Edgar Filing: EMPIRE RESORTS INC

sec document

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, 2006

[ ] 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 13-4141279
--------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)

701 N. Green Valley Parkway, Suite 200, Henderson, NV 89074
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)

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

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
--------------------------------------------------------------------------------

5-1/2% Secured Convertible Notes Due 2014 The PORTAL Market
--------------------------------------------------------------------------------

Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.01 par value per share
--------------------------------------------------------------------------------
(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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]

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

Large accelerated filer [ ] Accelerated filer [X] Non-accelerated filer [ ]

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, 2006 was $154,338,650, based on the closing price
of the common stock on the Nasdaq Small Cap Market.

As of March 7, 2007, there were 29,429,902 shares of the issuer's common
equity outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

The information required by Item 11 of Part III will be incorporated by
reference to certain portions of a definitive proxy statement, which is expected
to be filed by the Registrant within 120 days after the close of its fiscal
year.

PART I........................................................................1
Item 1. Business........................................................1
Item 1A Risk Factors...................................................12
Item 1B Unresolved Staff Comments......................................22
Item 2. Properties.....................................................22
Item 3. Legal Proceedings..............................................23
Item 4. Submission of Matters to a Vote of Security Holders............24

PART II......................................................................24
Item 5. Market for Registrant's Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity
Securities.....................................................24
Item 6. Selected Financial Data........................................26
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operation.............................27
Item 7A Quantitative and Qualitative Disclosures About Market Risk.....35
Item 8. Financial Statements and Supplementary Data....................36
Item 9. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure............................68
Item 9A Controls and Procedures........................................68
Item 9B Other Information..............................................69

PART III.....................................................................70
Item 10 Directors and Executive Officers of the Registrant.............70
Item 11 Executive Compensation.........................................73
Item 12.Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters.................73
Item 13 Certain Relationships and Related Transactions.................75
Item 14 Principal Accounting Fees and Services.........................75

PART IV......................................................................76
Item 15 Exhibits, Financial Statement Schedules........................76

PART I

FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements within
the meaning of Section 21E of the Securities Exchange Act of 1934, as amended,
and Section 27A of the Securities Act of 1933, as amended, reflecting
management's current expectations. Examples of such forward-looking statements
include our expectations of results with respect to our strategy. Although we
believe that our expectations are based upon reasonable assumptions, there can
be no assurances that our financial goals will be realized. Such forward-looking
statements 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 any future results, performance or achievements
expressed 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 forward-looking statements made by us or on our behalf. Any
statements herein that are not statements of historical fact may be
forward-looking statements. Among others, the words, "believes," "anticipates,"
"plans," "estimates," and "expects" are intended to identify forward-looking
statements. 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. 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 information to reflect
actual results or changes in the factors affecting such forward-looking
information.

ITEM 1. BUSINESS.

OVERVIEW

Empire Resorts, Inc. 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.

Through our subsidiaries, we currently:

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

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

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

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

MONTICELLO RACEWAY

Monticello Raceway began operations in 1958 and currently features:

o 1,587 VGMs;

o year-round live harness horse racing;

o year-round simulcast pari-mutuel wagering on thoroughbred and harness
horse racing from across the country;

o a 5,000-seat grandstand and a 100-seat clubhouse with retractable
windows;

o parking spaces for 2,000 cars and 10 buses;

o a 350-seat buffet and food court with three outlets;

o a large central bar and an additional clubhouse bar; and

o an entertainment lounge with seating for 75 people.

Monticello Raceway derives its racing revenue principally from:

o wagering at Monticello Raceway on live races run at Monticello Raceway;

o fees from wagering at out-of-state locations on races run at Monticell
Raceway using export simulcasting;

o revenue allocations, as prescribed by law, from betting activity at
off-track betting facilities in New York City, Nassau County and the
Catskills region of the State of New York;

o wagering at Monticello Raceway on races broadcast from out-of-state
racetracks using import simulcasting; and

o admission fees, program and racing form sales, food and beverages sales
and certain other ancillary activities.

SIMULCASTING. Over the past several years, import and, particularly,
export simulcasting has become an increasingly important part of Monticello
Raceway's business. Simulcasting is the process by which a live horse race held
at one facility (the "host track") is transmitted to another location that
allows its patrons to wager on that race. Amounts wagered are then collected
from each off-track betting location and combined into appropriate pools at the
host track where the final odds and payouts are determined. With the exception
of a few holidays, Monticello Raceway offers year-round simulcast wagering from
racetracks across the country, including Churchill Downs, Hollywood Park, Santa
Anita Racetrack, Gulfstream Park, Aqueduct Raceway, Belmont Park and Saratoga
Racecourse. In addition, races of national interest, such as the Kentucky Derby,
Preakness Stakes and Breeders' Cup supplement regular simulcast programming.
Monticello Raceway also exports live broadcasts of its races to casinos and
off-track betting facilities in other states.

PARI-MUTUEL WAGERING. Monticello Raceway's racing revenue is derived from
pari-mutuel wagering at the track and government mandated revenue allocations
from certain New York State off-track betting locations. In pari-mutuel
wagering, patrons bet against each other rather than against the operator of the
facility or with pre-set odds. The dollars wagered form a pool of funds from
which winnings are paid based on odds determined by the wagering activity. The
racetrack acts as a stakeholder for the wagering patrons and deducts from the
amounts wagered a "take-out" or gross commission from which the racetrack pays
state and county taxes and racing purses. Monticello Raceway's pari-mutuel
commission rates are fixed as a percentage of the total handle or amounts
wagered.

MONTICELLO GAMING AND RACEWAY

We currently operate a 45,000 square foot VGM facility called Monticello
Gaming and Raceway (formerly called Mighty M Gaming at Monticello Raceway). VGMs
are electronic gaming devices that allow patrons to play electronic versions of
various lottery games of chance and are similar in appearance and feel to

traditional slot machines. VGM operations at Monticello Gaming and Raceway began
on June 30, 2004. At December 31, 2006, the number of VGMs in operation was
1,587.

Each of the VGMs is owned by the State of New York and, by statute, 32% of
the first fifty million, 29% of the next one hundred million and 26% thereafter
of gross revenue from our VGM operations is distributed to us. The statute also
provides a vendor's marketing allowance for racetracks operating video lottery
programs of 8% on the first $100.0 million of net revenues generated and 5%
thereafter.

During the past decade, the operation of video gaming devices at
racetracks in several states outside New York has enhanced state lottery
revenues and improved the racetrack's economic performance. Our VGM operations
have helped to increase our racing revenues through increased attendance at our
racetrack from customers for our VGM facility resulting in increased handles at
the racetrack. In addition, the VGM operations have supported increased purses,
which allow for higher profile racing activities.

VGM activities in the State of New York are presently overseen by the
Division of the Lottery of the State of New York.

CASINO DEVELOPMENT

We have agreements with the St. Regis Mohawk Tribe to develop and manage
an Indian casino. The casino is proposed on land adjacent to Monticello Raceway.

ST. REGIS MOHAWK RESORT DEVELOPMENT

We had previously attempted to develop a casino with the St. Regis Mohawk
Tribe beginning in 1996. On April 6, 2000, the United States Department of the
Interior advised New York State Governer George Pataki that it had determined
that the acquisition of 29 acres adjacent to Monticello Raceway would be in the
best interest of the St.Regis Mohawk Tribe and would not be detrimental to the
community. Such determinations required the concurrence of the Governor of New
York in order for the project to proceed. For a period of time thereafter, the
St. Regis Mohawk Tribe agreed to work exclusively with Park Place Entertainment
Corporation (now part of Harrah's Entertainment, Inc.), which proposed to
develop a casino for the St. Regis Mohawk Tribe at the nearby Kutsher's Sporting
Academy. However, by Summer 2005, the needed approvals for a casino at Kutsher's
Sporting Academy had not materialized, and we and the St. Regis Mohawk Tribe's
leaders discussed the possibility of moving forward with the previously obtained
approvals for the casino project at Monticello Raceway.

On August 1, 2005, we entered into a letter agreement with the St. Regis
Mohawk Tribe under which we and the St. Regis Mohawk Tribe affirmed, subject to
the requested concurrence by Governor Pataki, all prior contracts to develop an
Indian casino at Monticello Raceway. The St. Regis Mohawk Tribe further agreed
to (1) satisfy all requirements for the Bureau of Indian Affairs (the "BIA") in
connection with the transfer of the 29 acres of land to the United States
government in trust for the St. Regis Mohawk Tribe, (2) resolve any remaining
issues for the finalization of the pre-existing management agreement with one of
our subsidiaries for the project previously submitted to the National Indian
Gaming Commission (the "NIGC"), (3) execute any amendment or revision to such
management agreement, or any collateral agreements, that may be mutually agreed
upon in such process, (4) support the approval of such management agreement, as
so amended or revised, by the NIGC and (5) take any and all reasonably required
steps to consummate the land to trust transfer of the parcel pursuant to the
April 6, 2000 determination as promptly as practicable following the concurrence
of Governor Pataki.

On September 9, 2005, in response to a letter from Governor Pataki, the
Acting Deputy Secretary for Economic Development and Policy, wrote to the St.
Regis Mohawk Tribe to confirm that the Department of the Interior considered the
2000 Secretarial determination to be of continuing validity and subject to
concurrence by the Governor.

After notification from the St. Regis Mohawk Tribe, the BIA recommenced
review process for the acquisition of the 29 acres adjacent to the Raceway by
the St. Regis Mohawk Tribe. On April 13, 2006 the St. Regis Mohawk Tribe was
notified that the BIA had completed its review of the Environmental Assessment
("EA") for a proposed transfer of land into trust for a casino at the Monticello
Raceway site. The review identified certain additional areas to address and the
St. Regis Mohawk Tribe completed the filing of the responses to those items on
July 5, 2006. Following this filing, the review of the EA by the BIA was
completed on September 12, 2006 and the document was made available for public
review and comment on that date. The St. Regis Mohawk Tribe has provided to the
BIA responses to all of the comments received during the comment period.

On December 21, 2006, the St. Regis Mohawk Tribe received a letter from
James R. Cason of the BIA stating that the Tribe's Final Environmental
Assessment for the project had been deemed sufficient, that an Environmental
Impact Study will be not be required and that a formal Finding of No Significant
Impact ("FONSI") related to the proposed federal action approving the request of
the Tribe to take 29.31 acres into trust for the purpose of building a Class III
gaming facility to be located at Monticello Raceway, in accordance with the
Indian Gaming Regulatory Act of 1988 (the "Land-to-Trust Transfer") has been
issued. On February 16, 2007, its partner, the St. Regis Mohawk Tribe, received
a copy of a complaint filed in the United States District Court for the Southern

District of New York in the case of Sullivan County Farm Bureau, Catskill Center
for Conservation and Development, Inc., Orange Environment, Inc. and Natural
Resources Defense Council v. United States Department of the Interior, Dirk
Kempthorne, in his official capacity as Secretary of the Interior, James E.
Cason, in his official capacity as Associate Deputy Secretary of the Interior
and Acting Assistant Secretary of the Interior for Indian Affairs and BIA. The
claim alleges that the BIA violated the National Environmental Policy Act and
the Administrative Procedure Act by issuing the Finding of No Significant Impact
without requiring an environmental impact statement under the National
Environmental Policy Act. The plaintiffs are seeking an order requiring the
preparation of an environmental impact statement prior to Department of the
Interior's granting final approvals for the proposed St. Regis Mohawk Casino at
Monticello Raceway and prior to the Department of the Interior's causing the
transfer of the subject land into federal trust.

On February 19, 2007, New York Governor Eliot Spitzer issued his
concurrence with regard to the April 2000 Secretarial Determination that found
that the acquisition of the 29 acres adjacent to Monticello Raceway by the St.
Regis Mohawk Tribe for the purpose of building and operating a Class III gaming
facility would be in the Tribe's and its members' best interest and would not be
detrimental to the surrounding communities. In addition to the concurrence,
Governor Spitzer also signed an amendment to the gaming compact between the St.
Regis Mohawk Tribe and New York State pursuant to which New York State would
receive 20 percent of slot-machine revenues for the first two years after the
St. Regis Mohawk Tribe's Class III casino to be located at Monticello Raceway
opens, 23 percent for the next two years and 25 percent thereafter. The U.S.
Department of the Interior can now begin its final administrative review so that
the Secretary of the Interior can determine whether to approve the request of
the Tribe to take the 29 acres into trust.

The current plans for the Indian casino resort at Monticello Raceway are
expected to feature:

o 160,000 square feet of gaming space with 3,500 slot machines and 125
table games, with sufficient space to accommodate an additional 500
slot machines;

o nine restaurants, including a fine dining restaurant and a buffet;

o several bars and a nightclub;

o 5,000 parking spaces, including 4,200 covered spaces all located
directly underneath or adjacent to the casino;

o an enclosed retail corridor connected to Monticello Raceway;

o a central entertainment lounge; and

o a 40,000 square foot multi-function room.

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

On March 20, 2006, we submitted a proposed form of amended and restated
gaming facility management agreement (the "Gaming Facility Management
Agreement") and collateral agreements to the NIGC for review and approval or
disapproval. Until approved by the Chairman of the NIGC, the gaming facility
management agreement is not in force. Neither the St. Regis Mohawk Tribe nor the
St. Regis Mohawk Gaming Authority (the "Authority") has approved the Gaming
Facility Management Agreement. We expect, but cannot guarantee, that the St.
Regis Mohawk Tribe will approve the Gaming Facility Management Agreement.

assist the Authority to obtain financing for the gaming enterprise and all
related commercial activities. In exchange for these services, we are entitled
to receive a management fee equal to 30% of the net revenues derived from the
operations it manages.

Under the Gaming Facility Management Agreement, before we can pay
ourselves our fee, we must first pay to the Authority a minimum return of
approximately $517,000 per month. These minimum priority payments are to be
charged against the Authority's distribution of net revenues and, when there is
insufficient net revenue in a given month to pay the minimum return, we are
obligated to advance the funds necessary to compensate for the deficiency, with
the Authority reimbursing us in the next succeeding month or months. The minimum
return is required to be paid to the Authority every month gaming is conducted,
including on a pro rata basis during those months when gaming is conducted only
for part of a month.

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

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

We also entered into a gaming facility development and construction
agreement with the Authority and the St. Regis Mohawk Tribe (the "Gaming
Facility Development and Construction Agreement"), pursuant to which we were
granted the exclusive right to design, engineer, construct, furnish and develop
a Class III Indian casino resort with the St. Regis Mohawk Tribe, and we agreed
to help arrange financing of the project. In exchange for these services, the
Authority agreed to pay us a development fee equal to 5% of the first $505
million of the project's construction costs, not to exceed $15 million, payable
monthly as the project costs are incurred. However, the Authority is entitled to
retain 10% of such development fees until the project is 50% completed and then
5% until the project is completed. On the completion date, the Authority is
required to pay us these retained fees.

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

COMPETITIVE ADVANTAGES

We believe that if we are able to develop gaming operations in the
Catskills region in the State of New York, they will be successful because the
Catskills area is approximately 90 miles northwest of New York City, making it a
shorter trip from the nation's most populous metropolitan area than either
Atlantic City or any regional Indian casino, including Foxwoods and Mohegan Sun
in Connecticut. There are approximately 1.3 million adults living within 50
miles of the Catskills area. In addition, roughly 18.4 million adults live
within 100 miles of the Catskills area, an area where household income averages
approximately $76,000. Specifically, Monticello Raceway is directly adjacent to
Highway 17, has highly visible signage and convenient access, and is less than
1,000 feet from the highway's exit. There is currently no direct competition for
our VGM operations within 75 miles of Monticello Raceway.

