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EX-31.1 - EXHIBIT 31.1 - EMPIRE RESORTS INCnyny-12312017xex311.htm
EX-32.1 - EXHIBIT 32.1 - EMPIRE RESORTS INCnyny-12312017xex321.htm
EX-31.2 - EXHIBIT 31.2 - EMPIRE RESORTS INCnyny-12312017xex312.htm
EX-23.1 - EXHIBIT 23.1 - EMPIRE RESORTS INCnyny-12312017xex231.htm
EX-21.1 - EXHIBIT 21.1 - EMPIRE RESORTS INCnyny-12312017xex211.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________ 
FORM 10-K
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2017
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from              to             
Commission file number 1-12522
_______________________________________ 
EMPIRE RESORTS, INC.
(Exact name of registrant as specified in its charter)
Delaware
 
13-3714474
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
c/o Monticello Casino and Raceway, 204 State Route 17B,
P.O. Box 5013, Monticello, NY
 
12701
(Address of principal executive offices)
 
 (Zip Code)


(845) 807-0001
Registrant’s telephone number, including area code

Securities registered under Section 12(b) of the Act:
Title of each class
 
Name of each exchange on which registered
Common Stock, $.01 par value per share
 
NASDAQ Global Market
Securities registered under Section 12(g) of the Act:
None
(Title of class)
_______________________________________ 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
¨
 
Accelerated filer
x

 
 
 
 
 
Non-accelerated filer
¨
 
Smaller reporting company
¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act)     Yes  ¨    No  x
The aggregate market value of the issuer’s common equity held by non-affiliates, as of June 30, 2017, was $80,576,245 based on the closing price of the registrant’s common stock on the NASDAQ Global Market.
As of March 15, 2018, there were 32,762,949 shares of the registrant’s common stock outstanding.
_______________________________________ 
DOCUMENTS INCORPORATED BY REFERENCE
None.



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


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PART I
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements about management’s current expectations. Examples of such forward-looking statements include discussions of the expected results of various strategies. Although we believe that our expectations are based upon reasonable assumptions, there can be no assurance that our financial goals will be realized. Our forward-looking statements concern matters that involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements, or industry results, to be materially different from the future results, performance or achievements described or implied by such forward-looking statements. Numerous factors may affect our actual results and may cause results to differ materially from those expressed in the forward-looking statements made by us or on our behalf. Any statements that are not statements of historical fact may be forward-looking statements. Among others, we have used the words, “believes,” “anticipates,” “plans,” “estimates,” and “expects” to identify forward-looking statements. Such statements may be considered forward looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 27A of the Securities Act of 1933, as amended (the “Securities Act”). Factors that could cause actual results, performance or achievements to differ materially from those expressed or implied by these forward-looking statements include, but are not limited to, the risk factors set forth in Item 1A of this Annual Report on Form 10-K. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this filing. We assume no obligation to update the forward-looking statements to reflect actual results or changes in the factors affecting such forward-looking statements.
Item 1.
Business.
Overview
Empire Resorts, Inc. (“Empire,” and, together with its subsidiaries, the “Company,” “us,” “our” or “we”) was organized as a Delaware corporation on March 19, 1993, and since that time has served as a holding company for various subsidiaries engaged in the hospitality and gaming industries.
Our indirect wholly-owned subsidiary, Montreign Operating Company, LLC, doing business as Resorts World Catskills ("Montreign Operating"), owns and operates Resorts World Catskills, a casino resort (the "Casino"), which is located in Sullivan County, New York approximately 90 miles from New York City. Montreign Operating is the sole holder of a gaming license (a "Gaming Facility License") issued by the New York State Gaming Commission ("NYSGC") in the Hudson Valley-Catskill region, which consists of Columbia, Delaware, Dutchess, Greene, Orange, Sullivan and Ulster counties in New York State.
Through our wholly-owned subsidiary, Monticello Raceway Management, Inc. ("MRMI"), we own and operate Monticello Casino and Raceway, which began racing operations in 1958 in Monticello, New York, which is proximate to the Casino. Monticello Casino and Raceway currently features a video gaming machine ("VGM") and harness horseracing facility. We also generate racing revenues through pari-mutuel wagering on the running of live harness horse races, the import simulcasting of harness and thoroughbred horse races from racetracks across the country and internationally, and the export simulcasting of our races to offsite pari-mutuel wagering facilities.

Gaming operations

Resorts World Catskills
Resorts World Catskills is located at the site of a four-season destination resort (“Destination Resort”) being developed on approximately 1,700 acres (the “EPT Property”) in the Town of Thompson, New York. The EPT Property is owned by EPT Concord II, LLC (“EPT”) and EPR Concord II, L.P. (“EPR LP”), two wholly-owned subsidiaries of EPR Properties, which is unrelated to the Company. The Casino is located in the Catskill region of New York State, which has historically been a resort area. The Destination Resort has a dedicated interchange off of New York State Route 17 at Exit 106 that delivers guests directly into the Destination Resort. Our casino operations are overseen by the NYSGC. Gaming at the Casino is permitted 24 hours a day and is limited to persons over the age of 21. Smoking is not permitted in the Casino.



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Portions of the Casino opened to the public on February 5, 2018. When complete, the Casino is expected to include:
Resorts World Casino (1)
Number of Guest Rooms and Suites (2)
Approximate Casino Square Footage (3)
Slots
Gaming Tables
 
332
100,000
2,151
154

(1) This table reflects the amenities expected to be available once the Casino is fully opened.

(2) When complete, the number of guest rooms and suites will include eight 1,000-1,200-square foot garden suites, seven 2,400-square foot two-story townhouse villas, and 12 penthouse-level suites. The penthouse-level suites, and several rooms beneath the penthouse level, are expected to be completed in late 2018.

(3) The casino floor includes a 6,500-square foot poker room, a 3,800 square-foot VIP/high limit area located on the main gaming floor and a separate 4,000-square foot private gaming area containing private VIP gaming salons.

Monticello Casino and Raceway
Monticello Casino and Raceway is a VGM and year-round harness horseracing facility. Monticello Casino and Raceway is approximately three miles away from the Destination Resort, is directly adjacent to New York State Route 17 and has highly visible signage and convenient access from Exit 104 of New York State Route 17.
    
VGM Operations
Monticello Casino and Raceway operates VGMs, which includes video lottery terminals (“VLTs”) and electronic table game positions (“ETGs”). VGMs are similar to slot machines, but they are connected to a central system and report financial information to the central system. ETGs include the games of roulette, blackjack and 3-card poker. Monticello Casino and Raceway currently features 1,070 VLTs and 40 ETGs (collectively 1,110 VGMs) on a 45,000-square foot gaming floor with a separate high stakes VGM area. Monticello Casino and Raceway also has three dining options which include a food court, restaurant and sports bar.
    
The VGMs at Monticello Casino and Raceway are owned by New York State and are overseen by the NYSGC. Revenues derived from our VGM operations consist of VGM revenues and food and beverage revenues. Gross VGM revenues consist of the total amount wagered at our VGMs, less prizes awarded. Video lottery gaming is permitted for no more than 20 consecutive hours per day and on no day can such operation be conducted past 6:00 a.m.

Raceway Operations, Simulcasting and Pari-mutuel Wagering Activities

Raceway operations, which include live harness horseracing, simulcasting and pari-mutuel wagering activities in New York State, are overseen by the NYSGC. In a letter dated December 15, 2017, the NYSGC approved MRMI’s racetrack and simulcast license renewal applications for calendar year 2018. Generally, the annual license renewal process requires the NYSGC to review the financial responsibility, experience, character and general fitness of MRMI and its management.

We derive our racing, simulcasting and pari-mutuel wagering revenue principally from the following:

wagering at Monticello Casino and Raceway on live races run at Monticello Casino and Raceway and races broadcast from out-of-state racetracks using import simulcasting;
fees from wagering at out-of-state locations and internationally on races run at Monticello Casino and Raceway
using export simulcasting; and
revenue allocations, as prescribed by law, from betting activity at off-track betting facilities in New York State.

Simulcasting is the process by which a live horse race held at one facility (the “host track”) is transmitted to another location that allows patrons of such other location to wager on that race. Amounts wagered at each off-track betting location are combined into the appropriate pools at the host track’s tote facility where the final odds and payouts are determined. With the exception of a few holidays, we offer year-round simulcast wagering from racetracks across the country. In addition, races of national interest, such as the Kentucky Derby, Preakness Stakes and Breeders’ Cup supplement our regular simulcast programming. We also export live broadcasts of our own races to race tracks, casinos and off-track betting facilities in the United States and internationally.

In pari-mutuel wagering, patrons bet against each other rather than against the operator of the facility or with pre-set odds. The amounts wagered form a pool of funds from which winnings are paid based on odds determined by the wagering activity.

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The racetrack acts as a stakeholder for the wagering patrons and deducts from the amounts wagered a “take-out” or gross commission from which the racetrack pays state and county taxes and racing purses. Our pari-mutuel commission rates are fixed as a percentage of the total handle or amounts wagered.

Marketing

    Our marketing efforts are conducted through various channels. These channels include radio, television, print, outdoor and digital throughout the Hudson-Valley Catskill region and the larger New York City metropolitan area. Our more targeted marketing efforts are conducted through direct mail and email. We maintain websites to inform individuals about Resorts World Catskills and Monticello Casino and Raceway and utilize several social media sites to promote our brands, unique events, and special deals. Further, our direct marketing efforts utilize advanced analytic techniques that identify patron preferences to allow us to make more relevant offers to patrons, influence incremental visits, and help build lasting patron relationships.

Resorts World Catskills

We expect Resorts World Casino will receive patronage from adults residing within the metropolitan New York City area, including New York City, northern and northwestern suburbs of New York City, northern New Jersey and northeastern Pennsylvania. The Casino has an overall drive-time advantage relative to other full-scale gaming facilities from the northern and northwestern suburbs of New York City and the Company will focus on servicing what we believe is an unmet demand in the New York metropolitan market.

When complete, the Casino will have a range of high-end offerings, including 600 square-foot hotel suites, private gaming salons, poolside townhouse villas and garden suites and a VIP reception area and players’ lounge with private elevator, which are designed to appeal to higher-end gaming patrons in the market. The Casino is integrated into the master-planned Destination Resort, which will feature a range of year-round amenities. The Casino is also convenient to recreational offerings in the Catskill Mountains.

We will leverage the Resorts World and Genting brands, which are well-known hospitality brands in the Asian markets, to target the large regional Asian gaming market and high-end Asian players. The Casino will offer various Asian-themed amenities, including table games and slot machines, an Asian gaming pit, high-end gaming and private gaming salons, and various authentic Asian food options.

We introduced a patron loyalty program to encourage patron relationships with Resorts World Catskills and increase loyalty to the Resorts World brand through unique benefits and rewards, while promoting our brand. When expanded, the patron loyalty program will include a rewards program that will allow patrons to qualify for benefits at participating Resorts World-branded resorts and in both gaming and non-gaming areas. Members may earn points for their gaming play which can be redeemed at participating properties. Information from the loyalty and rewards programs will be used to analyze patron usage and preferences by segment and individual player profile.

Monticello Casino and Raceway
Monticello Casino and Raceway receives patronage from adults residing within the surrounding counties of New York, New Jersey and Pennsylvania. The average drive-time of our current patrons is up to 60 minutes and therefore we focus on a convenience gaming market.
Monticello Casino and Raceway's mid-range offerings include gaming and dining options designed to appeal to locals and patrons interested in a more intimate and comfortable setting. Our Players' Club enables patrons to earn points that can be used for free slot play, complimentary food, merchandise, special offers, promotions, VIP invitations, discounts and coupons. The Players' Club also enables patrons to earn points when wagering on racing at Monticello Casino and Raceway.

Seasonality

The gaming market in the northeastern United States is seasonal in nature, with winter weather affecting patrons' ability to reach our facilities. However, because of the overnight accommodations at the Casino, we expect the adverse affects of winter weather to decline.

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Competition

The casino entertainment industry is highly competitive. The industry is comprised of a diverse group of competitors that vary considerably in size and geographic diversity, quality of facilities and amenities available, marketing and growth strategies, and financial condition. Generally, we compete directly with casino and VGM facilities operating in the immediate and surrounding areas. Due to the geographic proximity, the Casino and Monticello Casino and Raceway may compete, in part, with each other for gaming patrons. The Casino will compete with other gaming and non-gaming resorts and vacation areas, various other entertainment businesses, and will also compete with other retail facilities, amusement attractions, food and beverage offerings, and entertainment venues.

In addition to competition from traditional gaming facilities, which is discussed in more detail below, the Casino and Monticello Casino and Raceway face competition from existing and prospective Internet gaming operations and sports wagering. In the United States, the Unlawful Internet Gambling Enforcement Act of 2006 ("UIGEA") prohibits, among other things, the acceptance by a business of a wager by means of the Internet where such wager is prohibited by any applicable law where initiated, received or otherwise made. Under UIGEA, severe criminal and civil sanctions may be imposed on the owners and operators of such systems and on financial institutions that process wagering transactions in violation of UIGEA. The law contains a safe harbor provision for wagers placed within a single state (disregarding intermediate routing of the transmission) where the method of placing the bet and receiving the bet is authorized by that state's law, provided the underlying regulations establish appropriate age and location verification. For example, New Jersey law permits Atlantic City casinos to conduct Internet gaming by accepting wagers from individuals who are physically present in New Jersey. Additionally, mobile gaming is permitted in any area located within the property boundaries of a casino hotel facility, including any recreation or swimming pool and excluding parking garages and parking areas. Further, New Jersey law permits racetrack patrons to place bets on live or simulcast racing while they are on racetrack property, including the restaurants and outdoor areas, such as the paddock. New Jersey gaming regulations also authorized skill-based gaming options that appeal to a new generation of players. In October 2017, Pennsylvania signed into law new legislation also authorizes interactive gaming in the form of Internet gaming and up to five video gaming terminals at qualified truck stops. The legislation additionally authorizes fantasy sports wagering if and when it is permitted under federal law.

A number of other states have adopted or are considering adopting legislation to specifically authorize Internet poker and Internet gambling. In February 2018, the governors of New Jersey, Nevada and Delaware announced an agreement to allow Internet poker operators to pool players with partner sites in those states. New York legislators have introduced bills related to Internet gaming and Internet poker. Additionally, two state lotteries offer (and other state lotteries are considering offering) Internet instant game sales to in-state lottery customers and a number of other states, including New York, allow subscription sales of lottery draw games over the Internet. We are unable to determine whether and which, if any, legislation will be enacted and what effect it would have on our current operations.

In addition, the outcome of a U.S. Supreme Court case argued in December 2017, Governor Christopher J. Christie, et al., v. National Collegiate Athletic Association, et al., may affect state and federal policies with respect to sports wagering. This case is expected to address the question of whether the Professional and Amateur Sports Protection Act of 1992, a federal statute enacted to stop the spread of state-sponsored sports gambling, impermissibly commandeers the regulatory power of the states. In anticipation of that outcome, certain states, including New York, have adopted or are considering adopting legislation to legalize sports betting, subject to federal restrictions on sports wagering being lifted. On August 3, 2016, New York Governor Cuomo signed legislation to legalize interactive fantasy sports. The Casino is able to offer sports wagering if and when it is permitted under federal law.

Other states, such as Pennsylvania, recently passed a broad gaming expansion bill, which, among other things, authorized Internet gambling in the form of slot machines, table games and poker. This new legislation also authorized Pennsylvania's lottery to distribute lottery products, including instant ticket games, through numerous channels including web applications, mobile applications, mobile web, tablets and social media. In addition, this new Pennsylvania bill authorized land-based and Internet sports wagering in the event the federal restrictions on sports wagering are lifted. We expect Internet gaming and sport wagering to continue to be the topic of additional legislation, including the expansion of legalization efforts within New York State to venues other than holders of Gaming Facility Licenses. We are unable to determine whether and which, if any, legislation will be enacted and what effect it will have on our operations and our prospects.
    

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Resorts World Catskills
    
We face competition in and from the northeastern Pennsylvania, New Jersey and Connecticut gaming markets in marketing to and attracting patrons from the New York City metropolitan area. Pennsylvania casinos are the competitors located closest to our Casino. Pennsylvania casinos operate table games and slot machines, grant casino credit and have access to unlimited non-taxable free play. The competing Pennsylvania facilities include the following: Mohegan Sun at Pocono Downs, in Wilkes-Barre, Pennsylvania, located approximately 95 miles southwest of Monticello; Mount Airy Casino Resort in Mount Pocono, Pennsylvania, approximately 70 miles southwest of Monticello; and Sands Casino Resort in Bethlehem, Pennsylvania, located approximately 95 miles southwest of Monticello. In addition, in October 2017, Pennsylvania signed into law new legislation that authorized a number of gaming expansion opportunities. The legislation authorized up to 10 new casino satellite facilities, which would operate between 300 to 750 slot machines and up to 50 table games each. Licenses for these new facilities are awarded through an auction process that began in January 2018. This legislation also authorizes interactive gaming in the form of Internet gaming and up to five video gaming terminals at qualified truck stops. The legislation additionally authorizes fantasy sports wagering if and when it is permitted under federal law. New York State has regulatory limitations on the amount of taxable free play that may be offered to patrons. This could impact our competitiveness as compared to casinos in neighboring jurisdictions.

