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

                               _________________

                                    FORM 10-Q

                               _________________

(Mark One)

|X|    QUARTERLY  REPORT  PURSUANT  TO  SECTION  13 OR 15(d)  OF THE  SECURITIES
       EXCHANGE ACT OF 1934

       FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2006

                                       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           (I.R.S. Employer Identification No.)
  incorporation or organization)


           701 N. GREEN VALLEY PARKWAY, SUITE 200, HENDERSON, NV 89074
               (Address of principal executive offices)(Zip Code)


                                 (702) 990-3355
              (Registrant's telephone number, including area code)


(Former name, former address and former fiscal year, if changed since last report)

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. |X| Yes |_| No

Indicate by check mark whether the registrant is a large  accelerated  filer, an
accelerated  filer, or a  non-accelerated  filer. See definition of "accelerated
filer and large  accelerated  filer" in Rule 12b-2 of the Exchange  Act.  (Check
one):

 Large  accelerated  filer |_|  Accelerated filer |_| Non-accelerated filer |X|

Indicate by check mark whether the  registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

The number of shares  outstanding  of the issuer's  common stock,  as of May 10,
2006 was 26,553,972.






                                   EMPIRE RESORTS, INC. AND SUBSIDIARIES

                                                   INDEX

PART I                                   FINANCIAL INFORMATION                                   PAGE NO.

ITEM 1.    Financial Statements

           Condensed Consolidated Balance Sheets as of March 31, 2006 (Unaudited)
              and December 31, 2005.........................................................       3

           Condensed Consolidated Statements of Operations (Unaudited) for the three months
              ended March 31, 2006 and 2005................................................        4

           Condensed Consolidated Statements of Cash Flows (Unaudited) for the three months
              ended March 31, 2006 and 2005................................................        5 - 6

           Notes to Condensed Consolidated Financial Statements (Unaudited).................       7 - 21

ITEM 2.    Management's Discussion and Analysis of Financial Condition and Results
              of Operations................................................................        22 - 27

ITEM 3.    Quantitative and Qualitative Disclosures about Market Risk.......................       27

ITEM 4.    Controls and Procedures..........................................................       27



PART II                                         OTHER INFORMATION

ITEM 6.    Exhibits.........................................................................       28

           Signatures.......................................................................       29






                                                   2




                                           PART I--FINANCIAL INFORMATION
ITEM 1.--FINANCIAL STATEMENTS

                                       EMPIRE RESORTS, INC. AND SUBSIDIARIES
                                       CONDENSED CONSOLIDATED BALANCE SHEETS
                                                  (IN THOUSANDS)

                                                                                      March 31,
                                                                                        2006         December 31,
                                                                                     (Unaudited)        2005
                                                                                     -----------    --------------
        ASSETS

Current assets:
        Cash and cash equivalents                                                      $7,005           $6,992
        Restricted cash                                                                 2,569            4,716
        Accounts receivable                                                             4,556            3,358
        Prepaid expenses and other current assets                                       1,066            1,112
                                                                                     --------         --------
                          Total current assets                                         15,196           16,178

Property and equipment, net                                                            32,289           32,536
Deferred financing costs, net of accumulated amortization of $855
in 2006 and $709 in 2005                                                                3,625            2,973
Deferred development costs                                                              5,872            5,558
                                                                                     --------         --------
TOTAL ASSETS                                                                          $56,982          $57,245
                                                                                     ========         ========
        LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:
        Revolving credit facility                                                      $7,617           $7,476
        Accounts payable                                                                3,276            3,529
        Accrued expenses and other current liabilities                                  8,817            8,455
                                                                                     --------         --------
                          Total current liabilities                                    19,710           19,460
Senior convertible notes                                                               65,000           65,000
                                                                                     --------         --------
Total liabilities                                                                      84,710           84,460

Commitments and contingencies                                                            ----            -----

Stockholders' deficit:
        Preferred stock, 5,000 shares authorized; $0.01 par value -
               Series B, 44 shares issued and outstanding                                ----            -----
               Series E, $10.00 redemption value, 1,731 shares issued
               and outstanding                                                          6,855            6,855
        Common  stock,  $0.01 par value,  75,000 shares  authorized,
        26,355 and 26,312 shares issued and outstanding in 2006 and
        2005, respectively                                                                264              263
        Additional paid in capital                                                     23,110           21,728
        Accumulated deficit                                                          (57,957)         (56,061)
                                                                                     --------         --------
                          Total stockholders' deficit                                (27,728)         (27,215)
                                                                                     --------         --------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT                                           $56,982          $57,245
                                                                                     ========         ========


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

                                                           3






                                                 EMPIRE RESORTS, INC. AND SUBSIDIARIES
                                            CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                         (IN THOUSANDS, EXCEPT FOR PER SHARE DATA) (UNAUDITED)


                                                                                                   Three Months Ended
                                                                                                        March 31,
                                                                                                    2006         2005
                                                                                                    ----         ----
  REVENUES:
Racing                                                                                         $   4,630   $    2,972
Gaming                                                                                            17,300       13,251
Food, beverage and other                                                                           1,276          883
                                                                                              ----------- ------------
                                                                                                  23,206       17,106
GROSS REVENUES
Less: Promotional allowances                                                                        (545)        (416)
                                                                                              ----------- ------------
  NET REVENUES                                                                                    22,661       16,690
                                                                                              ----------- ------------


    COSTS AND EXPENSES:
Racing                                                                                             3,109        2,182
Gaming                                                                                            15,558       13,151
Food, beverage and other                                                                             508          392
Selling, general and administrative                                                                3,382        2,406
Depreciation                                                                                         284          277
                                                                                              ----------- ------------
   TOTAL COSTS AND EXPENSES                                                                       22,841       18,408
                                                                                              ----------- ------------

LOSS FROM OPERATIONS                                                                                (180)      (1,718)

Amortization of deferred financing costs                                                             146          137
Interest expense                                                                                   1,470        1,003
                                                                                              ----------- ------------
                                NET LOSS                                                          (1,796)      (2,858)
Cumulative undeclared dividends on preferred stock                                                   388          388
                                                                                              ----------- ------------
 NET LOSS APPLICABLE TO COMMON SHARES                                                          $  (2,184)  $   (3,246)
                                                                                              =========== ============
Weight average common shares outstanding, basic and diluted                                       26,324       26,086
                                                                                              ----------- ------------
Loss per common share, basic and diluted                                                       $   (0.08)  $    (0.12)
                                                                                              =========== ============




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


                                                           4






                                          EMPIRE RESORTS, INC. AND SUBSIDIARIES
                                     CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                               (UNAUDITED) (IN THOUSANDS)

                                                                                                 Three Months Ended
                                                                                                 ------------------
                                                                                                       March 31,
                                                                                                       ---------
                                                                                                 2006             2005
                                                                                                 ----             ----
                        CASH FLOWS FROM OPERATING ACTIVITIES
  Net loss                                                                                   $ (1,796)         $(2,858)
  Adjustments to reconcile net loss to net cash provided by (used in)
  operating activities:
       Depreciation                                                                               284              277
       Amortization of deferred financing costs                                                   146              137
       Stock-based compensation                                                                 1,241              559
  Changes in operating assets and liabilities:
         Restricted cash (VGM Marketing Accounts)                                               2,079              ---
         Accounts receivable                                                                   (1,198)           1,141
         Prepaid expenses and other current assets                                                 46              246
         Accounts payable                                                                        (184)              61
         Accrued expenses and other current liabilities                                           362             (900)
                                                                                               ------           ------
  NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES                                             980           (1,337)
                                                                                               ------           ------
                        CASH FLOWS FROM INVESTING ACTIVITIES

  Purchases of property and equipment                                                             (36)          (1,812)
  Restricted cash (Racing capital improvement)                                                     73               46
  Deferred development costs                                                                     (385)          (1,701)
                                                                                               ------           ------
  NET CASH USED IN INVESTING ACTIVITIES                                                          (348)          (3,467)
                                                                                               ------           ------
                        CASH FLOWS FROM FINANCING ACTIVITIES

  Proceeds from revolving credit facility                                                         141            4,737
  Proceeds from exercise of stock options                                                          42              ---
  Restricted cash (related to revolving credit facility)                                           (4)            (400)
  Deferred financing costs                                                                       (798)            (539)
                                                                                               ------           ------
NET CASH PROVIDED (USED IN) BY FINANCING ACTIVITIES                                              (619)           3,798
                                                                                               ------           ------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                               13           (1,006)
CASH AND CASH EQUIVALENTS, beginning of period                                                  6,992            7,164
                                                                                               ------           ------
CASH AND CASH EQUIVALENTS, end of period                                                       $7,005           $6,158
                                                                                               ======           ======

                                                              (Continued)

                                                           5




                                          EMPIRE RESORTS, INC. AND SUBSIDIARIES
                                     CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                               (UNAUDITED) (IN THOUSANDS)



                                                                                                  Three Months Ended
                                                                                                  ------------------
                                                                                                        March 31,
                                                                                                        ---------
                                                                                                2006             2005
                                                                                                -----            ----
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest during the period                                                       $2,887           $1,865

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Common stock issued in settlement of preferred stock dividends                                    $98             $142
Noncash additions to deferred development costs                                                   $70             $495








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





                                                           6




                      EMPIRE RESORTS, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


NOTE A. SUMMARY OF BUSINESS AND BASIS FOR PRESENTATION

BASIS FOR PRESENTATION

     The condensed  consolidated  financial statements and notes as of March 31,
2006 and for the three month periods ended March 31, 2006 and 2005 are unaudited
and include the accounts of Empire Resorts,  Inc and  subsidiaries  ("Empire" or
"the Company" or "we").

     We  operate  through  three  principal  subsidiaries,   Monticello  Raceway
Management,   Inc.   ("Monticello   Raceway   Management"),   Monticello  Casino
Management,   LLC  ("Monticello   Casino  Management")  and  Monticello  Raceway
Development  Company, LLC ("Monticello Raceway  Development").  Currently,  only
Monticello Raceway Management has operations which generate revenue.

     The condensed  consolidated  financial  statements  reflect all adjustments
(consisting  of  normal  recurring  accruals)  which  are,  in  the  opinion  of
management  necessary  for the  fair  presentation  of the  financial  position,
results of operations and cash flows for the interim  periods.  These  condensed
consolidated  financial  statements and notes should be read in conjunction with
the  consolidated  financial  statements  and  notes  thereto  included  in  the
Company's  Annual Report on Form 10-K for the year ended  December 31, 2005. The
results of operations for the interim period should not be indicative of results
to be expected for the full year.

     To  conform  to the 2006  presentation,  certain  amounts in the prior year
condensed consolidated financial statements have been reclassified.

LIQUIDITY

     We believe  that we have  access to sources  of  working  capital  that are
sufficient  to fund our  operations  for the year ended  December 31, 2006.  The
results of  operations  of our VGM facility have been improved by the changes in
the amount of revenue  retained  by VGM  agents and we have  approximately  $2.4
million  available from our revolving credit facility.  Any significant  capital
requirements  associated with our development  projects can be met by additional
debt or equity issues when needed.

