their basic subscription and over-subscription rights and 13,136,817 shares issued to Kien Huat upon exercise of its basic subscription rights. Kien Huat also acquired the remaining 6,825,985 shares not sold in the January 2016 Rights Offering pursuant to the January 2016 Standby Purchase Agreement.     

On January 5, 2015, the Company commenced a rights offering (the “January 2015 Rights Offering”) for aggregate gross proceeds of $50 million to raise a portion of the equity financing necessary to develop the Casino Project. In partial satisfaction of Kien Huat's obligations pursuant to the Commitment Letter, in connection with the January 2015 Rights Offering, on January 2, 2015, the Company and Kien Huat entered into a standby purchase agreement (the “January 2015 Standby Purchase Agreement”). Pursuant to the January 2015 Standby Purchase Agreement, Kien Huat agreed to exercise in full its basic subscription rights granted in the January 2015 Rights Offering within ten (10) days of its grant. In addition, Kien Huat agreed it would exercise all rights not otherwise exercised by the other holders in an aggregate amount not to exceed $50 million. Under the January 2015 Standby Purchase Agreement, the Company paid Kien Huat a portion of the commitment fee described in the Commitment Letter in the amount of $250,000 and reimbursed Kien Huat for its expenses in an amount not exceeding $40,000. The January 2015 Rights Offering closed on February 6, 2015 and the Company received net proceeds of approximately $49.5 million, which are being used for the expenses relating to the pursuit of the Gaming Facility License and for development purposes.    

We may also seek to enter into other strategic agreements, joint ventures or similar agreements or we may sell additional debt or equity in public or private transactions in support of the Casino Project and our ongoing operations. On January 3, 2014, we filed the S-3, which was declared effective on February 12, 2014, covering the offer and sale of up to $250 million of our securities. As of March 7, 2016, we had up to approximately $83.7 million available for future issuances under the S-3.

40



However, because the Company's public float is less than $75 million as of the date of this filing, we will be limited in the amount of securities we may sell under the S-3 to an amount no greater than one third our public float. This amount of availability is sufficient to complete the Follow-On Rights Offering. The sale of additional equity will result in additional dilution to the Company’s existing stockholders and financing arrangements may not be available to the Company, or may not be available in amounts or on terms acceptable to the Company.

On March 3, 2015, the Company and Kien Huat entered into Amendment No. 3 (the "Third Amendment") to the Loan Agreement, dated November 17, 2010 and amended on August 8, 2012 and December 18, 2013 (the "Loan Agreement"). Pursuant to the Third Amendment, among other things, the maturity date of the Kien Huat Note was extended from March 15, 2015 to March 15, 2016. Additionally, pursuant to the Third Amendment, the Loan Agreement was amended to add the denial to issue a Gaming Facility License to the Company as an Event of Default. Pursuant to the terms of the Commitment Letter and the Loan Agreement, upon consummation of the January 2016 Rights Offering, the Kien Huat Note was converted into 1,332,058 shares of our common stock at a conversion rate of 76.440567 shares of common stock per $1,000 in principal amount, which represents a conversion price of approximately $13.0820 per share.

Net cash used in operating activities was approximately $31.4 million, $15.5 million and $4.3 million during the twelve months ended December 31, 2015, 2014 and 2013, respectively. We continue to have significant cash flows used in operating activities due to the costs we are incurring related to the Development Projects. We incurred $32.5 million, $12.2 million and 18.0 million of development costs during the twelve months ended December 31, 2015, 2014 and 2013, respectively. Additionally, our operating cash flows for the twelve months ended December 31, 2015 and 2014 were negatively impacted by (i) severe weather during the first quarter that caused a reduction in revenues; (ii) and economic and competitive landscape in the region.

Net cash used in investing activities was approximately $20.3 million, $1.5 million and $6.6 million for the twelve months ended December 31, 2015, 2014 and 2013, respectively. The increase of approximately $18.8 million between 2015 and 2014 is the result of project development costs.

