Summary of Significant Accounting Policies

Reclassifications

Certain amounts in the accompanying consolidated financial statements for the 2017 period have been reclassified to conform to presentation in the 2018 period, most notably amortization of debt issuance costs has been included within interest expense on the Condensed Consolidated Statement of Operations.

Revenue recognition

As described below and under “Recent accounting pronouncements,” the Company adopted the provisions of new accounting standards and updates as codified in the Accounting Standards Codification (ASC) Topic 606 regarding revenue recognition. The Company adopted this guidance in the first quarter of 2018, using the modified retrospective approach. Under the modified retrospective approach, amounts presented as of December 31, 2017 and for the three-month period ended March 31, 2017 have not been adjusted to reflect the impact of the ASC Topic 606. This approach does not significantly impact the comparability of the 2018 and 2017 amounts. The promotional allowances recorded in 2017 are no longer presented in 2018 under ASC Topic 606. This change only impacts MRMI, since the Casino did not commence operations until February 8, 2018.

The Company’s patron transactions consist of gaming wagers, hotel room and food and beverage purchases. The transaction price for gaming wagers is the difference between gaming wins and losses, not the total amount wagered. The transaction price for hotel room and food and beverage purchases is the net amount collected from the patron for such goods and services. Hotel room and food and beverage services have been determined to be separate, standalone transactions and the transaction price for such services is recorded as revenue as the good or service is transferred to the patron over the duration of the patron’s stay at the hotel or when the Company provides the food and beverage services. In the case of a hotel stay involving multiple days, the total transaction price of the stay is recognized on a straight-line basis as the reservation for total days of stay is non-cancellable by the patron. The Company collects advanced deposits from hotel patrons for future reservations representing obligations of the Company until the room stay is provided to the patron.

Gaming wagers by patrons who are members of our loyalty programs represent two performance obligations of the Company. Patrons who are members of our loyalty programs earn loyalty points for gaming wagers. The Company applies a practical expedient by accounting for gaming wagers on a portfolio basis, as such wagers have similar characteristics and the Company reasonably expects the effects on the financial statements of applying the revenue recognition guidance to the portfolio to not differ materially from that which would result if applying the guidance to each individual patron. For purposes of allocating the transaction price when loyalty points are earned, the Company allocates an amount to the loyalty point liability based on the stand-alone “selling price” of the points earned, which is determined by the value of a point that can be redeemed for a hotel room or food and beverage services. An amount is allocated to the gaming wager performance obligation using the residual approach as the stand-alone price for wagers is highly variable and no set established price exists for such wagers. The allocated revenue for gaming wagers is recognized when the wagers occur because all such wagers settle immediately. The loyalty point liability amount is deferred and recognized as revenue when the patron redeems the points for a hotel room stay or for food and beverage services and such goods or services are provided to the patron.

Additionally, outside of our loyalty programs and at our discretion, we offer our patrons complimentary goods and services, primarily food and beverage and hotel room stays. Such complimentaries are provided in conjunction with revenue-generating gaming activity and are largely provided to entice contemporaneous and future revenue-generating gaming activities. We allocate a portion of the transaction price for gaming wagers we receive from such patrons to the complimentary goods and services provided to such patrons using the residual approach. This allocation is based on the estimated standalone selling price ("SSP") of the underlying goods and services provided, which are determined based on observed SSP we receive for selling such goods and services.

Hospitality Revenues: Food and beverage revenues, and room revenues include (i) revenues generated from transactions with patrons for such goods and/or services, (ii) revenues recognized through the redemption of points from our loyalty programs for such goods and/or services, and (iii) revenues generated as a result of providing such goods and/or services on a complimentary basis in conjunction with gaming activities. Food and beverage revenues and room revenues are recognized when goods are delivered and services are performed. In general, performance obligations associated with these transactions are satisfied at a point-in-time, but may also be satisfied over a period of time, which is typically over the course of a patron’s stay. Advance deposits on rooms are reflected as a performance obligation liability until the goods and/or services are provided to the patron. The Company's performance obligation liabilities are included in “Accrued expenses and other accrued liabilities” in our unaudited condensed consolidated balance sheets.

Racing Revenues: Racing revenues include revenue earned from pari-mutuel wagering on live harness racing and simulcast signals to and from other tracks. Some elements of racing revenue from Off-Track Betting Corporations (“OTBs”) are recognized as collected, due to uncertainty of receipt and timing of payments.

Other Revenues: Other revenues primarily include commissions received on ATM transactions and cash advances, as well as lottery tickets, which are recorded on a net basis as the Company represents the agent in its relationship with the third-party service providers. Other revenues also include the sale of retail goods, which are recognized at the time the goods are delivered to the customer.