NATURE OF BUSINESS

     During the past three years,  we have  concentrated  on  developing  gaming
operations in New York State.  Through our subsidiaries,  we intend to develop a
gaming resort in Monticello,  New York that includes harness horse racing, video
gaming  machines and a Indian casino as well as develop another Indian casino in
New York State. We continue to explore other possible development projects.


         RACEWAY AND VIDEO GAMING MACHINE OPERATIONS

     Monticello  Raceway  Management,  a wholly owned subsidiary,  is a New York
corporation that operates  Monticello  Raceway (the "Raceway"),  a harness horse
racing  facility  and a video  gaming  machine  facility  (Mighty  M  Gaming  at
Monticello Raceway) in Monticello, New York.

     The Raceway began operation in 1958 and offers pari-mutuel  wagering,  live
harness racing and simulcasting from various harness and thoroughbred racetracks
across the  country.  The  Raceway  derives  its  revenue  principally  from (i)
wagering  at the  Raceway  on live  races  run at the  Raceway;  (ii)  fees from
wagering at  out-of-state  locations on races  simulcast  from the Raceway using
export  simulcasting;  (iii)  revenue  allocations,  as  prescribed by law, from
betting activity at New York City,  Nassau County and Catskill Off Track Betting
facilities;  (iv) wagering at the Raceway on races  broadcast from  out-of-state
racetracks using import simulcasting; and (v) admission fees, program and racing
form  sales,  the  sale  of food  and  beverages  and  certain  other  ancillary
activities.

     A video gaming machine ("VGM") is an electronic  gaming device which allows
a patron to play  electronic  versions of various lottery games of chance and is
similar in appearance to a traditional  slot machine.  On October 31, 2001,  the
State of New York enacted a bill  designating  seven  racetracks,  including the
Raceway,  to install and operate  VGMs.  Under the  program,  the New York State


                                       7


Lottery  has  authorized  an  allocation  of up to  1,800  VGMs to the  Raceway.
Currently,  Monticello Raceway  Management  operates 1,576 VGMs on 45,000 square
feet of floor space at the Raceway.

     ST. REGIS MOHAWK RESORT DEVELOPMENT

     Beginning  in 1996,  we  attempted  to develop a casino with the St.  Regis
Mohawk Tribe and in 2000 received  certain federal  approvals  needed to build a
casino with the St. Regis  Mohawk Tribe  adjacent to the Raceway that would have
been managed by an affiliate of our  predecessor,  CDL. Such approvals  required
the  concurrence  of the  Governor of New York.  Prior to the issuance of such a
concurrence,  in  April  2000,  the  St.  Regis  Mohawk  Tribe  agreed  to  work
exclusively  with Park Place  Entertainment  Corporation,  now part of  Harrah's
Entertainment, Inc., which proposed to develop a casino for the St. Regis Mohawk
Tribe at the nearby  Kutsher's  Sporting  Academy.  Subsequently,  the St. Regis
Mohawk Tribe worked  exclusively  on obtaining the  necessary  approvals for the
Kutsher's project until the summer of 2005, when we and leaders of the St. Regis
Mohawk Tribe  discussed the  possibility  of moving  forward with the previously
obtained approvals for the casino project at the Raceway.

     On August 1, 2005,  we entered into a letter  agreement  with the St. Regis
Mohawk Tribe pursuant to which the St. Regis Mohawk Tribe  acknowledged  that on
April 6, 2000,  the United States  Department  of the Interior  advised New York
State  Governor  George Pataki that the  acquisition of 29 acres adjacent to the
Raceway  would be in the best  interest of the St.  Regis Mohawk Tribe and would
not be detrimental to the community.  Under the letter agreement, we and the St.
Regis Mohawk Tribe  affirmed,  subject to the requested  concurrence by Governor
Pataki, all prior contracts to develop an Indian casino at the Raceway.  The St.
Regis Mohawk Tribe further agreed to (1) satisfy all requirements for the Bureau
of Indian Affairs (the "BIA") in connection with the transfer of the 29 acres of
land to the United  States  government  in trust for the St. Regis Mohawk Tribe,
(2)  resolve  any  remaining  issues for the  finalization  of the  pre-existing
management  agreement with one of our  subsidiaries  for the project  previously
submitted to the National Indian Gaming Commission (the "NIGC"), (3) execute any
amendment  or  revision  to  such  management   agreement,   or  any  collateral
agreements,  that may be mutually  agreed upon in such process,  (4) support the
approval of such management agreement, as so amended or revised, by the NIGC and
(5) take any and all  reasonably  required steps to consummate the land to trust
transfer of the parcel pursuant to the April 6, 2000  determination  as promptly
as practicable following the concurrence of Governor Pataki.

     The  current  plans  for  the St.  Regis  Mohawk  Tribe  casino  resort  at
Monticello  Raceway  include  160,000 square feet of gaming space for 3,500 slot
machines and 125 table games, with sufficient space to accommodate an additional
500 slot machines and a variety of food and beverage offerings and entertainment
venues.

     On March 20,  2006,  we  submitted a proposed  form of amended and restated
gaming  facility   management   agreement  (the  "Gaming   Facility   Management
Agreement")  and  collateral  agreements  to the NIGC for review and approval or
disapproval.  Until  approved by the Chairman of the NIGC,  the gaming  facility
management agreement is not in force.

     Under  the  currently  proposed  form  of the  Gaming  Facility  Management
Agreement,  the  Authority  will  retain us to manage  all casino  style  gaming
activities,  other than  horserace  wagering  and Class II  gaming,  that may be
conducted on the land for seven years commencing upon the NIGC's approval of the
agreement.  We would also be retained to manage all lawful commercial activities
on the land related to gaming such as automatic teller  machines,  food service,
lodging and retail.  At the same time, we have agreed to assist the Authority to
obtain  financing  for  the  gaming   enterprise  and  all  related   commercial
activities.  In  exchange  for these  services,  we are  entitled  to  receive a
management  fee equal to 30% of the net revenues  derived from the operations it
manages.

     Under the Gaming Facility Management Agreement, before we can pay ourselves
our fee,  we must first pay to the  Authority a minimum  return of $516,667  per
month. These minimum priority payments are to be charged against the Authority's
distribution  of net revenues and, when there is  insufficient  net revenue in a
given month to pay the minimum  return,  we are  obligated  to advance the funds
necessary to compensate for the deficiency, with the Authority reimbursing us in
the next succeeding  month or months.  The minimum return is required to be paid
to the Authority every month gaming is conducted,  including on a pro rata basis
during those months when gaming is conducted only for part of a month.

     While  the  terms of the  proposed  Gaming  Facility  Management  Agreement
provide us with wide  discretion as to the  day-to-day  management of the gaming
facilities,  all major  decisions  or  expenditures  must first be approved by a
management business board to be comprised of four persons, two of whom are to be
appointed by the Authority and the other two of whom are to be appointed by us.

     In  carrying  out our  duties as manager  of the  gaming  facility,  we are
required to provide  the St.  Regis  Mohawk  Tribe and other  recognized  Indian
tribes with certain  preferences  including  giving  preference  in  recruiting,
training  and  employment  first to  qualified  members of the St.  Regis Mohawk
Tribe, and secondly to other qualified Native Americans and the local community,
providing  training  programs for members of the St. Regis Mohawk Tribe;  and in
entering  into  contracts  for the supply of goods and  services  for the gaming
enterprise, giving preference first to qualified members of the St. Regis Mohawk


                                       8


Tribe,  and qualified  business  entities  certified by the Authority or the St.
Regis Mohawk Tribe as being controlled by members of the St. Regis Mohawk Tribe,
and second to other qualified Native Americans and qualified  business  entities
certified by the Authority to be controlled by Native Americans and to the local
community.

     We  also  entered  into a  gaming  facility  development  and  construction
agreement  with the  Authority  and the St.  Regis  Mohawk  Tribe  (the  "Gaming
Facility  Development and  Construction  Agreement"),  pursuant to which we were
granted the exclusive right to design, engineer,  construct, furnish and develop
a Class III Indian casino resort with the St. Regis Mohawk Tribe,  and we agreed
to help arrange  financing of the project.  In exchange for these services,  the
Authority  agreed to pay us a  development  fee  equal to 5% of the  first  $505
million  of the  project's  costs,  payable  monthly  as the  project  costs are
incurred.  However,  the Authority is entitled to retain 10% of such development
fees  until  the  project  is 50%  completed  and then 5% until the  project  is
completed.  On the  completion  date,  the Authority is required to pay us these
retained fees.

     Similar to the Gaming Facility  Management  Agreement,  in the execution of
our duties under the Gaming Facility Development and Construction  Agreement, we
must first seek  approval  from a  development  business  board before any major
decisions or material  expenditures  are made.  The  development  business board
shall be  comprised  of four  persons,  two of whom are to be  appointed  by the
Authority and the other two of whom are to be appointed by us. Finally,  similar
to the  covenants  of the  Gaming  Facility  Management  Agreement,  the  Gaming
Facility  Development  and  Construction  Agreement  provides  that any  general
contractor hired by Monticello Raceway Development shall use its reasonable best
efforts to give,  and to cause  subcontractors  to give, a hiring  preference to
qualified members of the St. Regis Mohawk Tribe.

     The plans  are in a  preliminary  stage  and are  subject  to  approval  by
relevant government authorities and the St. Regis Mohawk Tribe.

     CAYUGA CATSKILL RESORT DEVELOPMENT

     On April 3, 2003, we, the Cayuga Nation of New York and the Cayuga Catskill
Gaming Authority,  an instrumentality of the Cayuga Nation of New York formed to
develop and conduct gaming operations, signed an initial form of gaming facility
management  agreement and related agreements.  The agreements provided for us to
supply  technical and financial  assistance to the Cayuga Nation of New York and
to serve as its exclusive partner in the development,  construction,  financing,
operation  and  management  of a proposed  casino in the  Monticello  area.  The
principal  agreements  were  extended in December  2005 to  December  31,  2006.
Subsequent to entering into our initial  agreement with the Cayuga Nation of New
York,  but prior to the execution of our recent  extensions,  leadership  issues
arose within the Cayuga Nation of New York,  which resulted in the suspension of
federal  processing  of the  applications  made  under our  earlier  agreements.
Efforts  are  underway to attempt to resolve the  leadership  issues  within the
Cayuga  Nation of New York. In our extension  agreements  and a separate  letter
agreement,  each of which were approved by some,  but not all, of the members of
the Cayuga Nation Council, we have indicated our willingness to continue to work
with the Cayuga Nation of New York to develop a casino in the  Catskills  region
of the  State of New  York and made  certain  arrangements  to  accommodate  the
renewal of our agreements  with the St. Regis Mohawk Tribe.  These  arrangements
contemplate  that the Cayuga Nation of New York may acquire  sovereign  land and
develop a casino and hotel resort on such land. These new agreements are subject
to various uncertainties relating to their validity and enforceability which can
only be resolved by the Cayuga Nation of New York as a sovereign  entity.  While
we continue to make an effort to observe our obligations under these agreements,
we cannot predict how or when these uncertainties will be resolved.