Net cash provided by financing activities was approximately $51.7 million, $16.0 million and $9.4 million for the twelve months ended December 31 2015, 2014 and 2013 respectively. Approximately $49.5 million was received from the 2015 Rights Offering, which is net of approximately $472,000 of expenses. The Company received approximately $2.6 million in proceeds from the exercise of options and warrants during 2015. In addition during 2015, the Company redeemed 26,667 shares of its Series E Preferred Stock, held by beneficial owners other than the Bryanston Group, for approximately $533,000. Approximately $13.2 million was received in 2014 from the 2014 Rights Offering, which is net of $189,000 of expenses.

On March 2, 2016, our Board authorized the cash payment of dividends due for the year ended December 31, 2015 on our Series B Preferred Stock in the amount of approximately $167,000 and payment was made the same day. The cash dividend was calculated as if it were a dividend issued in shares of our comment stock, which in accordance with the terms of the Series B Preferred stock, means the amount of the cash payment is the annual cash dividend value (if it had been paid quarterly) multiplied by 1.3.

On February 9, 2015, our Board authorized the issuance of 5,102 shares of our common stock in payment of dividends due for the year ended December 31, 2014 on our Series B Preferred Stock. The recorded value of these shares was approximately $159,000. At December 31, 2014, the Company had undeclared dividends on the Series B Preferred Stock of approximately $159,000.

On February 19, 2014, our Board authorized the issuance of 6,167 shares of our common stock in payment of dividends due for the year ended December 31, 2013 on our Series B Preferred Stock. The recorded value of these shares was approximately $218,000. At December 31, 2013, the Company had undeclared dividends on the Series B Preferred Stock of approximately $218,000.

Our common stock is transferable only subject to the provisions of Section 303 of the Racing, Pari-Mutuel Wagering and Breeding Law, so long as we hold directly or indirectly, a license issued by the NYSGC, and may be subject to compliance with the requirements of other laws pertaining to licenses held directly or indirectly by us. The owners of common stock issued by us may be required by regulatory authorities to possess certain qualifications and may be required to dispose of their common stock if the owner does not possess such qualifications.

41



Contractual Obligations
 
Payments due by period
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
Total
 
Less than
1 year
 
1 – 3
years
 
3 – 5
years
 
Years 6 - 40
Bryanston Settlement Agreement (a)
$
30,711

 
$
30,711

 
$

 
$

 
$

Casino lease (b)
399,124

 
1,000

 
20,500

 
15,000

 
362,624

Golf Course lease (c)
8,250

 

 

 
275

 
7,975

Entertainment Village lease (d)
8,250

 

 

 
275

 
7,975

License fee (e)
51,000

 
51,000

 

 

 

Total
$
497,335


$
82,711

 
$
20,500

 
$
15,550

 
$
378,574


(a)
Amount reflects the redemption value as of March 7, 2016, the date on which, pursuant to a settlement agreement, we redeemed the outstanding Series E Preferred shares.
(b)
Annual fixed rent payments under the Casino Lease are as follows: (i) for the period December 2015 through March 1, 2016, payments of $500,000 per month: (ii) for the year following March 1, 2016, no payments are required; (iii) beginning March 2017 through August 2018 payments of $1,000,000 per month; (iv) beginning September 2018 payments of $625,000 per month escalating every five years by 8% through the end of the lease term.
(c)
Annual fixed rent payments under the Golf Course lease are as follows: (i) $0 prior to the date the Golf Course opens for business to the public (the “Golf Course Opening Date”), (ii) $150,000 for the first ten years following the Golf Course Opening Date, and (iii) $250,000 thereafter for the remainder of the term of the Golf Course Lease.
(d)
Annual fixed rent payments under the Entertainment Village lease are as follows: (i) $0 prior to the date any portion of entertainment village first opens for business to the public (the “EV Opening Date”), (ii) $150,000 for the first ten years following the EV Opening Date, and (iii) $250,000.00 thereafter for the remainder of the term of the Entertainment Village Lease.
(e)
The licensee fee of $51 million is due on or before March 31, 2016.
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk.
Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates and commodity prices. We are not subject to market risk only with respect to interest rates on outstanding debt as all of our outstanding debt as of December 31, 2015 bears interest at fixed interest rates.

42


Item 8.
Financial Statements and Supplementary Data.
 