GOVERNMENT REGULATION

INDIAN GAMING REGULATORY ACT. The terms and conditions of management
contracts for the operation of Indian-owned casinos, and of all gaming on Indian
land in the United States, are subject to the Indian Gaming Regulatory Act of
1988, as amended, which is administered by the NIGC, and also are subject to the
provisions of statutes relating to contracts with Indian tribes, which are
administered by the Secretary of the Interior and the BIA. More specifically,
the NIGC regulates Class II gaming, reviews and approves ordinances and
management contracts, conducts background investigations and approves licensing
of key personnel. The Secretary of Interior has authority over Class III gaming
which includes approval of compacts, per capita plans, leasing and gaming on
lands acquired in trust after 1988. The regulations and guidelines under which
the NIGC will administer the Indian Gaming Regulatory Act are evolving. The
Indian Gaming Regulatory Act and those regulations and guidelines are subject to
interpretation by the Secretary of the Interior and the NIGC and may be subject
to judicial and legislative clarification or amendment.

We may need to provide the BIA or the NIGC with background information on
a variety of people, including each person with management responsibility for
the gaming facility management agreement, our directors and the directors of our
operating subsidiaries, and our ten largest stockholders. Background
investigations of others may also be required.

The Indian Gaming Regulatory Act of 1988, as amended, currently requires
the NIGC to approve management contracts and certain collateral agreements for
Indian casinos. The NIGC will review our gaming facility management contract and
collateral agreements for compliance with the Indian Gaming Regulatory Act, and
approve or reject the gaming facility management contract and any other of the
collateral agreements constituting a management contract.

The NIGC has broad discretion to approve or not approve a management
contract. A management contract can be approved only after the NIGC determines
that the contract provides, among other things, for:

o adequate accounting procedures and verifiable financial reports, which
must be furnished to the tribe;

o tribal access to the daily operations of the gaming enterprise,
including the right to verify daily gross revenues and income;

o minimum guaranteed payments to the tribe, which must have priority over
the retirement of development and construction costs;

o a ceiling on the repayment of such development and construction costs;
and

o a contract term not exceeding five years and a management fee not
exceeding 30% of profits; provided that the NIGC may approve up to a
seven year term and a management fee not to exceed 40% of profits if
the NIGC is satisfied that the capital investment required, the risk
exposure, and the income projections for the particular gaming activity
justify the larger profit allocation and longer term.

The Indian Gaming Regulatory Act of 1988, as amended, established three
separate classes of tribal gaming -- Class I, Class II, and Class III. Class I
gaming includes all traditional or social games played by a tribe in connection
with celebrations or ceremonies. Class II gaming includes games such as bingo,
pull-tabs, punch boards, instant bingo and card games that are not played
against the house. Class III gaming includes casino-style gaming including table
games such as blackjack, craps and roulette, as well as gaming machines such as
slots, video poker, lotteries, and pari-mutuel wagering.

Class I gaming on Indian lands is within the exclusive jurisdiction of
Indian tribes and is not subject to the Indian Gaming Regulatory Act of 1988, as
amended. Class II gaming is permitted on Indian lands if:

o the state in which the Indian lands lie permits such gaming for any
purpose by any person, organization or entity;

o the gaming is not otherwise specifically prohibited on Indian lands by
federal law;

o the gaming is conducted in accordance with a tribal ordinance or
resolution which has been approved by the NIGC;

o an Indian tribe has sole proprietary interest and responsibility for
the conduct of gaming;

o the primary management officials and key employees are tribally
licensed; and

o several other requirements are met.

Class III gaming is permitted on Indian lands if the conditions applicable
to Class II gaming are met and, in addition, the gaming is conducted in
conformance with the terms of a tribal-state compact (a written agreement
between the tribal government and the government of the state within whose
boundaries the tribe's lands lie).

Under the Indian Gaming Regulatory Act of 1988, regulated gaming by an
Indian tribe is permitted only if the casino is located on an Indian reservation
or land held by the United States in trust for the nation (or subject to similar
restrictions on transfer), and only if that tribe exercises governmental powers
over the casino site. That same Act, however, generally prohibits gaming on land
acquired in trust after October 17, 1988. A tribe can overcome the gaming
prohibition if one of the exceptions provided in Section 20 of the Indian Gaming
Regulatory Act of 1988 applies. We believe that two exceptions to the general
prohibition of gaming on newly acquired trust lands are available to the St.
Regis Mohawk Tribe. The so-called two part determination exception permits
gaming on land taken into trust after October 17, 1988 if, after consultation
with the tribe and applicable state, local and other nearby tribal officials,
the Secretary of the Interior determines that a gaming establishment on newly
acquired land would be in the best interest of the tribe and its members, and
would not be detrimental to the surrounding community, but only if the Governor
of the applicable State concurs. Another exception to the general prohibition of
gaming on newly acquired trust lands is the exception that allows gaming on
lands taken into trust as part of a settlement of a land claim.

TRIBAL-STATE COMPACTS. The Indian Gaming Regulatory Act of 1988, as
amended, requires states to negotiate in good faith with Indian tribes that seek
to enter into tribal-state compacts for the conduct of Class III gaming. Such
tribal-state compacts may include provisions for the allocation of criminal and
civil jurisdiction between the state and the Indian tribe necessary for the
enforcement of such laws and regulations, taxation by the Indian tribe of gaming
activities in amounts comparable to those amounts assessed by the state for
comparable activities, remedies for breach of compacts, standards for the
operation of gaming and maintenance of the gaming facility, including licensing
and any other subjects that are directly related to the operation of gaming
activities. While the terms of tribal-state compacts vary from state to state,
compacts within one state tend to be substantially similar. Tribal-state
compacts usually specify the types of permitted games, establish technical
standards for gaming, set maximum and minimum machine payout percentages,
entitle the state to inspect casinos, require background investigations and
licensing of casino employees and may require the tribe to pay a portion of the
state's expenses for establishing and maintaining regulatory agencies. Some
tribal-state compacts are for set terms, while others are for indefinite
duration.

Our jointly developed Indian casino resort would therefore be subject to
the requirements and restrictions contained in the compact with the State of New
York. An outline of the basic terms for this compact is set forth in the
proposed Tribal-State Compact between the St. Regis Mohawk Tribe and the State
of New York governing Class III Gaming in Sullivan County. Pursuant to the terms
of this document, the tribe would be permitted to develop a tribal casino in the
Town of Thompson in Sullivan County, New York that will permit the operation of
slot machines, but not VGMs, for an initial term of 14 years, with an automatic
seven year renewal and shall provide the tribe, along with certain other Indian
tribes, the exclusive right to operate slot machines in the counties of Bronx,
Delaware, Greene, Kings, New York, Orange, Queens, Richmond, Rockland, Sullivan,
Ulster and Westchester (which includes all of New York City). Under the proposed
compact, the tribe is required to contribute 20% of its slot machine net revenue
to the State of New York during the first two years of operation, with such
contribution subsequently increasing to 25%. The St. Regis Mohawk Tribe must
commence gaming operations within 24 months of receiving all requisite state and
federal approvals. Finally, the tribe agreed to collect and remit to the State
of New York, all state and local taxes in connection with all sales made by
vendors with respect to the gaming facility of alcoholic beverages, cigarettes,
tobacco products, gas and all other personal property and services sold to non
members of the tribe. This compact, however, does not become effective until the
enactment of federal and state legislation and tribal resolutions that formally
implement its terms.

There is an existing compact between the St. Regis Mohawk Tribe and the
State of New York, which was amended on February 19, 2007 to incorporate terms
relevant to the project at Monticello Raceway under existing legislation. This
compact, however, does not become effective until the enactment of federal and
state legislation and tribal resolutions that formally implement its terms. The
following is a summary of certain terms of the compact between the St. Regis
Mohawk Tribe and the State of New York, as amended:

o The St. Regis Mohawk Tribe may establish one gaming facility within
Town of Thompson in Sullivan County, New York.

o The St. Regis Mohawk Tribe shall commence construction of a permanent
gaming facility within 180 days of the latter of the effective date of
the compact or when a qualifying parcel is acquired or accepted by the
Secretary of the Interior in trust for the benefit of the St. Regis
Mohawk Tribe; and commence Class III gaming activities within a
permanent gaming facility on such site within 24 months of the latter
of the effective date of the compact or when a qualifying parcel is
acquired or accepted by the Secretary of the Interior in trust for the
benefit of the St. Regis Mohawk Tribe.

o The St. Regis Mohawk Tribe is specifically authorized to conduct Class
III gaming including slot machines ,baccarat, bang, beat the dealer,
best poker hand, blackjack, Caribbean stud poker, chuck-a-luck, craps,
gaming devices, hazard, joker seven, keno, let it ride poker,
minibaccarat, pai gow poker, red dog, roulette, sic bo, super pan,
under and over seven, wheel games, casino war, Spanish blackjack,
multiple action blackjack and three card poker.

o The compact provides for a term of 14 years following the commencement
of gaming activities, unless renewed or terminated as provided in the
compact. The compact allows for automatic renewal unless objected to by
the State of New York. Video lottery terminals are not permitted.

o The St. Regis Mohawk Tribe will provide reasonable access to the Class
III gaming and related facilities to labor union organizers and for
union purposes and shall enter into an agreement with the New York
Hotel & Motel Trades Council for the unionization of certain employees.

o The St. Regis Mohawk Tribe, along with certain other Indian tribes,
receives the exclusive right to operate slot machines in the counties
of Bronx, Delaware, Greene, Kings, New York, Orange, Queens, Richmond,
Rockland, Sullivan, Ulster and Westchester.

o New York State would receive 20 percent of slot-machine revenues for
the first two years after the St. Regis Mohawk Tribe's Class III casino
to be located at Monticello Raceway opens, 23 percent for the next two
years and 25 percent thereafter

o The St. Regis Mohawk Tribe shall collect and remit to the State of New
York all state and local taxes in connection with all sales made by
vendors with respect to the gaming facility of alcoholic beverages,
cigarettes, tobacco products, gas and all other personal property and
services sold to non members of the tribe.

o The St. Regis Mohawk Tribe waives any defense that it may have by
virtue of sovereign immunity with respect to any action brought in
United States District Court to enforce an arbitration award under the
compact.

o The St. Regis Mohawk Tribe and the State of New York will establish a
method of non-judicial dispute resolution. The parties shall meet to
negotiate in good faith any unresolved disputes which are to be settled
by arbitration. The decision of the arbitrator shall be final, binding
and not subject to appeal. For breaches of the compact, the arbitrator
may impose as a remedy only specific performance. Either party may seek
a temporary restraining order or preliminary injunction in accordance
with the Indian Gaming Regulatory Act and either party may bring an
action in the United States District Court of the Northern District of
New York to enforce the arbitrator's decision and award.

In addition to the Indian Gaming Regulatory Act of 1988, as amended,
tribally-owned gaming facilities on Indian land are subject to a number of other
federal statutes. The operation of gaming on Indian land is dependent upon
whether the law of the state in which the casino is located permits gaming by
non-Indian entities, which may change over time.

COMPETITION

MONTICELLO RACEWAY

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

MONTICELLO GAMING AND RACEWAY

The primary competition for Monticello Gaming and Raceway is expected to
be from two racetracks located within the New York City metropolitan area,
Yonkers Raceway and Aqueduct Raceway. Yonkers Raceway re-opened during the
fourth quarter of 2006. It appears that the VGM facility at Aqueduct Raceway
will not be opened until at least late 2007. In addition, proposals have been
made for the implementation of a similar program in New Jersey, which would
include a facility at the Meadowlands Racetrack.

In July 2004, Pennsylvania enacted a law legalizing the operation of up to
61,000 slot machines at 14 locations throughout the state. The holders of horse
racing licenses in Pennsylvania may apply for 7 of the 14 licenses to operate
slot machines at their racetracks while the other 7 locations have yet to be
identified. On January 25, 2005, the Mohegan Tribal Gaming Authority acquired
Pocono Downs Racetrack and five off-track wagering operations. Pocono Downs
Racetrack opened in January 2007 with approximately 3,000 machines. Pocono Downs
Racetrack is located in Wilkes-Barre, Pennsylvania, approximately 75 miles
southwest of Monticello.

COMPETING CASINOS AND PROPOSED CASINO PROJECTS

The Stockbridge Munsee Band of Mohicans, currently located in Wisconsin,
asserting aboriginal roots in New York State, has applied for approval to
develop an Indian casino in the Catskills region of the State of New York. Their
partner, Trading Cove Associates, Inc., developers of the successful Mohegan Sun
casino in Connecticut, has purchased an option on 300 acres as a potential site
on which to build a $600 million hotel and casino on a site approximately 5
miles east of Monticello Raceway.

In November of 2004, a number of other Indian tribes entered into
agreements with the State of New York with respect to land claims against the
State. As in the case of the St. Regis Mohawk Tribe, these agreements also
require state and federal legislation to be enacted in order to implement their
provisions.

In November 2004, the Stockbridge Munsee Band of Mohicans entered into an
Agreement of Settlement and Compromise to resolve certain land claims against
the State of New York. In return, the State of New York agreed to negotiate and
enter into a mutually satisfactory gaming compact (subject to the review and
approval of the Secretary of Interior of the United States) that will authorize
the Stockbridge Munsee Band of Mohicans to operate a Class III gaming facility
in the Catskills region of the State of New York and to fully support all
regulatory approvals required for such facility. Such parcel of land will be
Indian Country under 18 U.S.C. ss.1151.

In November 2004, the Wisconsin Oneidas entered into an Agreement of
Settlement and Compromise to resolve certain land claims against the State of
New York. In return, the State of New York agreed to negotiate and enter into a
mutually satisfactory gaming compact (subject to the review and approval of the
Secretary of Interior of the United States) that will authorize the Wisconsin
Oneidas to operate a Class III gaming facility in the Catskills region of the
State of New York and to fully support all regulatory approvals required for
such facility.

It is unlikely, however, that the development of these other casinos in
the Catskills region of the State of New York will be able to occur in the near
future. The legislation introduced in 2005 to implement these proposed
settlements was not enacted by the New York State Legislature. Other New York
based federally recognized Indian tribes or tribes with historical ties to New
York have expressed interest in operating casinos in the Catskills region of the
State of New York, but none has submitted applications to the BIA for such
purpose. Two of these, the Oneida Nation of New York and the Seneca Nation, have
already been active in the development of casinos in Western New York. In July
1993, the Oneida Nation of New York opened "Turning Stone," a casino featuring
24-hour table gaming and electronic gaming machines with approximately 90,000
square feet of gaming space, near Syracuse, New York. In October 1997, the
facility expanded to include a hotel, expanded gaming facilities, a golf course
and a convention center. Turning Stone is completing an additional expansion
consisting of 50,000 square feet of gaming space, additional hotel rooms,
additional golf courses and a water park. The Seneca Nation completed its
negotiations with New York State and, on January 1, 2003, opened a casino in
Niagara Falls, New York. The casino offers full Las Vegas style gambling with
slot machines and table games. Although the Oneida Nation and the Seneca Nation
have expressed interest in operating a casino in the Catskills region of the
State of New York and have been engaged in preliminary development work, neither
has publicly identified a site, submitted federal applications or entered into a
settlement agreement with the State of New York.

In February 1992, the Mashantucket Pequot Nation opened Foxwoods Resorts
Casino, a casino hotel facility in Ledyard, Connecticut (located in the far
eastern portion of such state), an approximately two and one-half hour drive
from New York City and an approximately two and one-half hour drive from Boston,
Massachusetts, which currently offers 24-hour gaming and contains approximately
7,400 slot machines, 380 table games and over 1,400 rooms and suites, 26
restaurants, 19 retail stores, entertainment and a year-round golf course. Also,
a high-speed ferry operates seasonally between New York City and Foxwoods Resort
and Casino. The Mashantucket Pequot Nation has also announced plans for a

high-speed train linking Foxwoods Resort and Casino to the interstate highway
and an airport outside Providence, Rhode Island.

In December 2006, the Mashantucket Pequot Nation announced that they had
signed agreements with a major casino company, MGM Mirage, to collaborate on a
major destination hotel/casino resort adjacent to the existing Foxwoods facility
and other development activities. The new facility will be known as the "MGM
Grand at Foxwoods" and is expected to open in Spring 2008 and will operate
subject to a long term licensing agreement.