In addition to facing potential competition from the casinos in Atlantic City, legislators in New Jersey have reviewed options to expand gaming to various locations in northern New Jersey which could increase competition. Although New Jersey voters previously defeated a referendum to amend the New Jersey State Constitution to permit two casinos in northern New Jersey, another referendum could be introduced in the future. We are unable to predict the impact additional gaming opportunities in northern New Jersey will have on our operations. 

We face competition from Mohegan Sun and Foxwoods Resort Casino, both of which are located on tribal reservations in Connecticut, and from certain VGM facilities in New York State, including VGM facilities located at Yonkers Raceway and Aqueduct Racetrack, both of which are within the New York City metropolitan area.

Further, we also face potential competition from the current or future expansion of state-licensed and tribal gaming in the northeastern United States. Commercial casino gaming has expanded in the northeastern United States and is poised to expand further. These expansions, many of which are convenience gaming facilities as opposed to destination gaming facilities, may affect our revenues.

Monticello Casino and Raceway

In New York State, we face competition for our VGM guests from Orange, Dutchess and Ulster counties in New York and from a VGM facility at Yonkers Raceway. To a lesser extent, Monticello Casino and Raceway faces competition from the Pennsylvania casinos, Mohegan Sun at Pocono Downs and Mount Airy Casino Resort. These facilities are discussed above.

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

Development
The Golf Course Project and the Entertainment Project

In addition to the Casino, Empire Resorts Real Estate I, LLC ("ERREI") and Empire Resorts Real Estate II, LLC ("ERREII" and, together with Montreign Operating and ERREI, the "Project Parties"), each of which are wholly-owned subsidiaries of Montreign Operating, are developing an entertainment village (the "Entertainment Project") and a golf course (the "Golf Course Project" and, together with the Casino and the Entertainment Project, the "Development Projects"), respectively, at the site of the Destination Resort.

On May 24, 2017, the Company received final site plan approval from the Town of Thompson Planning Board ("Planning Board") for the Entertainment Project, which will consist of a non-gaming hotel with 100-200 guest rooms, as well as dining, entertainment and retail offerings. Further, the Planning Board approved a minor amendment to the Entertainment Project's final site plan on February 14, 2018. The Company expects construction of the Entertainment Project to begin in March 2018. Montreign Operating entered into a construction manager agreement with Arc Building Partners, LLC., which is a standard construction

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manager agreement, with normal and customary terms, and addresses, among other things, the guaranteed maximum price of approximately $32.7 million for the Entertainment Project, completion commitments and MWBE participation in the Entertainment Project. 

The Company has obtained final site approval from the Planning Board for, and has begun site preparation of, the redesign of the Golf Course Project. The Planning Board extended this site plan approval until June 2018 to allow the Company to coordinate the commencement of construction and to obtain final approval of updates to the wetlands permits from the United States Army Corps of Engineers and the New York State Department of Environmental Conservation, if required.

In addition to the Development Projects, the Destination Resort will include a waterpark lodge, which subsidiaries of EPR Properties are responsible for developing (the “Waterpark” and, together with the Development Projects, the “Initial Projects”).

Master Development Agreement and Completion Guaranties

On December 28, 2015 (the “MDA Effective Date”), the Project Parties, on the one hand, and EPT, EPR LP and Adelaar Developer, LLC (the “Destination Resort Developer,” together with EPT and EPR LP collectively, “EPR”), on the other hand, entered into an Amended and Restated Master Development Agreement (as amended, the “MDA”), which amends and restates that certain master development agreement by and between EPT and MRMI originally executed on December 14, 2012. The MDA defines and governs the overall relationship between EPR and the Project Parties with respect to the development, construction, operation, management and disposition of the Initial Projects.

In accordance with the terms of the MDA, EPR is responsible for the development and construction of the Waterpark and the common infrastructure-related improvements (such as streets, sidewalks, sanitary and storm sewer lines, water, gas, electric, telephone and other utility lines, systems, conduits and other similar facilities) for the Destination Resort. EPR has agreed to make a minimum capital investment of $120 million with respect to the Waterpark and the infrastructure for the Destination Resort. On December 28, 2015, EPR Properties, a real estate investment trust and the parent company of EPR, entered into a Completion Guaranty, guaranteeing completion of the development and construction obligations of EPR described in this paragraph.

Neither party has the right to terminate the MDA unless Montreign Operating fails to exercise the Purchase Option (as defined below) prior to its expiration in accordance with the terms and conditions of the Purchase Option Agreement (as defined below).

On January 24, 2017, the MDA was amended to (a) reflect that EPR has secured bond financing in connection with its infrastructure development obligations and (b) account for increases in the common infrastructure budget (and corresponding increases in Empire’s common infrastructure cap amount) in connection with the development of additional roads and increase in the budgeted amounts for New York State electric and gas costs. EPR financed the costs of the infrastructure by the issuance of tax-exempt bonds by a local development corporation. The debt service for these infrastructure bonds will be funded through special district tax assessments, a portion of which will be allocated to each of the parcels on which the Initial Projects are being built. EPR and the Project Parties have agreed to a capped dollar amount on the special district tax assessment for each of the parcels on which the Development Projects are being built, above which the Project Parties will not be responsible. The changes to Empire’s common infrastructure cap amount were also reflected in each of the amendments to the Casino Lease, Golf Course Lease and Entertainment Project Lease.

On January 24, 2017, Empire agreed to issue a completion guaranty of up to $30 million for the Casino, under the terms of a term loan agreement negotiated for the construction of the Casino.

Intellectual Property

RWS License Agreement
On March 31, 2017, Montreign Operating entered into a license agreement (the “RWS License Agreement”) with RW Services Pte Ltd (“RWS”). RWS is an affiliate of Tan Sri Lim Kok Thay, who is a beneficiary of and controls Kien Huat Realty III Limited ("Kien Huat"), Empire's largest stockholder. Pursuant to the RWS License Agreement, RWS granted Montreign Operating the non-exclusive, non-transferable, revocable and limited right to use certain “Genting” and “Resorts World” trademarks (the “RWS Licensed Marks”) in connection with the development, marketing, sales, management and operation (the “Permitted Uses”) of the Development Projects. The right to use the RWS Licensed Marks may be assigned or sublicensed only in certain limited circumstances. However, any use of the RWS Licensed Marks for a purpose other than the Permitted Uses will require the prior written consent of RWS. The name of the Casino is “Resorts World Catskills,” and, notwithstanding the foregoing, the use

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of such name is exclusive to Montreign Operating and may be used in connection with on-line gaming in addition to the Permitted Uses.
The initial term of the RWS License Agreement will expire on December 31, 2027, and will be extended automatically for additional terms of 12 months each, up to a maximum of 39 additional terms, unless either of the parties provides notice to terminate the RWS License Agreement or upon the mutual written consent of both parties. Montreign Operating’s rights and obligations under the RWS License Agreement are subject to and governed by the rules and regulations applicable to Montreign Operating’s gaming operations at the Casino, and the fiduciary obligations of the boards of directors of Montreign Operating and Empire, as well as the fiduciary obligations of Kien Huat. Beginning on the date on which the Casino opened to the public, Montreign Operating pays to RWS a fee equivalent to a percentage of Net Revenue (as such term is defined in the RWS License Agreement) generated in each calendar year from (i) all activity at the Casino, (ii) each specific use of the RWS Licensed Marks in the Entertainment Project or Golf Course and (iii) each specific use of the name Resorts World Catskills in connection with on-line gaming. The percentage of Net Revenue payable as the fee is a low single digit percentage that will increase incrementally between the third year and sixth year of the term of the RWS License Agreement and will remain a low single digit percentage during the entire term of the RWS License Agreement.
During the term of the RWS License Agreement, Montreign Operating may participate in the Genting Rewards Alliance loyalty program (the “Alliance”), which would provide central marketing and cross-promotion opportunities for the Development Projects with other members of the Alliance. Montreign Operating’s participation in the Alliance is subject to the provisions of a separate agreement, which is currently being negotiated by the parties.

Trademarks

Our principal intellectual property consists of trademarks for Montreign Operating and Monticello Casino and Raceway and includes the license agreement to use the RWS Licensed Marks. These trademarks are brand names under which we market our properties, venues and services. We consider these brand names to be important to our business since they have the effect of developing brand identification. We believe that the name recognition, reputation and image that we develop will attract patrons to our facilities.It is our intent to pursue and maintain the trademark registrations consistent with our goals for brand development and identification, and enforcement of our rights.

Employees and Labor Relations

As of March 15, 2018, we had approximately 1,600 full-time and 150 part-time employees, which includes employees hired in connection with the Casino. As of December 31, 2017, we had approximately 428 full-time and 37 part-time employees. We had collective bargaining agreements with unions covering approximately 94 of our employees as of December 31, 2017. The collective bargaining agreement covering approximately 75 employees at Monticello Casino and Raceway is scheduled to expire on March 31, 2018. We will begin negotiations with a bargaining unit for a collective bargaining agreement for certain employee groups at Resorts World Catskills. We consider our employee relations to be good.

Regulation and Licensing

The gaming industry is highly regulated and we must maintain our licenses and pay gaming taxes to continue our operations. The Casino and Monticello Casino and Raceway are subject to extensive regulation under the laws, rules, and regulations of New York State. These laws, rules, and regulations generally concern the conduct of operations as well as the responsibility, financial stability, and character of the facilities, owners, managers, and persons with financial interests in the gaming operations. Individuals and entities, including investors and vendors conducting business with us, must file license/registration applications with the NYSGC, and in some instances must submit to background investigations by the New York State Police in order to prove suitability for licensure/registration. Application, fingerprinting and investigative fees must be paid by us or by the individual or entity seeking licensure or registration. Failure to obtain and maintain a license or registration, as applicable, could require us to sever our relationship with such individuals and/or entities, which could have a material adverse effect on our operations or the Development Projects.

Our businesses are also subject to various federal, state, and local laws and regulations, in addition to gaming regulations. These laws and regulations include, but are not limited to, restrictions and conditions concerning alcoholic beverages, smoking, environmental matters, employees, currency transactions, taxation, zoning and building codes, construction, land use, and marketing and advertising. We also deal with significant amounts of cash in our operations and are subject to various reporting and federal anti-money laundering ("AML") laws, as further discussed below. Such laws and regulations could change or could be interpreted differently in the future, or new laws and regulations could be enacted. Material changes, new laws or regulations,

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or material differences in interpretations by courts or governmental authorities could adversely affect our operations or the Development Projects. 
Gaming Act and Gaming Facility License
The operations of the Casino are subject to regulation by the NYSGC, Division of Gaming. The Upstate New York Gaming and Economic Development Act ("Gaming Act") provides, among other things, the statutory framework for the regulation of full-scale casino gaming. The Gaming Act authorized the NYSGC to award up to four Gaming Facility Licenses. Effective March 1, 2016, the NYSGC awarded Montreign Operating the sole Gaming Facility License in the Hudson Valley-Catskills region. The Gaming Facility License has an initial duration of 10 years from March 1, 2016 and will be renewable thereafter for a period of at least an additional 10 years, as determined by the NYSGC. The NYSGC also awarded one Gaming Facility License in the Albany region and two Gaming Facility Licenses in the eastern Southern Tier/Finger Lakes region. The Gaming Act provides that no casinos shall be authorized in Bronx, Kings, New York, Queens or Richmond counties. New York State may, however, legislatively authorize additional Gaming Facility Licenses.
The Gaming Act provides for a seven-year exclusivity period for holders of Gaming Facility Licenses, commencing March 1, 2016, during which no further Gaming Facilities can be licensed by the NYSGC without legislative action. If the New York State legislature authorizes additional Gaming Facility Licenses within this exclusivity period, holders of the original four Gaming Facility Licenses shall have the right to recover a pro rata portion of the license fee paid.
The Gaming Act imposes a $500 annual fee on each slot machine and table game. The tax rate on slot machines at the Casino is 39% and the tax rate on table games is 10%. Although free play allowances are not established by the Gaming Act, the NYSGC has promulgated a regulation that limits non-taxable free play to 15%, although the NYSGC may, at its discretion, authorize deviations from these limitations.

Moreover, the Gaming Act deems the Casino to be a New York State agency for its capital projects for the purpose of participation by minority-owned and woman-owned business enterprises ("MWBEs") and the NYSGC regulations require all contracts with Montreign Operating that are in excess of $25,000 to be reviewed by the NYSGC for the purpose of MWBE participation.

Regulatory Permits and Approvals Relating to the Development Projects

The Casino
    
The Casino received all approvals and permits required to begin construction in February 2015 and began construction soon thereafter. In June 2015, Montreign Operating submitted certain changes in the design of the Casino, which received approval in July 2015. As of February 5, 2018, Montreign Operating had received its Operation Certificate in order to begin gaming operations at the Casino, which is subject to NYSGC's authority to revoke, suspend, limit or otherwise alter such Operation Certificate and shall remain in full force and effect as long as Montreign Operating remains licensed.

Entertainment Project and Golf Course Project

On December 8, 2016, the Company submitted to the Planning Board an application for site plan approval for the hotel to be located within the Entertainment Project. On May 24, 2017, the Planning Board adopted a resolution granting final site plan approval with conditions for the hotel. The Planning Board approved a minor amendment to the final site plan on February 14, 2018. The Company expects construction of the Entertainment Project to begin in March 2018.

The Company has obtained final site approval from the Planning Board for, and has begun site preparation of, the redesign of the Golf Course Project. The Planning Board extended this site plan approval until June 2018 to allow the Company to coordinate the commencement of construction and to obtain final approval of updates to the wetlands permits from the United States Army Corps of Engineers and the New York State Department of Environmental Conservation, if required.
            
VGM and Racing Operations

Our VGM, harness horseracing and simulcast activities in New York State are overseen by the NYSGC, Division of Lottery and Division of Horse Racing and Pari-Mutuel Wagering, respectively. The NYSGC has the authority and responsibility to promulgate rules and regulations that affect the operations of our business. In a letter dated December 15, 2017, the NYSGC approved MRMI’s racetrack and simulcast license renewal applications for calendar year 2018. Generally, the annual license

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renewal process requires the NYSGC to review the financial responsibility, experience, character and general fitness of MRMI and its management.

We generate revenue from our VGM operations by receiving a commission on the gross revenue generated by the VGMs. The rate of this commission is set by statute. From April 1, 2008 until March 31, 2018, the statute provides that 41% of gross VGM revenue be distributed to us as a commission. Effective as of April 1, 2018, the statute would reduce the commission rate to 39% of gross VGM revenue. However, with the arrival of casinos into the regions in which VGM facilities are currently operating in New York State, the Gaming Act provides that the commission payable to VGM facilities will be increased over the statutory amount and equalized to the blended tax rate payable by holders of Gaming Facilities Licenses with respect to gross gaming revenue generated on table games and slot machines. Accordingly, we expect the commission we receive on our VGM operations for the period following the opening of the Casino will equal the blended tax rate on the Casino's gross gaming revenue. There is also a marketing allowance for racetracks operating video lottery programs of 10% on the first $100 million of net revenues generated and 8% thereafter. In addition, the statute provides for subsidized free play allowance of 15%.

The Gaming Act includes provisions intended to minimize the impact on horsemen of declining revenue at VGM facilities as a result of the introduction of casinos into the region. If VGM facilities are unable to maintain required purse support payments to horsemen at licensed racetracks in amounts equal to at least the 2013 payment amounts, as adjusted for the consumer price index, the holder of a Gaming Facility License in the region in which the licensed racetrack is located is required to make whole the deficit. Accordingly, if the purse support payments from Monticello Casino and Raceway to the horsemen are below the dollar levels realized in 2013, then the Casino must make whole the deficit.

Anti-Money Laundering Laws

        The operations of the Casino and Monticello Casino and Raceway are subject to federal AML laws. The AML laws relate to the reporting of large cash transactions and suspicious activity and include screening transactions against lists maintained by the Office of Foreign Assets Control in order to prevent the processing of transactions to or from certain countries, individuals, nationals and entities. Our AML policy was developed by applying a risk-based approach and is tailored to our business activities and patron risk profiles. The risk assessment will be updated and revised to reflect changes in our business to ensure sufficiency and effectiveness of our AML policy. Failure to comply with the AML laws could subject us to significant fines and penalties.
Website Access
Our website addresses are www.empireresorts.com, www.rwcatskills.com, and www.monticellocasinoandraceway.com. Our filings with the Securities and Exchange Commission are available at no cost on www.empireresorts.com as soon as practicable after the filing of such reports with the Securities and Exchange Commission.

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Item 1A.
Risk Factors.

In addition to the other information contained in this report on Form 10-K, the following Risk Factors should be considered carefully in evaluating our business. If any of the following risks actually occur, our business, financial condition and results of operations could be materially and adversely affected.

Risks Relating to our Substantial Indebtedness

Our substantial indebtedness and significant financial commitments, including the fixed component of our rent payments to EPR, could adversely affect our operations and financial results and impact our ability to satisfy our obligations.

As of December 31, 2017, we had approximately $466 million of principal amount of indebtedness outstanding, including $450 million of borrowings outstanding under the Term B Loan of the Term Loan Facility (with an additional borrowing capacity of $70 million under the Term A Loan of the Term Loan Facility), $16 of borrowings outstanding under the Bangkok Bank Loan (with an additional borrowing capacity of $4 million), no borrowings under the Revolving Credit Facility (with borrowing capacity of $15 million, of which $9 million was drawn on January 23, 2018 and $4 million was drawn on February 12, 2018) and $20 million of borrowing capacity under the Kien Huat Backstop Loan (which capacity can be used solely to repay the Bangkok Bank Loan). Any increase in the interest rates applicable to our principal debt agreements, which are referenced above, or to our future borrowings, would increase the cost of our indebtedness and reduce the cash flow available to fund our other liquidity needs. To the extent Montreign Operating is unable to produce cash flow sufficient to service its indebtedness, our ability to make additional investments into Montreign Operating would be limited by the covenants in the Bangkok Bank Loan and our business, financial condition and results of operation would be materially adversely affected.