     In order for the Cayuga  Nation of New York to be authorized to develop and
operate a gaming  facility it must either 1) receive federal and state approvals
similar to those that have been received or are being sought in connection  with
our  project  with the St.  Regis  Mohawk  Tribe  or 2) be  exempted  from  such
requirements as the result of a land claim  settlement  agreement with the State
of New York. There are significant  preconditions  that must occur before such a
settlement can occur.  First,  legislation  must be passed by the New York State
legislature.  Second,  similar  legislation  must be passed by the United States
Congress.  Third,  title to a site must be  transferred to the United States and
accepted  into trust for the benefit of the Cayuga  Nation of New York.  Fourth,
the Cayuga  Nation of New York must enter into a Class III gaming  compact  with
the State of New York.  The  negotiations  between  the  interested  parties are
complex  and have been  affected by a variety of  factors,  including  political
opposition,  court  decisions  concerning  the  status  of the land  claims  and
internal differences within the Cayuga Nation of New York.

NOTE B.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     REVENUE AND EXPENSE  RECOGNITION.  Revenues  represent  (i)  revenues  from
pari-mutual  wagering earned from live harness racing and simulcast signals from
other tracks,  (ii) the net win from VGMs and (iii) food and beverage sales, net
of promotional allowances and other miscellaneous income. The Company recognizes
revenues from pari-mutual wagering earned from live harness racing and simulcast
signals from other tracks at the end of each racing day,  before  deductions  of
such  related  expenses  as purses,  stakes  and  awards.  Revenue  from the VGM
operations  is the  difference  between  the amount  wagered by bettors  and the
amount  paid out to bettors  and is  referred  to as the net win.  We  recognize
revenues from pari-mutual  wagering and VGM operations at the end of each day of
operation.  The net win is  included  in the amount  recorded  in our  condensed
consolidated  financial  statements  as gaming  revenue.  We  report  incentives
related to VGM play and points  earned in loyalty  programs  as a  reduction  of


                                       9


gaming  revenue.  Operating  costs  include (i) the amounts paid to the New York
State  Lottery for the  State's  share of the net win,  (ii)  amounts due to the
Horsemen and Breeder's for their share of the net win and (iii) amounts paid for
harness racing purses,  stakes and awards.  Also included in operating costs are
the costs  associated  with the sale of food,  beverage and other  miscellaneous
items and the marketing allowance for the New York State Lottery.

     We currently  have a point loyalty  program  ("Player's  Club") for our VGM
customers  which  allows  them to earn  points  based on the volume of their VGM
activity.  Points  earned by customers  are recorded as an expense in the period
they are earned.  We estimate  the amount of points  which will be redeemed  and
record  the  estimated  redemption  value of those  points as a  reduction  from
revenue in  promotional  allowances.  The factors  included  in this  estimation
process include an overall redemption rate, the cost of awards to be offered and
the mix of cash,  goods and services  for which the points will be redeemed.  We
use  historical  data to estimate  these  amounts.  The  liability  recorded for
unredeemed points was approximately  $168,000 and $150,000 at March 31, 2006 and
December 31, 2005, respectively.

     PRINCIPLES  OF   CONSOLIDATION.   The  condensed   consolidated   financial
statements   include  the   accounts   of  the  Company  and  its   wholly-owned
subsidiaries.  All significant inter-company balances and transactions have been
eliminated in consolidation.

     CASH  AND CASH  EQUIVALENTS.  Cash and  cash  equivalents  include  cash on
account, 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.
Approximately  $1.1 million of cash is held in reserve according to the New York
State Lottery Rules and Regulations.

     RESTRICTED CASH.  We have three types of restricted cash accounts.

     Under  New York  State  Racing,  Pari-Mutuel  Wagering  and  Breeding  Law,
Monticello  Raceway  Management  is obliged to withhold a certain  percentage of
certain types of wagers towards the establishment of a pool of money, the use of
which  is   restricted  to  the  funding  of  approved   capital   improvements.
Periodically during the year, Monticello Raceway Management petitions the Racing
and  Wagering  Board to certify  that the noted  expenditures  are  eligible for
reimbursement  from the capital  improvement  fund. The balances in this account
were approximately $81,000 and $153,000 at March 31, 2006 and December 31, 2005,
respectively.

     In April 2005,  the New York law governing VGM  operations  was modified to
provide an increase in the revenues  retained by the VGM operator.  A portion of
that increase was designated as a reimbursement of marketing  expenses  incurred
by the VGM operator.  The amount of revenues directed toward this  reimbursement
is deposited in a bank account  under the control of the New York State  Lottery
and the VGM  operator.  The  funds are  transferred  from  this  account  to the
operator  upon  the  approval  by the  Lottery  officials  of the  reimbursement
requests  submitted  by  the  operator.   The  balances  in  this  account  were
approximately $2,073,000 and $4,151,000 at March 31, 2006 and December 31, 2005,
respectively.

     In connection with our revolving credit agreement,  we agreed to maintain a
restricted  reserve bank account with the lending  institution.  The balances in
this  account  were  approximately  $416,000  and $412,000 at March 31, 2006 and
December 31, 2005, respectively.

     ACCOUNTS  RECEIVABLE.  Accounts  receivable  are  reported  at  the  amount
outstanding.  Management expects to collect the entire amount and,  accordingly,
determined that no allowance is required at March 31, 2006 or December 31, 2005.
In the normal course of business,  we settle wagers for other racetracks and are
potentially  exposed to credit risk. We have not experienced  significant losses
regarding  the  settlement  of wagers.  These  wagers are  included  in accounts
receivable.

     PROPERTY  AND  EQUIPMENT.  Property  and  equipment  is stated at cost less
accumulated depreciation.  We provide for depreciation on property and equipment
used by applying the  straight-line  method over the following  estimated useful
lives:
                                                    Estimated
                                                     Useful
Assets                                                Lives
------                                                -----
Vehicles                                           5-10 years
Furniture, fixtures and equipment                  5-10 years
Land improvements                                   20 years
Building improvements                               40 years
Buildings                                           40 years


                                       10



     DEFERRED  FINANCING  COSTS.  Deferred  financing costs are amortized on the
straight-line method over the term of the related debt.

     DEFERRED  DEVELOPMENT  COSTS.  Deferred  development  costs are recorded at
cost.

     In  connection  with our  development  activities,  we may make advances to
tribes for  development  assistance  and to  facilitate  the  establishment  and
initial operations of tribal gaming authorities.  We also incur costs associated
with development  activities,  including  salaries of employees engaged in those
activities  which we  capitalize  as  deferred  development  costs.  We  provide
technical assistance, engage and pay attorneys and consultants and provide other
support for our Indian  partners in matters  relating to land claims against the
State of New York and agreements for  development  and operation of the proposed
casino developments.

     We periodically review deferred development costs for impairment as further
described below.

     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 that 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.

     LOSS  CONTINGENCIES  There are times when  non-recurring  events occur that
require  management  to consider  whether an accrual for a loss  contingency  is
appropriate.  Accruals for loss contingencies  typically relate to certain legal
proceedings,  customer and other claims and litigation.  As required by SFAS No.
5, we determine  whether an accrual for a loss  contingency  is  appropriate  by
assessing whether a loss is deemed probable and can be reasonably estimated.  We
analyze our legal proceedings, warranty and other claims and litigation based on
available  information to assess  potential  liability.  We develop our views on
estimated  losses in consultation  with outside counsel  handling our defense in
these  matters,  which  involves  an analysis of  potential  results  assuming a
combination of litigation and settlement  strategies.  The adverse resolution of
any one or more of these  matters  over and  above  the  amounts  that have been
estimated and accrued in the current condensed consolidated financial statements
could have a material adverse effect on our business,  results of operations and
financial condition.

     LOSS PER COMMON  SHARE.  We compute  basic loss per share by dividing  loss
applicable to common shares by the  weighted-average  common shares  outstanding
for the year. 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 outstanding  options
and warrants is  anti-dilutive  with respect to losses,  they have been excluded
from our  computation  of loss per common  share.  Therefore,  basic and diluted
losses per common  share for the three months ended March 31, 2006 and 2005 were
the same.

     The following table shows the securities  outstanding at March 31, 2006 and
2005 that could  potentially  dilute basic loss per share in the future but were
not  included  in the  calculation  of  diluted  loss per  share  because  their
inclusion would have been anti-dilutive.



                                                            Outstanding at March 31,
                                                            ------------------------
                                                               2006          2005
                                                               ----          ----
Options                                                      7,831,000    1,097,000
Warrants                                                       250,000      250,000
Shares issuable upon conversion of convertible debt          5,175,000    4,727,000
Unvested restricted stock                                      175,000         ----
                                                         -------------- ------------
Total                                                       13,431,000    6,074,000
                                                         ============== ============



     ADVERTISING.  We expense the costs of general  advertising,  promotion  and
marketing programs at the time the costs are incurred.  Advertising  expense was
approximately  $270,000 and $190,000,  respectively,  for the three months ended
March 31, 2006 and 2005.

     INCOME  TAXES.  We apply 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.  We have  established  a
valuation  allowance to eliminate deferred tax assets until amounts are expected
to be realized.


                                       11



     ESTIMATES  AND  ASSUMPTIONS.  The  preparation  of financial  statements in
conformity with GAAP requires  management to make estimates and assumptions that
affect  the  reported  amounts  of assets  and  liabilities  and  disclosure  of
contingent  assets and  liabilities at the date of the financial  statements and
the reported  amounts of revenues and expenses during the reporting  period.  We
use significant  estimates including those related to customer  incentives,  bad
debts,  inventories,  estimated  useful lives for  depreciable  and  amortizable
assets,   valuation   reserves  and  estimated   cash  flows  in  assessing  the
recoverability  of  long-lived  assets,  estimated  liabilities  for point based
customer loyalty programs,  income taxes,  contingencies and litigation.  Actual
results may differ from estimates.

     STOCK-BASED  COMPENSATION.  In December  2004, the FASB issued SFAS No. 123
(revised  2004),  "Share Based  Payment"  ("SFAS No.  123(R)").  SFAS No. 123(R)
supersedes APB Opinion No. 25,  "Accounting  for Stock Issued to Employees," and
amends  SFAS No.  95,  "Statement  of Cash  Flows."  Generally,  the fair  value
approach in SFAS No. 123(R) is similar to the fair value  approach  described in
SFAS No. 123.  Effective  January 1, 2003,  our Company has adopted SFAS No. 123
and used the  Black-Scholes-Merton  formula to estimate  the fair value of stock
options  granted to employees.  Our Company  adopted SFAS No. 123(R),  using the
modified-prospective  method,  beginning  January 1, 2006. Based on the terms of
our plans,  our Company did not have a cumulative  effect  related to its plans.
Our Company also elected to continue to estimate the fair value of stock options
using the  Black-Scholes-Merton  formula.  In the  first  quarter  of 2006,  the
adoption of SFAS No. 123(R) did not have a material  impact on our first quarter
stock-based  compensation expense.  Further, we believe the adoption of SFAS No.
123(R)  will not have a  material  impact on our  Company's  future  stock-based
compensation  expense.  As of March,  31,  2006,  there was  approximately  $3.5
million of total unrecognized compensation cost related to nonvested share-based
compensation  arrangements  granted under our plans. That cost is expected to be
recognized  over a period of 3 years.  This  expected  cost does not include the
impact of any future stock-based compensation awards.