In October 1996, the Mohegan Nation opened the Mohegan Sun casino in
Uncasville, Connecticut, located 10 miles from Foxwoods Resort and Casino. The
Mohegan Sun casino has approximately 6,400 slot machines and 300 table games,
off-track betting, bingo, 30 food and beverage outlets, and retail stores and
completed the first phase of an expansion project that included a 115,000 square
foot casino, a 10,000 seat arena, 40 retail shops, dining venues and two
additional parking garages, accommodating up to 5,000 cars, in September 2001.
The second phase included a 1,200 hotel guest room 34 story tower with
convention facilities and a spa and opened in the summer of 2002.

A number of groups are seeking to become federally-recognized Indian
tribes in order operate casinos near the New York metropolitan area. There have
been periodic proposals for locating an Indian casino in the City of Bridgeport,
Connecticut. Should a federally-recognized tribe be successful in doing so, it
would have an economic impact on any casinos in the Catskills region of the
State of New York since Bridgeport is close to a large portion of the New York
metropolitan area. In addition, the Shinnecock Indian Nation, a state-recognized
Indian tribe, is attempting to construct a casino in Southampton, New York. The
Shinnecocks take the position that because they are state-recognized, but not
federally recognized, they have the right to engage in gaming free of state
regulation and without the restrictions imposed by the Indian Gaming Regulatory
Act (including the need for a gaming compact). The Shinnecocks broke ground on
their casino on June 30, 2003, but the State of New York brought suit against
the Shinnecocks, and a federal district court enjoined the Shinnecocks from
moving ahead with their casino because they are not a federally recognized
tribe. The court initially stayed the case for 18 months so that a decision on
the Shinnecocks' request for federal recognition could be made, but later
determined that the request could take the federal government several years to
process, and agreed to move toward trial on the issue of whether the
Shinnecocks, as a state-recognized tribe, are immune from the state's lawsuit.
No trial date has been scheduled, but if the court determines that the
Shinnecocks are immune from the suit, the injunction may be lifted and the
Shinnecocks may move ahead with their casino in Southampton. Should the
Shinnecocks operate a gaming facility in Southampton, New York, which is
approximately 90 miles from New York City, it is expected to have some level of
economic impact on any casino in the Catskills region of the State of New York.

In Atlantic City there are currently more than 10 casino hotels. Moreover,
substantial new expansion and development activity has recently been completed,
is under construction, or has been announced in Atlantic City, including the
summer of 2003 opening of the Borgata Casino developed by MGM Mirage and Boyd
Gaming and the expansions at Harrah's, Tropicana and Showboat.

Legislation permitting other forms of casino gaming is proposed, from time
to time, in various states, including those bordering the State of New York. Six
states have legalized riverboat gambling while others are considering its
approval. Several states are also considering, or have approved, large-scale
land-based VGM operations based at their state's racetracks. The business and
operations of Monticello Raceway could be adversely affected by such
competition, particularly if casino and/or video gaming is permitted in
jurisdictions close to New York City. Currently, casino gaming, other than
Indian gaming, is not allowed in New York, Connecticut or in areas of New Jersey
outside of Atlantic City. However, proposals were introduced to expand legalized
gaming in each of those locations and in Pennsylvania.

EMPLOYEES

As of March 8, 2007, we and our subsidiaries employed approximately 370
people.

ITEM 1A. RISK FACTORS.

RISKS RELATED TO OUR BUSINESS

IF REVENUES AND OPERATING INCOME FROM OUR VGMS AT MONTICELLO RACEWAY DO
NOT INCREASE OR IF WE ARE UNABLE TO DEVELOPA SUCCESSFUL INDIAN CASINO, IT
COULD ADVERSELY AFFECT OUR ABILITY TO SERVICE OUR OUTSTANDING DEBT.

Our ability to service our senior secured convertible notes or loans under
our credit facility with Bank of Scotland will depend upon the success of our
VGM facility, our ability to successfully develop and manage an Indian casino
for the St. Regis Mohawk Tribe and our ability to attract sufficient attendance.

There can be no assurance that VGMs will draw sufficiently large crowds to
Monticello Raceway to increase local wagering to the point that we will realize
a profit. The operations and placement of our VGMs, including the layout and
distribution, are under the jurisdiction of the New York State Lottery and the
program contemplates that a significant share of the responsibility for
marketing the program will be borne by the New York State Lottery. The New York
State Lottery may make decisions that we feel are not in our best interest and,
as a consequence, the profitability of our VGM operations may not reach the
levels that we believe to be feasible or may be slower than expected in reaching
those levels. Until recently, our VGM operations were losing money, as we are
only permitted to retain 32% of the first $50 million of our VGM revenue, 29% of
the next $100 million of our VGM revenue and 26% our VGM gross revenue in excess
of $150 million. Moreover, the legislation authorizing the implementation of
VGMs at Monticello Raceway expires in 2013, prior to the stated maturity of our
senior secured notes, and no assurance can be given that the authorizing
legislation will be extended beyond this period. Similarly, the development of
our proposed Indian casino is subject to many regulatory, competitive, economic
and business risks beyond our control, and there can be no assurance that it
will be developed in a timely manner, or at all. Any failure in this regard
could have a material adverse impact on our operations and our ability to
service our debt obligations.

AS A HOLDING COMPANY, WE ARE DEPENDENT ON THE OPERATIONS OF OUR
SUBSIDIARIES TO PAY DIVIDENDS OR MAKE DISTRIBUTIONS IN ORDER TO GENERATE
INTERNAL CASH FLOW.

We are a holding company with no revenue generating operations.
Consequently, our ability to meet our working capital requirements, to service
our debt obligations (including under our senior secured notes or the Bank of
Scotland credit facility), depends on the earnings and the distribution of funds
from our subsidiaries. There can be no assurance that these subsidiaries will
generate enough revenue to make cash distributions in an amount necessary for us
to satisfy our working capital requirements or our obligations under our senior
secured notes or the Bank of Scotland credit facility. In addition, these
subsidiaries may enter into contracts that limit or prohibit their ability to
pay dividends or make distributions. Should our subsidiaries be unable to pay
dividends or make distributions, our ability to meet our ongoing obligations
would be jeopardized. Specifically, without the payment of dividends or the
making of distributions, we would be unable to pay our employees, accounting
professionals or legal professionals, all of whom we rely on to manage our
operations, ensure regulatory compliance and sustain our public company status.

CHANGES IN THE LAWS, REGULATIONS, AND ORDINANCES (INCLUDING TRIBAL AND/OR
LOCAL LAWS) TO WHICH THE GAMING INDUSTRY IS SUBJECT, AND THE APPLICATION OF
EXISTING LAWS AND REGULATIONS, OR OUR INABILITY OR THE INABILITY OF OUR KEY
PERSONNEL, SIGNIFICANT STOCKHOLDERS, OR JOINT VENTURE PARTNERS TO OBTAIN OR
RETAIN REQUIRED GAMING REGULATORY LICENSES, COULD PREVENT THE COMPLETION OF OUR
CURRENT CASINO DEVELOPMENT PROJECTS, PREVENT US FROM PURSUING FUTURE DEVELOPMENT
PROJECTS, FORCE US TO DIVEST THE HOLDINGS OF A STOCKHOLDER FOUND UNSUITABLE BY
ANY FEDERAL, STATE, REGIONAL OR TRIBAL GOVERNMENTAL BODY OR OTHERWISE ADVERSELY
IMPACT OUR RESULTS OF OPERATION.

The ownership, management and operation of gaming facilities are and will
be subject to extensive federal, state, provincial, tribal 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. These laws, regulations and ordinances may also affect
the operations of our gaming facilities or our plans in pursuing future
projects.

Licenses that we and our officers, directors and principal stockholders
are subject to generally expire after a relatively short period of time and thus
require frequent renewals and reevaluations. Obtaining these licenses in the
first place, and for purposes of renewals, normally involves receiving a
subjective determination of "suitability." A finding of unsuitability could lead
to a material loss of investment by either us or our stockholders, as it would
require divestiture of one's direct or indirect interest in a gaming operator
that conducts business in the licensing jurisdiction making the determination of
unsuitability. Consequently, should we or any stockholder ever be found to be
unsuitable by the federal government, the State of New York or the St. Regis
Mohawk Tribe, to own a direct or indirect interest in a company with gaming
operations, we or such stockholder, as the case may be, could be forced to
liquidate all interests in that entity. Should either we or such stockholder be
forced to liquidate these interests within a relatively short period of time, we
or such stockholder would likely be forced to sell at a discount, causing a
material loss of investment value.

During 2002, certain affiliates of Bryanston Group, Inc. ("Bryanston
Group"), our former largest stockholder, and six of our former officers and
directors were indicted for various counts of tax and bank fraud. On September
5, 2003, one of these former directors pleaded guilty to felony tax fraud, and
on February 4, 2004, four additional former officers and directors were
convicted of tax and bank fraud. None of the acts these individuals were charged
with or convicted of relate to their former positions with or ownership
interests in us and their remaining interests do not provide them with any
significant control in the management of the Company. However, there can be no
assurance that none of the various governmental agencies that now, or in the
future may, regulate and license our gaming related activities will factor in
these indictments or criminal acts in evaluating our suitability. Should a
regulatory agency fail to acknowledge that these indictments and convictions do
not bear on our suitability, we could lose our gaming licenses or be forced to
liquidate certain or all of our gaming interests.

We received a letter from the New York State Racing and Wagering Board on
January 16, 2006, requesting information about our plans to divest Bryanston
Group and its affiliates of their remaining interests in us. We have advised the
New York State Racing and Wagering Board that approximately one-half of the
ownership of Bryanston has been forfeited to the United States as a result of
the convictions referred to above. According to the terms of our Series E
preferred stock, we have the option to redeem these shares at a price of $10 per
share plus all accrued and unpaid dividends. The cost of redeeming these shares,
as of December 31, 2006, was approximately $22.9 million. We may not be able to
obtain sufficient financing in amounts or on terms that are acceptable to us in
order to redeem all of these shares, should this be required.

THE GAMING INDUSTRY IN THE NORTHEASTERN UNITED STATES IS HIGHLY
COMPETITIVE, WITH MANY OF OUR COMPETITORS BETTER KNOWN AND BETTER FINANCED
THAN US.

The gaming industry in the northeastern United States is highly
competitive and increasingly run by multinational corporations or Indian tribes
that enjoy widespread name recognition, established brand loyalty, decades of
casino operation experience and a diverse portfolio of gaming assets. Atlantic
City, the second most popular gaming destination in the United States, with more
than 10 full service hotel casinos, is approximately a two hour drive from New
York City, the highly popular Foxwoods Resort and Casino and the Mohegan Sun
casino are each only two and a half hour drives from New York City. Harrah's
Entertainment, Inc., a large gaming company, Trading Cove Associates, Inc., the
developers of the Mohegan Sun casino, and the Wisconsin Oneidas are each
planning to develop Indian casinos on properties that are near Monticello
Raceway. Additionally, on July 4, 2004, the State of Pennsylvania enacted a law
allowing for the operation of up to 61,000 slot machines at 14 locations.
Pursuant to this new law, slot machine facilities could be developed within 30
miles of Monticello Raceway that would compete directly with our VGMs. One such
development, the Mohegan Sun at Pocono Downs, opened in January, 2007 in
Wilkes-Barre, Pennsylvania, approximately 75 miles southwest of Monticello.
Moreover, a number of well financed Indian tribes and gaming entrepreneurs are
presently seeking to develop casinos in New York and Connecticut in areas that
are 90 miles from New York City such as Bridgeport, Connecticut and Southampton,
New York. In contrast, we have limited financial resources and currently operate
only a harness horse racing facility and VGMs in Monticello, New York, which is
approximately a one and a half hour drive from New York City. No assurance can
be given that we will be able to compete successfully with the established
Atlantic City casinos, existing and proposed regional Indian casinos, slot
machine facilities in Pennsylvania or the casinos proposed to be developed by
Harrah's Entertainment, Inc., Trading Cove Associates, Inc. and the Wisconsin
Oneidas in the Catskills region of the State of New York for gaming customers.

BECAUSE OF THE UNIQUE STATUS OF INDIAN TRIBES, GENERALLY, OUR ABILITY
TO SUCCESSFULLY DEVELOP AND MANAGE OUR PROPOSED INDIAN CASINO WILL BE SUBJECT
TO UNIQUE RISKS.

We have limited experience in managing or developing Indian casinos, which
presents unique challenges. Indian tribes are sovereign nations and possess the
inherent power to adopt laws and regulate matters within their jurisdiction. For
example, tribes are generally immune from suit and other legal processes unless
they waive such immunity. Gaming at a casino developed with the St. Regis Mohawk
Tribe will be operated on behalf of such tribe's government, and that government
is subject to changes in leadership or governmental policies, varying political
interests, and pressures from the tribe's individual members, any of which may
conflict with our interests. Thus, disputes between ourselves and the St. Regis
Mohawk Tribe may arise. With respect to disputes concerning our existing gaming
facility management agreement and development agreement with the St. Regis
Mohawk Tribe, the St. Regis Mohawk Tribe has waived its sovereign immunity,
although if for any reason that waiver should be ineffective, we might be unable
to enforce our rights under such agreement. Also, it is possible that we might
be required to seek enforcement of our rights in a court or other dispute
resolution forum of the St. Regis Mohawk Tribe, instead of state or federal
courts or arbitration. As discussed below, until the gaming facility management
agreement has been approved by the NIGC and by the St. Regis Mohawk Tribe, the
operative provisions of that agreement will not be valid or binding on the
applicable tribe, and under relevant federal court precedent, it is likely that
some or all of our other agreements with such tribe will also be inoperative
until such gaming facility management agreement has been approved by the NIGC.

Indian gaming is also governed by unique laws, regulations and
requirements arising from the Indian Gaming Regulatory Act of 1988, as amended,
any applicable Class III gaming compact, and gaming laws of the applicable
Indian tribe, and certain federal Indian law statutes or judicial principles. A
number of examples exist where Indian tribes have been successful in obtaining
determinations that management-related contracts (including development or
consulting contracts) were void as a result of the application of the unique
provisions of these laws. For all of the foregoing and other reasons, we may
encounter difficulties in successfully developing and managing an Indian casino
with the St. Regis Mohawk Tribe. Several companies with gaming experience that
have tried to become involved in the management and/or development of Indian
casinos have been unsuccessful. Due to our management's limited Indian gaming
experience, no assurance can be given that we will be able to avoid the pitfalls
that have befallen other companies in their efforts to develop successful Indian
gaming operations.

GAMING IS A HIGHLY REGULATED INDUSTRY AND CHANGES IN THE LAW COULD HAVE
A MATERIAL ADVERSE EFFECT ON US AND OUR ABILITY TO CONDUCT GAMING, AND THUS
ON OUR ABILITY TO MEET OUR DEBT SERVICE OBLIGATIONS.

Indian casinos in New York are regulated extensively by federal, state and
tribal regulatory bodies, including the NIGC and agencies of the State of New
York. As is the case with any casino, changes in applicable laws and regulations
could limit or materially affect the types of gaming that may be conducted, or
services provided, by our planned casino and the revenues realized from it.

Currently, the operation of all gaming on Indian lands is subject to the
Indian Gaming Regulatory Act. Over the past several years, legislation has been
introduced in the United States Congress with the intent of addressing a variety
of perceived problems with the Indian Gaming Regulatory Act. Specifically,
legislation has been proposed which would have the effect of prohibiting the
operation of particular classes of gaming on parcels of land, such as ours, that
are not located on existing Indian reservations. While none of the substantive
proposed amendments to the Indian Gaming Regulatory Act have been enacted, we
cannot predict future legislative acts. In the event that Congress passes
prohibitory legislation, and if such legislation is sustained in the courts, we
may be unable to move forward in developing our planned Indian casino and our
ability to meet our debt service obligations would be materially and adversely
affected. In addition, under federal law, gaming on Indian land is dependent on
the permissibility under state law of specific forms of gaming or similar
activities. If the State of New York were to make various forms of gaming
illegal or against public policy, such action may have an adverse effect on our
ability to develop Indian gaming operations in the Catskills region of the State
of New York.