In addition, our substantial indebtedness and significant financial commitments could have important negative consequences on us, including:

increasing our exposure to general adverse economic and industry conditions;
limiting our flexibility to plan for, or react to, changes in our business and industry;
making it more difficult for us to make payments on our indebtedness; or
placing us at a competitive disadvantage compared to less-leveraged competitors.
 
Moreover, the Entertainment Village and Golf Course will continue to be capital intensive. To the extent that we cannot fund expenditures from the proceeds of the Term Loan Facility and cash generated by our operations, funds must be borrowed or otherwise obtained. These projects may require significant capital commitments, the incurrence of additional debt, guarantees of third-party debt, or the incurrence of contingent liabilities, any or all of which could have an adverse effect on our business, financial condition and results of operations.

Current and future economic, capital and credit market conditions could adversely affect our ability to service our indebtedness and to make planned expenditures.

Our ability to make payments on our indebtedness depends on our ability to generate cash flow in the future. If regional and national economic conditions deteriorate we could experience decreased revenues from our operations attributable to decreases in consumer spending levels and could fail to generate sufficient cash to fund our liquidity needs or fail to satisfy the financial and other restrictive covenants in our debt instruments. We cannot provide assurance that our business will generate sufficient cash flow from operations. We cannot provide assurance that future borrowings will be available to us under our Term Loan Facility, Revolving Credit Facility or Bangkok Bank Loan Agreement in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs. We cannot provide assurance that we will be able to access the capital markets in the future to borrow additional indebtedness on terms that are favorable to us.

The agreements governing our Term Loan Facility and other senior indebtedness contain restrictions and limitations that could significantly affect our ability to operate our business, as well as significantly affect our liquidity, and therefore could adversely affect our results of operations.

Covenants governing our Term Loan Facility and certain of our other indebtedness restrict, among other things, our ability to:


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pay dividends or distributions, including from subsidiaries to Empire, repurchase or issue equity, prepay certain debt or make certain investments;
incur additional debt, including limiting our ability to borrow further capital needed to complete the Development Projects, if needed;
direct a significant portion of our available cash to the payment of principal and interest on our indebtedness, thereby reducing our use of available cash to fund our operations, capital expenditures and future business opportunities;
incur liens on assets; and
sell assets or consolidate with another company or sell all or substantially all of our assets.

Our ability to comply with these provisions may be affected by events beyond our control. The breach of any such covenants or obligations not otherwise waived or cured could result in a default under the applicable debt obligations and could trigger acceleration of those obligations, which in turn could trigger cross-defaults under other agreements governing our long-term indebtedness. In addition, the Term Loan Agreement requires us to satisfy certain financial covenants, including a maximum first lien net leverage ratio and a minimum interest coverage ratio. Any default under the Term Loan Facility or the other principal debt agreements could adversely affect our growth, our financial condition, our results of operations and our ability to make payments on our debt. The ability to make payments of principal and interest on indebtedness will depend on the future performance of the Casino, which is subject to general economic conditions, industry cycles and financial, business and other factors affecting our operations, many of which are beyond our control. If sufficient cash flow is not generated from operations to service such debt, we may be required, among other things, to:

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

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

Defaults under the Term Loan Agreement, the Revolving Credit Agreement or the Bangkok Bank Loan Agreement could result in a substantial loss of our assets.

We have pledged a significant portion of our assets as collateral under the Term Loan Agreement, the Revolving Credit Agreement and the Bangkok Bank Loan Agreement. A failure to repay any of this indebtedness as it becomes due or to otherwise comply with the covenants contained in any of our principal debt agreements could result in an event of default thereunder. If not cured or waived, an event of default under any of our principal debt agreements could enable the lenders thereunder to declare all borrowings outstanding on such debt, together with accrued and unpaid interest and fees, to be due and payable and terminate all commitments to extend further credit. The lenders could also elect to foreclose on our assets securing such debt. Such actions by the lenders could cause cross defaults pursuant to the terms of our principal debt agreements. In such an event, the Company may not be able to refinance or repay all of its indebtedness, pay dividends or have sufficient liquidity to meet operating and capital expenditure requirements. Any such acceleration could cause us to lose a substantial portion of our assets and will substantially adversely affect our ability to continue our operations.

A downgrade in our credit ratings could materially adversely affect our business and financial condition.

In connection with the Term Loan Facility and the Revolving Credit Facility, Montreign Operating was required to obtain credit ratings for its debt offering. Although the maintenance of a certain credit rating is not a condition to the availability of the Term Loan Facility or the Revolving Credit Facility, an adverse change in this credit rating and the credit ratings assigned to our debt securities could adversely affect our business. Such ratings are subject to ongoing evaluation by credit rating agencies, and any rating could be changed or withdrawn by a rating agency in the future if, in its judgment, circumstances warrant such action. For example, such ratings could change based upon, among other things, our results of operations and financial condition.

If any of the credit rating agencies that have rated our securities downgrades or lowers its credit rating, or if any credit rating agency indicates that it has placed any such rating on a "watch list" for a possible downgrade or lowering, or otherwise indicates that its outlook for that rating is negative, such action could have a material adverse effect on our costs and availability of funding in the future, which could in turn have a material adverse effect on our financial condition, results of operations, cash flows, the trading price of our securities and our ability to satisfy our debt service obligations, among other obligations.

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Risks Relating to our Business
The gaming industry in the northeastern United States is highly competitive, with many of our competitors better known and better financed than us.

We primarily compete directly with other casino and VGM facilities operating in the immediate and surrounding market areas. The gaming industry in the northeastern United States is highly competitive and increasingly dominated by multinational corporations or Native American tribes that enjoy widespread name recognition, established brand loyalty, decades of casino operation experience, an array of amenities, high-quality management talent and a diverse portfolio of gaming assets and with substantially greater financial resources.

In a broader sense, our gaming operations face competition from all manner of leisure and entertainment activities, including: shopping; athletic events; television and movies; concerts; and travel. If our competitors operate more successfully than we do, if they attract patrons away from us as a result of aggressive pricing and promotion, if they are more successful than us in attracting and retaining employees, if their properties are enhanced or expanded, if they operate in jurisdictions that give them operating advantages due to differences or changes in gaming regulations or taxes, or if additional hotels and casinos are established in and around the locations in which we conduct business, we may lose market share or the ability to attract or retain employees. In particular, the expansion of casino gaming in or near any geographic area from which we attract or expect to attract a significant number of our patrons could have a significant adverse effect on our business, financial condition and results of operations.

We expect that competition from internet gaming will continue to grow and intensify.

We expect that we will face increased competition from internet gaming as the potential for legalized internet gaming continues to grow. Several states are currently considering legislation that would legalize internet gaming at the state level. As a result of the Justice Department’s December 2011 opinion concerning the applicability of the Wire Act to internet gaming, certain states including Nevada, Delaware and New Jersey have enacted legislation to authorize various forms of intrastate internet gaming. Notably, in February 2013, Nevada amended its internet gaming law to permit Nevada-licensed internet providers to commence internet poker and to allow the state to enter into agreements with other states to create multi-state on-line poker wagering, and in November 2013, New Jersey authorized intrastate internet gaming through Atlantic City casinos. The New Jersey law provides that licensed Atlantic City casinos may offer internet gambling games subject to regulations of the New Jersey Division of Gaming Enforcement (the "NJDGE"). The law provides for a 15% tax on internet gaming gross revenues and permits New Jersey to enter into agreements with other states to engage in multi-state internet wagering pools. The law has a 10-year sunset provision. A number of New Jersey casinos participate in intrastate internet gaming. Our ability to compete in a marketplace containing multiple virtual casino platforms will depend on our ability to effectively market our gaming products to our patrons in the face of stiff competition as well as the availability of internet gaming in jurisdictions in which we operate casinos. Furthermore, competition from internet lotteries and other internet wagering gaming services, which allow their patrons to wager on a wide variety of sporting events and play Las Vegas-style casino games from home, could divert patrons from our properties and thus adversely affect our business. Such internet wagering services are likely to expand in future years and become more accessible to domestic gamblers as a result of initiatives in some states to consider legislation to legalize intrastate internet wagering. There have also been proposals that would specifically legalize internet gaming under federal law.

New York State could grant additional Gaming Facility Licenses in our area or in New York City or the surrounding counties earlier than the expected seven-year blackout period, which could significantly increase the already intense competition in the northeastern United States and cause us to lose or be unable to gain market share.

The Gaming Act provides for the award of up to four Gaming Facility Licenses in three regions of upstate New York, including our area, and prohibits the issuance of Gaming Facility Licenses in the “downstate” region, which includes New York City and its surrounding counties. The award of such a Gaming Facility License is intended to be exclusive for a period of seven years commencing on the date of our award of the Gaming Facility License, which occurred in December 2015. We can provide no assurance that the New York State government will not change this law and issue additional Gaming Facility Licenses before the expiration of this seven-year exclusivity period. If the New York State government were to allow additional competitors to operate in our area or in other regions of New York through the grant of additional Gaming Facility Licenses, we would face additional competition, which could significantly increase the already intense competition in the northeastern United States and cause us to lose or be unable to gain market share.

Our inability or the inability of our subsidiaries, key personnel, significant stockholders, vendors financial sources or joint venture partners to obtain or maintain required gaming regulatory licenses, permits or approvals could prevent us from operating our facilities or otherwise adversely impact our results of operation.


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Gaming is a highly regulated industry that is subject to extensive federal, state, provincial, and/or local laws, regulations and ordinances that are administered by the relevant regulatory agency or agencies in each jurisdiction. These laws, regulations and ordinances vary from jurisdiction to jurisdiction, but generally concern the responsibilities, financial stability and character of the owners and managers of gaming operations as well as persons financially interested or involved in gaming operations, and often require such parties to obtain certain licenses, permits and approvals. In addition, some of the licenses that we and our subsidiaries, officers, directors, principal stockholders, financial sources and vendors hold expire after a relatively short period of time and thus require frequent renewals and reevaluations. Obtaining these licenses in the first place and the renewal process involves a subjective determination by the regulatory agencies. We can provide no assurance that we will be able to continually renew all registrations, permits, approvals or licenses necessary to conduct our operations in the state of New York as intended. If we or our subsidiaries, financial sources or vendors do not obtain and maintain the required licenses, permits and approvals, we or such individuals or entities, may be required to divest any interest in our current or future gaming facilities or our current gaming facilities risk losing their licenses. These laws, regulations and ordinances may also affect the operations of our gaming facilities or our plans in pursuing future projects. Any adverse developments in the regulation of the gaming industry in New York State could be difficult to comply with and could significantly increase our costs, which could cause our operations to be unsuccessful.

Changes in the laws, regulations, and ordinances (including local laws) to which our gaming operations are subject, and the application or interpretation of existing laws and regulations to our operations, may adversely affect our results of operation.

Casino gaming is still a relatively new industry in New York and many of the rules and regulations governing casino gaming are still evolving and subject to interpretation. Under the Gaming Act, the NYSGC has extensive authority to regulate gaming activities. The NYSGC also has the authority to interpret the Gaming Act, which has far-reaching effect on our business decisions. For example, the NYSGC decides whether a gaming option available at the Casino constitutes a slot machine or table game and that decision impacts the choices we make on laying out the gaming floor. Certain provisions of the gaming regulations that have significant impact on our operations, such as the allowance for free play, are promulgated by the NYSGC and not established by the Gaming Act. The NYSGC has further discretion to deviate from the established free play allowance and to revoke such deviation at any time. Moreover, lack of visibility into the applicability of, and the expense related to complying with, specific licensing requirements and background investigations means we are unable to pass on these costs to vendors and employees and thereby reduce our costs of operation. The uncertainty surrounding the evolving interpretations of the Gaming Act and the regulations promulgated by the NYSGC may hinder our ability to negotiate agreements with third parties, such as a vendor or a junket enterprise, and establish policies relating to our workforce because we are unable to effectively judge the relative costs and benefits of these relationships. These new or changing regulations and interpretations of the Gaming Act, as well as the uncertainty of the NYSGC's further actions with respect to such regulations and interpretations could adversely affect our results of operations.

Our business is particularly sensitive to reductions in discretionary consumer and corporate spending as a result of global economic conditions.

Consumer demand for resort casinos, trade shows and conventions and for the type of luxury amenities that we offer is particularly sensitive to changes in the global economy, which adversely impact discretionary spending on leisure activities. Changes in discretionary consumer spending or consumer preferences brought about by factors such as perceived or actual general global economic conditions, high unemployment, weakness in housing or oil markets, perceived or actual changes in disposable consumer income and wealth, an economic recession and changes in consumer confidence in the global economy, or fears of war and future acts of terrorism have in the past and could in the future reduce patron demand for the luxury amenities and leisure activities we offer, and may have a significant negative impact on our operating results.

The loss or a reduction in the play of our most significant patrons could have a material adverse effect on our business, financial condition, results of operations and cash flows. A downturn in economic conditions in the countries in which these patrons reside could cause a reduction in the frequency of visits by and revenue generated from these patrons.

Also, consumer demographics and preferences may evolve over time, which, for example, has resulted in growth in consumer demand for non-gaming offerings. Our success depends in part on our ability to anticipate the preferences of consumers and react to those trends and any failure to do so may negatively impact our operating results.


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We are subject to greater risks than a geographically diverse company.
Our operations are limited to the Catskills region of New York State, which has been affected by a decades-long decline in economic conditions. We expect that a majority of the patrons for our Casino will come from the New York metropolitan area. As a result, in addition to our susceptibility to adverse global and domestic economic, political and business conditions, any economic downturn in the Catskill region or the New York metropolitan area could have a material adverse effect on our operations. An economic downturn would likely cause a decline in the disposable income of consumers, which could result in a decrease in the number of patrons at our facilities, the frequency of their visits and the average amount that they would be willing to spend at our facilities. We are subject to greater risks than more geographically diversified gaming or resort operations, including:

a downturn in national, regional or local economic conditions;
an increase in competition in New York State or the northeastern United States and Canada, particularly for day-trip patrons residing in the New York metropolitan area, including as a result of other gaming and entertainment operations in New York State, Connecticut, New Jersey and Pennsylvania;
impeded access due to road construction or closures of primary access routes; and
adverse weather and natural and other disasters in the northeastern United States.
The occurrence of any one of the events described above could cause a material disruption in our business and make us unable to generate sufficient cash flow to make payments on our obligations.

We are required to pay a portion of our cash flows as fixed and percentage rent under the Casino Lease and as a fee under the RWS License Agreement, which could adversely affect our ability to fund our operations and growth, service our indebtedness and limit our ability to react to competitive and economic changes.

From March through August 2018, Montreign Operating is required to make monthly fixed rent payments of $1 million under the lease of the parcel on which the Casino was constructed (the "Casino Lease"). Beginning in September 2018, Montreign Operating is required to make annual rent payments of $7.5 million under the Casino Lease, subject to an 8% escalation every five years. In addition to fixed rent, beginning in September 2018 and through the remainder of the term of the Casino Lease, Montreign Operating is obligated to pay an annual percentage rent equal to five percent of the Eligible Gaming Revenue (as such term is defined in the Casino Lease) in excess of the base rent. Furthermore, beginning on the date on which the Casino opened to the public, Montreign Operating is required to pay RWS a fee equivalent to a percentage of Net Revenue (as such term is defined in the RWS License Agreement) generated in each calendar year for its use of the RWS Licensed Marks. The percentage of Net Revenue payable as the fee is a low single digit percentage that will increase incrementally between the third year and sixth year of the term of the RWS License Agreement and will remain a low single digit percentage during the entire term of the RWS License Agreement. As a result, our ability to fund our own operations, service our debt and otherwise respond to competitive and economic changes may be adversely affected. For example, our obligations under the Casino Lease and RWS Agreement may:

make it more difficult for us to satisfy our obligations with respect to our indebtedness and to obtain additional indebtedness; 
increase our vulnerability to general adverse economic and industry conditions or a downturn in our business;
require us to dedicate a substantial portion of our cash flow from operations to making rent payments, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, development projects and other general corporate purposes;
limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; 
restrict our ability to make acquisitions, divestitures and engage in other significant transactions; and
cause us to lose our rights with respect to the property leased under the Casino Lease or the RWS Licensed Marks if we default on the Casino Lease or the RWS License Agreement, respectively.
    
Any of the above factors could have a material adverse effect on our business, financial condition and results of operations.
We depend on our skilled employees and key personnel and the loss of their services would adversely affect our operations and business strategy.
The operation of our businesses requires qualified executives, managers and skilled employees with gaming, hospitality and horse racing industry experience and qualifications to enable such individuals to obtain and maintain the requisite licenses and approvals from the NYSGC. We also place substantial reliance on the gaming, project development and hospitality industry experience and knowledge of the northeastern United States gaming market possessed by members of our senior management team. If we are unable to maintain our key personnel and attract new skilled employees with high levels of expertise in the gaming areas in which we engage and propose to engage, or are unable to do so without unreasonably increasing our labor costs, the

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execution of our business strategy may be hindered and our growth limited. We believe that our success is largely dependent on the continued employment of our executive management and the hiring of strategic personnel at reasonable costs. Competition for skilled employees and qualified executives is intense and we can give no assurance that we would be able to hire a qualified replacement with the required level of experience and expertise for any current members of our senior management, if required to do so. Accordingly, if any of our current key executives were unable or unwilling to continue in his or her present position, or we were unable to attract a sufficient number of qualified employees at reasonable rates, our business, results of operations and financial condition would be materially adversely impacted. Additionally, recruiting and hiring a replacement for any skilled employees or executive management position could divert the attention of other senior management and increase our operating expenses.