Subsequent to the adoption of ASC 606, complimentary food and beverage revenues and room revenues are included in food and beverage revenues; room revenues; and other revenues, with a corresponding decrease to gaming revenues, in the unaudited condensed consolidated statements of operations. See “Recent Accounting Pronouncements” for further information regarding the adoption of ASC 606.

Complimentary food and beverage revenues, and complimentary room revenues for the three-month periods ended March 31, 2018 and 2017, respectively, were as follows:



	03/31/2018	03/31/2017
	(in thousands)

Complimentary food and beverage revenues	$1,016	$166
Complimentary room revenues	164	—

The Company’s performance obligation related to its loyalty point obligation is generally completed within one year, as a patron’s loyalty point balance is forfeited after six months of inactivity, as defined in the loyalty programs. The Company’s liability for its loyalty point performance obligations was $1.2 million and $324,000 at March 31, 2018 and December 31, 2017, respectively. Loyalty points are generally earned and redeemed constantly over time.

Cash, cash equivalents and restricted cash

Cash and cash equivalents include cash on hand, demand deposits and certificates of deposit with original maturities of three months or less at acquisition. The Company maintains significant cash balances with financial institutions, which are not covered by the Federal Deposit Insurance Corporation. The Company has not incurred any losses in such accounts and believes it is not exposed to any significant credit risk on cash.

The Company has several types of restricted cash accounts. These restrictions are in accordance with the New York State Gaming Commission ("NYSGC") regulations. In addition, at March 31, 2018, the Company had restricted cash of $33.8 million from the remaining proceeds of the Term Loan Facility and the then-outstanding Kien Huat Montreign Loan in a lender-controlled account pursuant to the Term Loan Facility.

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same such amounts shown in the statement of cash flows:



	March 31, 2018		December 31, 2017	March 31, 2017	December 31, 2016
		(in thousands)
Cash and cash equivalents	$29,632		$10,380	$7,808	$11,012
Restricted cash	1,212		693	1,058	1,078
Restricted cash for Development Projects	33,799		41,982	7,605	26,384
Total cash, cash equivalents and restricted cash shown in the statement of cash flows	$64,643		$53,055	$16,471	$38,474

Restricted cash and investments for Development Projects

Restricted cash and investments for Development Projects represented the remaining funds from the Term Loan Facility and the then-outstanding Kien Huat Montreign Loan to be utilized for the Development Projects. At March 31, 2018, restricted cash and investments for Development Projects of $67.2 million was comprised of cash and cash equivalent balances of approximately $33.8 million and short-term investments maturing within one year of approximately $33.4 million. At March 31, 2018, short-term investments were comprised of commercial paper of approximately $26.4 million and U.S. Treasury notes of $7.0 million. At December 31, 2017, restricted cash and investments for Development Projects of $136.4 million was comprised of cash and cash equivalent balances of approximately $41.9 million and short-term investments maturing within one year of approximately $94.5 million. At December 31, 2017, short-term investments were comprised of commercial paper of approximately $59.4 million and U. S. Treasury notes of approximately $35.1 million, all with maturities of less than one year. The short-term investments are recorded at amortized cost, which approximates fair value due to their short-term nature.

Accounts receivable

Accounts receivable, net of allowances, are stated at the amount the Company expects 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, how recently payments have been received and the Company’s judgment of collectability. In the normal course of business, the Company settles wagers for other racetracks and is 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. The Company recorded an allowance for doubtful accounts of approximately $171,000 at both March 31, 2018 and December 31, 2017.

Capitalized Interest

Interest costs incurred in connection with the construction of the Casino and the Development Projects have been capitalized in the cost of the projects. Capitalization will cease when the Casino or the other Development projects are substantially complete or if development activity is suspended for an extended period of time.

The Company capitalized $10.1 million and $3.7 million of interest charges during the three-month periods ended March 31, 2018 and March 31, 2017, respectively.

Other long-term liabilities

The difference between our cash payments and straight-line rent on our land leases of $7.9 million and $8.3 million at March 31, 2018 and December 31, 2017, respectively, is included in other long-term liabilities.

Common stock - loss per share

The Company computes basic loss per share by dividing net loss applicable to common shares by the weighted-average common shares outstanding for the period. Diluted loss per share reflects the potential dilution of earnings that could occur if securities or contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the loss of the entity. Since the effect of common stock equivalents is anti-dilutive with respect to losses, these common stock equivalents have been excluded from the Company’s computation of loss per common share. Therefore, basic and diluted loss per common share for the three-month periods ended March 31, 2018 and and 2017 were the same.