A TRANSFER OF A PROPOSED CASINO SITE TO THE UNITED STATES, TO BE HELD IN
TRUST FOR THE BENEFIT OF THE ST. REGIS MOHAWK TRIBE MIGHT NOT OCCUR OR MAY BE
DELAYED FOR A SUBSTANTIAL PERIOD OF TIME; AND UNTIL SUCH A TRANSFER OCCURS, IT
WILL NOT BE POSSIBLE FOR THE ST. REGIS MOHAWK TRIBE TO OPERATE A CASINO IN THE
CATSKILLS REGION OF THE STATE OF NEW YORK FOR US TO MANAGE.

Under the Indian Gaming Regulatory Act of 1988, as amended, the St. Regis
Mohawk Tribe will be able to operate a casino in the Catskills region of the
State of New York only if the casino is located on land held by the United
States in trust for the tribe (or subject to similar restrictions on transfer),
and only if such tribe exercises governmental powers over the casino site. That
same Act, however, generally prohibits Indian casinos on land transferred into
trust after October 17, 1988, subject to certain exceptions, one of which is
being pursued by the St. Regis Mohawk Tribe, without any assurance that it will
be obtained.

The exception being pursued by the St. Regis Mohawk Tribe permits land to
be transferred after October 17, 1988, if, after consultation with the tribe and
applicable state, local and other nearby tribal officials, the Secretary of the
Interior (who acts through the Bureau of Indian Affairs (the "BIA")) determines
that a gaming establishment on the land proposed for transfer would be in the
best interest of the tribe and its members, and would not be detrimental to the
surrounding community, and the Governor of the applicable State concurs in such
determination. To date, the instances are very limited where this exception has
been successful for off-reservation land, particularly in circumstances where
the land to be placed in trust is located a substantial distance from the
ancestral lands or reservation of a tribe. While the St. Regis Mohawk Tribe has
certain ancestral ties to the Catskills region of New York, the region is a
substantial distance from land recognized to be a part of the Tribe's current
reservation. Nevertheless, we were advised that on December 21, 2006 the St.
Regis Mohawk Tribe received a letter from the Secretary of the Interior stating
that the St. Regis Mohawk Tribe's Final Environmental Assessment had been deemed
sufficient, that an Environmental Impact Study would not be required, and that a
FONSI related to the proposed federal action approving the request of the St.
Regis Mohawk Tribe to take 29.31 acres into trust for the purpose of building a
Class III gaming facility to be located at Monticello Raceway, in accordance
with the Indian Gaming Regulatory Act of 1988 had been issued. On February 19,
2007, New York Governor Eliot Spitzer issued his concurrence with this
determination by the Secretary of the Interior and signed the amendment to the
Class III gaming compact between the St. Regis Mohawk Tribe and the State of New
York. Such amendment to the gaming compact between the St. Regis Mohawk Tribe
and New York State effecting the Land-to-Trust Transfer must be reviewed and
approved by the BIA and the BIA must take the necessary administrative action to
effect the Land-to-Trust Transfer. No assurance can be given that the BIA will
provide such approval or take the necessary administrative action to effect the
Land-to Trust Transfer.

IF OUR GAMING FACILITY MANAGEMENT AGREEMENT IS NOT APPROVED BY THE
NIGC, WE WILL NOT BE ABLE TO EXECUTE OUR CURRENT BUSINESS PLAN OF DEVELOPING
AND MANAGING AN INDIAN CASINO.

Our agreement with the St. Regis Mohawk Tribe will not be effective to
allow us to commence the development or management of a gaming facility until
our management agreement is first approved by the NIGC, and that approval might
not be obtained or might be obtained only after we agree to modify terms that
either reduce our revenues under the agreement or otherwise adversely affect us.

No management contract for tribally operated Class II or Class III gaming
is valid until approved by the NIGC, and under current case law in New York,
provisions of any agreement collateral to a management contract, such as our
development agreement, are likewise not valid until the management agreement is
so approved. The NIGC has broad discretion to approve or reject proposed
management contracts, and by law the NIGC can approve management fees exceeding
30% of related net gaming revenues only if the Chairman of the NIGC is satisfied
that the capital investment required, and income projections, require the
additional fee. The St. Regis Mohawk Tribe has agreed to pay us a 30% management
fee, as well as other compensation under the development agreement. Our gaming
facility management agreement with the St. Regis Mohawk Tribe had been under
review with the NIGC for approximately 3 1/2 years when, in 2000, the St. Regis
Mohawk Tribe renounced their agreements with us and entered into an agreement
with Park Place Entertainment Corporation (now Harrah's Entertainment, Inc.).
Consequently, our request for review by the NIGC of the gaming facility
management agreement was subsequently withdrawn. On August 1, 2005, we entered
into a letter agreement with the St. Regis Mohawk Tribe pursuant to which, among
other items, both parties re-affirmed their prior contracts. In March 2006, we
re-submitted a gaming facility management agreement to the NIGC, which contained
revisions to address certain comments made by the NIGC in their prior reviews.
No assurance can be given that the NIGC will approve the gaming facility
management agreement, as amended, or that further modifications to such
agreement will not be required prior to the NIGC granting approval. Such
modifications could include a material reduction in the management fees or other
compensation we have negotiated with the St. Regis Mohawk Tribe. As amended, and
approved by the NIGC, the gaming facility management agreement will require
formal approval by the St. Regis Mohawk Tribe before such agreement becomes

effective. We cannot guarantee that the St. Regis Mohawk Tribe will approve the
amended gaming facility management agreement in order to obtain approval from
the NIGC.

A CLASS III GAMING COMPACT BETWEEN THE STATE OF NEW YORK AND THE ST.
REGIS MOHAWK TRIBE MUST BE NEGOTIATED AND BECOME EFFECTIVE BEFORE SUCH TRIBE
CAN OPERATE A CASINO FOR US TO MANAGE.

The St. Regis Mohawk Tribe can not lawfully engage in Class III gaming in
the Catskills region of the State of New York unless such tribe and the Governor
for the State of New York enter into a Class III gaming compact for such gaming
that is approved or deemed approved by the Secretary of the Interior. Although
courts have invalidated two other Class III gaming compacts between New York
tribes and the State of New York due to lack of legislative authority, the
Governor has received requisite legislative authorization to enter into a Class
III gaming compact with the St. Regis Mohawk Tribe in the Catskills region of
the State of New York. Such gaming compacts will not be entered into until the
appropriate land has been taken into trust by the United States for the benefit
of such tribe. On February 19, 2007, the St. Regis Mohawk Tribe and the State of
New York entered into an amendment to their compact for Class III gaming,
pursuant to which, among other things, New York State would receive 20 percent
of slot-machine revenues for the first two years after the Tribe's Class III
casino to be located at Monticello Raceway opens, 23 percent for the next two
years and 25 percent thereafter.

Pursuant to the Indian Gaming Regulatory Act of 1988, the compact for
Class III gaming entered into by the State of New York and the St. Regis Mohawk
Tribe does not become effective until an approval of the compact by the
Secretary of the Interior has been published in the Federal Register.
Additionally, the compact could become effective, but only to the extent it is
consistent with the Indian Gaming Regulatory Act of 1988, upon publication of a
notice in the Federal Register that forty-five days have elapsed after the
compact was submitted for approval to the Secretary of the Interior and the
Secretary of the Interior neither approved nor disapproved the compact. No
assurance can be given that the Secretary of the Interior will approve the terms
of any compact agreed to by the St. Regis Mohawk Tribe and the State of New
York. In particular, the existence of revenue sharing provisions in a compact by
which a state receives a share of tribal gaming revenues has provided a basis
for the Secretary of the Interior to disapprove a compact. The Indian Gaming
Regulatory Act of 1988 generally prohibits a state from imposing a tax on tribes
for the privilege of conducting gaming in the state. The Seneca Nation-State of
New York gaming compact that governs the Seneca Niagara Falls Casino, for
example, was neither approved nor disapproved within the required 45-day period,
and therefore became effective upon publication of a notice in the Federal
Register. In the letter to the Seneca Nation and the Governor of New York, the
Secretary of the Interior stated that the State of New York's right to receive
up to 25% of gross gaming revenues was primarily based on the State of New
York's grant of an extensive area in which the Seneca Nation would have broad
exclusive gaming rights. If the Secretary of the Interior disapproves any agreed
upon compact, the compact will not become effective and the St. Regis Mohawk
Tribe will not be able to conduct gaming under its terms. Since 2003, a bill has
been pending in Congress that would limit a State's right to share in a tribe's
gaming revenues unless the State provided the tribe a "substantial economic
benefit." We cannot predict if this or other legislation will be enacted or, if
enacted, would prevent a gaming compact between the St. Regis Mohawk Tribe and
the State of New York.

WE MAY REQUIRE ADDITIONAL FINANCING IN ORDER TO DEVELOP OUR PROPOSED
INDIAN CASINO AND WE MAY BE UNABLE TO MEET OUR FUTURE CAPITAL REQUIREMENTS
AND EXECUTE OUR BUSINESS STRATEGY.

Because we may not be able to continue to generate sufficient cash to fund
our operations, we may be forced to rely on external financing to develop our
Indian casino project and to meet future capital and operating requirements. Any
projections of future cash needs and cash flows are subject to substantial
uncertainty. Our capital requirements depend upon several factors, including the
rate of market acceptance, our ability to expand our customer base and increase
revenues, our level of expenditures for marketing and sales, purchases of
equipment, revenues and other factors. If our capital requirements vary
materially from those currently planned, we may require additional financing
sooner than anticipated. We can make no assurance that financing will be
available in amounts or on terms acceptable to us or within the limitations
contained in our credit facility with Bank of Scotland or the indenture
governing our senior secured convertible notes, if at all. Further, if we issue
equity securities, stockholders may experience additional dilution or the new
equity securities may have rights, preferences or privileges senior to those of
existing holders of common stock, and debt financing, if available, may involve
restrictive covenants which could restrict our operations or finances. If we
cannot raise funds, if needed, on acceptable terms, we may be required to delay,
scale back or eliminate some of our expansion and development goals related to

the casino projects and we may not be able to continue our operations, 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.

In addition, the construction of the Indian casino project may depend upon
the ability of the St. Regis Mohawk Tribe to obtain financing for the project.
In order to assist the St. Regis Mohawk Tribe to obtain any such financing, we,
or one of our subsidiaries, may be required to guarantee the St. Regis Mohawk
Tribe's debt obligations. Any guarantees by us or one of our subsidiaries or
similar off-balance sheet liabilities, if any, will increase our potential
exposure in the event of a default by the St. Regis Mohawk Tribe.

OUR MANAGEMENT REVENUES FROM OUR PROPOSED INDIAN CASINO MAY BE
ADVERSELY AFFECTED BY MATTERS ADVERSE TO THE ST. REGIS MOHAWK TRIBE THAT ARE
UNRELATED TO US.

When constructed, our proposed Indian casino site will be either owned by
the St. Regis Mohawk Tribe, or held by the United States in trust for the
benefit of the St. Regis Mohawk Tribe. We and our subsidiaries will derive
revenues from the site based on our management and development contracts. If the
St. Regis Mohawk Tribe does not adequately shield its gaming operations at the
site from obligations arising from its other non-gaming operations, and the St.
Regis Mohawk Tribe suffers a material adverse event such as insolvency, a
default or civil damages in a matter in which it did not have sovereign
immunity, creditors could attempt to seize some or all of the personal property
or profits from the St. Regis Mohawk Tribe's gaming operations or move to have a
receiver or trustee appointed. Such a result could lead to the voidance or
indirect modification by a court of our subsidiaries' management and development
contracts with the St. Regis Mohawk Tribe, leading to a material adverse affect
on our operations. We may be required by lenders who finance the casino to
subordinate all or part of our management fees to the prior payment in full of
their financing. In addition, if creditors were to seize any or all of the St.
Regis Mohawk Tribe's revenues from gaming operations, our subsidiaries'
management and development agreements with the St. Regis Mohawk Tribe would be
rendered worthless, as the ability to conduct casino style gambling on that
property may no longer be permissible.

THE CONTINUING DECLINE IN THE POPULARITY OF HORSE RACING AND INCREASING
COMPETITION IN SIMULCASTING COULD ADVERSELY IMPACT THE BUSINESS OF MONTICELLO
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 customers 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. A continued decrease in attendance at live events and in
on-track wagering, 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 Raceway. Our business plan anticipates the possibility of
Monticello Raceway attracting new customers to its racetrack wagering operations
through VGM operations and potential casino development in order to offset the
general decline in raceway attendance. However, even if the numerous
arrangements, approvals and legislative changes necessary for casino development
occur, Monticello Raceway may not be able to maintain profitable operations.
Public tastes are unpredictable and subject to change. Any decline in interest
in horse racing or any change in public tastes may adversely affect Monticello
Raceway's revenues and, therefore, limit its ability to make a positive
contribution to our results.

WE DEPEND ON OUR KEY PERSONNEL AND THE LOSS OF THEIR SERVICES WOULD
ADVERSELY AFFECT OUR OPERATIONS.

If we are unable to maintain our key personnel and attract new employees
with high levels of expertise in those gaming areas in which we propose to
engage, without unreasonably increasing our labor costs, the execution of our
business strategy may be hindered and our growth limited. We believe that our
success is largely dependent on the continued employment of our senior
management and the hiring of strategic key personnel at reasonable costs. If any
of our current senior managers 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 will be materially adversely affected.

SUBSTANTIAL LEVERAGE AND DEBT SERVICE OBLIGATIONS MAY ADVERSELY AFFECT
OUR CASH FLOW, FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

As a result of the issuance of our senior secured notes, our debt service
obligations increased substantially. There is the possibility that we may be
unable to generate cash sufficient to pay the principal or interest on and other
amounts due in respect of our indebtedness when due. We may also incur
substantial additional indebtedness in the future. Our level of indebtedness
will have several important effects on our future operations, including, without
limitation:

o a portion of our cash flow from operations will be dedicated to the
payment of any interest or principal required with respect to
outstanding indebtedness;

o increases in our outstanding indebtedness and leverage will increase
our vulnerability to adverse changes in general economic and industry
conditions, as well as to competitive pressure; and

o depending on the levels of our outstanding indebtedness, our ability to
obtain additional financing for working capital, general corporate and
other purposes may be limited.

Our ability to make payments of principal and interest on our indebtedness
depends upon our future performance, which is subject to general economic
conditions, industry cycles and financial, business and other factors affecting
our operations, many of which are beyond our control. Our business might not
continue to generate cash flow at or above current levels. If we are unable to
generate sufficient cash flow from operations in the future to service our debt,
we may be required, among other things:

o to seek additional financing in the debt or equity markets;

o to refinance or restructure all or a portion of our indebtedness,
including our senior secured convertible notes; or

o to sell selected assets.

Such measures might not be sufficient to enable us to service our
indebtedness. In addition, any such financing, refinancing or sale of assets may
not be available on commercially reasonable terms, or at all.

WE MAY NOT HAVE THE ABILITY TO REPURCHASE OUR SENIOR SECURED
CONVERTIBLE NOTES.

Upon the occurrence of a change in control (as defined in the indenture
governing our senior secured convertible notes), we would be required to
repurchase all of our outstanding senior secured convertible notes tendered to
us by the holders of such notes. In addition, we may be required to repurchase
our senior secured convertible notes on July 31, 2009. We cannot assure you that
we will have sufficient financial resources, or will be able to arrange
financing, to pay the purchase price for all of such notes tendered by the
holders in connection with any such repurchase. Any failure to repurchase the
notes when required will result in an event of default under the indenture.

In addition, the events that constitute a change of control under the
indenture may also be events of default under any credit agreement or other
agreement governing future debt. These events may permit the lenders under such
credit agreement or other agreement to accelerate the debt outstanding
thereunder and, if such debt is not paid, to enforce security interests in the
collateral securing such debt, thereby limiting our ability to raise cash to
purchase the notes, and reducing the practical benefit of the offer to purchase
provisions to the holders of the notes.