Work stoppages, labor problems and unexpected shutdowns may limit our operational flexibility and negatively impact our future profits.

We are party to four collective bargaining agreements with different unions at our Monticello Casino and Raceway property. We will begin negotiations with a negotiating unit for a collective bargaining agreement for certain employee groups at Resorts World Catskills. Further, we expect that additional agreements may be added in the future for Resorts World Catskills. The addition of new or changes to the existing collective bargaining agreements could cause significant increases in labor costs, which could have a material adverse effect on our businesses, financial condition and results of operations.

In addition, the unions with which we have collective bargaining agreements or other unions could seek to organize groups of employees at our properties that are not currently represented by unions. Union organization efforts could cause disruptions in our businesses and result in significant costs. Any unexpected shutdown of our properties from a work stoppage or strike action could have a material adverse effect on our businesses and results of operations. Moreover, strikes, work stoppages or other job actions could also result in adverse media attention or otherwise discourage patrons, including convention and meeting groups, from visiting our properties. We cannot assure that we can be adequately prepared for labor developments that may lead to a temporary or permanent shutdown of any of our properties.

We often extend credit, and we may not be able to collect gaming receivables from our credit players or credit play may decrease.

We conduct our gaming activities on a credit as well as a cash basis. The casino credit we extend is generally unsecured and due on demand. We will extend casino credit to those patrons whose level of play and financial resources, in the opinion of management, warrant such an extension. The collectability of receivables from international patrons could be negatively affected by future business or economic trends or by significant events in the countries in which these patrons reside.

While gaming debts evidenced by a credit instrument, including what is commonly referred to as a "marker," are enforceable under the current laws of New York, and judgments on gaming debts are enforceable in all states of the United States under the Full Faith and Credit Clause of the United States Constitution, other jurisdictions may determine that direct or indirect enforcement of gaming debts is against public policy. Although courts of some foreign nations will enforce gaming debts directly and the assets in the United States of foreign debtors may be used to satisfy a judgment, judgments on gaming debts from U.S. courts are not binding on the courts of many foreign nations. We cannot assure that we will be able to collect the full amount of gaming debts owed to us, even in jurisdictions that enforce them. Changes in economic conditions may make it more difficult to assess creditworthiness and more difficult to collect the full amount of any gaming debt owed to us. Our inability to collect gaming debts could have a significant negative impact on our operating results.

We face the risk of fraud and cheating.

Our gaming patrons may attempt or commit fraud or cheat in order to increase winnings. Acts of fraud or cheating could involve the use of counterfeit chips or other tactics, possibly in collusion with our employees. Internal acts of cheating could also be conducted by employees through collusion with dealers, surveillance staff, floor managers or other casino or gaming area staff. Failure to discover such acts or schemes in a timely manner could result in losses in our gaming operations. In addition, negative publicity related to such schemes could have an adverse effect on our reputation, potentially causing a material adverse effect on our business, financial condition, results of operations and cash flows.

Win rates for our gaming operations depend on a variety of factors, some of which are beyond our control.

The gaming industry is characterized by an element of chance. In addition to the element of chance, win rates are also affected by other factors, including players’ skill and experience, the mix of games played, the financial resources of players, the spread of table limits, the volume of bets played, the amount of time played and undiscovered acts of fraud or cheating. Our gross gaming revenues are mainly derived from the difference between our casino winnings and the casino winnings of our gaming patrons.

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Since there is an inherent element of chance in the gaming industry, we do not have full control over our winnings or the winnings of our gaming patrons.

In addition, premium gaming is more volatile than other forms of gaming, and variances in win-loss results attributable to high-end gaming may have a positive or negative impact on cash flow and earnings in a particular quarter.

Our table games business is subject to volatility which could adversely affect our financial condition.

Table gaming, especially high-end table gaming, is more volatile than other forms of gaming, and variances in table games hold percentage may have a positive or negative impact on our quarterly revenues and operating results. Negative variations in quarterly revenues and operating results could adversely affect our financial condition.

Our business could be affected by weather-related factors.

Our results of operations could be adversely affected by weather-related factors, such as hurricanes and blizzards and other unfavorable winter weather conditions. Such weather conditions may discourage potential patrons from traveling or may deter or prevent patrons from reaching our facilities. If this occurs, it could have a material adverse effect on our operating results and ability to meet our financial obligations.

Our business is particularly sensitive to energy prices and a rise in energy prices could harm our operating results.
We are a large consumer of electricity and other energy and, therefore, higher energy prices may have an adverse effect on our results of operations. Accordingly, increases in energy costs may have a negative impact on our operating results. Additionally, higher electricity and gasoline prices which affect our patrons may result in reduced visitation to Resorts World Catskills and Monticello Casino and Raceway and a reduction in our revenues.

Negative conditions affecting the lodging industry may have an adverse effect on our revenues and cash flows.

We depend on revenues generated from our hotel, together with revenues generated from other portions of the facilities, to meet our financial obligations and fund our operations. Revenues generated from our hotel are primarily subject to conditions affecting our gaming operations, but are also subject to the lodging industry in general, and as a result, our financial performance and cash flows may be affected not only by the conditions in the gaming industry, but also by those in the lodging industry. Some of these conditions are as follows:

changes in the local, regional or national economic climate, including economic recessions;
changes in local conditions such as the supply of hotel properties;
decreases in the level of demand for hotel rooms and related services;
the attractiveness of our hotel to patrons;
cyclical over-building in the hotel industry;
changes in travel patterns;
public health concerns affecting public accommodations or travel generally or regionally; and
changes in room rates and increases in operating costs due to inflation and other factors.

Casinos are subject to Anti-Money Laundering Laws.
    
We deal with significant amounts of cash in the operations and will be subject to various reporting and anti-money laundering regulations. We cooperate with all such inquiries. Any violation of AML laws or regulations, on which in recent years governmental authorities have been increasingly focused, with a particular focus on the gaming industry, by any of our properties could have a material adverse effect on our businesses, performance, prospects, value, financial condition and results of operations.

We have implemented internal control policies and procedures and employee training and compliance programs to deter prohibited practices. However, such policies, procedures and programs may not be effective in prohibiting our directors, employees, vendors or agents from violating or circumventing our policies and the law. If we or our directors, employees, vendors or agents fail to comply with applicable laws or our policies governing our operations, we may face investigations, prosecutions and other legal proceedings and actions, which could result in civil penalties, administrative remedies and criminal sanctions. Any such government investigations, prosecutions or other legal proceedings or actions could adversely affect our business, performance, prospects, value, financial condition, and results of operations.



16



Instability and volatility in the financial markets could have a negative impact on our ability to raise additional capital to expand our businesses.

We may need to raise additional capital or incur additional indebtedness to finance our plans for growth. Instability and volatility in the financial markets caused by general economic conditions or otherwise may impede our ability to raise capital in the public or private credit or equity markets to fund our business strategy on terms we believe to be reasonable, if at all. Meanwhile, existing indebtedness, such as the Term Loan Facility and Revolving Credit Facility contain restrictive covenants that limit our ability to incur debt at all. Moreover, we may be unable to raise capital on terms acceptable to the Company. An inability to obtain the capital we need to finance our growth plans may adversely effect our operations and business prospects.

We may be subject to environmental liability as a result of unknown environmental hazards.

We are subject to various federal, New York State and local environmental laws and regulations that govern our operations and the construction of the Development Projects, including emissions and discharges into the environment, and the storage, handling and disposal of hazardous and non-hazardous substances and wastes. Failure to comply with such laws and regulations could result in regulatory fines, legal fees and costs for remediation. Such fines and costs could be related to our storage, handling and disposal of waste from our racing operations, the existence of asbestos at Monticello Casino and Raceway and the existence of environmental conditions at the site of the Development Projects, which could have a material adverse effect on our businesses, financial condition or results of operations.
Our information technology and other systems are subject to cyber security risk including misappropriation of patron information or other breaches of information security.
We rely on information technology and other systems to maintain and transmit patrons' personal and/or financial information, credit card information, mailing lists and other information. We have taken steps designed to safeguard our patrons' personal and financial information and have implemented systems designed to meet all requirements of the Payment Card Industry standards for data protection. However, our information and processes are subject to the ever-changing threat of compromised security, in the form of a risk of potential breach, system failure, computer virus or unauthorized or fraudulent access or use by unauthorized individuals. The steps we take to deter and mitigate these risks may not be successful, and any resulting compromise or loss of data or systems could adversely impact operations or regulatory compliance and could result in remedial expenses, fines, litigation and loss of reputation, potentially impacting our financial results. Although we have invested in and deployed security systems and developed processes that are designed to protect all sensitive data, prevent data loss and reduce the impact of any security breach, such measures cannot provide absolute security.


Risks Relating to the Development Projects

Construction at the Development Projects, which is still ongoing, is subject to hazards that may cause personal injury or loss of life, thereby subjecting us to liabilities and possible losses, which may not be covered by insurance.

The construction of large-scale properties such as the Development Projects can be dangerous. Construction workers at our projects are subject to hazards that may cause personal injury or loss of life, thereby subjecting the contractor and us to liabilities, possible losses, delays in completion of the projects and negative publicity. In the event of such accidents, we may stop construction for several days to allow for safety inspections and investigations. We and our contractors will take safety precautions that are consistent with industry practice, but these safety precautions may not be adequate to prevent serious personal injuries or further loss of life, damage to property or delays. If accidents occur during the construction of Development Projects, we may be subject to delays, including delays imposed by regulators, liabilities and possible losses, which may not be covered by insurance, and our business, prospects and reputation may be materially and adversely affected.

The costs associated with the Casino and the Development Projects may increase due to risks inherent in the design and development of such projects and their construction.

The construction of the Development Projects subjects us to significant risks inherent in the construction of a new facility, including unanticipated design, construction, regulatory and environmental problems. The Development Projects could also experience:

changes to plans and specifications (some of which may require the approval of the NYSGC), even after the opening of such facilities;

17


delays and significant cost increases;
shortages of materials;
shortages of skilled labor or work stoppages for contractors and subcontractors;
inability of contractors and subcontractors to obtain and maintain required licenses issued by the NYSGC;
inability to meet MWBE participation goals;
labor disputes or work stoppages;
disputes with and defaults by contractors and subcontractors;
health and safety incidents and site accidents;
engineering problems, including defective plans and specifications;
poor performance or nonperformance by any third parties on whom we place reliance;
changes in laws and regulations, or in the interpretation and enforcement of laws and regulations, applicable to gaming;
unforeseen construction scheduling, engineering, environmental, permitting, construction or geological problems;
environmental issues, including the discovery of unknown environmental contamination;
weather interference, floods, fires or other casualty losses;
other unanticipated circumstances or cost increases; and
failure to obtain necessary licenses, permits, entitlements or other governmental approvals with respect to the Entertainment Project and Golf Course Project.

The occurrence of any of these development and construction risks could increase the total costs of the Development Projects or delay or prevent the construction or opening or otherwise affect the design and features of the Development Projects, all of which could materially adversely affect our financial condition and cause us to require additional external financing.

The Casino has limited operating history and the Entertainment Project and the Golf Course have no operating history. Our expectations for the operations of such properties may not serve as an adequate basis to judge our future operating results and prospects.
There is no historical information available about the Entertainment Project or the Golf Course Project upon which you can base your evaluation of their respective business plans and prospects. The Casino has recently begun to generate revenue and the Entertainment Project and Golf Project will begin generating revenue when they are open to the public. As a result, you should consider our business and prospects in light of the risks, expenses and challenges that we will face as a company seeking to develop and operate a major new development project and gaming businesses in a rapidly growing and intensely competitive market.
We have encountered and will continue to encounter risks and difficulties frequently experienced by companies developing a major new project, and those risks and difficulties may be heightened in a rapidly developing market such as the gaming market in the northeastern United States. Some of the risks relate to our ability to:
complete our construction projects within their anticipated time schedules and budgets;
attract and retain patrons and qualified employees;
operate, support, expand and develop our operations and our facilities;
maintain effective control of our operating costs and expenses;
develop and maintain internal personnel, systems and procedures to assure compliance with the extensive regulatory requirements applicable to the gaming business;
respond to changes in our regulatory environment; and
respond to competitive market conditions.

If we are unable to complete any of these tasks, we may be unable to complete and operate the Development Projects in the manner we contemplate and generate revenues in the amounts and by the times we anticipate. We may also be unable to meet the conditions to draw on the Term A Loan in order to fund our development and construction activities. If any of these events were to occur, it would have a material adverse effect on our business and prospects, financial condition, results of operations and cash flows.

Even if the Casino, the Entertainment Project and the Golf Course Project are completed as planned and opened, they may not be financially successful, which would limit our cash flow and would materially adversely affect our operations and our ability to repay our debt.
Even if the Casino, the Entertainment Project and the Golf Course Project are completed as planned, one or more still may not be a financially successful venture or generate the cash flows that we anticipate. We cannot assure that the level of consumer demand for the Casino or for the type of luxury amenities that we will offer will meet our expectations, and we may not attract the level of patronage that we are seeking. If the Casino, the Entertainment Project or the Golf Course Project do not attract

18


sufficient business, this will limit our cash flow and would materially adversely affect our operations and our ability to service payments under our debt agreements. Additionally, the demands imposed by new developments on our managerial, operational and other resources may impact our operation of our existing Monticello Casino and Raceay facility.  If any of these issues were to occur, it could adversely affect our prospects, financial condition, or results of operations.

Our business depends on a strong brand and if we are not able to build, maintain and enhance our brand, our ability to expand our market will be impaired and our business and operating results will be harmed.

On March 31, 2017, we entered into the RWS License Agreement, pursuant to which RWS granted to Montreign Operating the non-exclusive, non-transferable, revocable and limited to right to use certain “Genting” and “Resorts World” trademarks. Building, maintaining and enhancing our brand may require us to make substantial investments and these investments may not be successful. If we fail to promote and maintain our brand, or if we incur excessive expenses in this effort, our business, operating results and financial condition will be materially adversely affected. We anticipate that, as our market becomes increasingly competitive, maintaining and enhancing our brand may become increasingly difficult and expensive.

We consider the Resorts World brand name under which we market our facility, property and services to be important to our business since it has the effect of developing brand identification. We believe that the name recognition, reputation and image that we have developed attract patrons to our facilities. We anticipate the possibility that income generated from high-end gaming patrons can cause variability in our results.
Risks Relating to our Ownership Structure
Stockholders’ ability to influence corporate decisions may be limited because our major stockholder owns a large percentage of our common stock.
Kien Huat is the beneficial holder of 28,914,606 shares of our common stock, representing approximately 88.0% of our voting power as of March 15, 2018. Under the terms of an investment agreement dated November 12, 2009 (the “Investment Agreement”), between the Company and Kien Huat, if any option or warrant outstanding as of the final closing under the Investment Agreement, or the first 200,000 shares granted to directors or officers who served in such capacity as of the final closing date under the Investment Agreement, are exercised, Kien Huat has the right (following notice of such exercise) to purchase an equal number of additional shares of our common stock as are issued upon such exercise at the exercise price for the applicable option or warrant (such rights the "Option Matching Rights"). As of December 31, 2017, Kien Huat had approximately 3,000 Option Matching Rights.
Under the terms of the Investment Agreement, Kien Huat is also entitled to recommend three directors candidates whom we are required to cause to be elected or appointed to our Board of Directors (“Board”), subject to the satisfaction of all legal and governance requirements regarding service as a director and to the reasonable approval of the Corporate Governance and Nominations Committee of our Board. Kien Huat will continue to be entitled to recommend three directors candidates for so long as it owns at least 24% of our voting power outstanding at such time, after which the number of directors whom Kien Huat will be entitled to designate for election to our Board will be reduced proportionally to Kien Huat’s percentage of ownership. Under the Investment Agreement, for so long as Kien Huat is entitled to recommend nominees to serve as Board members, among other things, Kien Huat will have the right to nominate one of its director designees to serve as the Chairman of the Board. Emanuel Pearlman has been appointed to serve as Chairman of the Board pursuant to Kien Huat’s recommendation. Until such time as Kien Huat ceases to own capital stock with at least 30% of our voting power outstanding at such time, our Board will be prohibited under the terms of the Investment Agreement from taking certain actions relating to fundamental transactions involving us and our subsidiaries and certain other matters without the affirmative vote of the directors recommended by Kien Huat and elected by shareholders. Consequently, Kien Huat has the ability to exert significant influence over our policies and affairs, including the election of our Board and the approval of any action requiring a stockholder vote, such as approving amendments to our certificate of incorporation and mergers or sales of substantially all of our assets, as well as other matters. Although Kien Huat has expressed no interest in doing so, Kien Huat is not restricted from acquiring additional shares of our common stock, including through open market purchases. However, on February 17, 2016,and as amended on December 28, 2017, we entered into a letter agreement with Kien Huat (the "Kien Huat Letter Agreement"), wherein Kien Huat agreed, for a period of four years from the date of the Kien Huat Letter Agreement, to seek certain approvals of the Board of Directors and minority shareholders in connection with any "going-private" transaction. Notwithstanding the Kien Huat Letter Agreement, this concentration of voting power could delay or prevent an acquisition of our Company on terms that other stockholders may desire or force the sale of our company on terms undesirable to other stockholders.