     RECLASSIFICATIONS.  Certain prior period amounts have been  reclassified to
conform to the current period presentation.


     RECENT ACCOUNTING PRONOUNCEMENTS.

SFAS NO. 155

     In February 2006, the Financial  Accounting Standards Board ("FASB") issued
SFAS No. 155, "Accounting for Certain Hybrid Financial Instruments--an Amendment
of FASB  Statements  No.  133 and 140"  ("SFAS  No.  155").  SFAS No. 155 allows
financial  instruments  that contain an embedded  derivative  and that otherwise
would require  bifurcation to be accounted for as a whole on a fair value basis,
at the holders'  election.  SFAS No. 155 also clarifies and amends certain other
provisions of SFAS No. 133 and SFAS No. 140. This statement is effective for all
financial  instruments  acquired  or  issued  in fiscal  years  beginning  after
September 15, 2006. We do not expect that the adoption of SFAS No. 155 will have
a  material  impact  on our  consolidated  financial  condition  or  results  of
operations.

SFAS NO. 156

     In March 2006, the FASB issued SFAS No. 156,  "Accounting  for Servicing of
Financial Assets--an Amendment of FASB Statement No. 140" ("SFAS No. 156"). SFAS
No. 156 provides guidance on the accounting for servicing assets and liabilities
when an entity undertakes an obligation to service a financial asset by entering
into a servicing  contract.  This statement is effective for all transactions in
fiscal years  beginning  after  September  15,  2006.  We do not expect that the
adoption  of SFAS No.  156  will  have a  material  impact  on our  consolidated
financial condition or results of operations.


NOTE C. PROPERTY AND EQUIPMENT

     Property and  equipment  consists of the  following  and March 31, 2006 and
December 31, 2005:

                                                          (In Thousands)
                                                      March 31,      December
                                                        2006         31, 2005
                                                  ----------------------------

Land                                                       $770          $770
Land improvements                                         1,495         1,495
Buildings                                                 4,583         4,583
Building improvements                                    24,464        24,454
Vehicles                                                    120           120
Furniture, fixtures and equipment                         2,765         2,738
                                                  ----------------------------
                                                         34,197        34,160
Less - Accumulated depreciation                         (1,908)       (1,624)
                                                  ----------------------------
NET BOOK VALUE                                          $32,289       $32,536
                                                  ============================

                                       12


Depreciation expense was approximately $284,000 and $277,000,  respectively, for
the three months ending March 31, 2006 and 2005.

NOTE D.  DEFERRED DEVELOPMENT COSTS

     We have made  payments to fund  certain  expenses of the St.  Regis  Mohawk
Tribe (the  "Mohawks") in connection  with the  development of a proposed Indian
casino  facility.   We  also  incur  development  costs  associated  with  other
development projects.

     We may make advances to provide  development  assistance in connection with
the  establishment and initial  operations of tribal gaming  authorities for New
York State gaming  operations for the Cayuga Nation of New York and the Mohawks.
Advances  made  by us are  non-interest-bearing  and  any  repayment  of them is
ultimately dependent upon the completion of the development of the projects.

     We also capitalize  costs directly  associated with the development of real
estate for those Indian gaming facilities and other projects.  Some of the costs
capitalized in connection with Indian casinos will be repaid,  with no interest,
from the permanent  financing  for the project or from project cash flow.  Costs
that are not reimbursed  will be  systematically  charged to our operations over
the period covered by our management contract.

     As of  March  31,  2006  and  December  31,  2005,  respectively,  deferred
development costs were approximately $5.9 million and $5.6 million.  These costs
are associated with the Raceway site and the Mohawks.

NOTE E. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

     Accrued  expenses  and  other  current  liabilities  is  comprised  of  the
following at March 31, 2006 and December 31, 2005:

                                                                  March 31,   Dec. 31,
                                                                    2006         2005
                                                                      (in thousands)
Liability for horseracing purses                                     5,285      $3,328
Accrued interest                                                       867       2,284
Accrued payroll                                                        405         624
Accrued other                                                        2,260       2,219
                                                               ------------------------
   Total accrued expenses and other current liabilities              8,817      $8,455
                                                               ========================


NOTE F. SENIOR CONVERTIBLE NOTES

     On July 26, 2004,  we issued $65 million of 5.5% senior  convertible  notes
(the "notes")  presently  convertible into  approximately  5.2 million shares of
common stock,  subject to adjustment  upon the occurrence or  non-occurrence  of
certain events.  The notes were issued with a maturity date of July 31, 2014 and
the holders  have the right to demand that we  repurchase  the notes at par plus
accrued interest on July 31, 2009. Interest is payable  semi-annually on January
31 and  July 31 to the  persons  who are  registered  holders  at the  close  of
business on each January 15 and July 15  immediately  preceding  the  applicable
interest payment date.

     The notes are our senior obligations, ranking senior in right of payment to
all of our existing and future subordinated  indebtedness and ranking equally in
right of payment with  existing and future  senior  indebtedness.  The notes are
guaranteed on a senior basis by all of our material subsidiaries.  The guarantee
of each material  subsidiary  guarantor is a senior obligation of the guarantor,
ranking  senior in right of payment  to all  existing  and  future  subordinated
indebtedness  of our guarantors and ranking equally in right of payment with any
existing and future senior indebtedness of such guarantor. The notes are secured
by our tangible and intangible  assets,  by a pledge of the equity  interests of
each of our material  subsidiaries and a mortgage on our property in Monticello,
New York.

     The notes initially accrued interest at an annual rate of 5.5%,  subject to
the occurrence of the "Trigger Event".  All of the following events constitute a
Trigger Event under the notes:  publication in the Federal  Register of approval
by the  Secretary of the  Interior of a Class III gaming  compact for the Cayuga
Catskill Resort;  written approval of a gaming facility management  agreement on
behalf of the chairman of the National Indian Gaming Commission; and the land in
Monticello,  New  York to be used for the  development  of the  Cayuga  Catskill
Resort  having  been  transferred  to the United  States in trust for the Cayuga
Nation of New York. Since these events have not occurred, the notes have accrued


                                       13


interest from and after July 31, 2005 at an annual rate of 8%. The interest rate
will return to 5.5% upon the occurrence of the Trigger Event.

     The notes can be  converted  into  shares of our  common  stock at any time
prior to maturity,  redemption or  repurchase.  The initial  conversion  rate is
72.727 shares per each $1,000 principal amount of notes,  subject to adjustment.
This conversion rate was equivalent to an initial conversion price of $13.75 per
share.  In the event that the notes  convert  prior to July 31, 2007, we will be
required to make an additional  make-whole payment equal to the present value of
all  remaining  scheduled  payments  of  interest  on the notes to be  converted
through and including July 31, 2007, assuming for such purpose that the interest
rate in effect as of the conversion date shall apply for all subsequent interest
periods  through July 31, 2007. Any  make-whole  payment will be payable in cash
or, at our option, in shares of our common stock at a 5% discount to the average
closing  bid price of our  common  stock for the 10  trading  days  prior to the
conversion date.

     Since the  Trigger  Event did not occur on or prior to July 31,  2005,  the
initial  conversion rate per each $1,000  principal amount of notes was reset to
$12.56 per share.

     We recognized  approximately  $1.3 million and $894,000 in interest expense
associated  with the notes for the three  months  ended March 31, 2006 and 2005,
respectively.

     We will be  seeking  the  consent  of the  holders of the notes in order to
amend  certain  provisions  of  the  indenture  governing  such  notes  to  give
management of the Company greater  flexibility in developing an Indian casino at
the Raceway with other Indian tribes beside the Cayuga Nation of New York.

NOTE G.  REVOLVING CREDIT FACILITY

     On  January  11,  2005,  we  entered  into a credit  facility  with Bank of
Scotland (the "Credit Facility"). The Credit Facility provides for a $10 million
senior  secured  revolving  loan (subject to certain  reserves)  that matures on
January 11, 2008. As security for  borrowings  under the facility,  we agreed to
have  our  wholly  owned  subsidiary,  Monticello  Raceway  Management,  grant a
mortgage on the Raceway  property and our material  subsidiaries  guarantee  our
obligations  under the  Credit  Facility.  We also  agreed to pledge  our equity
interests  in all of our  current  and  future  subsidiaries,  maintain  certain
reserves,  and grant a first priority secured interest in all of our assets, now
owned or later acquired. This arrangement contains financial covenants.

     At our option, loans under the Credit Facility bear interest at the rate of
prime  plus 2% or LIBOR  plus 4%.  Bank of  Scotland  has also  entered  into an
Inter-creditor Agreement with The Bank of New York so that Bank of Scotland will
enjoy a first  priority  position  notwithstanding  the  Indenture  and security
documents  entered into on July 26, 2004 in connection  with our issuance of $65
million of senior convertible notes.

     We  recognized  approximately  $170,000  and  $111,000,   respectively,  in
interest  expense for the Credit  Facility in the three  months  ended March 31,
2006 and  2005.  At March  31,  2006 we were in  compliance  with the  financial
covenants contained in our agreement with the Bank of Scotland.








                                       14



NOTE I. SUPPLEMENTAL GUARANTOR INFORMATION

     As discussed in Notes F and G, our  obligations  with respect to our Senior
Convertible  Notes and Revolving Credit Facility are guaranteed by our operating
subsidiaries.