FUTURE SALES OF SHARES OF OUR COMMON STOCK IN THE PUBLIC MARKET OR THE
CONVERSION OF OUR SENIOR SECURED CONVERTIBLE NOTES COULD ADVERSELY AFFECT THE
TRADING PRICE OF SHARES OF OUR COMMON STOCK, THE VALUE OF OUR SENIOR SECURED
CONVERTIBLE NOTES 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, the conversion of our senior secured convertible notes into
shares of our common stock, or the perception that such sales or conversion are
likely to occur, could affect prevailing trading prices of our common stock and,
as a result, the value of our senior secured convertible notes. As of March 7,
2007, we had 29,429,902 shares of common stock outstanding. Because our senior
secured convertible notes generally are initially convertible into shares of our
common stock only at a conversion price in excess of the recent trading price, a
decline in our common stock price may cause the value of our senior secured
convertible notes to decline. In addition, the existence of our senior secured
convertible notes may encourage short selling by market participants due to this
dilution or facilitate trading strategies involving our senior secured
convertible notes and our common stock.

On January 12, 2004, 18,219,075 shares of our common stock were issued
pursuant to our acquisition of Monticello Raceway Management, Inc., Monticello
Casino Management, LLC, Monticello Raceway Development Company, LLC and Mohawk
Management, LLC, all of which may be sold to the public pursuant to a
registration statement under the Securities Act. We also issued 4,050,000 shares
of our common stock to multiple investors in February 2004 in a private
placement. On December 28, 2006, we entered into an Amendment to that option
agreement, dated November 12, 2004, between the Company and Concord Associates
Limited Partnership ("Concord") pursuant to which (i) Concord exercised options
for 2,500,000 shares of the Company's common stock for an aggregate cash
consideration of $18,750,000 which was paid on January 26, 2007 and (ii) Concord
retained the right to exercise options for an additional 1,000,000 shares of the
Company's common stock at $7.50 per share until December 27, 2007. At December
31, 2006, we had outstanding options to purchase an aggregate of 3,283,909
shares of common stock at an average exercise price of $6.06 per share and
250,000 warrants at $7.50 per warrant. If the holders of these shares, options
or warrants were to attempt to sell a substantial amount of their holdings at
once, the market price of our common stock would likely decline. Moreover, the
perceived risk of this potential dilution could cause stockholders to attempt to
sell their shares and investors to "short" the stock, a practice in which an
investor sells shares that he or she does not own at prevailing market prices,
hoping to purchase shares later at a lower price to cover the sale. As each of
these events would cause the number of shares of our common stock being offered
for sale to increase, the common stock's market price would likely further
decline. All of these events could combine to make it very difficult for us to
sell equity or equity-related securities in the future at a time and price that
we deem appropriate.

THE VALUE OF THE CONVERSION RIGHT ASSOCIATED WITH THE SENIOR SECURED
CONVERTIBLE NOTES MAY BE SUBSTANTIALLY LESSENED OR ELIMINATED IF WE ARE PARTY
TO A MERGER, CONSOLIDATION OR OTHER SIMILAR TRANSACTION.

If we are party to a consolidation, merger or binding share exchange or
transfer or lease of all or substantially all of our assets pursuant to which
shares of our common stock are converted into cash, securities or other
property, at the effective time of the transaction, the right to convert senior
secured convertible notes into shares of our common stock will be changed into a
right to convert the note into the kind and amount of cash, securities or other
property which the holder would have received if the holder had converted its
senior secured convertible notes immediately prior to the transaction. This
change could substantially lessen or eliminate the value of the conversion
privilege associated with the notes in the future. For example, if we were
acquired in a cash merger, each note would become convertible solely into cash
and would no longer be convertible into securities whose value would vary
depending on our future prospects and other factors.

CERTAIN PROVISIONS OF OUR CERTIFICATE OF INCORPORATION AND BYLAWS
DISCOURAGE UNSOLICITED TAKEOVER PROPOSALS AND COULD PREVENT YOU FROM
REALIZING A PREMIUM RETURN ON YOUR INVESTMENT IN OUR COMMON STOCK.

Our board of directors is divided into three classes, with each class
constituting one-third of the total number of directors and the members of each
class serving staggered three-year terms. This classification of the board of
directors makes it more difficult for our stockholders to change the composition
of the board of directors because only a minority of the directors can be
elected at once. The classification provisions could also discourage a third
party from accumulating our stock or attempting to obtain control of us, even
though this attempt might be beneficial to us and some, or a majority, of our
stockholders. Accordingly, under certain circumstances our stockholders could be
deprived of opportunities to sell their shares of common stock at a higher price
than might otherwise be available. In addition, pursuant to our certificate of
incorporation, our board of directors has the authority, without further action
by the stockholders, to issue up to 3,225,045 shares of preferred stock on such
terms and with such rights, preferences and designations, including, without
limitation, restricting dividends on our common stock, dilution of our common
stock's voting power and impairing the liquidation rights of the holders of our

common stock, as the board of directors may determine. Issuance of such
preferred stock, depending upon its rights, preferences and designations, may
also have the effect of delaying, deterring or preventing a change in control.

YOUR ABILITY TO INFLUENCE CORPORATE DECISIONS MAY BE LIMITED BECAUSE
OUR MAJOR STOCKHOLDERS OWN A LARGE PERCENTAGE OF OUR COMMON STOCK.

Our significant stockholders own a substantial portion of our outstanding
stock. As a result of their stock ownership, if these stockholders were to
choose to act together, they may be able to effectively control all matters
submitted to our stockholders for approval, including the election of directors
and approval of any merger, consolidation or sale of all or substantially all of
our assets. This concentration of voting power could delay or prevent an
acquisition of our company on terms that other stockholders may desire. In
addition, as the interests of our majority and minority stockholders may not
always be the same, this large concentration of voting power may lead to
stockholder votes that are inconsistent with your best interests or the best
interest of us as a whole.

THE MARKET PRICE OF OUR COMMON STOCK IS VOLATILE, LEADING TO THE
POSSIBILITY OF ITS VALUE BEING DEPRESSED AT A TIME WHEN YOU WANT TO SELL YOUR
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, 2004 and March
9, 2007, the closing bid price of our common stock has ranged between $3.30 and
$15.00. A variety of events may cause the market price of our common stock to
fluctuate significantly, including but not necessarily limited to:

o quarter to quarter variations in operating results;

o adverse news announcements; and

o market conditions for the gaming industry.

In addition, the stock market in recent years has experienced significant
price and volume fluctuations for reasons unrelated to operating performance.
These market fluctuations may adversely affect the price of our common stock and
other interests in the Company at a time when you want to sell your interest in
us.

GENERAL BUSINESS RISKS

TERRORISM AND THE UNCERTAINTY OF WAR MAY HARM OUR OPERATING RESULTS.

The terrorist attacks of September 11, 2001 and the after-effects
(including the prospects for more terror attacks in the United States and
abroad), combined with recent economic trends and the U.S.-led military action
in Iraq had a negative impact on various regions of the United States and on a
wide range of industries, including, in particular, the hospitality industry. In
particular, the terrorist attacks, as well as the United States war on
terrorism, may have an unpredictable effect on general economic conditions and
may harm our future results of operations as they may engender apprehension in
people who would otherwise be inclined to travel to destination resort areas
like the Catskills region of the State of New York. Moreover, in the future,
fears of recession, war and additional acts of terrorism may continue to impact
the U.S. economy and could negatively impact our business.

WE ARE SUBJECT TO GREATER RISKS THAN A GEOGRAPHICALLY DIVERSE COMPANY.

Our proposed operations are primarily limited to the Catskills region of
the State of New York. As a result, in addition to our susceptibility to adverse
global and domestic economic, political and business conditions, any economic
downturn in the region could have a material adverse effect on our operations.
An economic downturn would likely cause a decline in the disposable income of
consumers in the region, which could result in a decrease in the number of
patrons at our proposed facilities, the frequency of their visits and the
average amount that they would be willing to spend at the proposed casino. We
are subject to greater risks than more geographically diversified gaming or

resort operations and may continue to be subject to these risks upon completion
of our expansion projects, including:

o a downturn in national, regional or local economic conditions;

o an increase in competition in New York State or the Northeastern United
States and Canada, particularly for day-trip patrons residing in New
York State, including as a result of recent legislation permitting new
Indian casinos and VGMs at certain racetracks and other locations in
New York, Connecticut and Pennsylvania;

o impeded access due to road construction or closures of primary access
routes; and

o adverse weather and natural and other disasters in the Northeastern
United States and Canada.

The occurrence of any one of the events described above could cause a
material disruption in our business and make us unable to generate sufficient
cash flow to make payments on our obligations.

OUR BUSINESS COULD BE AFFECTED BY WEATHER-RELATED FACTORS AND
SEASONALITY.

Our results of operations may be adversely affected by weather-related and
seasonal factors. Severe winter weather conditions may deter or prevent patrons
from reaching our gaming facilities or undertaking day trips. In addition, some
recreational activities are curtailed during the winter months. Although our
budget assumes these seasonal fluctuations in gaming revenues for our proposed
Indian casino to ensure adequate cash flow during expected periods of lower
revenues, we cannot assure you that weather-related and seasonal factors will
not have a material adverse effect on our operations. Our limited operating
history makes it difficult to predict the future effects of seasonality on our
business, if any.

WE ARE VULNERABLE TO NATURAL DISASTERS AND OTHER DISRUPTIVE EVENTS THAT
COULD SEVERELY DISRUPT THE NORMAL OPERATIONS OF OUR BUSINESS AND ADVERSELY
AFFECT OUR EARNINGS.

Currently, the majority of our operations are located at a facility in
Monticello, New York and our proposed Indian casino will be located in the same
general geographic area. Although this area is not prone to earthquakes, floods,
tornados, fires or other natural disasters, the occurrence of any of these
events or any other cause of material disruption in our operation could have a
material adverse effect on our business, financial condition and operating
results. Moreover, although we do maintain insurance customary for our industry
including a policy with a ten million dollar ($10,000,000) limit of coverage for
the perils of flood and earthquake, we can not assure that this coverage will be
sufficient in the event of one of the disasters mentioned above.

WE MAY BE SUBJECT TO MATERIAL ENVIRONMENTAL LIABILITY AS A RESULT OF
UNKNOWN ENVIRONMENTAL HAZARDS.

We currently own 232 acres of land. As a significant landholder, we are
subject to numerous environmental laws. Specifically, under the Comprehensive
Environmental Response, Compensation and Liability Act, a current or previous
owner or operator of real estate may be required to investigate and clean up
hazardous or toxic substances or chemical releases on or relating to its
property and may be held liable to a governmental entity or to third parties for
property damage, personal injury and for investigation and cleanup costs
incurred by such parties in connection with the contamination. Such laws
typically impose cleanup responsibility and liability without regard to whether
the owner knew of or caused the presence of contaminants. The costs of
investigation, remediation or removal of such substances may be substantial.

POTENTIAL CHANGES IN THE REGULATORY ENVIRONMENT COULD HARM OUR BUSINESS.

From time to time, legislators and special interest groups have proposed
legislation that would expand, restrict or prevent gaming operations in the
jurisdictions in which we operate or intend to operate. For example, Senator
John McCain of Arizona, the former chairman of the Senate Indian Affairs
Committee, - announced in 2006 that he is calling for hearings on all aspects of

Indian gaming. In addition, from time to time, certain anti-gaming groups
propose referenda that, if adopted, could force us to curtail operations and
incur significant losses.

WE ARE DEPENDENT ON THE STATE OF NEW YORK, SULLIVAN COUNTY, THE TOWN OF
THOMPSON AND THE VILLAGE OF MONTICELLO TO PROVIDE OUR PROPOSED FACILITIES
WITH CERTAIN NECESSARY SERVICES.

Former New York State Governor George Pataki proposed legislation that
would result in up to five Indian casinos being developed in Sullivan County. It
is uncertain whether the local governments have the ability to support this
level of economic development. The demands place upon the local governments by
these expansion efforts may be beyond the infrastructure capabilities that these
entities are able to provide. The failure of the State of New York, Sullivan
County, the Town of Thompson or the Village of Monticello to provide certain
necessary services such as water, sanitation, law enforcement and fire
protection, or to be able to support increased traffic demands for our proposed
facilities, would have a material adverse effect on our business.

ITEM 1B. UNRESOLVED STAFF COMMENTS.

None.

ITEM 2. PROPERTIES.

MONTICELLO LAND

Our primary asset, which is held in fee by Monticello Raceway Management,
Inc., our wholly owned subsidiary, is a 232 acre parcel of land in Monticello,
New York. Facilities at the site include Monticello Raceway, which includes an
enclosed grandstand with a capacity for 4,500 people, a clubhouse restaurant
facility with a capacity for 200 customers, 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 grandstand portion of Monticello Raceway, which includes a gaming floor
with a central bar and lounge and a separate high stakes gaming area, a 350 seat
buffet, a food court with a coffee bar, a pizza station and deli, kitchens,
employee locker rooms, storage and maintenance facilities, surveillance and
security facilities and systems, cashier's cage and accounting and marketing
areas, as well as enhanced parking areas for cars and buses.

Of these 232 acres of land, we plan to convey a 29 acre parcel of land to
the United States of America to be held in trust for the benefit of an Indian
tribe following the BIA's approval of such transfer and its authorization to use
such land for Class II and Class III gaming. We will also enter in an agreement
with such Indian tribe pursuant to which, among other things, we will agree not
to use such property for any purpose other than Class II or Class III gaming,
and activities incidental to gaming such as the operation of entertainment,
parking, restaurant or retail facilities.

On January 11, 2005, we entered into a credit facility with Bank of
Scotland, pursuant to which Bank of Scotland agreed to provide us with a two
year $10 million senior secured revolving loan (subject to certain reserves). On
December 12, 2005, the agreement was amended to provide for a maturity date of
January 11, 2008, among other things. To secure the timely repayment of any
borrowings under this credit facility, among other things, Monticello Raceway
Management, Inc. executed a Mortgage, Security Agreement, Assignment of Leases
and Rents, and Fixture Filing in favor of Bank of Scotland pursuant to which we
granted Bank of Scotland a security interest and lien with respect to the above
described 232 acres of land, along with all improvements, fixtures, leases,
rents and contracts related to the land and the proceeds therefrom. This
security interest shall terminate upon satisfaction of all of our obligations
under the credit facility, and all related documents, concurrently with the
termination of Bank of Scotland's obligations to provide us advances under the
credit facility.

OTHER PROPERTIES

We lease approximately 165 square feet of office space at 701 N. Green
Valley Parkway, Suite 200, Henderson, Nevada, 89074 on a month-to-month basis.
The rent for this office space is approximately $2,000 per month.

We also lease a warehouse located at 222 South Theobald Street,
Greenville, Mississippi for $850 per month.

ITEM 3. LEGAL PROCEEDINGS.

The Monticello Harness Horsemen's Association, Inc. ("Horsemen",
"Horsemen's Association") has brought multiple actions against our subsidiary,
Monticello Raceway Management, Inc.

Monticello Harness Horsemen's Association v. Monticello Raceway
Management, State of New York, Supreme Court, Sullivan County Index No.:
1750/03: This is an action brought by the Horsemen's Association of Monticello
Raceway against Monticello Raceway Management, Inc. The claim is that the barn
area at Monticello Raceway has been reduced in size and there are less available
stalls for Horsemen at the track than in prior years. An additional claim is
that some of the Horsemen who are no longer eligible for stall use due to
consolidation of the barn area were discriminated against by reason of their
membership in the Horsemen's Association. The action was commenced July 31,
2003, and the plaintiff obtained a temporary restraining order upon commencement
of the action. The temporary restraining order was dismissed and an injunction
denied to the Horsemen after a hearing which was held the following week and the
case had not been pursued further by the plaintiff, although it is still
pending. The consolidation of the barn area at Monticello Raceway was completed.