The following table shows the approximate number of common stock equivalents outstanding at March 31, 2018 and 2017 that could potentially dilute basic loss per share in the future, but were not included in the calculation of diluted loss per share for the three-month periods ended March 31, 2018 and 2017, because their inclusion would have been anti-dilutive to the loss per common share:



	Outstanding at
	March 31, 2018	March 31, 2017
Restricted stock	151,000	139,000
Warrants	193,000	133,000
Restricted stock units ("RSU's)	73,000	73,000
Option Matching Rights	1,000	3,000
Options	12,000	13,000
Total	430,000	361,000

On August 19, 2009, the Company entered into an investment agreement (the "Investment Agreement") with Kien Huat Realty III Limited ("Kien Huat"), the Company's largest stockholder, pursuant to which Kien Huat purchased shares of common stock of the Company during the year ended December 31, 2009. Under the Investment Agreement, if any options or warrants outstanding at the time of the final closing under the Investment Agreement, or the first 200,000 options or warrants granted to directors or officers as of the final closing date under the Investment Agreement, are exercised, Kien Huat has the right to purchase an equal number of additional shares of common stock as are issued upon such exercise at the exercise price for the applicable option or warrant. The Company refers to these rights as the “Option Matching Rights”.

On January 24, 2018, Kien Huat exercised its option to purchase 1,666 shares of common stock to match a recent option exercise of the same number of shares by another stockholder at an exercise price of $15.00 per share. The Option Matching Rights outstanding at March 31, 2018 expire in July 2018.

Interest Rate Cap Agreement

In February 2017, the Company entered into an interest rate cap agreement with Credit Suisse AG, International to limit its exposure to increases in interest rates on its Term B Loan (as defined below) from May 1, 2017 through February 28, 2018 and then for a portion of the balance of its Term B Loan through July 31, 2019 (the "Interest Rate Cap"). The Company paid $675,000 for the Interest Rate Cap. The cost of the Interest Rate Cap is amortized over its term as interest expense. The fair value of the Interest Rate Cap was $222,000 at March 31, 2018 and $251,000 at December 31, 2017, respectively, and is presented at fair value as "Other Assets" on the Condensed Consolidated Balance Sheet. The difference between the fair value and amortized cost is recorded as an adjustment to accumulated other comprehensive loss.

Accumulated Other Comprehensive Loss

As of March 31, 2018 and December 31, 2017, accumulated other comprehensive loss was $200,000 and $315,000, respectively, and consisted solely of the fair value adjustment relating to the Interest Rate Cap.

Fair value

The Company follows 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). The Company chose not to elect the fair value option as prescribed by the FASB, for its financial assets and liabilities that had not been previously carried at fair value. The Company’s financial instruments are primarily comprised of current assets, restricted cash and investments, Interest Rate Cap, current liabilities and long-term debt. Current assets, investments and current liabilities approximate fair value due to their short-term nature.

In determining fair value, the Company uses quoted prices and observable inputs. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company.

The fair value hierarchy of observable inputs used by the Company is broken down into three levels based on the source of inputs as follows:

- Level 1 - Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities.

- Level 2 - Valuations based on inputs that are observable inputs and quoted prices in active markets for similar assets and liabilities.

- Level 3 - Valuations based on inputs that are unobservable and models that are significant to the overall fair value measurement.

The following table presents the carrying amount, fair values and classification level within the fair value hierarchy of financial instruments measured or disclosed at fair value on a recurring basis:



	March 31, 2018		December 31, 2017
	Carrying Amount	Fair Value	Carrying Amount	Fair Value	Level of Fair Value Hierarchy
Assets:	(in thousands)
Cash and cash equivalents	$29,632	$29,632	$10,380	$10,380	Level 1
Restricted cash	1,212	1,212	693	693	Level 1
Interest Rate Cap	222	222	251	251	Level 2
Restricted cash and investments for Development Projects:
Cash and cash equivalents	33,799	33,799	41,982	41,982	Level 1
Short-term investments	33,400	33,155	94,449	94,209	Level 2

Liabilities:
Term B Loan, net of discount	443,322	449,778	443,161	449,749	Level 2
Bangkok Bank Loan	16,000	16,000	16,000	16,000	Level 3
Revolving Credit Facility	13,000	13,000	—	—	Level 2
Equipment loans	30,731	30,731	31,095	31,095	Level 3

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 Empire’s 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. As of March 31, 2018, there was approximately $3.0 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Company’s equity compensation plan. That cost is expected to be recognized over a period of three years. This expected cost does not include the impact of any future stock-based compensation awards.

Income taxes

The Company applies the asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in future taxable or deductible amounts, based on enacted tax laws and rates for the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

Intangible Assets

In accordance with ASC 350, Intangibles - Goodwill and Other, the Company amortizes intangible assets over their estimated useful lives unless the Company determines their lives to be indefinite.