EMPIRE RESORTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
MARCH 31, 2006
(UNAUDITED)
(IN THOUSANDS)
                                                                                      Non-                          Consolidated
                                                      Empire        Guarantor       Guarantor    Eliminating      Empire Resorts,
                                                   Resorts, Inc.  Subsidiaries    Subsidiaries     Entries              Inc.
                                                   -------------  ------------    ------------   -----------      ---------------
ASSETS
Cash and cash equivalents                              $    397       $  6,608         $   ---    $      ---          $   7,005
Restricted cash                                             416          2,153             ---           ---              2,569
Accounts receivable                                         ---          4,556             ---           ---              4,556
Prepaid expenses and other assets                            70            996             ---           ---              1,066
Investments in subsidiaries                               5,060            ---             ---       (5,060)                ---
Inter-company accounts                                  149,722            ---             ---     (149,722)                ---
Property and equipment, net                                  10         32,279             ---           ---             32,289
Deferred financing costs, net                             3,625            ---             ---           ---              3,625
Deferred development costs                                   37          5,835             ---           ---              5,872
                                                  ------------------------------------------------------------------------------
TOTAL ASSETS                                           $159,337       $ 52,427         $   ---    $ (154,782)         $  56,982
                                                  ==============================================================================

LIABILITIES and STOCKHOLDERS'
   EQUITY (DEFICIT)

Revolving credit facility                                $7,617       $    ---         $   ---    $      ---          $   7,617
Accounts payable                                          1,122          2,154             ---           ---              3,276
Accrued expenses and other liabilities                    1,078          7,739             ---           ---              8,817
Inter-company accounts                                      ---         56,140          93,582     (149,722)                ---
Senior convertible notes                                 65,000            ---             ---           ---             65,000
                                                  ------------------------------------------------------------------------------
Total liabilities                                        74,817         66,033          93,582     (149,722)             84,710


Stockholders' equity (deficit)                           84,520        (13,606)        (93,582)      (5,060)            (27,728)
                                                  ------------------------------------------------------------------------------
TOTAL LIABILITIES and STOCKHOLDERS'
EQUITY (DEFICIT)                                       $159,337       $ 52,427         $   ---    $(154,782)          $  56,982
                                                  ==============================================================================




                                       15






EMPIRE RESORTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2005
(IN THOUSANDS)

                                                                                      Non-                          Consolidated
                                                      Empire        Guarantor       Guarantor    Eliminating      Empire Resorts,
                                                   Resorts, Inc.  Subsidiaries    Subsidiaries     Entries              Inc.
                                                   -------------  ------------    ------------   -----------      ---------------

ASSETS
Cash and cash equivalents                              $    636       $  6,356         $   ---    $      ---          $   6,992
Restricted cash                                             412          4,304             ---           ---              4,716
Accounts receivable                                         ---          3,358             ---           ---              3,358
Prepaid expenses and other assets                            86          1,026             ---           ---              1,112
Investments in subsidiaries                               5,060            ---             ---        (5,060)               ---
Inter-company accounts                                  152,108            ---             ---      (152,108)               ---
Property and equipment, net                                  11         32,525             ---           ---             32,536
Deferred financing costs, net                             2,973            ---             ---           ---              2,973
Deferred development costs                                  ---          5,558             ---           ---              5,558
                                                  ------------------------------------------------------------------------------
TOTAL ASSETS                                           $161,286       $ 53,127         $   ---    $ (157,168)         $  57,245
                                                  ==============================================================================

LIABILITIES and STOCKHOLDERS'
   EQUITY (DEFICIT )
                                                                                       $
Revolving credit facility                              $  7,476       $    ---             ---         $ ---          $   7,476
Accounts payable                                            982          2,547             ---           ---              3,529
Accrued expenses and other liabilities                    2,461          5,994             ---           ---              8,455
Inter-company accounts                                      ---         58,526          93,582      (152,108)               ---
Senior convertible notes                                 65,000            ---             ---           ---             65,000
                                                  ------------------------------------------------------------------------------
Total liabilities                                        75,919                         93,582      (152,108)            84,460
                                                                        67,067

Stockholders' equity (deficit)                           85,367       (13,940)         (93,582)       (5,060)           (27,215)
                                                  ------------------------------------------------------------------------------
TOTAL LIABILITIES and STOCKHOLDERS'
EQUITY DEFICIT                                         $161,286       $ 53,127         $  ---     $ (157,168)         $  57,245
                                                  ==============================================================================



                                       16





EMPIRE RESORTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2006
(UNAUDITED)
(IN THOUSANDS)
---------------------------------------------------------------------------------------------------------------------------------

                                                                                      Non-                          Consolidated
                                                      Empire        Guarantor       Guarantor    Eliminating      Empire Resorts,
                                                   Resorts, Inc.  Subsidiaries    Subsidiaries     Entries              Inc.
                                                   -------------  ------------    ------------   -----------      ---------------

   REVENUES
       Racing                                          $     --       $  4,630         $    --    $       --          $   4,630
       Gaming                                                --         17,300              --            --             17,300
       Food, beverage and other                               5          1,271              --            --              1,276
                                                  ------------------------------------------------------------------------------
   Gross revenues                                             5         23,201              --            --             23,206
   Less: Promotional allowances                              --          (545)              --            --               (545)
                                                  ------------------------------------------------------------------------------
   Net revenues                                               5         22,656              --            --             22,661
                                                  ------------------------------------------------------------------------------
   COSTS AND EXPENSES
   Racing                                                    --          3,109              --            --              3,109
   Gaming                                                    --         15,558              --            --             15,558
   Food, beverage and other                                  --            508              --            --                508
   Selling, general and administrative                    2,305          1,077              --            --              3,382
   Depreciation                                               1            283              --            --                284
                                                  ------------------------------------------------------------------------------
                  Total costs and expenses                2,306         20,535              --            --             22,841
                                                  ------------------------------------------------------------------------------
   Income (loss) from operations                         (2,301)         2,121              --            --               (180)

   Amortization of deferred financing costs                 146             --              --            --                146
   Inter-company interest (income) expense & other       (1,787)         1,787              --            --                 --
   Interest expense                                       1,470             --              --            --              1,470
                                                  ------------------------------------------------------------------------------
   Net income (loss)                                   $ (2,130)      $    334              --            --          $  (1,796)
                                                  ==============================================================================






                                       17







EMPIRE RESORTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2005
(UNAUDITED)
(IN THOUSANDS)
---------------------------------------------------------------------------------------------------------------------------------

                                                                                      Non-                          Consolidated
                                                      Empire        Guarantor       Guarantor    Eliminating      Empire Resorts,
                                                   Resorts, Inc.  Subsidiaries    Subsidiaries     Entries              Inc.
                                                   -------------  ------------    ------------   -----------      ---------------
   REVENUES
       Racing                                          $     --       $  2,972         $    --    $       --          $   2,972
       Gaming                                                --         13,251              --            --             13,251
       Food, beverage and other                               3            880              --            --                883
                                                  ------------------------------------------------------------------------------
   Gross revenues                                             3         17,103              --            --             17,106
   Less: Promotional allowances                              --           (416)             --            --               (416)
                                                  ------------------------------------------------------------------------------
   Net revenues                                               3         16,687              --            --             16,690
                                                  ------------------------------------------------------------------------------

   COSTS AND EXPENSES
   Racing                                                    --          2,182              --            --              2,182
   Gaming                                                    --         13,151              --            --             13,151
   Food, beverage and other                                  --            392              --            --                392
   Selling, general and administrative                    1,634            772              --            --              2,406
   Depreciation                                              --            277              --            --                277
                                                  ------------------------------------------------------------------------------
                  Total costs and expenses                1,634         16,774              --            --             18,408
                                                  ------------------------------------------------------------------------------
   Income (loss) from operations                         (1,631)           (87)             --            --             (1,718)


   Amortization of deferred financing costs                 137             --              --            --                137
   Inter-company interest (income) expense & other       (1,300)         1,300              --            --                 --
   Interest expense                                       1,003             --              --            --              1,003
                                                  ------------------------------------------------------------------------------
   Net loss                                            $ (1,471)      $ (1,387)             --            --          $  (2,858)
                                                  ==============================================================================




                                       18



EMPIRE RESORTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2006
(UNAUDITED)
(IN THOUSANDS)


                                                               Empire                        Non-                      Consolidated
                                                              Resorts,     Guarantor       Guarantor     Eliminating      Empire
                                                                Inc.      Subsidiaries    Subsidiaries     Entries     Resorts, Inc.
                                                             -----------  ------------    ------------   -----------   -------------

Net cash provided by (used in) operating activities          $ (1,968)       $ 2,948           $   -        $    -       $     980
                                                           -------------------------------------------------------------------------
Cash flows from investing activities:
 Purchases of property and equipment                               --            (36)              -             -             (36)
 Restricted cash (Racing capital improvement)                                     73               -             -              73
 Deferred development costs                                       (37)          (348)              -             -            (385)
 Advances to Empire Resorts, Inc.                                  --         (2,386)              -         2,386              -
                                                           -------------------------------------------------------------------------
Net cash used in investing activities                             (37)        (2,697)                        2,386            (348)
                                                           -------------------------------------------------------------------------

Cash flows from financing activities:
 Proceeds from revolving credit facility                          141              -               -             -             141
 Proceeds form exercise of stock options                           42              -               -             -              42
 Restricted cash (related to revolving credit facility)            (4)             -               -             -              (4)
 Advances from subsidiaries                                     2,386              -               -        (2,386)              -
 Deferred financing costs                                        (798)             -               -             -            (798)
                                                           -------------------------------------------------------------------------
Net cash provided by (used in) financing activities             1,767              -               -        (2,386)           (619)
                                                           -------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents             (238)           251               -             -              13
Cash and cash equivalents, beginning of period                    635          6,357               -             -           6,992
                                                           -------------------------------------------------------------------------
Cash and cash equivalents, end of period                     $    397        $ 6,608           $   -        $    -       $   7,005
                                                           =========================================================================







                                       19








EMPIRE RESORTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2005
(UNAUDITED)
(IN THOUSANDS)



                                                               Empire                        Non-                      Consolidated
                                                              Resorts,     Guarantor       Guarantor     Eliminating      Empire
                                                                Inc.      Subsidiaries    Subsidiaries     Entries     Resorts, Inc.
                                                             -----------  ------------    ------------   -----------   -------------

Net cash provided by (used in) operating activities          $ (1,398)       $    61           $   -        $    -       $  (1,337)
                                                           -------------------------------------------------------------------------
Cash flows from investing activities:
 Purchases of property and equipment                                -         (1,812)              -             -          (1,812)
 Restricted cash (Racing capital improvement)                       -             46               -             -              46
 Deferred development costs                                         -         (1,701)              -             -          (1,701)
 Advances to subsidiaries                                      (4,206)             -               -         4,206               -
                                                           -------------------------------------------------------------------------
Net cash used in investing activities                          (4,206)        (3,467)              -         4,206          (3,467)
                                                           -------------------------------------------------------------------------

Cash flows from financing activities:
 Proceeds from revolving credit facility                        4,737              -               -             -           4,737
 Restricted cash (related to revolving credit facility)          (400)             -               -             -            (400)
 Deferred financing costs                                        (539)             -               -             -            (539)
 Advances from Empire Resorts, Inc.                                            4,206               -        (4,206)              -
                                                           -------------------------------------------------------------------------
Net cash provided by financing activities                       3,798          4,206               -        (4,206)          3,798

                                                           -------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents           (1,806)           800               -             -          (1,006)


Cash and cash equivalents, beginning of period                  1,903          5,261               -             -           7,164
                                                           -------------------------------------------------------------------------
Cash and cash equivalents, end of period                     $     97        $ 6,061           $   -        $    -       $   6,158
                                                           =========================================================================








                                       20



NOTE J. STOCKHOLDERS' EQUITY

         On March 8, 2006, we granted 10,000 options to each of our non-employee
directors and an additional 5,000 options to the chairman of the Audit Committee
of the Board.  The options  vested upon grant,  have a strike price of $4.26 and
expire ten years from the date of grant.  In the three  months  ended  March 31,
2006, we recorded stock-based  compensation expense of $249,000 for these grants
based upon the estimated value of the options at the date of grant.