43



Report of Independent Registered Public Accounting Firm
On Financial Statements

The Board of Directors and Stockholders of Empire Resorts, Inc.

We have audited the accompanying consolidated balance sheets of Empire Resorts, Inc. and subsidiaries as of December 31, 2015 and 2014, and the related consolidated statements of operations, stockholders’ deficit, and cash flows for each of the three years in the period ended December 31, 2015. Our audit also included the financial statement schedule listed in the index at Item 15. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Empire Resorts, Inc. and subsidiaries at December 31, 2015 and 2014, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2015, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Empire Resorts, Inc.'s internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission “(2013 framework),” as applicable and our report dated March 10, 2016 expressed an unqualified opinion thereon.


/s/ Ernst & Young LLP


Philadelphia, Pennsylvania
March 10, 2016

44



Report of Independent Registered Public Accounting Firm
On Internal Control Over Financial Reporting

The Board of Directors and Stockholders of Empire Resorts, Inc.

We have audited Empire Resorts, Inc. and subsidiaries’ internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control- Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission “(2013 framework)” (the COSO criteria). Empire Resorts, Inc. and subsidiaries’ management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting within Item 9A. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Empire Resorts, Inc. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Empire Resorts, Inc. and subsidiaries as of December 31, 2015 and 2014, and the related consolidated statements of operations, shareholders’ deficit and cash flows for each of the three years in the period ended December 31, 2015 of Empire Resorts, Inc. and subsidiaries and our report dated March 10, 2016 expressed an unqualified opinion thereon.


/s/ Ernst & Young LLP


Philadelphia, Pennsylvania
March 10, 2016

45


EMPIRE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
(In thousands, except for per share data)
 
 
2015
 
2014
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
6,412

 
$
6,435

Restricted cash
1,341

 
1,710

Accounts receivable, net
1,156

 
1,048

Prepaid expenses and other current assets
4,841

 
4,297

Total current assets
13,750

 
13,490

Property and equipment, net
25,789

 
26,372

Capitalized project development costs
10,405

 

Cash for development of the Casino Project
15,472

 

Other assets
2

 
5

Total assets
$
65,418

 
$
39,867

Liabilities and Stockholders’ deficit
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
1,244

 
$
2,205

Accrued expenses and other current liabilities
19,227

 
8,098

Total current liabilities
20,471

 
10,303

Long-term loan, related party
17,426

 
17,426

Series E preferred stock payable - 1,551 Shares as of December 31, 2015 and 2014
28,980

 
29,239

Total liabilities
66,877

 
56,968

Stockholders’ deficit:
 
 
 
Preferred stock, 5,000 shares authorized; $0.01 par value
 
 
 
Series A junior participating preferred stock, $1,000 per share liquidation value, none issued and outstanding

 

Series B, $29 per share liquidation value, 44 shares issued and outstanding

 

Series E, $10 per share redemption value, 0 and 27 shares issued and outstanding as of December 31, 2015 and 2014, respectively (aggregate liquidation value of $0 and $524 as of December 31, 2015 and 2014, respectively)

 

Common stock, $0.01 par value, 150,000 shares authorized, 9,561 and 7,901 shares issued and outstanding at December 31, 2015 and 2014, respectively
96

 
79

Additional paid-in capital
228,512

 
176,117

Accumulated deficit
(230,067
)
 
(193,297
)
Total stockholders’ deficit
(1,459
)
 
(17,101
)
Total liabilities and stockholders’ deficit
$
65,418

 
$
39,867

The accompanying notes are an integral part of these consolidated financial statements.