19



Risks Relating to the Market Value of Our Common Stock

The Racing, Pari-Mutuel Wagering and Breeding Law of New York State requires our stockholders to possess certain qualifications. If the NYSGC believes a stockholder does not meet their subjective determination, a stockholder may be forced to sell any stock they hold and such sale may result in a material loss of investment value for the stockholder.

The Racing, Pari-Mutuel Wagering and Breeding Law of New York State requires our stockholders to possess certain qualifications. A failure to possess such qualifications could lead to a material loss of investment by either us or our stockholders, as it would require divestiture of the stockholder’s direct or indirect interest in us. Consequently, should any stockholder ever fail to meet the qualifications necessary to own a direct or indirect interest in us as determined by NYSGC, such stockholder could be forced to liquidate all interests in us. Should such stockholder be forced to liquidate these interests within a relatively short period of time, such stockholder would likely be forced to sell at a discount, causing a material loss of investment value.

The market price of our common stock is volatile, leading to the possibility of its value being depressed at a time when our stockholders want to sell their holdings.
The market price of our common stock has in the past been, and may in the future continue to be, volatile. For instance, between January 1, 2017 and March 10, 2018, the closing price of our common stock has ranged between $15.49 and $30.98 per share. A variety of events may cause the market price of our common stock to fluctuate significantly, including, but not necessarily limited to the following:

quarter-to-quarter variations in operating results;
day traders;
adverse or positive news reports or public announcements; and
market conditions for the gaming industry.
In addition, the stock market in recent years has experienced significant price and volume fluctuations. This volatility has had a substantial effect on the market prices of companies, at times for reasons unrelated to their operating performance. These market fluctuations may adversely affect the price of our common stock and other interests in the Company at a time when our stockholders want to sell their interest in us.
If we fail to meet the applicable continued listing requirements of NASDAQ Global Market, NASDAQ may delist our common stock, in which case the liquidity and market price of our common stock could decline.
Our common stock is currently listed on the NASDAQ Global Market. In order to maintain that listing, we must satisfy certain continued listing requirements. If we are deficient in maintaining the necessary listing requirements, our common stock may be delisted. If our common stock is delisted, an active trading market for our common stock may not be sustained and the market price of our common stock could decline.
We do not anticipate declaring any dividends in the foreseeable future.
During the past three fiscal years, we did not declare or pay any cash dividends with respect to our common stock and we do not anticipate declaring any cash dividends on our common stock in the foreseeable future. We intend to retain all future earnings for use in the development of our business. There can be no assurance that we will have, at any time, sufficient surplus under Delaware law to be able to pay any dividends.

Future sales of our common stock by our insiders may cause our stock price to decline.
A portion of our outstanding shares are held by directors and executive officers and a significant portion of our outstanding shares are held by Kien Huat, our largest stockholder. Resales of a substantial number of shares of our stock by these stockholders, announcements of the proposed resale of substantial amounts of our stock, or the perception that substantial resales may be made by such stockholders could adversely impact the market price of our stock. Some of our directors and executive officers have entered into Rule 10b5-1 trading plans pursuant to which they have arranged to sell shares of our common stock from time to time in the future. Actual or potential sales by these insiders, including those under a prearranged Rule 10b5-1 trading plan may adversely impact the market price of our stock.



20


Future sales of shares of our common stock in the public market could adversely affect the trading price of shares of our common stock and our ability to raise funds in new stock offerings.
Future sales of substantial amounts of shares of our common stock in the public market, including pursuant to the Second Amendment to the Commitment Letter or the effective shelf registration statement, or the perception that such sales are likely to occur could affect the market price of our common stock. Kien Huat’s stock ownership may also discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of us, which in turn could reduce our stock price or prevent our stockholders from realizing a premium over our stock price.

Risks Relating to our Racing Operations

The continuing decline in the popularity of horse racing, decline of the horse population and increasing competition in simulcasting could adversely impact the business of Monticello Casino and Raceway.

Since the mid-1980s, there has been a general decline in the number of people attending and wagering at live horse races at North American racetracks due to a number of factors, including increased competition from other forms of gaming, unwillingness of guests to travel a significant distance to racetracks and the increasing availability of off-track wagering. The declining attendance at live horse racing events has prompted racetracks to rely increasingly on revenues from inter-track, off-track and account wagering markets. The industry-wide focus on inter-track, off-track and account wagering markets has increased competition among racetracks for outlets to simulcast their live races. In 2017, 2016 and 2015, we generated approximately $2.9 million, $2.9 million and $3.3 million, respectively, of revenues from the import and export simulcasting of out-of-state racing, of which approximately $1.4 million, $1.4 million and $1.7 million, respectively, were due to the horsemen. A continued decrease in attendance at live events and in on-track wagering, continued decline in the horse population and available drivers, as well as increased competition in the inter-track, off-track and account wagering markets, could lead to a decrease in the amount wagered at Monticello Casino and Raceway. Our business plan anticipates the possibility of Monticello Casino and Raceway attracting new guests to our racetrack wagering operations through VGMs in order to offset the general decline in raceway attendance. However, even if our VGM operations attract new guests to our racetrack, we may not be able to generate profit from operations. Public tastes are unpredictable and subject to change. Any further decline in interest in horse racing or any change in public tastes may adversely affect our revenues and, therefore, limit our ability to make a positive contribution to our results of operation.
                        
Item 1B.
Unresolved Staff Comments.
None. 
Item 2.
Properties.

The Casino and the Related Development Projects

The Casino is located at the site of the Destination Resort being developed on approximately 1,700 acres in the Town of Thompson in Sullivan County, New York, which is owned by EPR Properties, an entity unrelated to the Company. The Entertainment Project and the Golf Course are being developed on parcels adjacent to the Casino. The Company also has opportunities for future expansion on the existing and adjacent parcels within the Destination Resort. The Project Parties lease from subsidiaries of EPR Properties the parcels on which the Development Projects are located. The terms of such leases are described below.
    
Casino Lease

On December 28, 2015, Montreign Operating entered into the Casino Lease with EPT for the lease of the parcel on which the Casino was constructed (the "Casino Parcel"). The Casino Lease has a term that expires on the earlier of (i) March 31, 2086 and (ii) Montreign Operating giving EPT written notice of its election to terminate the Casino Lease (the "Termination Option") at least 12 months prior to each of the 20th, 30th, 40th, 50th and 60th anniversaries of the commencement of the Casino Lease (each such anniversary, an "Option Date"). Upon Montreign Operating's timely notice of exercise of its Termination Option, the Casino Lease will be automatically terminated effective as of the applicable Option Date.






The following table represents the future fixed rent payments under the Casino Lease at December 31, 2017:

Year ending December 31,
Fixed Rent Payments due by Period
 
(in thousands)
2018 (1) (2)
$
10,500

2019 (2)
7,500

2020 (2)
7,500

2021 (2)
8,000

2022 (2)
8,000

2023 to 2056 (2)
346,624


(1)
From March 1, 2017 through August 31, 2018, fixed rent is $1 million per month.
(2)
From September 1, 2018 through the remainder of the term of the Casino Lease, fixed rent will equal $7.5 million per year, subject to an eight percent escalation every five years (the "Base Amount").

In addition to fixed rent, beginning in September 2018 and through the remainder of the term of the Casino Lease (the "Percentage Rent Period"), Montreign Operating is obligated to pay an annual percentage rent equal to five percent of the Eligible Gaming Revenue (as such term is defined in the Casino Lease) in excess of the Base Amount for the Percentage Rent Period. Additionally, the lease is a net lease, and Montreign Operating has an obligation to pay the rent payable under the Casino Lease and other costs related to Montreign Operating's use and operation of the Casino Parcel, including the special district tax assessments allocated to the Casino Parcel, not to exceed the capped dollar amount applicable to the Casino Parcel.

Golf Course Lease

On December 28, 2015, ERREI entered into a sublease ("the Golf Course Lease") with the Destination Resort Developer for the lease of the parcel on which the Golf Course will be developed (the "Golf Course Parcel"). The terms of the Golf Course Lease are substantially similar to the Casino Lease, subject to the material differences described below. Under the Golf Course Lease, there is no percentage rent due.
    
The following table represents the future fixed rent payments under the Golf Course Lease at December 31, 2017:

Year ending December 31,
Fixed Rent Payments due by Period
 
(in thousands)
2018 (1) (2)
$0
2019 (2)
125

2020 (2)
150

2021 (2)
150

2022 (2)
150

2023 to 2056 (2) (3)
7,675


(1)
From the date the Golf Course Lease commenced and until the date on which the Golf Course opens for business, which is expected to be in Spring 2019 (the "Golf Course Opening Date"), fixed rent payments will equal $0.
(2)
From the Golf Course Opening Date and continuing for the 10 years thereafter, fixed rent will equal $150,000 per year.
(3)
From March 2029 through the remainder of the term of the Golf Course Lease, fixed rent will equal $250,000 per year.

The Golf Course Lease is a net lease and ERREI is obligated to pay the rent payable under the Golf Course Lease and other costs related to ERREI's use and operation of the Golf Course Parcel, including the special district tax assessments allocated to

21


the Golf Course Parcel, not to exceed the capped dollar amount applicable to the Golf Course Parcel. This obligation will not be assessed against ERREI prior to December 2020.



Entertainment Project Lease

On December 28, 2015, ERREII entered into a sublease (the "Entertainment Project Lease") with the Destination Resort Developer, for the lease of the parcel on which the Entertainment Project will be built (the "Entertainment Project Parcel" and, together with the Casino Parcel and the Golf Course Parcel, the "Project Parcels"). The terms of the Entertainment Project Lease are substantially similar to the Casino Lease, subject to the material differences described below. Under the Entertainment Project Lease, there is no percentage rent due.

The following table represents the future fixed rent payments under the Entertainment Project Lease at December 31, 2017:

Year ending December 31,
Fixed Rent Payments due by Period
 
(in thousands)
2018 (1) (2)
$12
2019 (2)
150

2020 (2)
150

2021 (2)
150

2022 (2)
150

2023 to 2056 (2) (3)
7,713


(1)
From the date the Entertainment Project Lease commenced and until the date on which Entertainment Project opens for business, which is expected to be December 2018 (the Entertainment Project Opening Date"), fixed rent payments will equal $0.
(2)
From the Entertainment Project Opening Date and continuing for the 10 years thereafter, fixed rent will equal $150,000 per year.
(3)
From September 2028 through the remainder of the term of the Entertainment Project Lease, fixed rent will equal $250,000 per year.

The Entertainment Project Lease is a net lease and ERREII is obligated to pay the rent payable under the Entertainment Project Lease and other costs related to ERREII's use and operation of the Entertainment Project Parcel, including the special district tax assessments allocated to the Entertainment Project Parcel, not to exceed the capped dollar amount applicable to the Entertainment Project Parcel. This obligation will not be assessed against ERREII prior to December 2020.

On January 24, 2017, each of the Casino Lease, the Golf Course Lease and the Entertainment Project Lease were amended to correct scrivener’s errors in the legal descriptions of the Project Parcels.

Purchase Option Agreement

On December 28, 2015, Montreign Operating and EPT, EPR Concord II, Destination Report Developer and EPR Concord II, L.P. ("EPR LP" and together with EPT and Destination Resort Developer, "EPR") entered into a Purchase Option Agreement (the "Purchase Option Agreement"), pursuant to which EPR granted to Montreign Operating the option to purchase (the "Purchase Option") all, but not fewer than all, of the Project Parcels for a purchase price of $175 million ($200 million after the sixth anniversary on March 1, 2022, less a credit of up to $25 million for certain previous payments made by the Project Parties). The Purchase Option commenced on December 28, 2015 and will expire on the earlier to occur of (i) the natural expiration of the term of the Casino Lease and (ii) 90 days following the earlier termination of the Casino Lease, if otherwise terminated in accordance with its terms (the “Purchase Option Period”).

Under the Purchase Option Agreement, EPR also granted to Montreign Operating the option (the "Resort Project Purchase Option") to purchase not less than all of the balance of the contiguous acres owned by EPR (the "EPR Property"), excluding the Development Project Parcels and the Waterpark (the "Resort Property"), for an additional fee. The Resort Project Purchase Option may be exercised only simultaneously with or after the exercise of the Purchase Option. The Resort Project Purchase Option

22


commenced on December 28, 2015 and will expire on the earlier to occur of (a) the expiration of the Purchase Option Period or (b) March 1, 2026.

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

Monticello Land
Monticello Casino and Raceway is located on a 232-acre parcel of land in Monticello, New York, which is held in fee by MRMI. Monticello Casino and Raceway includes a clubhouse bar, pari-mutuel wagering facilities (including simulcasting), a paddock, exterior barns and related facilities for the horses, drivers, and trainers. In addition, our VGM operation is conducted in the renovated lower level of the grandstand portion of Monticello Casino and Raceway, which includes a 45,000-square foot gaming floor. The corporate offices of the Company are located on the second floor of the building at Monticello Casino and Raceway.
Item 3.
Legal Proceedings.
We are a party from time to time to various legal actions that arise in the normal course of business. In the opinion of management, the resolution of these other matters will not have a material adverse effect on our consolidated financial position, results of operations or cash flows.
Item 4.
Mine Safety Disclosures.
Not applicable.

PART II 
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
Our common stock is listed on the NASDAQ Global Market under the symbol “NYNY”. The following table sets forth the high and low sale prices for the common stock for the periods indicated, as reported by the NASDAQ Global Market:
 
High
 
Low
Year ended December 31, 2016
 
 
 
First Quarter
$
18.70

 
$
11.38

Second Quarter
20.00

 
12.65

Third Quarter
20.38

 
14.78

Fourth Quarter
25.19

 
17.87

Year ended December 31, 2017
 
 
 
First Quarter
$
24.90

 
$
20.45

Second Quarter
25.50

 
22.50

Third Quarter
24.70

 
20.75

Fourth Quarter
29.10

 
20.75

Holders
According to Continental Stock Transfer & Trust Company, there were approximately 183 holders of record of our common stock at March 12, 2018.


23



Dividends
During the past three fiscal years, we did not declare or pay any cash dividends with respect to our common stock and we do not anticipate declaring any cash dividends on our common stock in the foreseeable future. We intend to retain all future earnings for use in the development of our business. There can be no assurance that we will have, at any time, sufficient surplus under Delaware law to be able to pay any dividends.
Pursuant to the terms of the Bangkok Bank Loan Agreement, neither Empire nor any of its subsidiaries are permitted to declare or pay any dividends or make other payments to purchase, redeem, retire or otherwise acquire any capital stock of the Company. Such restriction will lapse upon the payment in full of any amounts outstanding under the Bangkok Bank Loan Agreement. Notwithstanding the foregoing, so long as no event of default has occurred, subsidiaries of Empire are permitted to pay dividends to Empire and Empire may pay dividends on the Series B Preferred Stock and for withholding taxes payable in connection with equity compensation programs.
The Board authorized the cash payment of Series B Preferred Stock quarterly dividends for the 2017 calendar year. Payments in the amount of $32,087 were made on April 3, 2017, July 3, 2017, October 2, 2017 and January 2, 2018, respectively.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table provides information as of December 31, 2017 with respect to the shares of our common stock that may be issued under our existing equity compensation plans:
 
(1)
 
 
 
(2)
 
Number of
securities to be
issued upon
exercise of
outstanding
options, warrants
and rights or vesting of restricted stock units
 (column - a)
 
Weighted-
average exercise
price of
outstanding
options, warrants
and rights or vesting of restricted stock units
(column - b)
 
Number of
securities
remaining
available for
future issuance
under equity
compensation
plans
(excluding
securities
reflected in
column (a))
(column - c)
2005 - Equity compensation plan approved by security holders
147,000

 
$
29.64

 

2015 - Equity compensation plan approved by security holders
73,000

 
$
24.08

 
2,425,934

Total
220,000

 
$
27.79

 
2,425,934

 (1)
These amounts reflect stock options granted under our 2005 Equity Incentive Plan (pursuant to which no grants may be made on or after May 23, 2015, but such grants may extend beyond that date) and awards that may be granted under our 2015 Equity Incentive Plan.



24



Performance Graph
The following graph shows a comparison of the five-year total cumulative returns of an investment of $100 in cash on December 31, 2012 in (i) our common stock, (ii) the Nasdaq Composite Index, (iii) S&P 500, and (iv) the Dow Jones U.S. Gambling Index. All values assume reinvestment of the full amount of all dividends (to date, we have not declared any dividends).
This stock performance graph will not be deemed “filed” with the SEC or subject to Section 18 of the Securities Exchange Act, nor shall it be deemed incorporated by reference in any of our filings under the Securities Act of 1933, as amended (the “Securities Act”).
Comparison of cumulative total return on investment since December 31, 2012:
chart-87055914785df84306c.jpg

 
Period Ending
 
12/31/2012
12/31/2013
12/31/2014
12/31/2015
12/31/2016
12/31/2017
Empire Resorts Inc.
100.00

220.00

352.73

163.64

206.82

245.45

S&P 500
100.00

129.60

144.36

143.31

156.98

187.47

Dow Jones U.S. Gambling Index
100.00

168.66

133.57

98.95

122.89

167.26

Nasdaq Composite Index
100.00

138.22

156.85

165.84

178.28

228.63




25



Item 6.
Selected Financial Data
The following table presents our selected consolidated financial data for the five most recent fiscal years, which is derived from our audited consolidated financial statements and the notes to those statements. Because the data in this table does not provide all of the data contained in our consolidated financial statements, including the related notes, you should read "Management's Discussion and Analysis of Financial Condition and Results of Operations," and our consolidated financial statements, including the related notes, contained elsewhere in this document and other data we have filed with the U.S. Securities and Exchange Commission.
 