         On January 7, 2005, 10,000 options were granted to all six non-employee
board  members to purchase  common stock at $8.51 per share.  These options were
immediately  vested and expire in ten years.  Compensation  expenses relating to
these grants  totaling  approximately  $380,000  were included in the results of
operations for the three months ended March 31, 2005.

         On March 18, 2005,  we issued  30,000  incentive  stock  options with a
strike  price of $8.26 to an  employee  that  vest over one  year.  The  expense
associated with this grant was approximately  $6,000 in the quarter ending March
31, 2005.

         Stock-based  compensation  expense  included  in  selling,  general and
administrative expenses were approximately $1,241,000 and $559,000 for the three
months ended March 31, 2006 and 2005, respectively.

         On March 8, 2006, we authorized issuance of 23,013 shares of our common
stock as payment of  dividends  due for the year ended  December 31, 2005 on our
Series B preferred  stock.  The  approximate  value of $98,000 was recorded as a
reduction of retained  earnings  and an increase in common stock and  additional
paid in capital in the three months ended March 31, 2006.

         On  February  16,  2005,  we issued  12,640  shares of common  stock in
settlement of all outstanding  dividends from the year ending December 31, 2004.
The shares were valued at  approximately  $142,000  and  recorded in the quarter
ended March 31, 2005.

NOTE K. COMMITMENTS AND CONTINGENCIES

         CASINO DEVELOPMENT.  We are committed to provide development assistance
in connection  with the  establishment  and initial  operations of tribal gaming
authorities  for New York State gaming  operations for the Mohawks.  We are also
committed to incur costs associated with the development of a casino resort with
the Mohawks.

         LITIGATION  TRUST. On January 12, 2004, in order to better focus on our
business plan, all of our interests with respect to litigation  against Harrah's
Operating Company,  Inc. were transferred to a liquidating  litigation trust. We
agreed to provide the litigation trust with a $2.5 million line of credit. As of
March 31, 2006, we have advanced $1,010,000 against that line of credit.

         LEGAL PROCEEDINGS.  We are a party to various  non-environmental  legal
proceedings and administrative  actions, all arising from the ordinary course of
business.  Although  it is  impossible  to  predict  the  outcome  of any  legal
proceeding, we believe any liability that may finally be determined with respect
to such legal proceedings  should not have a material effect on our consolidated
financial position, results of operations or cash flows.

         ARBITRATION  WITH  HORSEMEN'S   ASSOCIATION.   Our  contract  with  the
Monticello  Harness Horsemen's  Association (the "Horsemen") has expired.  Among
other  things,  this  contract  provides for the amount of revenues from our VGM
operations  that we allocate to racing  purses.  We have not been  successful in
negotiations  to renew this  contract  and, in March 2006,  we and the  Horsemen
agreed to submit the matter to the New York State Racing and Wagering  Board for
binding  arbitration.  The outcome of that arbitration  could have a significant
negative impact on our operating results.

NOTE L. SUBSEQUENT EVENTS

         We will be  seeking  the  consent of the  holders of our 5 1/2%  senior
convertible  notes  in  order  to  amend  certain  provisions  of the  indenture
governing such notes to give  management of the Company  greater  flexibility in
developing  an Indian  casino at  Monticello  Raceway with other  Indian  tribes
beside the Cayuga Nation of New York.

         We were advised that on April 13, 2006 the Mohawks were  notified  that
the BIA  completed  its  review of the  Environmental  Assessment  ("EA")  for a
proposed  transfer  of land into  trust for a casino at the  Monticello  Raceway
site. The review identified certain areas of the EA which must be addressed.



                                       21



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

The Management's  Discussion and Analysis of the Financial Condition and Results
of  Operations  should be read  together with the  Management's  Discussion  and
Analysis of Financial  Condition and Results of Operations and the  Consolidated
Financial Statements and related notes thereto in our Annual Report on Form 10-K
for the fiscal year ended December 31, 2005.

FORWARD-LOOKING STATEMENTS

         This Quarterly Report on Form 10-Q contains statements which constitute
forward-looking  statements  within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. These forward-looking statements generally relate to our strategies,
plans and  objectives  for future  operations  and are based  upon  management's
current   plans  and  beliefs  or  estimates   of  future   results  or  trends.
Forward-looking statements also involve risks and uncertainties,  including, but
not  restricted  to,  the risks and  uncertainties  described  in Item 1A of the
Company's Annual Report on Form 10-K for the year ended December 31, 2005, which
could cause  actual  results to differ  materially  from those  contained in any
forward-looking  statement.  Many of these  factors  are beyond  our  ability to
control or predict.

         You should not place undue reliance on any forward-looking  statements,
which are based on current  expectations.  Further,  forward-looking  statements
speak  only  as of the  date  they  are  made,  and we  will  not  update  these
forward-looking  statements,  even if our  situation  changes in the future.  We
caution the reader that a number of important factors  discussed herein,  and in
other reports filed with the  Securities and Exchange  Commission,  could affect
our actual  results and cause  actual  results to differ  materially  from those
discussed in forward-looking statements.

OVERVIEW

         We were  organized as a Delaware  corporation  on March 19,  1993,  and
since  that time  have  served as a holding  company  for  various  subsidiaries
engaged in the hospitality and gaming industries.

         Through our subsidiaries, we currently:

o    own and operate Monticello Raceway (the "Raceway"),  a harness  horseracing
     facility  located in Monticello,  New York, 90 miles  Northwest of New York
     City. At the Raceway, we conduct  pari-mutual  wagering through the running
     of live  harness  horse  races,  the import  simulcasting  of  harness  and
     thoroughbred  horse races from racetracks across the country and the export
     simulcasting of our races to offsite pari-mutual wagering facilities.

o    operate  in  conjunction  with the New York State  Lottery  more than 1,500
     video gaming machines ("VGM") at the grandstand of the Raceway.

o    have an  agreement  with the St.  Regis  Mohawk  Tribe (the  "Mohawks")  to
     develop  and manage,  subject to  regulatory  approval,  a Class III Indian
     casino on 29 acres of land adjacent to the Raceway.

o    have an agreement with the Cayuga Nation of New York (the "Cayuga  Nation")
     to develop and manage,  subject to regulatory  approval, a Class III Indian
     casino  resort and hotel at a location in Sullivan  County,  New York to be
     determined in the future.

         We plan to grow and diversify our business by marketing our services to
gaming and hospitality clients, seeking consulting relationships with additional
gaming  clients  and  pursuing  acquisitions,  joint  ventures  or other  growth
opportunities.

         We have  spent  significant  amounts  of  money  generated  principally
through  the  issuance  of equity and debt in  connection  with our  development
activities, primarily for the design, development, financing and construction of
our VGM operation,  as well as the  predevelopment,  design, and negotiations of
Indian  casinos.  Predevelopment  costs include  expenses  associated with legal
fees, accounting fees and costs relating to employees.  Some of these costs have
been capitalized. We periodically review these capitalized costs for impairment.
If such review shows that the assets are  impaired,  the carrying  value will be
reduced to fair value which could adversely affect the financial results in that
period.

         We have never  declared or paid any cash dividends on our common stock.
We currently  intend to retain our earnings,  if any, to finance our growth and,
therefore,  do not  anticipate  paying any cash dividends on our common stock in
the foreseeable future. Any determination to pay dividends in the future will be
at the  discretion  of our board of directors and will depend upon our financial
condition,  results of operations  and capital  requirements.  In addition,  the
payment of cash  dividends is  restricted  by financial  covenants in our credit
agreement with Bank of Scotland.


                                       22



RACEWAY OPERATIONS AT MONTICELLO RACEWAY

         Monticello Raceway Management,  Inc., our wholly owned subsidiary, is a
New York corporation that operates the Raceway,  a harness horse racing facility
located in Monticello, New York that includes our VGM operation.

         Monticello Raceway harness horse racing derives its revenue principally
from (i)  wagering  at the Raceway on live races run at the  Raceway;  (ii) fees
from  wagering at  out-of-state  locations on races  simulcast  from the Raceway
using export simulcasting; (iii) revenue allocations, as prescribed by law, from
betting activity at New York City,  Nassau County and Catskill Off Track Betting
facilities  ("OTB")  (certain of such  revenues are shared with Yonkers  Raceway
based on a pro rata market share calculation updated monthly);  (iv) wagering at
the  Raceway  on races  broadcast  from  out-of-state  racetracks  using  import
simulcasting;  and (v),  program  and racing  form  sales,  the sale of food and
beverages and certain other ancillary activities.  The Raceway operation employs
approximately 100 employees including management.

VIDEO GAMING OPERATIONS AT MONTICELLO RACEWAY

         A VGM is an  electronic  gaming  device  that  allows a patron  to play
electronic  versions  of  various  lottery  games of chance  and is  similar  in
appearance to a traditional  slot machine.  On June 30, 2004, we began operating
1,744 VGM on 45,000 square feet of floor space at Monticello  Raceway.  At March
31, 2006,  the number of VGM in operation was 1,576.  The VGM operation  employs
approximately 300 employees.

         On  April  13,  2005,  New  York  State  enacted  a law  impacting  VGM
operations that, among other things,  established a vendor's marketing allowance
which is greater  than that  provided  under the then  existing New York law and
eliminated the provisions of the prior law which mandated that certain  proceeds
from video lottery gaming be reinvested in the horse racing industry. Our vendor
fee  previously  was  not   sufficient  to  cover  the   significant   costs  of
installation,  security,  and operation of video lottery  terminals  while still
providing  a  sufficient  return  so as to  ensure,  among  other  things,  that
out-of-state operators did not have a competitive advantage.

ST. REGIS MOHAWK RESORT DEVELOPMENT

         We had  previously  attempted  to develop a casino  with the Mohawks in
2000.  Specifically,  the Mohawks received  certain federal  approvals needed in
2000 to build a casino at Monticello Raceway that would have been managed by the
Company's predecessor,  Catskill Development, L.L.C. However, in April 2000, the
Mohawks agreed to work  exclusively with Park Place  Entertainment  Corporation,
now part of Harrah's Entertainment, Inc., which proposed to develop a casino for
the Mohawks at the nearby Kutsher's Sporting Academy.  However,  by Summer 2005,
the  needed  approvals  for a  casino  at  Kutsher's  Sporting  Academy  had not
materialized, and the Mohawks' tribal leaders engaged the Company to discuss the
possibility  of moving forward with the  previously  obtained  approvals for the
casino project at Monticello Raceway.