Monticello Harness Horsemen's Association v. Monticello Raceway
Management, Supreme Court, State of New York, Sullivan County Index Numbers:
1765/03 and 2624/03: These are consolidated actions brought by the Horsemen's
Association seeking damages for alleged underpayment of purses due to the
Horsemen from various raceway revenue sources. These actions were commenced
respectively on September 30, 2003 and December 12, 2003. The actions were
consolidated by order of the Sullivan County Supreme Court in November 2004. One
case alleges that certain monies designated by contract for the Horsemen's
overnight purses were used to fund a special racing series at Monticello
Raceway. That portion of the claim seeks a recoupment of approximately $60,000
in purse monies. That action also seeks control by the Horsemen of the setting
of purses as opposed to Monticello Raceway. The second action which was
consolidated with the first action involves a claim that the Horsemen's purse
account has not been properly credited with various simulcasting revenues and
that there were deductions from the Horsemen's purse account for simulcast
expenses which the plaintiff claims were not authorized by the parties'
contract. That complaint seeks approximately $2.0 million in compensatory
damages and a similar amount in punitive damages. This consolidated action is
pending. There has been certain paper discovery completed (bill of particulars)
and there are outstanding requests for further interrogatories and discovery
items. Depositions have not yet been held. There have been numerous settlement
conferences in the context of the ongoing global contract negotiations between
the parties.

On June 15, 2005, various Article 78 proceedings were commenced by four
regional New York State regional off-track betting corporations (the "OTBs")
against the New York State Racing and Wagering Board, Monticello Raceway and
Yonkers Raceway seeking the return to the OTBs of various racing revenues
previously paid by the OTBs to Monticello Raceway and Yonkers Raceway, more
commonly known in the industry as "dark day monies" and out-of-state OTB
commissions. All of the petitions have been consolidated into one proceeding now
pending in the New York State Supreme Court Albany County. The approximate
amount of reimbursement which the OTBs are seeking from Monticello Raceway, as
prosecuted, is in excess of $4.0 million together with ongoing payments which
the OTBs are making to Monticello Raceway as per the direction and rulings of
the New York State Racing and Wagering Board. In September 2006, a favorable
outcome was achieved when the combined petition was dismissed. An appeal by the
petitioners is pending in the appellate court.

In August 2006, The New York State Racing and Wagering Board issued an
arbitrator's award defining the contract terms between Monticello Raceway and
the Horsemen's Association. In December 2006, the Sullivan County Supreme Court
granted our petition for modification of the award to strike the provision that
we establish an escrow account for the payment of horsemen's purses. However,
the Horsemen's Association has appealed that decision to the Third Department
Appellate Division, which appeal is pending. The import of the escrow provision
is that, if the lower court is reversed and the escrow provision is reinstated
as part of the arbitration award, we will have to deposit into an escrow account
an amount, which at this time, is approximately $5.0 million, as security for
payment of future horsemens' purses.

We believe that the resolution of the claims listed above will not have a
material and adverse effect on our consolidated financial position, results of
operations or cash flows.

We are a party from time to time to various other legal actions that arise
in the normal course of business. In the opinion of management, the resolution
of these other matters will not have a material and adverse effect on our
consolidated financial position, results of operations or cash flows.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Performance Graph
[Object Omitted]

COMPANY/INDEX 12/31/01 12/31/02 12/31/03 12/31/04 12/30/05 12/29/06
----------------------------- --------- -------- -------- -------- -------- --------
Empire Resorts, Inc.......... 100.00 16.81 66.78 82.59 54.81 64.22
Resorts and Casinos.......... 100.00 105.11 137.98 234.04 228.64 357.68
NASDAQ Market Index.......... 100.00 69.75 104.88 113.70 116.19 128.12

Assumes $100 invested on December 31, 2001 in the Company's common stock,
the NASDAQ Market Index and the Peer Group.

The calculations in the table were made on a dividends reinvested basis.

There can be no assurance that the Company's common stock performance will
continue with the same or similar trends depicted in the above graph.

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 intraday sale prices for
the common stock for the periods indicated, as reported by the Nasdaq Global
Market.

High Low
---- ---
Year ended December 31, 2005
First Quarter $ 12.21 $ 6.96
Second Quarter 7.25 3.25
Third Quarter 5.67 3.71
Fourth Quarter 8.10 3.91

Year ended December 31, 2006
First Quarter $ 8.29 $ 4.12
Second Quarter 6.95 4.80
Third Quarter 7.76 5.04
Fourth Quarter 10.20 6.25

HOLDERS

According to Continental Stock Transfer & Trust Company, there were 244
holders of record of our common stock at March 7, 2007.

DIVIDENDS

During the past two fiscal years, we did not declare or pay any cash
dividends with respect to our common stock and we do not anticipate declaring
any cash dividends on our common stock in the foreseeable future. We intend to
retain all future earnings for use in the development of our business. In
addition, the payment of cash dividends is restricted by undeclared dividends on
our Series E preferred stock and financial covenants in our credit agreement
with Bank of Scotland. We have unpaid Series E preferred dividends of
approximately, $5.6 million as of December 31, 2006.

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

The following table provides information as of December 31, 2006 with
respect to the shares of our common stock that may be issued under our existing
equity compensation plans.

Number of
securities
remaining
available for
Number of future issuance
securities to be under equity
issued upon Weighted-average compensation
exercise of exercise price of plans (excluding
outstanding outstanding securities
options, warrants options, warrants reflected in
and rights and rights column (a))
(a) (b) (c)
----------------- ----------------- -----------------
Equity compensation plans approved by
security holders............................... 2,123,909 $ 5.12 772,051
Equity compensation plans not approved by
security holders............................... 1,410,000 7.59 --
----------------- ----------------- -----------------
Total.......................................... 3,533,909 $ 6.11 772,051
================= ================= =================

ITEM 6. SELECTED FINANCIAL DATA.

The following selected financial information is qualified by reference to,
and should be read in conjunction with, the Company's consolidated financial
statements and the notes thereto, and "Management's Discussion and Analysis of
Financial Condition and Results of Operation" contained elsewhere herein. The
selected consolidated income statement data for the years ended December 31,
2006, 2005, and 2004 and the selected consolidated balance sheet data as of
December 31, 2006 and 2005 are derived from the Company's audited consolidated
financial statements which are included elsewhere herein. The selected
consolidated income statement data for the years ended December 31, 2003 and
2002 and the selected consolidated balance sheet data as of December 31, 2004,
2003 and 2002 are derived from the Company's audited consolidated financial
statements not included herein.

STATEMENT OF OPERATIONS DATA (All dollar amounts in thousands, except per share data)
-----------------------------------------------------------------
Years ended December 31,
-----------------------------------------------------------------
2006 2005 2004 2003 2002
-----------------------------------------------------------------
NET REVENUES $ 98,110 $ 86,764 $ 45,006 $ 9,740 $ 11,366
-----------------------------------------------------------------
Operating costs and expenses, including depreciation 98,542 85,647 55,514 11,263 12,678
Impairment loss - deferred development costs -- 14,291 -- 4,243 --
LOSS FROM OPERATIONS (432) (13,174) (10,508) (5,766) (1,312)
NET LOSS (7,076) (18,527) (12,745) (6,524) (1,933)
Dividends paid on preferred stock -- -- (30) -- --
Cumulative undeclared dividends on preferred stock (1,551) (1,551) (1,510) -- --
-----------------------------------------------------------------
NET LOSS APPLICABLE TO COMMON SHARES $ (8,627) $(20,078) $(14,285) $ (6,524) $ (1,933)
=================================================================
$ (0.32) $ (0.77) $ (0.57) $ (0.36) $ (0.11)
======== ======== ======== ======== ========
Loss per common share, basic and diluted

OTHER FINANCIAL DATA:
Capital Expenditures $ 320 $ 1,967 $ 31,079 $ 1,382 $ 171
======== ======== ======== ======== ========

BALANCE SHEET DATA:
Cash and cash equivalents $ 9,471 $ 6,992 $ 7,164 $ 1,354 $ 644
Total assets 60,564 57,245 60,753 13,825 13,980
Long-term debt 65,000 65,000 65,000 7,503 6,821
Total shareholders' equity (deficit)* (25,723) (27,215) (14,992) (1,662) 4,572

* For the years ended December 31, 2003 and 2002, total shareholders' equity
(deficit) was members' equity (deficit)

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION.

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

We were organized in 1993 as a holding company for entities engaged
primarily in the gaming and hospitality industries. For much of our history, we
concentrated on riverboat casinos in the southern United States, with nominal
holdings in the mid-Atlantic states. In 2002 this focus shifted, as we commenced
the liquidation of all of our holdings outside the Catskills region of the State
of New York, and by the end of 2003 we had no direct operations or meaningful
assets other than a minority interest in Catskill Development, L.L.C., the owner
of approximately 232 acres of land in Monticello, New York, the sole stockholder
of Monticello Raceway Management, Inc. and the controlling member of Monticello
Casino Management, LLC. Consequently, Empire Resorts, Inc. had no operating
revenue during the fiscal year ended December 31, 2003.

On October 31, 2001, the State of New York enacted a bill designating
seven racetracks, including Monticello Raceway, to install and operate VGMs.
Under the program, the New York State Lottery made an initial allocation of
1,800 VGMs to Monticello Raceway. Construction contracts for these facilities
were signed and work on the necessary improvements began in February 2004. On
June 30, 2004, we began operating 1,744 VGMs on 45,000 square feet of floor
space at Monticello Raceway after completing approximately $27 million of
renovations to the facility.

In January 2004, we acquired from the members of both Catskill
Development, L.L.C. and Monticello Raceway Development Company, LLC all of the
outstanding membership interests and capital stock of Monticello Raceway
Management, Inc., Monticello Casino Management, LLC, Monticello Raceway
Development Company, LLC and Mohawk Management, LLC in exchange for 80.25% of
our common stock, calculated on a post-consolidation, fully diluted basis.
Monticello Raceway Management, Inc., Monticello Casino Management, LLC,
Monticello Raceway Development Company, LLC and Mohawk Management, LLC own all
of the development and management rights with respect to an Indian casino to be
developed in Monticello, New York. As we had no significant operations during
the time of this acquisition and the members of Catskill Development, L.L.C. and
Monticello Raceway Development Company, LLC, collectively, received a
controlling interest in us as part of this acquisition, the acquisition was
accounted for as a reverse merger.

During 2004, we undertook improvements to Monticello Raceway and commenced
the VGM operations under the auspices of the New York State Lottery. We also
pursued continuing efforts to develop an Indian casino resort on a parcel of
land adjacent to Monticello Raceway.

On August 1, 2005, we entered into a letter agreement with the St. Regis
Mohawk Tribe, a federally recognized Indian tribe, to develop a Class III Indian
casino on the 29 acres of land adjacent to Monticello Raceway. Under this
agreement, we are obligated to supply technical and financial assistance to the
St. Regis Mohawk Tribe in exchange for the right to serve as the tribe's
exclusive partner in the development, construction, financing, operation and
management of such casino.

Thus, much of our ability to develop a successful business is now
dependent on the success or failure of our ability to develop our interests in
the Catskills region of the State of New York, and our financial results in the
future will be based on different activities than those from our prior fiscal
years.

OFF-BALANCE SHEET ARRANGEMENTS

On January 12, 2004, in order to better focus on the implementation of the
New York State Lottery's VGM program and the development of other gaming
operations at Monticello Raceway and as a condition to the closing of the
consolidation with Catskill Development, L.L.C., all claims relating to certain
litigation against parties alleged to have interfered with Catskill Development,
L.L.C.'s relations with the St. Regis Mohawk Tribe, along with the rights to any
proceeds from any judgment or settlement that may arise from such litigation,
were transferred to a grantor trust in which our common stockholders of record

immediately before the consolidation's closing were provided a 19.75% interest,
with the members of Catskill Development, L.L.C. and Monticello Raceway
Development Company, LLC immediately before the consolidation's closing owning
the remaining 80.25%. We separately entered into an agreement with the grantor
trust pursuant to which we agreed to provide the trust with a $2.5 million line
of credit to finance the litigation.

In each of the years ended December 31, 2006, 2005 and 2004, we provided
$505,000 in draws on the line of credit. Due to the unpredictable nature of the
litigation and the pending motions currently under review, we provided for a
valuation allowance of $505,000 against the receivable from the Litigation Trust
in each of those years. The aggregate amount due at December 31, 2006 is
$1,515,000 and there is a valuation allowance recorded for the full amount of
those advances.

Pursuant to the terms of the Declaration of Trust establishing the trust,
in the event of a recovery in the litigation, we are to receive payments to
reimburse us for prior litigation expenses of $7.5 million and to repay any
draws on the line of credit.

In August 2004, we agreed to provide development assistance of $35,000 per
month to the Seneca Cayuga Tribe of Oklahoma in connection with the
establishment and initial operations of a tribal gaming authority for New York
gaming operations. We discontinued providing this assistance in the second
quarter of 2005.

In connection with our development project with the St. Regis Mohawk
Tribe we have agreed to make payments to the tribe to support operations of the
Tribal Gaming Authority and will provide technical assistance, payment of
professional and legal consultants and other support as we seek the necessary
licenses and approvals to commence construction. Our payments to the tribe are
estimated to be approximately $25,000 per month in 2007.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles 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 to which could materially impact the way we report
revenues. Accounting polices related to: point loyalty program, accounts
receivable, deferred development costs, impairment of long-lived assets,
stock-based compensation and loss contingencies 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. Also, see NOTE B --
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.

Revenue and expense recognition. Revenues represent (i) revenues from
pari-mutuel wagering earned from live harness racing and simulcast signals from
other tracks, (ii) the net win from VGMs and (iii) food and beverage sales, net
of promotional allowances, and other miscellaneous income. We recognize revenues
from pari-mutuel wagering earned from live harness racing and simulcast signals
from other tracks at the end of each racing day, before deductions of such
related expenses as purses, stakes and awards. Revenue from the VGM operations
is the difference between the amount wagered by bettors and the amount paid out
to bettors and is referred to as the net win. We recognize revenues from
pari-mutuel wagering and VGM operations at the end of each day of operation. The

net win is included in the amount recorded in our consolidated financial
statements as gaming revenue. We report incentives related to VGM play and
points earned in loyalty programs as a reduction of gaming revenue. Operating
costs include (i) the amounts paid to the New York State Lottery for the State's
share of the net win, (ii) amounts due to the Horsemen and Breeders' for their
share of the net win and (iii) amounts paid for harness racing purses, stakes
and awards. Also included in operating costs are the costs associated with the
sale of food, beverages and other miscellaneous items and the marketing
allowance from the New York State Lottery.

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

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

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

Impairment of Long-Lived Assets. We periodically review the carrying value
of our long-lived assets in relation to historical results, as well as
management's best estimate of future trends, events and overall business
climate. If such reviews indicate an issue as to whether that the carrying value
of such assets may not be recoverable, we will then estimate the future cash
flows generated by such assets (undiscounted and without interest charges). If
such future cash flows are insufficient to recover the carrying amount of the
assets, then impairment is triggered and the carrying value of any impaired
assets would then be reduced to fair value.

Stock-Based Compensation. In December 2004, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 123 (revised 2004), "Share Based Payment" ("SFAS No. 123(R)"). SFAS
No. 123(R) supersedes Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," and amends SFAS No. 95, "Statement
of Cash Flows." Generally, the fair value approach in SFAS No. 123(R) is similar
to the fair value approach described in SFAS No. 123. Effective January 1, 2003,
we have adopted SFAS No. 123 and used the Black-Scholes-Merton formula to
estimate the fair value of stock options granted to employees. We adopted SFAS
No. 123(R), using the modified-prospective method, beginning January 1, 2006.
Based on the terms of our plans, we did not have a cumulative effect related to
our plans. We also elected to continue to estimate the fair value of stock
options using the Black-Scholes-Merton formula. In the first quarter of 2006,
the adoption of SFAS No. 123(R) did not have a material impact on our first
quarter stock-based compensation expense. Further, we believe the adoption of
SFAS No. 123(R) will not have a material impact on our future stock-based
compensation expense. As of December 31, 2006, there was approximately $1.7
million of total unrecognized compensation cost related to non-vested
share-based compensation arrangements granted under our plans. That cost is
expected to be recognized over a period of 3 years. This expected cost does not
include the impact of any future stock-based compensation awards.