 
Fiscal Year Ended December 31, (amounts in thousands, except per share data):
 
 
2017
2016
2015
2014
2013
Statement of Operations
 
 
 
 
 
 
Gross revenues
 
$
69,893

$
70,301

$
71,634

$
69,514

$
76,418

Less: Promotional allowances
 
(4,042
)
(2,847
)
(3,468
)
(4,288
)
(5,457
)
Net revenues
 
65,851

67,454

68,166

65,226

70,961

Total operating costs and expenses
 
95,768

91,137

102,126

79,912

91,081

Loss from operations
 
(29,917
)
(23,683
)
(33,960
)
(14,686
)
(20,120
)
Interest expense
 
(19,269
)
(524
)
(2,643
)
(9,219
)
(1,405
)
Interest income
 
2,842

10




Loss before income taxes
 
(46,344
)
(24,197
)
(36,603
)
(23,905
)
(21,525
)
Income tax provision
 


7

7

17

Net loss
 
(46,344
)
(24,197
)
(36,610
)
(23,912
)
(21,542
)
Dividends on preferred stock
 
(128
)
(168
)
(178
)
(188
)
(5,508
)
Net loss applicable to common stockholders
 
$
(46,472
)
$
(24,365
)
$
(36,788
)
$
(24,100
)
$
(27,050
)
 
 
 
 
 
 
 
Weighted average common shares outstanding:
 
 
 
 
 
 
Basic
 
30,981

28,221

10,749

9,286

8,501

Diluted
 
30,981

28,221

10,749

9,286

8,501

Loss per common share:
 
 
 
 
 
 
Basic
 
$
(1.50
)
$
(0.86
)
$
(3.42
)
$
(2.60
)
$
(3.18
)
Diluted
 
$
(1.50
)
$
(0.86
)
$
(3.42
)
$
(2.60
)
$
(3.18
)
Other Data:
 
 
 
 
 
 
Net cash provided by / (used in):
 
 
 
 
 
 
Operating activities
 
$
(33,933
)
$
(12,921
)
$
(31,380
)
$
(15,492
)
$
(4,342
)
Investing activities, including capital costs
 
(432,306
)
(236,196
)
(20,298
)
(1,549
)
(6,567
)
Financing activities
 
465,607

253,717

51,655

15,950

9,372

Capitalized Development Projects costs
 
(300,277
)
(157,305
)
(4,074
)


 
 
 
 
 
 
 
Balance Sheet Data:
 

 
 
 
 
Cash and cash equivalents
 
$
10,380

$
11,012

$
6,412

$
6,435

$
7,526

Total assets
 
832,238

339,758

65,418

39,867

39,047

Total long-term debt
 
497,095


17,426

17,426

17,426

Series E Preferred Stock payable, including current portion
 


30,480

30,480

22,800

Stockholders' equity/(deficit)
 
271,321

279,566

(1,459
)
(17,101
)
(9,775
)
 
 
 
 
 
 
 
Operating Data:
 
 
 
 
 
 
Total number of video gaming machines
 
1,110

1,110

1,110

1,110

1,110

Total number of electronic table game positions
 
40

40

40

20

20

Total number of video lottery terminals
 
1,070

1,070

1,070

1,090

1,090

 

26



Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion of our financial condition and results of operations should be read in conjunction with the consolidated Financial Statements and Notes thereto appearing elsewhere in this document.

Overview
Empire Resorts, Inc. (“Empire,” and, together with its subsidiaries, the “Company,” “us,” “our” or “we”) was organized as a Delaware corporation on March 19, 1993, and since that time has served as a holding company for various subsidiaries engaged in the hospitality and gaming industries.
Our indirect wholly-owned subsidiary, Montreign Operating Company, LLC, doing business as Resorts World Catskills ("Montreign Operating"), owns and operates Resorts World Catskills, a casino resort (the "Casino"), which is located in Sullivan County, New York, approximately 90 miles from New York City. Montreign Operating is the sole holder of a gaming license ( a "Gaming Facility License") issued by the New York State Gaming Commission ("NYSGC") in the Hudson Valley-Catskill region, which consists of Columbia, Delaware, Dutchess, Greene, Orange, Sullivan and Ulster counties in New York State.
Through our wholly-owned subsidiary, Monticello Raceway Management, Inc. ("MRMI"), we own and operate    Monticello Casino and Raceway, which began racing operations in 1958 in Monticello, New York, which is proximate to the Casino. Monticello Casino and Raceway currently features a video gaming machine ("VGM") and harness horseracing facility. We also generate racing revenues through pari-mutuel wagering on the running of live harness horse races, the import simulcasting of harness and thoroughbred horse races from racetracks across the country and internationally, and the export simulcasting of our races to offsite pari-mutuel wagering facilities.

Off-Balance Sheet Arrangements

None.

Critical Accounting Policies

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

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

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

Revenue recognition and Promotional allowances

Gaming revenue is the net difference between gaming wagers and payouts for prizes from VGMs, non-subsidized free play and accruals related to the anticipated payout of progressive jackpots. Progressive jackpots contain base jackpots that increase at a progressive rate based on the credits played and are charged to revenue as the amount of the jackpots increase. The Company recognizes gaming revenues before deductions of such related expenses as NYSGC share of VGM revenue and the Monticello Harness Horsemen’s Association (the “MHHA”) and Agriculture and New York State Horse Breeding Development Fund’s contractually required shares of revenue.

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


27



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

Stock-based compensation

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

Fair value

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

Development Project costs

Because the Company's application for a Gaming Facility License was submitted in a competitive environment and the Company could not be certain it would be awarded a Gaming Facility License, all costs incurred for the Development Projects were expensed until the Company was awarded a Gaming Facility License on December 21, 2015. Once awarded the Gaming Facility License, the Company began capitalizing qualifying expenditures on the Development Projects during the fourth quarter of 2015.



28


Results of Operations - Fiscal 2017 Compared to Fiscal 2016
The results of operations for the years ended December 31, 2017 and 2016 are summarized below (dollars in the table in thousands):
 
2017
 
2016
 
Variance $
 
Variance %
Revenues:
 
 
 
 
 
 
 
Gaming
$
60,540

 
$
59,633

 
$
907

 
2
 %
Food, beverage, racing and other
9,353

 
10,668

 
(1,315
)
 
(12
)%
Gross revenues
69,893

 
70,301

 
(408
)
 
(1
)%
Less: Promotional allowances
(4,042
)
 
(2,847
)
 
(1,195
)
 
42
 %
Net revenues
65,851

 
67,454

 
(1,603
)
 
(2
)%
Costs and expenses:
 
 
 
 
 
 
 
Gaming
44,486

 
44,238

 
248

 
1
 %
Food, beverage, racing and other
9,709

 
10,174

 
(465
)
 
(5
)%
Selling, general and administrative
15,743

 
19,692

 
(3,949
)
 
(20
)%
Development Projects
21,558

 
12,970

 
8,588

 
66
 %
Stock-based compensation
2,755

 
2,722

 
33

 
1
 %
Depreciation
1,517

 
1,341

 
176

 
13
 %
Total costs and expenses
95,768

 
91,137

 
4,631

 
5
 %
Loss from operations
(29,917
)
 
(23,683
)
 
(6,234
)
 
26
 %
Interest expense
(19,269
)
 
(524
)
 
(18,745
)
 
 %
Interest income
2,842

 
10

 
2,832

 
 %
Loss before income taxes
(46,344
)
 
(24,197
)
 
(22,147
)
 
92
 %
Income tax provision

 

 

 
 %
Net loss
$
(46,344
)
 
$
(24,197
)
 
$
(22,147
)
 
92
 %
 
 
 
 
 
 
 
 
Gaming revenue
Gaming revenue increased by $907,000, or 2%, for the 12 months ended December 31, 2017 ("fiscal 2017") as compared to the 12 months ended December 31, 2016 ("fiscal 2016"), from $59.6 million to $60.5 million. The increase in non-subsidized free play of $1.7 million, was a primary driver for the revenue increase. Handle decreased by approximately $10.1 million, or 1.1%, for the same period. The average daily win per unit decreased from $147.05 in fiscal 2016 to $143.11 in fiscal 2017. VGM hold percentage remained unchanged at 6.4% in fiscal 2017 versus fiscal 2016. The severe weather during the first quarter of 2017 significantly impacted gaming revenue. During the second and third quarters of 2017, we made a concentrated effort to reduce our marketing to lower-tier unprofitable player segments and we increased our marketing efforts to regain mid- and high-level tier players. While this results in lower overall win due to fewer players, it generally increases overall player profitability. We expect the opening of the Casino to cause a reduction in VGM revenues, offset by an increase in the commission we receive on such VGM revenues pursuant to the Gaming Act.
    
Food, beverage, racing and other revenue

Food, beverage, racing and other revenue decreased by $1.3 million, or 12%, in fiscal 2017 as compared to fiscal 2016, from $10.7 million to $9.4 million. Racing revenue decreased by $138,000 in fiscal 2017 as compared to fiscal 2016. The decrease in racing revenue was primarily due to a decrease in the horse population and the number of available drivers during fiscal 2017, resulting in fewer races.

Food and beverage revenue decreased by $1.0 million in fiscal 2017 as compared to fiscal 2016. During the fourth quarter of 2016, the Company renovated the Terrace Room, which was closed from November 5 through December 19, 2016. The Terrace Room reopened as the Upper Deck as an a la carte restaurant on December 19, 2016. The Company closed the buffet restaurant Monticello Casino and Raceway on December 19, 2016. The Company opened the new sports bar, named the Press Box, in May 2017. The sports bar has gained revenue volumes in late 2017, but did not make-up for the loss in business from the buffet closure. These changes, along with the business disruption during the construction period, caused the reduction in food and beverage

29


revenues during fiscal 2017, as compared to the prior year. Other revenue decreased by approximately $167,000 in fiscal 2017, principally due to a decrease in ATM revenue and an increase in fixed asset disposals in fiscal 2017.
    
Promotional allowances

Promotional allowances increased by $1.2 million, or 42%, in fiscal 2017 as compared to fiscal 2016, from $2.8 million to $4.0 million. Non-subsidized free play (free play subject to NYSGC and other commissions) increased approximately $1.7 million. Coupons, discounts and promotions decreased by $454,000 in fiscal 2017 due to the reduction in promotional activity after closing of the buffet and renovation of the Terrace Room. Players Club awards decreased by $103,000 in fiscal 2017 as compared to fiscal 2016.
    
Gaming costs

Gaming costs increased by approximately $248,000, or 1%, in fiscal 2017 as compared to fiscal 2016, from $44.2 million to $44.5 million, primarily due to higher NYSGC and other commissions of $537,000, resulting from higher gaming revenue. Partially offsetting these increases were decreases in gaming wages and related benefits of $192,000 as compared to fiscal 2016, primarily due to lower payroll related expenses. Other gaming expenses decreased by approximately $96,000, primarily due to lower utilities expenses.

Food, beverage, racing and other costs

Food, beverage, racing and other costs decreased approximately $465,000, or 5%, in fiscal 2017 as compared to fiscal 2016, from $10.2 million to $9.7 million. The decrease was primarily caused by the decrease in cost of sales of $466,000 in fiscal 2017 as compared to fiscal 2016, caused by lower food and beverage revenues resulting from the buffet closure. Additionally, purses were $52,000 lower than fiscal 2016 due to fewer races and kitchen repairs and maintenance was $41,000 lower than fiscal 2016. Partially offsetting these decreases was an increase of $81,000 due to New York State mandated horse drug testing.    

Selling, general and administrative expenses

Selling, general and administrative expenses decreased approximately $3.9 million, or 20%, in fiscal 2017 as compared to fiscal 2016, from $19.7 million to $15.7 million. Legal fees decreased approximately $1.0 million, attributable to legal fees incurred in fiscal 2016 related to financing efforts for the Casino. Additionally, a $758,000 charge was recorded in the fourth quarter of 2016 related to a contingent matter which was settled in the first quarter of 2017. Other professional service fees decreased approximately $2.0 million related to the decrease lobbying expenses in fiscal 2017. Consulting fees decreased $847,000, primarily due to costs incurred in fiscal 2016 for financing efforts not consummated related to the Development Projects. Director fees decreased $352,000 in fiscal 2017, due to the creation of the Executive Chairman position in 2016. These savings were partially offset by increases in payroll and related payroll benefits of $631,000, due to the increase in staffing during fiscal 2017 and the impact of the full year annual salary for the Executive Chairman position. Real estate taxes increased $292,000 in fiscal 2017, due to the phase out of the Empire Zone Tax Credit. Insurance expense increased $170,000 in fiscal 2017, primarily due to higher director and officer insurance premiums.
    
Development Projects costs

Development projects costs increased by $8.6 million, or 66%, in fiscal 2017 as compared to fiscal 2016, from approximately $13.0 million to $21.6 million. Payroll and related benefits costs increased $4.1 million in fiscal 2017, as the Company hired the management team and staff for the new Casino, primarily during latter part of 2017. Bank fees increased approximately $2.0 million, due to fees associated with the Term Loan Facility. Marketing expenses increased $856,000, due to efforts to increase branding. Professional fees increased $475,000, primarily due to higher lobbying and consulting fees. Land lease and rents increased $365,000 as compared to fiscal 2016, and real estate taxes increased $243,000, primarily due to higher assessed valuations for the property. Other development costs increased approximately $850,000, due to pre-opening expenses incurred in preparation for the Casino opening.


30


Stock-based compensation expense

Stock-based compensation increased by $33,000, or 1%, in fiscal 2017 as compared to fiscal 2016, from $2.7 million to approximately $2.8 million. This increase was primarily due to the amortization of compensation expense attributable to restricted stock grants, primarily for those issued during fiscal 2016. In addition, this amount included a $600,000 annual charge for compensation granted to the horsemen based on a contractual agreement pursuant to the MHHA agreement.
        
Interest expense
Interest expense increased $18.7 million in fiscal 2017 as compared to fiscal 2016, from $524,000 to approximately $19.3 million. The increase in interest expense was primarily due to borrowing under the Term B Loan Facility and the Kien Huat Montreign Loan and is inclusive of $2.1 million of amortized debt issuance costs.

Interest income
Interest income increased approximately $2.8 million in fiscal 2017 as compared to fiscal 2016. The increase in interest income is due to interest received on the investment of unused restricted cash and investments for Development Projects.

Results of Operations - Fiscal 2016 Compared to Fiscal 2015
The results of operations for the years ended December 31, 2016 and 2015 are summarized below (dollars in thousands):
 
2016
 
2015
 
Variance $
 
Variance %
Revenues:
 
 
 
 
 
 
 
Gaming
$
59,633

 
$
60,463

 
$
(830
)
 
(1
)%
Food, beverage, racing and other
10,668

 
11,171

 
(503
)
 
(5
)%
Gross revenues
70,301

 
71,634

 
(1,333
)
 
(2
)%
Less: Promotional allowances
(2,847
)
 
(3,468
)
 
621

 
18
 %
Net revenues
67,454

 
68,166

 
(712
)
 
(1
)%
Costs and expenses:
 
 
 
 
 
 
 
Gaming
44,238

 
44,525

 
(287
)
 
(1
)%
Food, beverage, racing and other
10,174

 
10,493

 
(319
)
 
(3
)%
Selling, general and administrative
19,692

 
12,648

 
7,044

 
56
 %
Development Projects
12,970

 
32,514

 
(19,544
)
 
(60
)%
Stock-based compensation
2,722

 
596

 
2,126

 
357
 %
Depreciation
1,341

 
1,350

 
(9
)
 
(1
)%
Total costs and expenses
91,137

 
102,126

 
(10,989
)
 
(11
)%
Loss from operations
(23,683
)
 
(33,960
)
 
10,277

 
30
 %
Interest expense
(524
)
 
(2,643
)
 
2,119

 
80
 %
Interest income
10

 

 
10

 
 %
Loss before income taxes
(24,197
)
 
(36,603
)
 
12,406

 
34
 %
Income tax provision

 
7

 
(7
)
 
(100
)%
Net loss
$
(24,197
)
 
$
(36,610
)
 
$
12,413

 
34
 %
    

31


Gaming revenue
Gaming revenue decreased by $830,000, or 1%, for the 12 months ended December 31, 2016 ("fiscal 2016") as compared to the 12 months ended December 31, 2015 ("fiscal 2015"), from $60.5 million to $59.6 million. The decrease in non-subsidized free play of $735,000, was a primary driver for the revenue decrease. Handle increased by approximately $23.6 million, or 2.7%, for the same period. The average daily win per unit decreased from $149.24 in fiscal 2015 to $147.05 in fiscal 2016. VGM hold percentage decreased to 6.4% in 2016 versus 6.8% in fiscal 2015. The severe weather during the first quarter of 2015 significantly impacted gaming revenue. During the second and third quarters, we made a concentrated effort to reduce our marketing to lower-tier unprofitable segments and we increased our marketing efforts to regain mid- and high-level tier players. While this results in lower overall win, it generally increases overall player profitability. During the first quarter of 2016, we benefited from milder weather as compared to 2015, resulting in an increase in revenue of $2.3 million.
    