46


EMPIRE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
(In thousands, except for per share data)
 
 
2015
2014
2013
Revenues:
 
 
 
Gaming
$
60,463

$
59,831

$
63,642

Food, beverage, racing and other
11,171

9,683

12,776

Gross revenues
71,634

69,514

76,418

Less: Promotional allowances
(3,468
)
(4,288
)
(5,457
)
Net revenues
68,166

65,226

70,961

Costs and expenses:
 
 
 
Gaming
44,525

44,160

47,129

Food, beverage, racing and other
10,493

9,986

11,470

Selling, general and administrative
12,648

11,599

12,734

Development expenses
32,514

12,207

18,009

Stock-based compensation
596

636

385

Depreciation
1,350

1,324

1,354

Total costs and expenses
102,126

79,912

91,081

Loss from operations
(33,960
)
(14,686
)
(20,120
)
Amortization of deferred financing costs
(27
)
(91
)
(74
)
Interest expense
(2,616
)
(9,128
)
(1,331
)
Loss before income taxes
(36,603
)
(23,905
)
(21,525
)
Income tax provision
7

7

17

Net loss
(36,610
)
(23,912
)
(21,542
)
Undeclared dividends on preferred stock
(178
)
(188
)
(5,508
)
Net loss applicable to common shareholders
$
(36,788
)
$
(24,100
)
$
(27,050
)
Weighted average common shares outstanding, basic
10,749

9,286

8,501

Weighted average common shares outstanding, diluted
10,749

9,286

8,501

Loss per common share, basic
$
(3.42
)
$
(2.60
)
$
(3.18
)
Loss per common share, diluted
$
(3.42
)
$
(2.60
)
$
(3.18
)
The accompanying notes are an integral part of these consolidated financial statements.


47


EMPIRE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT) / EQUITY
YEARS ENDED DECEMBER 31, 2015, 2014 and 2013
(In thousands)
 
Preferred Stock*
 
Common Stock
 
Additional
paid-in
capital
 
Accumulated
Deficit
 
Total
Stockholders’
(Deficit)/Equity
 
Series B
 
Series E
 
 
Shares
 
Amount
 
Shares
 
Amount
 
Shares
 
Amount
 
Balances, January 1, 2013
44

 
$

 
1,731

 
$
6,855

 
6,014

 
$
60

 
$
146,323

 
$
(128,425
)
 
$
24,813

Redemption of Series E Preferred Shares

 

 
(1,703
)
 
(6,854
)
 

 

 
268

 
(19,033
)
 
(25,619
)
Declared and paid dividends on preferred stock

 

 

 

 
15

 

 
166

 
(167
)
 
(1
)
Common stock issued from exercise of rights offering

 

 

 

 
1,207

 
12

 
11,386

 

 
11,398

Stock issuance

 

 

 

 

 

 
(223
)
 

 
(223
)
Options exercised

 

 

 

 
63

 
1

 
1,014

 

 
1,014

Stock-based compensation

 

 

 

 

 

 
385

 

 
385

Net loss

 

 

 

 

 

 

 
(21,542
)
 
(21,542
)
Balances, December 31, 2013
44

 

 
28

 
1

 
7,299

 
73

 
159,319

 
(169,167
)
 
(9,775
)
Declared and paid dividends on preferred stock

 

 

 

 
6

 

 
218

 
(218
)
 

Common stock issued from exercise of rights offering

 

 

 

 
428

 
4

 
13,364

 

 
13,368

Stock issuance

 

 

 

 
27

 

 
(188
)
 

 
(188
)
Options exercised

 

 

 

 
141

 
2

 
2,768

 

 
2,770

Stock-based compensation

 

 

 

 

 

 
636

 

 
636

Net loss

 

 

 

 

 

 

 
(23,912
)
 
(23,912
)
Balances, December 31, 2014
44

 

 
28

 
1

 
7,901

 
79

 
176,117

 
(193,297
)
 
(17,101
)
Declared and paid dividends on preferred stock

 

 

 

 
5

 

 
159

 
(160
)
 
(1
)
Redemption of Series E Preferred Shares

 

 
(28
)
 
(1
)
 

 

 
(533
)
 

 
(534
)
Common stock issued from exercise of rights offering

 

 

 

 
1,409

 
14

 
49,514

 

 
49,528

Stock issuance

 

 

 

 
123

 
1

 

 
 
 
1

Options exercised

 

 

 

 
40

 
1

 
160

 
 
 
162

Stock-based compensation

 

 

 

 

 

 
596

 
 
 
596

Warrants exercised

 

 

 

 
83

 
1

 
2,499

 
$

 
2,500

Net loss

 

 

 

 

 

 

 
(36,610
)
 
(36,610
)
Balances, December 31, 2015
44

 
$

 

 
$

 
9,561

 
$
96

 
$
228,512

 
$
(230,067
)
 
$
(1,459
)
*
Series A preferred stock, none issued and outstanding.
The accompanying notes are an integral part of these consolidated financial statements.