Loss Contingencies. There are times when non-recurring events occur that
require management to consider whether an accrual for a loss contingency is
appropriate. Accruals for loss contingencies typically relate to certain legal
proceedings, customer and other claims and litigation. As required by SFAS No.
5, we determine whether an accrual for a loss contingency is appropriate by
assessing whether a loss is deemed probable and can be reasonably estimated. We
analyze our legal proceedings, warranty and other claims and litigation based on
available information to assess potential liability. We develop our views on

estimated losses in consultation with outside counsel handling our defense in
these matters, which involves an analysis of potential results assuming a
combination of litigation and settlement strategies. The adverse resolution of
any one or more of these matters over and above the amounts that have been
estimated and accrued in the current consolidated financial statements could
have a material adverse effect on our business, results of operations and
financial condition.

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2006 COMPARED TO YEAR ENDED DECEMBER 31, 2005

REVENUES. Total net revenues increased approximately $11.3 million or 13%
for the year ended December 31, 2006. VGM operations contributed approximately
$8.5 million (or a 12% increase over 2005) of that increase and racing
contributed approximately $2.3 million (or a 15% increase). The remainder of the
increase was attributable to food, beverage and other revenues increasing by
approximately $1.7 million (or 34%) offset by increased complimentary expenses
of approximately $1.1 million (or 59%).

We believe that the increase in VGM revenues can be attributed primarily
to more effective marketing for that facility. Patron visits increased by 2%
while the average daily win per unit increased from $110.19 to $132.63 (or 20%).
The average number of machines in operation was 1,580 during 2006 compared to
1,692 during 2005 (a reduction of 7%). The increase in complimentary expenses is
a result of increased volume of play and additional marketing programs.

The increase in racing revenue was primarily a result of increased revenue
allocations from OTB facilities. A track, Yonkers Raceway, which normally shares
in those revenues with us was not in operation for the last 6 months of 2005 and
for eleven months in 2006. We believe that our racing revenues in the future
will be reduced significantly after the Yonkers Raceway track reopens as our
allocable share of OTB revenues will decrease.

GAMING COSTS. Gaming (VGM) costs increased by approximately $4.4 million
(or 7%) to approximately $64.5 million for 2006 compared with 2005. This
percentage increase is less than the percentage increase in VGM revenues almost
solely as a result of the increase in fees for VGM agents (an additional 3% of
VGM revenue) and the marketing allowance granted to VGM agents by the New York
State Lottery as reimbursement for qualified marketing expenses incurred by the
agents.

RACING COSTS. Racing costs increased in 2006 by approximately $2.9 million
(or 33%) to approximately $11.9 million. This is primarily as a result of
increases in racing purses reflecting the share of our increased revenues which
we allocate to racing purses for our horsemen. Our racing purse costs will
increase in the future as a result of the arbitration award relating to our
horsemen as described in more detail in the following section.

FOOD, BEVERAGE AND OTHER COSTS. These costs increased by approximately
$625,000 (or 31%) to approximately $2.7 million for 2006 compared with 2005.
Revenues in this category increased 34%.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased approximately $4.9 million (or 37%) in 2006 to
approximately $18.3 million. The increase is comprised of an increase in
stock-based compensation of approximately $3.1 million, an increase in other
compensation of approximately $693,000, an increase in marketing costs of
approximately $1.5 million and a reduction of other expenses of approximately
$357,000. The increase in stock-based compensation is primarily related to the
costs associated with extending the expiration date for options to purchase 1
million shares of our common stock. The extension was granted in connection with
a modification of an earlier agreement which provided for an option to purchase
approximately 5.2 million shares of our common stock. The modified agreement
provides that the holder of the option will exercise the right to purchase 2.5
million shares of our common stock at $7.50 per share with payment made on
January 26, 2007 and will have the right to purchase 1 million shares at $7.50
until December 29, 2007. The option to purchase the remaining 1,688,913 shares
expired on December 29, 2006.

IMPAIRMENT LOSS - DEFERRED DEVELOPMENT COSTS. During the year ended
December 31, 2005, we recognized the following impairment losses:

Costs incurred in connection with efforts to develop a casino resort with
the Seneca-Cayuga Tribe of Oklahoma - approximately $ 2.4 million;

Costs incurred in connection with efforts to develop casino resorts with
the Cayuga Nation of New York - approximately $ 8.5 million;

Costs associated with a proposed merger related to resort developments and
other activities - approximately $3.4 million.

Our review of the circumstances of the project in development at December
31, 2006 concluded that recognition of an impairment loss at that date was not
appropriate.

INTEREST EXPENSE. Interest expense was approximately $6.0 million and $4.8
million, respectively, for the years 2006 and 2005. Our senior convertible notes
issued in July 2004 carried an annual interest rate of 5.5% until July 31, 2005
and a rate of 8% thereafter. This resulted in an increase in interest expense of
approximately $948,000 for the year 2006 as compared to 2005. The remainder of
the increase is due to higher interest rates on our revolving credit line which
had approximately $7.6 million outstanding at December 31, 2006.

YEAR ENDED DECEMBER 31, 2005 COMPARED TO YEAR ENDED DECEMBER 31, 2004

Our operations for the years ended December 31, 2005 and 2004 were not
similar due to the commencement of the new VGM operations on June 30, 2004.

REVENUES. Total net revenues increased approximately $41.8 million or 93%
for the year ended December 31, 2005 primarily as a result of our VGM facility
operating a full year in 2005 compared with only a little more than six months
in 2004. Racing revenue for 2005 was approximately $5.0 million or 47% higher
than 2004. This was primarily a result of increased revenue allocations from OTB
facilities. A track which normally shares in those revenues with us was not in
operation for the last 6 months of 2005 and our share of the total OTB revenues
was significantly higher as a result. That track was in operation for the entire
year of 2004.

VGM revenues for the six months ended December 31, 2005 compared to the
six months ended December 31, 2004 increased from approximately $32.0 million to
approximately $37.2 million, approximately $5.2 million or 16%. We believe that
this increase was largely a result of our continued marketing efforts and
greater customer awareness of our facility. VGM revenues for the year ended
December 31, 2005 were approximately $68.1 million and approximately $32.3
million for the year ended December 31, 2004. These amounts are not comparable
because our VGM facility was open for a little over six months in the year ended
December 31, 2004.

COSTS AND EXPENSES. Total costs and expenses (excluding depreciation)
increased from approximately $55.0 million in 2004 to approximately $84.5
million in 2005. This increase of approximately $29.5 million or 53% was the
result of the VGM facility being in operation for the entire year 2005 as
compared to a little more than six months in 2004, increased salaries and other
compensation as the result of a change in senior management at the end of the
second quarter of 2005, costs related to the termination of a planned
acquisition and increased write-offs related to development activity.

VGM costs and expenses for the six months ended December 31, 2005 compared
to the six months ended December 31, 2004 increased from approximately $31.4
million to approximately $31.6 million, approximately $200,000 or less than 1%.
The fact that these costs were almost unchanged despite a 16% increase in
related revenues is primarily a result of a change in April 2005 in the New York
State law governing VGM operations like ours. The change increased the amount of
VGM revenues retained by the operator and provided for the Lottery commission to
reimburse operators for certain qualified marketing expenses by allowing the
operators to receive an additional amount of VGM revenues to cover those
qualified expenses. Lottery commission officials must approve those
reimbursements and they are paid from a restricted cash account created for that
purpose. VGM costs and expenses for the year ended December 31, 2005 compared to
the year ended December 31, 2004 increased from approximately $31.7 million to
approximately $60.2 million. These amounts are not comparable because our VGM
facility was open for a little over six months in the year ended December 31,
2004.

DEPRECIATION. Depreciation expense increased from approximately $507,000
in 2004 to approximately $1.1 million in 2005. This is a result of the VGM
facility operating for the full year in 2005 compared with a little over six
months in 2004. A significant portion of our depreciable assets is associated
with our VGM facility.

INTEREST AND AMORTIZATION OF DEFERRED FINANCING COSTS. Interest expense
increased from approximately $1.9 million in 2004 to approximately $4.8 million
in 2005. In 2004, interest expense was comprised of interest on our Convertible
Notes at 5.5% for about 5 months (approximately $1.5 million) and on other
borrowing repaid during that year. In 2005, we incurred interest on our
Convertible Notes at 5.5% for seven months and 8% for five months (approximately
$4.3 million) and on borrowings under our revolving credit facility at LIBOR
plus 4% (approximately $526,000). The increase in amortization of deferred
financing costs is primarily a result of the Convertible Notes being in place
for the full year 2005 compared with a little more than five months in 2004.

IMPAIRMENT OF DEFERRED DEVELOPMENT COSTS. In 2005, our routine review for
impairment led to our conclusion that it was no longer appropriate to defer
certain costs associated with some development projects and certain other costs
connected to a merger agreement that the parties elected to terminate on
December 30, 2005. The total charge for those impairment losses was
approximately $14.3 million.

LIQUIDITY AND CAPITAL RESOURCES

We believe that we have access to sources of working capital that are
sufficient to fund our operations for the year ended December 31, 2007. The
results of operations of our VGM facility have been improved by the changes in
the amount of revenue retained by VGM agents, we have approximately $2.5 million
available from our revolving credit facility and we received $18.75 million in
January, 2007 from the exercise of options to purchase 2.5 million shares or our
common stock. We believe that any significant capital requirements associated
with our development projects can be met by additional debt or equity issues
when needed.

Net cash provided by operating activities during the year ended December
31, 2006 was approximately $5.3 million compared to net cash used in operating
activities of approximately $1.2 million in 2005. The increase in cash provided
of approximately $6.5 million is primarily the result of the reduction in loss
from operations plus the effect of the collecting approximately $3.1 million of
amounts due from the New York Lottery for the marketing allowance (approximately
$4.2 million in restricted cash at December 31, 2005).

Net cash used in investing activities was approximately $3.3 million for
the year ended December 31, 2006, consisting primarily of approximately $2.4
million expended for deferred development costs (net of approximately $192,000
in non-cash additions). During the year ended December 31, 2005 net cash used in
investing activities in was approximately $5.8 million, and consisted primarily
of approximately $2.0 million for improvements and equipment and approximately
$3.3 million in costs associated with casino development projects (net of
approximately $1.1 million in non-cash additions).

Net cash provided by financing activity for 2006 was approximately
$488,000 representing net proceeds from borrowings under our revolving credit
facility (approximately $141,000) and proceeds from the exercise of options to
purchase our common stock (approximately $1.2 million). These amounts were
offset by approximately $798,000 in financing costs reflecting the cost of
recording a mortgage on the 232 acres at the Raceway as security for the holders
of our Senior Convertible Notes. Net cash provided by financing activity for
2005 was approximately $6.8 million representing net proceeds from borrowings
under our revolving credit facility.

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

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

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

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

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

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

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

On March 8, 2006, our Board of Directors authorized the issuance of 23,103
shares of our common stock in payment of dividends on our Series B Preferred
Stock for 2005. The recorded value of these shares was approximately $98,000.

On February 16, 2005, we issued 12,640 shares of common stock in payment
of dividends on our Series B Preferred Stock for the year ended December 31,
2004. The recorded value of these shares was approximately $142,000.

At December 31, 2006, we had undeclared dividends on our Series E
Preferred Stock of approximately $5.6 million and undeclared dividends for 2006
on our Series B Preferred Stock of approximately $167,000. We intend to pay the
dividends on Series B Preferred Stock by issuing common stock. We are in
compliance with our Certificates of Designations, Preferences and Rights of the
issued and outstanding preferred shares.

RECENT ACCOUNTING PRONOUNCEMENTS

SFAS NO. 155

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

SFAS NO. 156

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

FIN NO. 48

December 15, 2006. We do not expect FIN 48 to have a material impact on our
consolidated results of operations, financial position, or cash flows.

SFAS NO. 157

In September 2006, the FASB issued SFAS No. 157,"FAIR VALUE MEASUREMENTS"
("SFAS 157"). SFAS 157 defines fair value, establishes a framework for measuring
fair value in generally accepted accounting principles ("GAAP"), and expands
disclosures about fair value measurements. We will adopt the provisions of SFAS
157 effective January 1, 2008. We do not expect SFAS 157 to have a material
impact on our consolidated results of operations, financial position, or cash
flows.

SFAS NO. 158

In September 2006, the FASB issued SFAS No. 158, "EMPLOYERS' ACCOUNTING
FOR DEFINED BENEFIT PENSION AND OTHER POSTRETIREMENT PLANS--AN amendment of FASB
Statements No. 87, 88, 106, and 132(R)" ("SFAS 158"). SFAS 158 improves
financial reporting by requiring an employer to recognize the overfunded or
underfunded status of a defined benefit postretirement plan as an asset or
liability in its statement of financial position and to recognize changes in
that funded status in the year in which the changes occur through comprehensive
income. SFAS 158 will not have an impact on our consolidated results of
operations, financial position, or cash flows.

STAFF ACCOUNTING BULLETIN ("SAB") NO. 108

In September 2006, the Securities and Exchange Commission ("SEC") issued
SAB No. 108, "Quantifying Financial Statement Misstatements". Due to diversity
in practice among registrants, the SEC staff in SAB 108 expresses its views
regarding the process by which misstatements in financial statements are
evaluated for purposes of determining whether financial statement restatement is
necessary. We will be required to adopt SAB 108 in fiscal 2007. We are in the
process of evaluating SAB 108, but do not believe it will have a material impact
on consolidated results of operations, financial position, or cash flows.

SFAS NO. 159

On February 15, 2007, the FASB issued SFAS No. 159, "The Fair Value Option
for Financial Assets and Financial Liabilities" ("SFAS 159"). Under this
standard, we may elect to report financial instruments and certain other items
at fair value on a contract-by-contract basis with changes in value reported in
earnings. This election is irrevocable. SFAS 159 provides an opportunity to
mitigate volatility in reported earnings that is caused by measuring hedged
assets and liabilities that were previously required to use a different
accounting method than the related hedging contracts when the complex provisions
of SFAS 133 hedge accounting are not met. SFAS 159 is effective for years
beginning after November 15, 2007. Early adoption within 120 days of the
beginning of our 2007 fiscal year is permissible, provided that we have not yet
issued interim financial statements for 2007 and have adopted SFAS 159. We are
currently evaluating the impact SFAS 159 will have on our consolidated results
of operations, financial position, and cash flows.

CONTRACTUAL OBLIGATIONS

Contractual Obligations Payments due by period
-------------------------------------------------- (in thousands)
Less More
than 1 1 - 3 3 - 5 than 5
Total year years years years
---------- ---------- ---------- ---------- -----------
Senior Convertible Notes (a):
Principal $ 65,000 $ -- $ -- $ -- $ 65,000
Estimated interest (b) 39,000 5,200 10,400 10,400 13,000
Revolving credit facility:
Principal 7,617 -- 7,617 -- --
Estimated interest (b) 745 685 60 -- --

Operating lease obligations 467 204 261 2 --
---------- ---------- ---------- ---------- -----------
Total $112,829 $ 6,089 $ 18,338 $ 10,402 $ 78,000
========== ========== ========== ========== ===========

(a) the holders of our Senior Convertible Notes have the right to require us
to repurchase the notes at 100% of the principal amount outstanding on
July 31, 2009.

(b) Interest is payable at 8% semi-annually on the Senior Convertible Notes
and at either Prime plus 2 or Libor plus 4 on the revolving credit
facility.

SUBSEQUENT EVENTS

On January 26, 2007, we received $18.75 million as payment for 2.5 million
shares of our common stock issued as a result of an option exercised on December
28, 2006 pursuant to an option granted in 2004 and modified in December 2006.