Food, beverage, racing and other revenue

Food, beverage, racing and other revenue decreased by $503,000, or 5%, for fiscal 2016 as compared to fiscal 2015, from $11.2 million to $10.7 million. Racing revenue decreased by $220,000 in fiscal 2016 as compared to fiscal 2015. The decrease in racing revenue was primarily due to the reduced horse population and the number of available drivers during fiscal 2016, resulting in fewer races.

Food and beverage revenue decreased by $322,000 in fiscal 2016 as compared to fiscal 2015. During the fourth quarter, the Company renovated the Terrace Room, which was closed from November 5 through December 19, 2016. The Terrace Room reopened as the Upper Deck as an a la carte restaurant on December 19, 2016. The Company closed the buffet restaurant at Monticello Casino and Raceway on December 19, 2016. These changes, along with the business disruption during the construction period, caused the reduction in food and beverage revenues during the fourth quarter, as compared to the prior year. Other revenue increased by approximately $39,000 in fiscal 2016, principally due to an increase in ATM revenue.
    
Promotional allowances

Promotional allowances decreased by $621,000, or 18%, in fiscal 2016 as compared to fiscal 2015, from $3.5 million to $2.8 million. Non-subsidized free play (free play subject to NYSGC and other commissions) decreased approximately $741,000. Food and beverage complimentaries decreased by $28,000 during fiscal 2016 due to the closing of the buffet on December 19, 2016 and renovation of the Terrace Room, which was closed from November 5 through December 19, 2016. The Terrace Room reopened as the Upper Deck on December 19, 2016. These decreases were partially offset by Players Club awards, which increased by $148,000 in fiscal 2016 as compared to fiscal 2015.
    
Gaming costs

Gaming costs decreased by approximately $287,000, or 1%, in fiscal 2016 as compared to fiscal 2015, from $44.5 million to $44.2 million, primarily due to lower NYSGC and other commissions of $477,000, resulting from lower gaming revenue. Other gaming expenses decreased by approximately $72,000, primarily due to lower utilities expense. Partially offsetting these decreases were increases in gaming wages and related benefits increased by approximately $262,000 in fiscal 2016 as compared to fiscal 2015, due to higher labor and payroll related expenses.

Food, beverage, racing and other costs

Food, beverage, racing and other costs decreased approximately $319,000, or 3%, in fiscal 2016 as compared to fiscal 2015, from $10.5 million to $10.2 million. Cost of sales decreased by $173,000 in fiscal 2016 as compared to fiscal 2015, primarily due to lower revenues. Additionally, racing payroll and benefits decreased by $97,000 and food and beverage related expenses decreased slightly by $49,000.    

Selling, general and administrative expenses

Selling, general and administrative expenses increased approximately $7.0 million, or 56%, in fiscal 2016 as compared to fiscal 2015, from $12.6 million to $19.7 million. Legal and accounting fees increased approximately $1.9 million, attributable to increased legal fees in fiscal 2016 related to financing efforts for the Casino. Other professional service fees increased $2.0 million related to lobbying costs incurred in fiscal 2016. Consulting fees increased $1.5 million, of which $1.0 million was due to costs incurred with financing efforts not consummated related to the Development Projects. Additionally, a $758,000 charge was recorded in the fourth quarter of 2016 related to a contingent matter which was settled in the first quarter of 2017. Marketing-related expenses

32


increased $251,000, primarily due to increased promotions, premium game fees, advertising and agency fees. Payroll and related benefits costs increased approximately $572,000, primarily due to the new Executive Chairman position. Real estate taxes increased $392,000, due to the phase out of the Empire Zone Tax Credit. New York State franchise taxes increased $119,000 during fiscal 2016, due to the increase in the Company's stockholder equity. These increases were partially offset by savings in director fees of $441,000 and insurance expense of $117,000 as compared to fiscal 2015.
    
Development Projects costs

Development Projects costs decreased by $19.5 million, or 60%, in fiscal 2016 as compared to the fiscal 2015 period, from $32.5 million to $13.0 million. Development costs in fiscal 2016 were approximately $13.0 million and consisted of $10.4 million of land lease expenses, $400,000 of real estate taxes, $324,000 in consultants and other professional service fees, $482,000 of insurance expenses, $164,000 in legal fees and $1.2 million of pre-opening expenses primarily related to payroll and benefits, and marketing costs. Development costs significantly decreased in fiscal 2016 as compared to fiscal 2015, due the capitalization of certain development costs starting in December 2015 after the award of the Gaming Facility License to the Company by the NYSGC.

Stock-based compensation expense

Stock-based compensation increased by $2.1 million, or 357%, in fiscal 2016 as compared to fiscal 2015, from $596,000 to $2.7 million. This increase was primarily due to the amortization of compensation expense attributable to restricted stock grants issued during 2016. In addition, this amount included a $600,000 accrual for compensation granted to the horsemen based on a contractual agreement pursuant to the MHHA agreement.
    
Interest expense
Interest expense decreased $2.1 million, or 80%, in fiscal 2016 as compared to fiscal 2015, from $2.6 million to $524,000. The decrease in interest expense was due to the redemption of the Series E Preferred Stock on March 6, 2016 and the conversion of the 2010 Kien Huat Note on March 17, 2016. Increases in the redemption value of our Series E Preferred Stock were recorded as a non-cash charge to interest expense in the amount of $231,000 and $1.2 million in fiscal 2016 and fiscal 2015, respectively.


33



Liquidity and Capital Resources
    
The accompanying consolidated financial statements have been prepared on a basis that contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The Company anticipates that it will have sufficient resources to meet the working capital requirements of the Company and the expected costs of the Development Projects for at least the next 12 months. This assessment is based on the Company’s current cash and cash equivalents, including cash deposited as performance bonds to guarantee the completion of the Development Projects, cash generated from operations, as well as the net proceeds of the debt financings the Company has consummated in fiscal 2017 and the additional financings the Company anticipates consummating during the next 12 months. 

Cash Flows

Historically and prospectively, our primary sources of liquidity and capital resources have been and will continue to be cash flow from operations, borrowings from banks and proceeds from the issuance of debt and equity securities. Based on our current level of operations and our expected results of operations of the Casino over the next 12 months, we believe that cash generated from operations and cash on hand, together with amounts available under our Term Loan Facility, Revolving Credit Facility and Bangkok Bank Loan, will be adequate to meet our anticipated debt service requirements, capital expenditures and working capital needs for the next 12 months. However, we cannot be certain that our business will generate sufficient cash flow from operations, that our anticipated earnings from the Casino will be realized, or that future borrowings will be available under our Term Loan Facility or otherwise to enable us to service our indebtedness or to make anticipated capital expenditures. Our future operating performance and our ability to service our debt will be subject to future economic conditions and to financial, business and other factors, many of which are beyond our control. See “Risk Factors” of this Annual Report on Form 10‑K for a discussion of the risks related to our liquidity and capital structure.

Net cash used in operating activities was approximately $33.9 million, $12.9 million and $31.4 million during fiscal 2017, 2016 and 2015, respectively. We continue to generate net losses and negative cash flows from operating activities, due to the expenses we are incurring related to the Development Projects. We incurred $21.6 million, $13.0 million and $32.5 million of Development Projects costs during fiscal 2017, 2016 and 2015, respectively. Operating activity for fiscal 2017 was significantly affected by increased Casino development expenses of $8.6 million, along with higher interest expense of $18.7 million during fiscal 2017. Our operating cash flows in fiscal 2017 were negatively impacted by severe weather during the first quarter that caused a reduction in revenues. The decrease in cash flow in fiscal 2017 was primarily due to the increase in Development Projects expenses as the Company hired the management team and staff for the new Casino, as well as the development of a branding strategy and pre-opening expenses for the Casino.

We have had continuing net losses and negative cash flow from operating activities, including a loss from operations of $29.9 million in fiscal 2017. The net loss in fiscal 2017 was inclusive of Development Projects costs of $21.6 million. Interest expense was $19.3 million in fiscal 2017.
 
Net cash used in investing activities was approximately $432.3 million, $236.5 million and $20.3 million during fiscal 2017, 2016 and 2015, respectively. The increase in fiscal 2017 over fiscal 2016 was due primarily to a greater usage of restricted cash and investments for the Development Projects and higher capitalized Development Project costs of $99.1 million and $143.0 million, respectively. In fiscal 2017, we also made a $20.0 million payment for a cash collateral bond as required for the Casino. In fiscal 2016, we made payments of $15.0 million for the cash collateral bond and $51.0 million for a license fee related to the Casino. Additionally, in fiscal 2017, we incurred Development Project costs of $300.3 million that were capitalized, and cash and investments that were restricted for the Development Projects were $110.0 million. At December 31, 2017, our total assets included approximately $136.4 million of remaining net proceeds available from the Term Loan Facility and Kien Huat Montreign Loan, which are presented on the Consolidated Balance Sheet as a non-current asset (restricted cash and investments for Development Projects). The proceeds of the Term Loan Facility and the Kien Huat Montreign Loan may be used solely to pay for costs relating to the Development Projects.

Net cash provided by financing activities was approximately $465.6 million, $253.7 million and $51.7 million during fiscal 2017, 2016 and 2015, respectively. Approximately $450.0 million was borrowed pursuant to the Term Loan Facility in fiscal 2017, and an additional $32.0 million was borrowed from Kien Huat pursuant to the Kien Huat Montreign Loan. These amounts were partially offset by payments of $32.0 million of debt issuance costs and Interest Rate Cap fees. Furthermore, approximately $16.0 million was borrowed pursuant to the Bangkok Bank Loan in December 2017. In connection with the Bangkok Bank Loan, the Kien Huat Montreign Loan was exchanged for common stock of Empire in full satisfaction of such loan. At December 31, 2017, the Company had $31.1 million of equipment loans outstanding for the purchase of slot machines, equipment and software for the Casino. During fiscal 2016, approximately $286.0 million was received from the January 2016 Rights Offering, which was

34



net of approximately $4.0 million of expenses, and $30.7 million of such proceeds was used to redeem the Series E Preferred Stock. In fiscal 2015, approximately $49.5 million of net proceeds were received from the 2015 Rights Offering. The Company received approximately $2.7 million in proceeds from the exercise of options and warrants during fiscal 2015. In addition during fiscal 2015, the Company redeemed 26,667 shares of its Series E Preferred Stock for approximately $533,000.

Development Project Expenditures

The Company expects the Development Projects will cost approximately $920 million, which includes $744 million of anticipated costs for construction of the Development Projects, $81 million for contingency and interest reserves, $51 million for the Gaming Facility License fee and $44 million of original issue discount and financing and legal fees.
    
As of December 31, 2017, the Company has incurred an aggregate total of $687.8 million related to the Development Projects, including $566.8 million of capitalized Development Projects costs, $39.1 million of interest expense related to bank debt for the Development Projects, $51.0 million for the Gaming facility License and incurred $30.9 million of debt issuance costs related to the Development Projects.
    
Principal Debt Arrangements

Term Loan Agreement

On January 24, 2017, Montreign Operating entered into the Building Term Loan Agreement (the “Original Term Loan Agreement”), among Montreign Operating, the lenders from time to time party thereto, and Credit Suisse AG, Cayman Islands Branch (“Credit Suisse”), as administrative agent. On May 26, 2017 , the parties entered into the first amendment to the Term Loan Agreement and certain ancillary agreements (the “Amended Term Loan Agreement” and, together with the Original Term Loan Agreement, the “Term Loan Agreement”). In the aggregate, the Term Loan Agreement provides Montreign Operating with loans in principal amount of $520 million (the “Term Loan Facility”). All of the borrowings under the Term Loan Agreement will be used to fund the costs of the Development Projects.

The Term Loan Agreement provides Montreign Operating with senior secured first lien term loans consisting of $70 million of Term A Loans and $450 million of Term B Loans. The obligations of Montreign Operating under the Term Loan Facility are guaranteed by the Montreign Subsidiaries and are secured by security interests in substantially all of the assets of the Project Parties, as well as by a pledge of the membership interests in Montreign Operating. In connection with the Term Loan Facility, Empire provided a completion guaranty capped at $30 million on the completion of construction of the Casino and the Entertainment Project. Interest accrues on outstanding borrowings under the Term A Loan at a rate equal to LIBOR plus 5.0% per annum, or an alternate base rate plus 4.0% per annum. Interest accrues on outstanding borrowings under the Term B Loan at a rate equal to LIBOR (with a LIBOR floor of 1%) plus 8.25% per annum, or an alternate base rate plus 7.25% per annum. As of December 31, 2017, no borrowings were outstanding under the Term A Loan and $450 million was outstanding under the Term B Loan.

As a condition to the Term Loan Agreement, the net proceeds from the Term B Loan and the Kien Huat Montreign Loan, which is discussed below, were deposited into an account controlled by the lenders under the Term Loan Facility. Any drawings on the Term A Loan, which may be made only after all of the proceeds of the Term B Loan have been deployed in the construction of the Development Projects or the operations of the Project Parties, will also be deposited into the same lender-controlled account. The Company further funded this lender-controlled account with approximately $9.9 million in December 2017 pursuant to the Term Loan Agreement from the proceeds of the Bangkok Bank Loan, which is discussed below. In order to access the funds (including the net proceeds from the Term Loan Facility and the Kien Huat Montreign Loan) held in these lender-controlled accounts, Montreign Operating must satisfy the applicable disbursement conditions set forth in the Term Loan Agreement and ancillary agreements, such as providing evidence that the withdrawn funds are used for permitted purposes in connection with the Development Projects.

The Term Loan Agreement restricts the Project Parties from incurring additional indebtedness except for, among other things, obligations pursuant to hedging agreements required under the Term Loan Agreement, capital lease obligations and purchase money indebtedness (including FF&E financing) in an amount not exceeding $40 million, subordinated indebtedness so long as the proceeds are applied pursuant to the terms of the Term Loan Agreement and other indebtedness not exceeding $10 million. Also, the Project Parties may not make any dividend or other distribution, redeem or otherwise acquire any equity securities or subordinated indebtedness. Moreover, the Project Projects are restricted from entering into advisory, management or consulting agreements with an affiliate of any Project Party, including Empire, except for payments pursuant to tax sharing agreements, distributions in an amount not exceeding 1% of the net revenues of the Project Parties in any fiscal year, repurchase of capital stock of the Company in an amount not exceeding $1 million and required by the NYSGC, and certain available amounts of cash based on the application of financial covenants.

35




The Term Loan Agreement requires Montreign Operating to maintain specified financial ratios and to satisfy certain financial tests, including interest coverage and senior leverage ratios. These financial covenants will be applicable beginning with the first fiscal quarter following the "full opening" of the Casino, as such term is defined in the Term Loan Agreement. Additionally, Montreign's capital expenditures cannot exceed the limitations set forth in the Term Loan Agreement in any fiscal year and excess cash flow, as such term is defined in the Term Loan Agreement, must be applied towards repaying of the Term Loan commencing with the fiscal year in which the "full opening" of the Casino occurs. At December 31, 2017, Montreign Operating was in compliance with all the required financial covenants. On March 1, 2018, the Company contributed $2.7 million to an interest reserve fund under the Term Loan Agreement. This contribution reflects the additional interest to be paid on the Term Loan Facility as a result of the Company's deferral of the completion of 15 VIP suites at the Casino from March 1, 2018 to March 23, 2018.

Revolving Credit Agreement

On January 24, 2017, Montreign Operating also entered into a revolving credit agreement, which was subsequently amended on May 24, 2017 and December 7, 2017 (as amended, the “Revolving Credit Agreement”) among Montreign Operating, the lenders from time to time party thereto, and Fifth Third Bank, as administrative agent. The Revolving Credit Agreement provides for loans or other extensions of credit to be made to Montreign Operating in an aggregate principal amount of up to $15 million (including a letter of credit sub-facility of $10 million) (the “Revolving Credit Facility”), the proceeds of which may be used for working capital needs, capital expenditures and other general corporate purposes following the initial opening of the Casino to the public. Interest will accrue on outstanding borrowings at a rate equal to LIBOR plus 5.0% per annum, or an alternate base rate plus 4.0% per annum. The Revolving Credit Facility will mature on January 24, 2022. On January 23, 2018, the Company drew $9 million on the Revolving Credit Facility, and on February 9, 2018, the Company drew down $4 million, after the opening of the Casino.
    
Kien Huat Montreign Loan Agreement

On January 24, 2017, Montreign Holding entered into a loan agreement (the "Kien Huat Montreign Loan Agreement") with Kien Huat Realty III Limited ("Kien Huat"), Empire's largest stockholder. Pursuant to the Kien Huat Montreign Loan Agreement, Montreign Holding obtained from Kien Huat a loan in the principal amount of $32.3 million (the "Kien Huat Montreign Loan"). The net proceeds of the Kien Huat Montreign Loan were used as a capital contribution to Montreign Operating for use towards the expenses of the Development Projects. The obligations of Montreign Holding under the Kien Huat Montreign Loan Agreement were secured by a pledge of all the membership interests in Montreign Holding.