As a condition of the Gaming Facility License, the Company was granted a gaming license, for which it paid $51 million on February 25, 2016. The term of the gaming license is 10 years; however, amortization did not commence until the completion of construction and the opening to the general public of the Casino in February 2018. Amortization has been recognized on a straight-line basis beginning in February 2018 and will continue until the license is up for renewal in 2026. The Company will assess the intangible asset for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired.

Recent accounting pronouncements

In May 2014, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers, which introduced a new standard related to revenue recognition, ASC Topic 606, Revenue from Contracts with Customers, (“ASC 606” or the “new revenue standard”). Under ASC 606, recognition of revenue occurs when a customer obtains control of promised goods or services in an amount that reflects the consideration to which the entity expects to receive in exchange for those goods or services. In addition, the new revenue standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer contracts.

In March 2016, the FASB issued ASU No. 2016-08, Principal versus Agent Considerations, which clarified the implementation guidance on principal versus agent considerations in the new revenue standard pursuant to ASU No. 2014-09. In April 2016, the FASB issued ASU No. 2016-10, Identifying Performance Obligations and Licensing, and in May 2016, the FASB issued ASU No. 2016-12, Narrow-Scope Improvements and Practical Expedients, which amended certain aspects of the new revenue standard pursuant to ASU No. 2014-09. In December 2016, the FASB issued ASU No. 2016-20; Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers; which further clarified and corrected certain elements of ASC 606.

The Company adopted ASC 606 during the first quarter of 2018 using the modified retrospective approach to all contracts as of the date of initial application, which was January 1, 2018. Adoption of the new revenue standard principally affected (1) how the Company measures the liability associated with our loyalty program at MRMI and (2) the classification of revenues and expenses between gaming, food and beverage, and other as it relates to MRMI. Since the Casino did not have any revenue-generating activities prior to its opening on February 5, 2018, which was subsequent to the adoption of the new revenue standard, the adoption had no impact on the revenues of the Casino. The modified retrospective approach required the Company to recognize the impact of adopting ASC 606 as a cumulative effect increase of $54,000 to our beginning accumulated deficit as of January 1, 2018. The cumulative effect adjustment related exclusively to remeasuring guest loyalty liability from a cost approach to a full retail value approach. In addition, the modified retrospective approach required the Company to provide disclosures describing the financial statement line items impacted by the new revenue standard (see below).

Under our loyalty programs, guests earn points based on their level of play, which may be redeemed for various benefits, such as free play, food and beverage, hotel stays, or other amenities. Prior to the adoption of ASC 606, we determined our liability for unredeemed points based on the estimated costs of services or merchandise to be provided and estimated redemption rates. Upon adoption of ASC 606, points awarded under our loyalty programs are considered a material right given to players based on their gaming play and the promise to provide points to players is required to be accounted for as a separate performance obligation. In addition, certain tier benefits associated with our loyalty programs, represent material rights in a manner similar to player points, which results in such benefits constituting separate performance obligations. Therefore, ASC 606 required us to allocate the revenues associated with the players’ activity between gaming revenues and the value of the points and certain tier benefits, if applicable. The measurement of the liability is based on the estimated standalone selling price of the points earned after factoring in the likelihood of redemption. The revenues associated with the points earned is recognized in the period in which they are redeemed.

The financial statement line items included on our unaudited Condensed Consolidated Balance Sheet as of March 31, 2018 that were affected by the new revenue standard were “Other accrued liabilities,” which increased by $54,000, and “Accumulated deficit,” which increased by $54,000. These changes were exclusively the result of remeasuring the loyalty program liability from a deferred cost model to a deferred revenue model.

In February 2016, FASB issued ASU 2016-02, "Leases (Topic 842)" ("ASU 2016-02"), which provides guidance for accounting for leases. Under ASU 2016-02, the Company will be required to recognize the assets and liabilities for the rights and obligations created by leased assets. ASU 2016-02 will take effect for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The standard must be adopted using a modified retrospective approach and provides for certain practical expedients. Early adoption is permitted. The Company intends to adopt the standard on January 1, 2019 and apply the package of practical expedients available to it upon adoption. The Company continues to evaluate the effect that ASU 2016-02 will have on consolidated financial statements, but we expect that ASU 2016-02 will have a material effect on the condensed consolidated balance sheets as a result of the recognition of certain leases as right-of-use assets and lease liabilities.

In November 2016, FASB issued ASU 2016-18, "Restricted Cash" Topic 230, which requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash and restricted cash equivalents. The Company adopted this standard on January 1, 2018 using the retrospective transition method. The impact of the new standard is that the Company's condensed consolidated statements of cash flows now present the change in a combined amount for both restricted and unrestricted cash and cash equivalents for all periods presented.