48


EMPIRE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
(In thousands)
 
 
2015
 
2014
 
2013
Cash flows from operating activities:
 
 
 
 
 
Net loss
$
(36,610
)
 
$
(23,912
)
 
$
(21,542
)
Adjustments to reconcile net loss to net cash used by operating activities:
 
 
 
 
 
Depreciation
1,350

 
1,324

 
1,354

Provision / (Recovery) for doubtful accounts
10

 
(5
)
 
(36
)
Non-cash interest expense
1,241

 
7,680

 

Development costs write off

 

 
16,003

Loss on disposal of property and equipment
1

 
1

 
91

Stock - based compensation
596

 
636

 
385

Changes in operating assets and liabilities:
 
 
 
 
 
Restricted cash—NYSGC Lottery and Purse Accounts
354

 
(633
)
 
128

Accounts receivable
(117
)
 
135

 
(136
)
Prepaid expenses and other current assets
(544
)
 
(1,274
)
 
(184
)
Other assets
3

 
91

 
122

Accounts payable
(962
)
 
(350
)
 
(251
)
Accrued expenses and other current liabilities
3,298

 
815

 
(276
)
Net cash used in operating activities
(31,380
)
 
(15,492
)
 
(4,342
)
Cash flows from investing activities:
 
 
 
 
 
Purchase of property and equipment
(767
)
 
(1,542
)
 
(1,036
)
Capitalized project development costs
(4,074
)
 

 

Cash restricted for development of the Casino Project
(15,472
)
 

 

Restricted cash—Racing capital improvement
15

 
(7
)
 
43

Development costs

 

 
(5,574
)
Net cash used in investing activities
(20,298
)
 
(1,549
)
 
(6,567
)
Cash flows from financing activities:
 
 
 
 
 
Proceeds from rights offering, net of expenses
49,528

 
13,180

 
11,178

Series E preferred shares and dividend redemption
(533
)
 

 
(2,819
)
Proceeds from exercise of stock options and warrants
2,660

 
2,770

 
1,013

Net cash provided by financing activities
51,655

 
15,950

 
9,372

Net decrease in cash and cash equivalents
(23
)
 
(1,091
)
 
(1,537
)
Cash and cash equivalents, beginning of year
6,435

 
7,526

 
9,063

Cash and cash equivalents, end of year
$
6,412

 
$
6,435

 
$
7,526

Supplemental disclosures of cash flow information:
 
 
 
 
 
Interest paid
$
1,398

 
$
1,330

 
$
1,325

Income taxes paid
$

 
$

 
$
17

Noncash investing and financing activities:
 
 
 
 
 
Common stock issued in settlement of preferred stock dividends
$
159

 
$
218

 
$
167

Project development costs included in accrued expenses
$
6,331

 
$

 
$

The accompanying notes are an integral part of these consolidated financial statements.

49


EMPIRE RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A. Organization and Nature of Business

Empire Resorts, Inc. (“Empire,” and, together with its subsidiaries, the “Company,” “us,” “our” or “we”) was organized as a Delaware corporation on March 19, 1993, and since that time has served as a holding company for various subsidiaries engaged in the hospitality and gaming industries. All share and per share information in this annual report on Form 10-K gives retroactive effect to a one-for-five reverse stock split effective as of December 23, 2015.

Through Empire’s wholly-owned subsidiary, MRMI, the Company currently owns and operates Monticello Casino and Raceway, a 45,000 square foot VGM and harness horseracing facility located in Monticello, New York, 90 miles northwest of New York City. Monticello Casino and Raceway operates 1,110 VGMs, which includes 1,070 video lottery terminals ("VLTs") and 40 electronic table game positions ("ETGs"). VGMs are similar to slot machines, but they are connected to a central system and report financial information to the central system. The 2015-2016 New York