Concurrently with and as a condition to the closing of the Bangkok Bank Loan Agreement, which is discussed below, on December 28, 2017, Empire, Montreign Holding, and Kien Huat entered into a Note Exchange Agreement (the “Kien Huat Note Exchange Agreement”). The Kien Huat Note Exchange Agreement provides for the issuance of 1,379,873 shares of common stock Kien Huat in full satisfaction of the Kien Huat Montreign Loan. In connection with the satisfaction in full of the Kien Huat Montreign Loan pursuant to the Kien Huat Note Exchange Agreement, Empire's pledge of its membership interests in Montreign Holding was released.

To support the Company's financing needs for the Development Projects, Kien Huat entered into a series of commitment letters with the Company, which was last amended on September 22, 2015 (as amended, the "Kien Huat Commitment Letter"). Pursuant to the Kien Huat Commitment Letter, Kien Huat had an outstanding obligation to participate in, and backstop, a rights offering in an amount not to exceed $35 million (the "Follow-On Rights Offering"). In connection with the Kien Huat Note Exchange Agreement, on December 28, 2017, the Company and Kien Huat further amended the Kien Huat Commitment Letter to terminate Kien Huat's obligation to backstop the Follow-on Rights Offering.

Bangkok Bank Loan Agreement

On December 28, 2017, the Company entered into a Delayed Draw Term Loan Credit Agreement (the “Bangkok Bank Loan Agreement”) with Bangkok Bank PCL, New York Branch (“Bangkok Bank”), as lender, and MRMI, as guarantor. The Bangkok Bank Loan Agreement provides for loans to be made to the Company in an aggregate principal amount of up to $20 million (the “Bangkok Bank Loan”).

Interest will accrue on outstanding borrowings under the Bangkok Bank Loan Agreement at a rate equal to LIBOR plus 6.25%, or an alternate base rate plus 5.25% per annum. In addition, the Company will pay commitment fee to Bangkok Bank equal to the undrawn amount of the Bangkok Bank Loan commitment multiplied by a rate equal to 1.50% per annum. The Bangkok Bank Loan will mature on December 28, 2019. The Bangkok Bank Loan is guaranteed by MRMI and is secured by a security interest in Monticello Casino and Raceway. The Bangkok Bank Loan Agreement contains customary representations and warranties and affirmative covenants, negative covenants and financial covenants, including representations, warranties and covenants that,

36



among other things, restrict the ability of the Company and MRMI to incur additional debt, incur or permit liens on assets, make investments and acquisitions, consolidate or merge with any other company, engage in certain transactions with affiliates, or make dividends or other distributions.

The Company borrowed $16 million at the closing of the Bangkok Bank Loan. Of this amount, the Company contributed approximately $9.9 million to Montreign Operating pursuant to the terms of the Term Loan Agreement, as discussed above. The remaining balance of the Bangkok Bank Loan drawn down is available for the general corporate purposes of the Company.

Kien Huat Backstop Loan Agreement
Concurrently with and as a condition to the closing of the Bangkok Bank Loan Agreement, on December 28, 2017, Empire and Kien Huat entered into a loan agreement (the “Kien Huat Backstop Loan Agreement”), providing for loans to Empire in an aggregate principal amount of up to $20 million (the “Kien Huat Backstop Loan”). Any amounts borrowed under the Kien Huat Backstop Loan will be used exclusively to make payments required under the Bangkok Bank Loan Agreement and will mature on the one-year anniversary of the Maturity Date of the Bangkok Bank Loan, or such earlier date that the Bangkok Bank Loan is terminated (the “Backstop Maturity Date”). As of December 31, 2017, no amounts had been borrowed under the Kien Huat Backstop Loan.

Equipment Loan Agreements

The Company has entered into several long-term financing agreements related to the purchase of its slot machines, equipment and software for the Casino' s hotel, information technology and other operations. The amount financed was $31.1 million and the terms of these agreements run between six and 36 months. The stated interest rates for these loans are between zero and eight % per annum. The Company has imputed interest, on several equipment loans with stated interest rates of 0%, using the Company's cost of funds rate of approximately 10%.The weighted average of the monthly repayments is approximately $1.0 million.


Other Factors Affecting Liquidity
                                                                                                                                                                                                                                                                                                                                                                                                         
The Company may also raise additional equity or debt capital or enter into arrangements to secure necessary financing to fund the completion of the Development Projects, to meet obligations under the Term Loan Facility or for the general corporate purposes of the Company. Such arrangements may take the form of loans, strategic agreements, joint ventures or other agreements. The sale of additional equity could result in additional dilution to the Company’s existing stockholders, and financing arrangements may not be available to us, or may not be available in sufficient amounts or on acceptable terms.

On October 14, 2016, we filed a universal shelf registration statement on Form S-3 (the "Shelf Registration Statement") covering the offer and sale of $250 million of our securities. The Shelf Registration Statement, which also carried over $83.8 million of our securities registered on an expiring shelf registration statement that remained unsold, was declared effective on November 17, 2016. As of March 15, 2018, we had up to approximately $333.0 million available for future issuances under the Shelf Registration Statement. Unless otherwise indicated in a prospectus supplement, the Company expects the net proceeds from the sale of securities will be used to support the Development Projects, capital expenditures at MRMI, working capital and for other general corporate purposes. The Company may also use a portion of the net proceeds to acquire or invest in businesses, products and technologies that are complementary to our business.

From time to time, we may pursue various strategic business opportunities. These opportunities may include proposed development and/or management of, investment in or ownership of additional gaming operations through direct investments, acquisitions, joint venture arrangements and other transactions. We are not currently exploring such opportunities. We can provide no assurance that we will successfully identify such opportunities or that, if we identify and pursue any of these opportunities, any of them will be consummated.

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

37



Contractual Obligations
 
Payments due by period
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
Total
 
Less than
1 year
 
1 – 3
years
 
3 – 5
years
 
Years 6 - 40
Casino Lease (a)
$
388,124

 
$
10,500

 
$
15,000

 
$
16,000

 
$
346,624

Golf Course Lease (b)
8,250

 

 
275

 
300

 
7,675

Entertainment Project Lease (c)
8,325

 
12

 
300

 
300

 
7,713

Term Loan B (d)
450,000

 
3,375

4,500

9,000

 
9,000

 
428,625

Equipment Loans (e)
31,095

 
11,213

 
19,033

 
849

 

Bangkok Bank Loan (f)
16,000

 

 
16,000

 

 

Operating leases (g)
5,158

 
2,223

 
2,739

 
196

 

Total
$
906,952


$
27,323

 
$
62,347

 
$
26,645

 
$
790,637



(a)
Annual fixed rent payments under the Casino Lease are as follows: (i) beginning March 2017 through August 2018 payments of $1 million per month; (ii) beginning September 2018 payments of $625,000 per month escalating every five years by 8% through the end of the lease term.
(b)
Annual fixed rent payments under the Golf Course lease are as follows: (i) $0 prior to the date the Golf Course opens for business to the public (the “Golf Course Opening Date”), which is expected to be in the Spring of 2019; (ii) $150,000 for the first 10 years following the Golf Course Opening Date; and (iii) $250,000 thereafter for the remainder of the term of the Golf Course Lease.
(c)
Annual fixed rent payments under the Entertainment Project Lease are as follows: (i) $0 prior to the date any portion of Entertainment Project first opens for business to the public (the “EV Opening Date”), which is expected to be in September of 2018; (ii) $150,000 for the first 10 years following the EV Opening Date; and (iii) $250,000 thereafter for the remainder of the term of the Entertainment Project Lease.
(d)
The Term B Loan is a variable rate instrument, accordingly the payments reflected above include only principal amounts.
(e)
Equipment loan payments, primarily for the purchase of slot machines, software and other equipment for the Casino. The repayment period terms are between 24 and 36 months. These amounts exclude interest payments.
(f)
The Bangkok Bank Loan is a variable rate instrument, accordingly the payments reflected above include only principal amounts.
(g)
Operating lease payments for the short-term lease of slot machines, copiers and other Casino equipment. The lease periods extend from six months to 36 months.
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk.
Market risk is the risk of loss arising from adverse changes in market rates and prices, including interest rates, commodity prices and equity prices. We currently have invested a portion of the available proceeds from the Term B Loan in short-term commercial paper and U.S. Treasury Notes with maturities of less than one year. At December 31, 2017, our investments totaled approximately $94.5 million. The investment maturity dates approximate the dates upon which the proceeds will be used under the terms of the Term Loan Facility to fund the Development Projects. We believe the short-term nature of these investments limits our exposure to interest rate risk.

The interest rate on the Term B Loan entered into on January 24, 2017, contains a variable component based on one-month LIBOR. However, the Interest Rate Cap entered into in February 2017 provided a limit on our exposure to increases in one-month LIBOR on $415 million from May 1, 2017 through February 28, 2018 and, for a portion of our Term B Loan balance, provides a limit on our exposure through July 31, 2019. In addition, the Company had $16.0 million of delayed draw term loans outstanding at December 31, 2017, under the Bangkok Bank Loan. The Bangkok Bank Loan matures on December 28, 2019. The interest rate on the Bangkok Bank Loan entered into on December 28, 2017, contains a variable component based on one-month LIBOR. Accordingly, based on outstanding borrowings at December 31, 2017, a one-point increase in LIBOR would increase interest expense (prior to interest capitalization) by approximately $4.1 million for the next 12-month period ending December 31, 2018. 

38


Item 8.
Financial Statements and Supplementary Data.
 



39



Report of Independent Registered Public Accounting Firm
On Financial Statements

To the Stockholders and Board of Directors of Empire Resorts, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Empire Resorts, Inc. and subsidiaries (the Company) as of December 31, 2017 and 2016, the related consolidated statements of operations and comprehensive loss, stockholders’ equity/(deficit), and cash flows for each of the three years in the period ended December 31, 2017, and the related notes and the financial statement schedule listed in Item 15 (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (the PCAOB), the Company's internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), as applicable and our report dated March 16, 2018 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
  
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.


/s/ Ernst & Young LLP

We have served as the Company's auditor since 2012.

Philadelphia, Pennsylvania
March 16, 2018

40



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

To the Stockholders and Board of Directors of Empire Resorts, Inc.

Opinion on Internal Control over Financial Reporting

We have audited Empire Resorts, Inc. and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control- Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Empire Resorts, Inc. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the 2017 consolidated financial statements of the Company and our report dated March 16, 2018 expressed an unqualified opinion thereon.

Basis for Opinion

The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

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

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


/s/ Ernst & Young LLP


Philadelphia, Pennsylvania
March 16, 2018

41


EMPIRE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)

 
December 31,
 
December 31,
 
2017
 
2016
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
10,380

 
$
11,012

Restricted cash
693

 
1,078

Accounts receivable, net
1,273

 
921

Prepaid expenses and other current assets
3,550

 
4,335

Total current assets
15,896

 
17,346

Property and equipment, net
26,863

 
26,415

Capitalized Development Projects costs
566,797

 
202,438

Restricted cash and investments for Development Projects
136,431

 
26,384

Intangible assets
51,000

 
51,000

Cash collateral for deposit bond
35,000

 
15,000

Other assets
251

 
1,175

Total assets
$
832,238

 
$
339,758

Liabilities and Stockholders’ equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
2,686

 
$
2,268

 Current portion of long-term debt
14,588

 

 Current portion of capital leases

 

Accrued Development Projects costs
71,712

 
41,933

Accrued expenses and other current liabilities
7,320

 
7,347

Total current liabilities
96,306

 
51,548

Long-term debt, net of current portion
455,148

 

Other long-term liabilities
9,463

 
8,644

Total liabilities
560,917

 
60,192

Stockholders’ equity:
 
 
 
Preferred Stock, 5,000 shares authorized; $0.01 par value
 
 
 
Series B, $29 per share liquidation value, 44 shares issued and outstanding

 

Common stock, $0.01 par value, 150,000 shares authorized, 32,560 and 31,156 shares issued and outstanding at December 31, 2017 and 2016, respectively
326

 
312

       Additional paid-in capital
572,342

 
533,813

       Accumulated other comprehensive loss
(315
)
 

       Accumulated deficit
(301,032
)
 
(254,559
)
Total stockholders’ equity
271,321

 
279,566

Total liabilities and stockholders’ equity
$
832,238

 
$
339,758

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


42


EMPIRE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
YEARS ENDED DECEMBER 31,
(In thousands, except for per share data)
 
 
 
 
 
 
2017
2016
2015
Revenues:
 
 
 
Gaming
$
60,540

$
59,633

$
60,463

Food, beverage, racing and other
9,353

10,668

11,171

Gross revenues
69,893

70,301

71,634

Less: Promotional allowances
(4,042
)
(2,847
)
(3,468
)
Net revenues
65,851

67,454

68,166

Operating costs and expenses:
 
 
 
Gaming
44,486

44,238

44,525

Food, beverage, racing and other
9,709

10,174

10,493

Selling, general and administrative
15,743

19,692

12,648

Development Projects
21,558

12,970

32,514

Stock-based compensation
2,755

2,722

596

Depreciation
1,517

1,341

1,350

Total operating costs and expenses
95,768

91,137

102,126

Loss from operations
(29,917
)
(23,683
)
(33,960
)
Interest expense
(19,269
)
(524
)
(2,643
)
Interest income
2,842

10


Loss before income taxes
(46,344
)
(24,197
)
(36,603
)
Income tax provision


7

Net loss
(46,344
)
(24,197
)
(36,610
)
Dividends on preferred stock
(128
)
(168
)
(178
)
Net loss applicable to common stockholders
$
(46,472
)
$
(24,365
)
$
(36,788
)
 
 
 
 
Weighted average common shares outstanding:
 
 
 
Basic
30,981

28,221

10,749

Diluted
30,981

28,221

10,749

Loss per common share:
 
 
 
Basic
$
(1.50
)
$
(0.86
)
$
(3.42
)
Diluted
$
(1.50
)
$
(0.86
)
$
(3.42
)
 
 
 
 
Comprehensive loss:
 
 
 
 
 
 
 
Net loss
$
(46,344
)
$
(24,197
)
$
(36,610
)
Other comprehensive loss:
 
 
 
Unrealized loss on Interest Rate Cap
$
(315
)
$

$

Comprehensive loss
$
(46,659
)
$
(24,197
)
$
(36,610
)
The accompanying notes are an integral part of these consolidated financial statements.


43


EMPIRE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY/(DEFICIT)
YEARS ENDED DECEMBER 31, 2017, 2016 and 2015
(In thousands)
 
Preferred Stock*
 
Common Stock
 
Additional
paid-in
capital
 
Other Comprehensive Loss
 
Accumulated deficit
 
Total
Stockholders’
Equity/(Deficit)
 
Series B
 
Series E
 
 
Shares
 
Amount
 
Shares
 
Amount
 
Shares
 
Amount
 
Balances, December 31, 2014
44

 
$

 
28

 
$
1

 
7,901

 
$
79

 
$
176,117

 
$

 
$
(193,297
)
 
$
(17,101
)
Redemption of Series E Preferred Stock

 

 
(28
)
 
(1
)
 

 

 
(533
)
 
 
 

 
(534
)
Declared and paid dividends on preferred stock

 

 

 

 
5

 

 
159

 
 
 
(160
)
 
(1
)
Common stock issued from exercise of rights offering

 

 

 

 
1,409

 
14

 
49,514

 
 
 

 
49,528

Stock issuance

 

 

 

 
123

 
1

 

 
 
 

 
1

Options exercised

 

 

 

 
40

 
1

 
160

 
 
 

 
162

Stock-based compensation

 

 

 

 

 

 
596

 
 
 

 
596

Warrants exercised

 

 

 

 
83

 
1

 
2,499

 
 
 

 
2,500

Net loss

 

 

 

 

 

 

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

 

 

 

 
9,561

 
96

 
228,512

 

 
(230,067
)
 
(1,459
)
Declared and paid dividends on preferred stock

 

 

 

 

 

 

 
 
 
(295
)
 
(295
)
Redemption of Series E Preferred Stock

 

 

 

 
1,332

 
14

 
17,412

 
 
 

 
17,426

Common stock issued from exercise of rights offering

 

 

 

 
20,139

 
201

 
285,802

 
 
 

 
286,003

Stock-based compensation

 

 

 

 

 

 
2,122

 
 
 

 
2,122

Other

 

 

 

 
124

 
1

 
(35
)
 
 
 

 
(34
)
Net loss

 

 

 

 

 

 

 
 
 
(24,197
)
 
(24,197
)
Balances, December 31, 2016
44

 

 

 

 
31,156

 
312

 
533,813

 

 
(254,559
)
 
279,566

Declared and paid dividends on preferred stock

 

 

 

 

 

 

 
 
 
(129
)
 
(129
)
Options exercised

 

 

 

 
2

 

 
16

 
 
 

 
16

Stock-based compensation

 

 

 

 

 

 
2,155

 
 
 

 
2,155

Stock issued for legal settlement

 

 

 

 
34

 

 
758

 
 
 

 
758

Restricted stock forfeited for tax payment

 

 

 

 
(12
)
 

 
(275
)
 
 
 

 
(275
)
Kien Huat note conversion

 

 

 

 
1,380

 
14

 
35,875

 
 
 

 
35,889

Comprehensive loss
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(315
)
 

 
(315
)
Net loss

 

 

 

 

 

 

 
 
 
(46,344
)
 
(46,344
)
Balances, December 31, 2017
44

 
$

 

 
$

 
32,560

 
$
326

 
$
572,342

 
$
(315
)
 
$
(301,032
)
 
$
271,321

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