         On August 1, 2005, we entered into a letter  agreement with the Mohawks
pursuant to which the  Mohawks  acknowledged  that on April 6, 2000,  the United
States  Department of the Interior advised New York State Governor George Pataki
that the  acquisition  of 29 acres at  Monticello  Raceway  would be in the best
interest of the Mohawks and would not be detrimental to the community. Under the
letter agreement, the Company and the Mohawks affirmed, subject to the requested
concurrence  by  Governor  Pataki,  all of their prior  contracts  to develop an
Indian casino at Monticello Raceway (the "St. Regis Mohawk Casino"). The Mohawks
further agreed to (1) satisfy all  requirements for the Bureau of Indian Affairs
(the  "BIA")  in  connection  with the  transfer  of the 29 acres of land to the
United  States  government  in trust for the Mohawks,  (2) resolve any remaining
issues for the finalization of the pre-existing management agreement with one of
the Company's  subsidiaries for the project previously submitted to the National
Indian Gaming Commission (the "NIGC"),  (3) execute any amendment or revision to
such management agreement,  or any collateral  agreements,  that may be mutually
agreed  upon in such  process,  (4)  support  the  approval  of such  management
agreement,  as so  amended  or  revised,  by the  NIGC  and (5) take any and all
reasonably required steps to consummate the land to trust transfer of the parcel
pursuant to the April 6, 2000 determination as promptly as practicable following
the concurrence of Governor Pataki.

         On March 17, 2006,  through our subsidiaries,  we entered into a series
of agreements with the Mohawks which provide for the development,  construction,
financing,  operation  and  management  of a Class  III  Indian  casino  on land
adjacent to Monticello Raceway. On March 20, 2006, we submitted these agreements
to the NIGC for review.  All of the provisions of these  agreements  relating to
the  management of the casino are subject to review and approval by the NIGC and
the Secretary of the Interior prior to becoming effective. Pending such approval
and as a result of such review,  such  provisions may be amended or supplemented
by the parties.

         We were advised that on April 13, 2006 the Mohawks were  notified  that
the BIA  completed  its  review of the  Environmental  Assessment  ("EA")  for a
proposed  transfer  of land into  trust for a casino at the  Monticello  Raceway
site. The review identified certain areas of the EA which must be addressed.

                                       23


CAYUGA CATSKILL RESORT DEVELOPMENT

         On April 3, 2003,  Monticello Casino Management,  the Cayuga Nation and
the  Cayuga   Catskill   Gaming   Authority   (the   "Cayuga   Authority"),   an
instrumentality  of the Cayuga  Nation  formed to  develop  and  conduct  gaming
operations  signed an initial form of gaming facility  management  agreement and
related  agreements.  The  agreements  provided for us to supply  technical  and
financial  assistance to the Cayuga Nation and to serve as its exclusive partner
in the  development,  construction,  financing,  operation  and  management of a
proposed casino in the Monticello  area. The principal  agreements were extended
in December  2005 to December 31, 2006.  Our  agreements  with the Cayuga Nation
were entered into through our  principal  subsidiaries.  Subsequent  to entering
into our initial agreement with the Cayuga Nation, leadership issues have arisen
within the Cayuga Nation.  We entered into the extension  agreement with members
of the Cayuga Council who are working to form a provisional government.  Efforts
are  underway  to attempt to resolve  the  leadership  issues  within the Cayuga
Nation and we cannot predict the outcome of these efforts.

         Currently,  it is anticipated that the Cayuga Nation will be authorized
to  develop  and  operate  a  gaming  facility  as the  result  of a land  claim
settlement  agreement  with  the  State  of  New  York.  There  are  significant
preconditions  that must  occur  before  such a  settlement  can  occur.  First,
legislation must be passed by the New York State  legislature.  Second,  similar
legislation must be passed by the United States Congress. Third, title to a site
must be transferred to the United States and accepted into trust for the benefit
of the Cayuga  Nation.  Fourth,  the Cayuga  Nation  must enter into a Class III
gaming  compact  with the  State  of New  York.  The  negotiations  between  the
interested  parties are complex and we  anticipate  that there may be changes to
our initial agreements.

         CAYUGA NATION LEADERSHIP ISSUES

         We have been advised  that on July 18, 2005,  Mr.  Franklin  Keel,  the
Regional  Director of the Eastern  Regional  Division of the BIA sent letters to
two groups of members of the Cayuga Nation currently seeking federal recognition
of their tribal leadership. Mr. Keel did not grant federal recognition to either
group,  but  offered  to  assist  with  mediation  or other  means  of  conflict
resolution.  Although the degree to which the Cayuga  Nation  honors our current
agreements  with respect to the planned Cayuga  Catskill Resort is ultimately an
internal matter for the Cayuga Nation, the question of federal  recognition is a
matter that may affect the approval process for any management  agreement by the
NIGC. We have  indicated our support for efforts to resolve the  leadership  and
federal representation issues as promptly as possible through mediation or other
conflict resolution means.

MONTICELLO RACEWAY DEVELOPMENT

         Monticello Raceway  Development is a New York limited liability company
with the exclusive right to design, engineer,  develop, construct, and furnish a
Class III Gaming  facility  that is  proposed to be  developed  on 29 of the 232
acres of land at the Monticello Raceway in Monticello, New York.

         Monticello  Raceway  Development,  in  connection  with its  gaming and
development activities,  capitalizes certain legal,  architectural,  engineering
and environmental  study fees, as well as other costs including  salaries of key
personnel,  directly  related to the gaming license and  development of the real
estate

         During  the three  months  ended  March 31,  2006 and 2005,  Monticello
Raceway  Development  capitalized   approximately  $277,000  and  $2.2  million,
respectively,   of  additional   costs   associated  with  advances  and  casino
development  projects.  Capitalized  costs that are specifically  related to our
current  Indian  projects are  refundable  under certain  circumstances  and are
non-interest-bearing.  When the  financing of the  operation  is  completed  the
gaming  license and  development  costs will be evaluated for refund ability and
when  the  operations  of a  proposed  casino  commence  the  balance,  if  any,
systematically  recognized over a determinable  period.  These capitalized costs
are periodically reviewed for impairment.  At March 31, 2006, Monticello Raceway
Development employed two full-time employees.

COMPETITION

         We believe that Monticello  Raceway and the St. Regis Mohawk Casino are
uniquely  situated to be successful as the site for enhanced gaming  operations,
as the  site is less  than 90 miles  northwest  of New York  City,  making  it a
shorter  trip from the  nation's  most  populous  metropolitan  area than either
Atlantic City or any regional Indian casino,  including Foxwoods and Mohegan Sun
in  Connecticut.  There are  approximately  one million  adults living within 50
miles of the Raceway and  approximately  18.4 million  adults  living within 100
miles of the Raceway with an average household income of approximately  $76,000.
The Raceway is directly  adjacent to Highway 17, has highly visible  signage and
convenient  access  and is less than 1,000  feet from the  highway.  There is no
direct  competition at this time for our VGM  operations  within 85 miles of the
Raceway.  However,  on July 4,  2004,  the State of  Pennsylvania  enacted a law
allowing for the operation of up to 61,000 slot  machines at 14 gambling  halls,
including seven racetracks,  five stand-alone parlors, and two resorts. Pursuant
to this new law, slot machine  facilities  could be developed within 30 miles of
the Raceway that compete directly with our VGM operation.  Furthermore,  while a
number of  prospective  competitors  have  expressed  interest in sponsoring the
development  of another  Indian  casino in the  Monticello,  New York  area,  we
believe that each of them is at a competitive disadvantage given our site's ease
of access,  our  ability to offer  horse  racing and VGM in  addition to regular
casino  gambling,  and our  belief  that we and our  partners  are  considerably
further along in the regulatory approval process than any other competitor.

                                       24


         A  number  of  states  are  currently   considering   or   implementing
legislation  to  legalize  or expand  gaming.  Such  legislation  presents  both
potential  opportunities  to establish new properties and potential  competitive
threats to business at our existing property (such as Pennsylvania).  The timing
and occurrence of these events remain uncertain.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

         Our Annual  Report on Form 10-K for the year ended  December  31,  2005
includes a discussion of the critical  accounting policies and estimates that we
use in the preparation of our consolidated  financial statements.  There were no
significant changes in our critical accounting policies and estimates during the
quarter ended March 31, 2006.

RESULTS OF OPERATIONS

   THREE  MONTHS  ENDED MARCH 31, 2006  COMPARED TO THREE MONTHS ENDED MARCH 31,
   2005.

   REVENUES.  Net revenues increased  approximately $6.0 million (35.8%) for the
quarter  ended March 31, 2006  compared  to the  quarter  ended March 31,  2005.
Revenue from racing  increased by approximately  $1.7 million  (55.8%);  revenue
from VGM operations  increased by  approximately  $4.0 million (30.6%) and food,
beverage  and  other  revenue  increased  by  approximately  $393,000  (44.5%) .
Complimentary expenses increased by approximately $129,000.

         The  VGM  operations   experienced  an  increase  in  daily  visits  of
approximately  9% and the daily win per unit increased from $84.42 for the three
months ended March 31, 2005 to $121.97 for the three months ended March 31, 2006
(44.5%).  The  average  number of  machines  in service  was 1,744 for the three
months ended March 31, 2005  compared to 1,576 for the  corresponding  period in
2006. We attribute  much of the  improvement  in VGM revenues to our  continuing
marketing efforts in the geographical areas served by our facility.

         The  increase in racing  revenues  was  primarily a result of increased
revenue allocations from OTB facilities. The track that normally shares in those
allocations  with us was not in  operation  for the three months ended March 31,
2006 and our allocable share was increased significantly as a result. That track
had been in operation in the  corresponding  period in 2005. We believe that our
future racing revenues will be reduced  significantly when that track, which has
been closed since July 2005, reopens as our allocable share of OTB revenues will
decrease.

   RACING  COSTS.   Racing  costs   increased  by   approximately   $927,000  to
approximately  $3.1 million for the three  months ended March 31, 2006  (42.5%).
This is primarily as a result of increases in racing purses reflecting the share
of our increased  revenues  which we allocate to racing purses for our horsemen.
Our racing purse costs could increase substantially in the future as a result of
current arbitration proceedings with our horsemen as described in more detail in
the following section.

   GAMING COSTS.  Gaming (VGM) costs increased by approximately  $2.4 million to
approximately  $15.6  million for the three  months ended March 31, 2006 (18.3%)
compared with the  corresponding  period in 2005. This  percentage  increase was
12.3% less than the  percentage  increase  in VGM  revenues  almost  solely as a
result of the increase in fees for VGM agents (an  additional 3% of VGM revenue)
and the marketing  allowance granted to VGM agents by the New York State Lottery
as reimbursement for qualified marketing expenses incurred by the agents.

   FOOD,  BEVERAGE  AND OTHER  COSTS.  These costs  increased  by  approximately
$116,000 to  approximately  $508,000  for the three  months ended March 31, 2006
(29.6%)  compared  with the  corresponding  period  in 2005.  This  increase  is
consistent with the increase in revenues for this classification.

   SELLING,   GENERAL  AND  ADMINISTRATIVE   EXPENSES.   Selling,   general  and
administrative  expenses increased  approximately $976,000 for the first quarter
of 2006 as  compared  to the  first  quarter  of  2005.  This  increase  was due
primarily to an increase in stock-based  compensation of approximately  $683,000
and an increase in other compensation of approximately $287,000.

   INTEREST EXPENSE.  Interest expense was  approximately  $1.5 million and $1.0
million,  respectively,  for the  quarters  ended March 31,  2006 and 2005.  Our
senior  convertible  notes issued in July 2004  provided for an annual  interest
rate of 5.5% for the three  months ended March 31, 2005 and a rate of 8% for the
three  months  ended March 31,  2006.  This  resulted in an increase in interest
expense of  approximately  $406,000.  The  remainder  of the  increase is due to
interest on our  revolving  credit  line which had  approximately  $7.6  million
outstanding at March 31, 2006.


LIQUIDITY AND CAPITAL RESOURCES

     We believe  that we have  access to sources  of  working  capital  that are
sufficient to fund our  operations  for the remainder of the year ended December
31, 2006.  The results of  operations  of our VGM facility have been improved by
the  changes  in the  amount  of  revenue  retained  by VGM  agents  and we have
approximately  $2.4 million  available from our revolving credit  facility.  Any
significant capital requirements associated with our development projects can be
met by additional debt or equity issues when needed.

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     Net cash  provided by  operating  activities  during the three months ended
March 31, 2006 was approximately $980,000 compared to net cash used in operating
activities  for the three  months  ended  March 31, 2005 of  approximately  $1.3
million.  The decrease in cash used of  approximately  $2.3 million reflects the
reduction in net loss,  collections  from the New York Lottery for the marketing
allowance  (approximately  $2.1  million in  restricted  cash  receipts)  and an
increase in receivables of approximately $1.2 million.

     Net cash used in investing activities was approximately  $348,000 for three
months ended March 31, 2006, consisting primarily of approximately  $385,000 for
deferred  development  costs.  During the three months ended March 31, 2005, net
cash  used in  investing  activities  in was  approximately  $3.5  million,  and
consisted  primarily  of  approximately  $1.8  million  for  a new  paddock  and
equipment at the Raceway and approximately $1.7 million in costs associated with
the casino development project.

     Net cash used in  financing  activity  for the three months ended March 31,
2006  was  approximately  $619,000.  We paid  approximately  $798,000  in  costs
associated with recording a mortgage on the Raceway  property for the benefit of
the  holders  of our  Senior  Convertible  Notes as  required  by the  Indenture
Agreement for those notes. This expenditure was offset by approximately $141,000
in proceeds from borrowings under our revolving  credit facility.  For the three
months  ended March 31, 2005,  net cash  provided by  financing  activities  was
approximately $3.8 million.  This represented the proceeds from borrowings under
our revolving credit facility of approximately $4.7 million offset by payment of
financing  costs of  approximately  $539,000  and a  restricted  cash account of
approximately $400,000 associated with the establishment of that agreement.

On January 11, 2005,  we entered into a credit  facility  with Bank of Scotland,
pursuant  to which Bank of  Scotland  agreed to  provide  us with a $10  million
senior secured  revolving loan (subject to certain  reserves) that was scheduled
to mature in two years.  To secure the timely  repayment of any borrowings by us
under this credit facility, among other things, we agreed to:

o    cause  Monticello  Raceway  Management to grant Bank of Scotland a mortgage
     over the 232 acres of land and  improvements in Monticello,  New York owned
     by Monticello Raceway Management;

o    cause our material  subsidiaries  to guarantee  our  obligations  under the
     credit facility;

o    pledge our equity interests in each of our current and future subsidiaries;
     and

o    grant Bank of  Scotland a first  priority  secured  interest  in all of its
     assets, now owned or later acquired.

     Interest on any loans made pursuant to the credit  facility bear  interest,
at our option, at the rate of prime plus 2% or Libor plus 4%. In connection with
this credit facility,  the Bank of New York, the noteholders'  trustee under the
indenture, and Bank of Scotland, also entered into an Intercreditor Agreement so
that Bank of Scotland will have a first priority position,  notwithstanding  the
indenture and security documents we executed on July 26, 2004 in connection with
our issuance of $65 million of senior  convertible notes due 2014. We anticipate
fully utilizing the available funds to meet our development and operating costs.

         On  December  12,  2005,  we entered  into an  amendment  to our credit
facility  with  Bank of  Scotland.  This  amendment,  which is  effective  as of
November 30, 2005, among other things, (i) extends the maturity date of the loan
agreement  from  January  11,  2007 to January  11,  2008,  (ii)  increases  our
permissible capital expenditures in each of 2005, 2006 and 2007 from $100,000 to
$350,000 and (iii)  deletes all  references to the Cayuga Nation of New York and
replaces  them with a reference to any Indian tribe that is  developing a casino
in conjunction with us.

         Our contract with the Monticello  Harness  Horsemen's  Association (the
"Horsemen")  has expired.  Among other things,  this  contract  provides for the
amount of revenues from our VGM operations that we allocate to racing purses. We
have not been  successful in  negotiations  to renew this contract and, in March
2006,  we and the  Horsemen  agreed to submit  the  matter to the New York State
Racing  and  Wagering  Board  for  binding  arbitration.  The  outcome  of  that
arbitration could have a significant  negative impact on our operating  results.
We  presently  allocate  7.51% of our VGM  revenues  to  racing  purses  for the
Horsemen.  During our earlier  contract  negotiations  with the Horsemen,  their
representatives made a demand that that amount be 9.25% on the first $50,000,000
of VGM revenues and 8.25% on revenues exceeding $50,000,000. On the basis of our
2006  operations,  if the  Horsemen  were to receive  the  amount  that they are
demanding,  based  upon last  years  numbers,  the  expenses  and net loss would
increase by approximately $1.0 million.

         On March 8, 2006, we issued 23,013 shares of common stock in payment of
dividends on our Series B Preferred  Stock for the year ended December 31, 2005.
The recorded value of these shares was approximately $98,000.

         As of December 31, 2005,  we had net operating  loss carry  forwards of
approximately  $91  million  that expire  between  2008 and 2025.  The  Internal
Revenue  Code  allows the  offset of these net  operating  loss  carry  forwards


                                       26


against income earned in future years, thus reducing the tax liability in future
years.  Our merger with the operations of Catskill  Development,  L.L.C. in 2004
limits the amount of usable net  operating  losses due to the change in control.
We are evaluating the impact of the limitations for future application.

OFF-BALANCE SHEET ARRANGEMENTS

         On January 12, 2004, in order to better focus on the  development  of a
VGM program at the Raceway and the business arrangements with the Cayuga Nation,
all our interests with respect to litigation against Harrah's Operating Company,
Inc.  which  alleged  tortuous   interference   with  contractual  and  business
relationships,  were transferred to a liquidating litigation trust. We agreed to
provide the litigation  trust with a $2.5 million line of credit.  Through March
31, 2006, a total of $1,010,000 had been disbursed to the litigation  trust. Due
to the unpredictable  nature of the litigation and the pending motions currently
under review, we have provided for a valuation  allowance of $1,010,000  against
the  receivable  from  the  litigation  trust.  We  expect  to  make  additional
disbursements on this line of credit in fiscal year 2006.

         In  connection  with our  development  project with the Mohawks we have
agreed to make payments to the tribe to support  operations of the Tribal Gaming
Authority and will provide  technical  assistance,  payment of professional  and
legal  consultants  and other  support  as we seek the  necessary  licenses  and
approvals to commence  construction.  Our payments to the tribe are estimated to
be approximately $29,000 per month in 2006.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     We do not utilize  financial  instruments for trading  purposes and hold no
derivative  financial  instruments  which could  expose us to market  risk.  Our
exposure to market risks related to fluctuations in interest rates is limited to
our  variable  rate  borrowings  of $7.6  million  at March 31,  2006  under our
revolving  credit  facility.  A change in  interest  rates of one percent on the
balance  outstanding  at March 31,  2006  would  cause a change in total  annual
interest costs of $76,000.  The carrying values of these borrowings  approximate
their fair values at March 31, 2006.


ITEM 4. CONTROLS AND PROCEDURES

     We maintain  disclosure controls and procedures that are designed to ensure
that  information  required  to be  disclosed  in our  reports  filed  under the
Securities Exchange Act of 1934 is recorded, processed,  summarized and reported
within the time periods  specified in the Securities  and Exchange  Commission's
rules and forms,  and that such  information is accumulated and  communicated to
our  management,  including  the Chief  Executive  Officer  and Chief  Financial
Officer,   as  appropriate,   to  allow  timely  decisions   regarding  required
disclosure.  In designing and evaluating the disclosure controls and procedures,
management  recognized  that any  controls  and  procedures,  no matter how well
designed and operated can provide  only  reasonable  assurance of achieving  the
desired control objectives,  and management is required to apply its judgment in
evaluating the  cost-benefit  relationship of possible  controls and procedures.
Management  believes,  however,  that a  controls  system,  no  matter  how well
designed and operated,  cannot provide absolute assurance that the objectives of
the controls system are met, and no evaluation of controls can provide  absolute
assurance  that all control  issues and  instances  of fraud,  if any,  within a
company have been detected.  Also, we have investments in certain unconsolidated
entities.  As we do not control  these  entities,  our  disclosure  controls and
procedures  with respect to such  entities are  necessarily  substantially  more
limited than those we maintain with respect to our consolidated subsidiaries.

     We carried out an  evaluation as of March 31, 2006,  under the  supervision
and with the participation of management,  including the Chief Executive Officer
and Chief Financial Officer, of the effectiveness of the design and operation of
its  disclosure  controls  and  procedures  as  required  by Rule  13a-15 of the
Securities  Exchange Act of 1934, as amended.  Based upon that  evaluation,  the
Chief  Executive  Officer and the Chief  Financial  Officer  concluded  that our
disclosure  controls and  procedures  are  effective to timely alert them to any
material  information  (including our  consolidated  subsidiaries)  that must be
included in our periodic Securities and Exchange Commission filings.

CHANGES IN OUR FINANCIAL REPORTING INTERNAL CONTROLS.

     There has been no change in our internal  control over financial  reporting
(as defined in Rules  13a-15(f) and 15d-15(f)  promulgated  under the Securities
Exchange Act of 1934, as amended) during our fiscal quarter ended March 31, 2006
that has materially affected,  or is reasonably likely to materially affect, our
internal control over financial reporting.


                                       27



                                     PART II
                                OTHER INFORMATION


ITEM 6.  EXHIBITS

     31.1   Certification of the Chief Executive Officer pursuant to Section 302
            of the Sarbanes-Oxley Act of 2002.

     31.2   Certification of the Chief Financial Officer pursuant to Section 302
            of the Sarbanes-Oxley Act of 2002.

     32.1   Certification of the Chief Executive Officer pursuant to Section 906
            of the Sarbanes-Oxley Act of 2002.

     32.2   Certification of the Chief Financial Officer pursuant to Section 906
            of the Sarbanes-Oxley Act of 2002



                                       28



                                   SIGNATURES

     In accordance with the requirements of the Securities Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

                                           EMPIRE RESORTS, INC.



 Dated:  May 12, 2006                       /s/ David P. Hanlon
                                           -----------------------------------
                                           David P. Hanlon
                                           President and Chief Executive Officer




  Dated:  May 12, 2006                      /s/ Ronald J. Radcliffe
                                           -----------------------------------
                                           Ronald J. Radcliffe
                                           Chief Financial Officer


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