On March 8, 2007, our Board of Directors authorized the issuance of 18,884
shares of our common stock in payment of dividends on our Series B Preferred
Stock for 2006. The value of these shares was approximately $190,000.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the risk of loss arising from adverse changes in market
rates and prices, such as interest rates, foreign currency exchange rates and
commodity prices. Our primary exposure to market risk is interest rate risk
associated with our $10 million credit facility with Bank of Scotland since it
constitutes variable rate debt. A hypothetical one hundred basis increase in
interest rates for our variable rate borrowings would increase our future
interest expense by approximately $0.1 million per year. This sensitivity
analysis does not factor in potential changes in the level of our variable
interest rate borrowings, or any actions that we might take to mitigate our
exposure to changes in interest rates. Our outstanding convertible senior notes
are fixed-rate indebtedness.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Page
----

FINANCIAL STATEMENTS AS OF DECEMBER 31, 2006 AND 2005 AND FOR THE
THREE YEARS ENDED DECEMBER 31, 2006:
Report of Independent Registered Public Accounting Firm.................... 37
Report of Independent Registered Public Accounting Firm on Internal
Control over Financial Reporting......................................... 38
Consolidated Balance Sheets................................................ 39
Consolidated Statements of Operations...................................... 40
Consolidated Statements of Stockholders' Deficit........................... 41
Consolidated Statements of Cash Flows...................................... 42
Notes to Consolidated Financial Statements................................. 44

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

We have audited the accompanying consolidated balance sheets of Empire
Resorts, Inc. and subsidiaries as of December 31, 2006 and 2005, and the related
consolidated statements of operations, stockholders' deficit, and cash flows for
each of the years in the three-year period ended December 31, 2006. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Empire Resorts, Inc.
and subsidiaries as of December 31, 2006 and 2005, and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 2006 in conformity with accounting principles generally
accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the effectiveness of the Company's
internal control over financial reporting as of December 31, 2006, based on
criteria established in Internal Control - Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our
report dated March 7, 2007 expressed an unqualified opinion on management's
assessment of internal control over financial reporting and an unqualified
opinion on the effectiveness of internal control over financial reporting.

/s/ Friedman LLP

New York, New York
March 7, 2007

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

We have audited management's assessment, included in the accompanying
Management's Report on Internal Control Over Financial Reporting, that Empire
Resorts, Inc. and subsidiaries maintained effective internal control over
financial reporting as of December 31, 2006, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Empire Resorts, Inc. and
subsidiaries' management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting. Our responsibility is to express an
opinion on management's assessment and an opinion on the effectiveness of the
company's internal control over financial reporting based on our audit.

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

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

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

In our opinion, management's assessment that Empire Resorts, Inc. and
subsidiaries maintained effective internal control over financial reporting as
of December 31, 2006, is fairly stated, in all material respects, based on
criteria established in Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also in
our opinion, Empire Resorts, Inc. and subsidiaries maintained, in all material
respects, effective internal control over financial reporting as of December 31,
2006, based on criteria established in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO).

We have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheets of
Empire Resorts, Inc. and subsidiaries as of December 31, 2006 and 2005 and the
related consolidated statements of operations, stockholders' deficit, and cash
flows for each of the years in the three-year period ended December 31, 2006,
and our report dated March 7, 2007 expressed an unqualified opinion.

/s/ Friedman LLP

New York, New York
March 7, 2007

EMPIRE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31
(In thousands, except for per share data)

2006 2005
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 9,471 $ 6,992
Restricted cash 1,747 4,716
Accounts receivable 5,253 3,358
Prepaid expenses and other current assets 1,545 1,112
-------- --------
Total current assets 18,016 16,178
Property and equipment, net 31,703 32,536
Deferred financing costs, net of accumulated
amortization
of $ 1,364 in 2006 and $ 709 in 2005 3,116 2,973
Deferred development costs 7,729 5,558
-------- --------
TOTAL ASSETS $ 60,564 $ 57,245
======== ========

LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Revolving credit facility $ 7,617 $ 7,476
Accounts payable 3,734 3,529
Accrued expenses and other current liabilities 9,936 8,455
-------- --------
Total current liabilities 21,287 19,460
Senior convertible notes 65,000 65,000
-------- --------
Total liabilities 86,287 84,460
-------- --------

Commitments and contingencies -- --

Stockholders' deficit:
Preferred stock, 5,000 shares authorized; $0.01
par value -
Series B, 44 shares issued and outstanding -- --
Series E, $10.00 redemption value, 1,731
shares issued and outstanding 6,855 6,855
Common stock, $0.01 par value, 75,000 shares
authorized, 29,428 and 26,312 shares issued and
outstanding in 2006 and 2005, respectively 294 263
Amount due from exercise of option (18,750) --
Additional paid in capital 49,113 21,728
Accumulated deficit (63,235) (56,061)
-------- --------
Total stockholders' deficit (25,723) (27,215)
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 60,564 $ 57,245
======== ========

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

EMPIRE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31
(In thousands, except for per share data)

2006 2005 2004
---- ---- ----
REVENUES:
Racing $ 17,997 $ 15,652 $ 10,657
Gaming 76,510 68,059 32,285
Food, beverage and other 6,612 4,941 2,772
--------- --------- ---------
GROSS REVENUES 101,119 88,652 45,714
Less promotional allowances (3,009) (1,888) (708)
--------- --------- ---------
NET REVENUES 98,110 86,764 45,006
--------- --------- ---------
COSTS AND EXPENSES:
Racing 11,914 8,979 11,253
Gaming 64,533 60,159 31,672
Food, beverage and other 2,661 2,036 1,246
Selling, general and administrative
expense * 18,290 13,352 10,836
Depreciation 1,144 1,121 507
Impairment loss - deferred development
costs -- 14,291 --
--------- --------- ---------
TOTAL COSTS AND EXPENSES 98,542 99,938 55,514
--------- --------- ---------
LOSS FROM OPERATIONS (432) (13,174) (10,508)
Amortization of deferred financing costs (655) (575) (378)
Interest expense (5,989) (4,778) (1,859)
--------- --------- ---------
NET LOSS (7,076) (18,527) (12,745)
--------- --------- ---------
Dividends paid on preferred stock -- -- (30)
Cumulative undeclared dividends on
preferred stock (1,551) (1,551) (1,510)
--------- --------- ---------
NET LOSS APPLICABLE TO COMMON SHARES $ (8,627) $ (20,078) $ (14,285)
========= ========= =========

Weighted average common shares outstanding,
basic and diluted 26,703 26,149 25,199
--------- --------- ---------
Loss per common share, basic and diluted $ (0.32) $ (0.77) $ (0.57)
========= ========= =========
* Includes stock-based compensation
expense of $ 7,401 $ 4,309 $ 2,959
========= ========= =========

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

EMPIRE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(In thousands)

Preferred Stock
--------------------------------------------
Series B Series E Common Stock
---------------------- -------------------- -------------------
Capital
Amount In
due from Excess Accumu-
exercise of Par lated
Shares Amount Shares Amount Shares Amount of option Value Deficit*
-------------------------- --------- --------- ---------- --------- --------- --------- --------- --------- ---------

Balances, January 1, 2004 -- $ -- -- $ -- -- $ -- $ -- $ -- $ (1,662)
----- -------- ----- -------- ------ -------- -------- -------- --------
Recapitalization effect of
reverse acquisition 44 -- 1,731 6,855 24,206 242 -- 18,372 (22,745)
Declared and paid
dividends on preferred
stock -- -- -- -- 16 -- -- 210 (240)
Stock based compensation -- -- -- -- 40 -- -- 2,959 --
Common stock issued
through private
placement sales -- -- -- -- 4,050 41 -- 30,335 --
Warrants issued through
private placement -- -- -- -- -- -- -- 2,103 --
Stock issuance expenses -- -- -- -- -- -- -- (4,420) --
Common stock issued
from exercise of stock
options -- -- -- -- 61 1 -- 150 --
Common stock converted
to long term debt -- -- -- -- (2,393) (24) -- (5,049) --
Excess of market value
over carrying value of
property and equipment
purchased from a
related party -- -- -- -- -- -- -- (30,825) --
Common stock issued for
development costs -- -- -- -- 100 1 -- 1,449 --
Net loss -- -- -- -- -- -- -- -- (12,745)
----- -------- ----- -------- ------ -------- -------- -------- --------
Balances, December 31, 2004 44 -- 1,731 6,855 26,080 261 -- 15,284 (37,392)
----- -------- ----- -------- ------ -------- -------- -------- --------
Declared and paid
dividends on preferred
stock -- -- -- -- 13 -- -- 142 (142)
Common stock issued
from exercise of stock
options -- -- -- -- 133 1 -- 282 --
Stock based compensation 86 1 -- 4,308 --
Stock based
compensation,
termination of merger -- -- -- -- -- -- -- 1,712 --
Net loss -- -- -- -- -- -- -- -- (18,527)
----- -------- ----- -------- ------ -------- -------- -------- --------
Balances, December 31, 2005 44 -- 1,731 6,855 26,312 263 -- 21,728 (56,061)
----- -------- ----- -------- ------ -------- -------- -------- --------
Declared and paid
dividends on preferred
stock -- -- -- -- 23 -- -- 98 (98)
Common stock issued
from exercise of stock
options -- -- -- -- 3,007 30 (18,750) 19,886 --
Stock based compensation -- -- -- -- 86 1 -- 7,401 --
Net loss -- -- -- -- -- -- -- -- (7,076)
----- -------- ----- -------- ------ -------- -------- -------- --------
Balances, December 31, 2006 44 $ -- 1,731 $ 6,855 29,428 $ 294 $(18,750) $ 49,113 $(63,235)
===== ======== ===== ======== ====== ======== ======== ======== ========

* For the year 2003, Accumulated Deficit was Members' Equity (Deficiency)

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

EMPIRE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31
(In thousands)

2006 2005 2004
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (7,076) $(18,527) $(12,745)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation 1,144 1,121 507
Amortization of deferred financing costs 655 575 378
Allowance for doubtful accounts - Advances
to Litigation Trust 505 505 505
Impairment loss - deferred development costs -- 14,291 --
Stock - based compensation 7,401 4,309 2,959
Loss on disposal of property and equipment 11 10 --
Changes in operating assets and liabilities:
Restricted cash (VGM Marketing Accounts) 3,076 (4,151) --
Accounts receivable (1,894) (679) (1,921)
Prepaid expenses and other current assets (433) (238) (620)
Accounts payable 396 (1,383) (2,208)
Accrued expenses and other current liabilities 1,480 2,962 4,504
-------- -------- --------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 5,265 (1,205) (8,641)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (320) (1,967) (31,079)
Restricted cash (Racing capital improvement) (86) 6 (37)
Cash acquired in acquisition -- -- 18
Advances to Litigation Trust (505) (505) (505)
Deferred development costs (2,363) (3,309) (4,614)
-------- -------- --------
NET CASH USED IN INVESTING ACTIVITIES (3,274) (5,775) (36,217)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock -- -- 30,375
Proceeds from issuance of senior convertible notes -- -- 65,000
Proceeds from revolving credit facility 141 7,476 --
Proceeds from exercise of stock options 1,166 283 151
Stock issuance expenses -- -- (2,317)
Deferred financing costs (798) (539) (3,143)
Restricted cash (related to revolving credit facility) (21) (412) --
Excess of market value over carrying value of property and
equipment purchased from related party -- -- (30,825)
Repayment of bank loan and promissory notes -- -- (8,543)
Dividends paid on preferred stock -- -- (30)
-------- -------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 488 6,808 50,668
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 2,479 (172) 5,810
Cash and cash equivalents, beginning of year 6,992 7,164 1,354
-------- -------- --------
Cash and cash equivalents, end of year $ 9,471 $ 6,992 $ 7,164
======== ======== ========

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

EMPIRE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31
(In thousands)

2006 2005 2004
--------- -------- --------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest during the year $ 5,989 $ 4,033 $ 319

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES

Common stock issued in settlement of preferred stock dividends $ 98 $ 142 $ 210
Amount due from exercise of option 18,750 -- --
Noncash additions to deferred development costs 192 1,108 665
Common stock issued for deferred development costs -- -- 1,450
Accrued construction costs -- -- 1,447
Issuance of promissory note to redeem outstanding common stock -- -- 5,073
Warrants issued in settlement of stock issuance expenses -- -- 2,103

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

EMPIRE RESORTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A. SUMMARY OF BUSINESS AND BASIS FOR PRESENTATION

BASIS FOR PRESENTATION

The consolidated balance sheets as of December 31, 2006 and 2005, the
consolidated statements of operations, stockholders' deficit and cash flows for
the years ended December 31, 2006, 2005 and 2004 include the accounts of Empire
Resorts, Inc ("Empire", "the Company" or "we"), and certain of the assets and
liabilities of Catskill Development, L.L.C. ("CDL"), which were merged into the
Company effective January 12, 2004. The operations of CDL for the period January
1, 2004 through January 11, 2004, which were not significant, have been included
in the consolidated statement of operations, stockholders' deficit and cash
flows for the year ended December 31, 2004. For accounting purposes, CDL is
deemed to have been the acquirer in the merger. The assets that were not
transferred through the merger were leased to the Company and subsequently
purchased on July 26, 2004 from CDL, a related party. The amount recorded upon
that acquisition was the amount at which those assets had been carried on the
records of CDL.

Although Empire was the legal survivor in the merger and remains the
registrant with the Securities and Exchange Commission, under accounting
principles generally accepted in the United States, the merger was accounted for
as a reverse acquisition, whereby CDL was considered the acquirer of more than
50% of the post transaction combined company. Among other matters, reverse
merger accounting requires Empire to present in all financial statements and
other public information filings, prior historical and other information of CDL,
and a retroactive restatement of CDL historical shareholders investment for the
equivalent number of shares of common stock received in the merger. Accordingly,
the accompanying consolidated financial statements reflect the acquisition of
Empire as of January 1, 2004 under the purchase method of accounting. Subsequent
to January 1, 2004, the operations of the Company reflect the combined
operations of the former Empire and CDL.

LIQUIDITY

We believe that we have access to sources of working capital that are
sufficient to fund our operations for the year ended December 31, 2007. The
results of operations of our Video Gaming Machine ("VGM") facility have been
improved by the changes in the amount of revenue retained by VGM agents, we have
approximately $2.5 million available from our revolving credit facility and we
received $18.75 million in January, 2007 from the exercise of options to
purchase 2.5 million shares or our common stock (see Note P). We believe that
any significant capital requirements associated with our development projects
can be met by additional debt or equity issues when needed.

NATURE OF BUSINESS

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

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

RACEWAY AND VGM OPERATIONS

Monticello Raceway Management, a wholly owned subsidiary, is a New York
corporation that operates Monticello Raceway (the "Raceway"), a harness horse
racing facility and a VGM facility (Monticello Gaming and Raceway) in
Monticello, New York.

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

A VGM is an electronic gaming device which allows a patron to play
electronic versions of various lottery games of chance and is similar in
appearance to a traditional slot machine. On October 31, 2001, the State of New
York enacted a bill designating seven racetracks, including the Raceway, to
install and operate VGMs. Under the program, the New York State Lottery has
authorized an allocation of up to 1,800 VGMs to the Raceway. Currently,
Monticello Raceway Management operates 1,587 VGMs on 45,000 square feet of floor
space at the Raceway after expending approximately $27 million in 2004 on
renovations to the facility and start-up expenses.

ST. REGIS MOHAWK RESORT DEVELOPMENT

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

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

disapproval. Until approved by the Chairman of the NIGC, the gaming facility
management agreement is not in force. Neither the St. Regis Mohawk Tribe nor the
St. Regis Mohawk Gaming Authority (the "Authority") has approved the Gaming
Facility Management Agreement. We expect, but cannot guarantee, that the St.
Regis Mohawk Tribe will approve the Gaming Facility Management Agreement.

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

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

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

On December 21, 2006 the St. Regis Mohawk Tribe received a letter from the
BIA stating that the St. Regis Mohawk Tribe's Final EA has been deemed
sufficient, an Environmental Impact Study will be not be required and a Finding
of No Significant Impact ("FONSI") related to the proposed federal action
approving the request of the Tribe to take 29.31 acres into trust for the
purpose of building a Class III gaming facility to be located at Monticello
Raceway, in accordance with the Indian Gaming Regulatory Act of 1988 (the
"Land-to-Trust Transfer") has been issued.

On February 19, 2007, New York Governor Eliot Spitzer issued his
concurrence with regard to the April 2000 Secretarial Determination which found
that gaming in Sullivan County by the St. Regis Mohawk would be in the best
interest of the St. Regis Mohawk Tribe and its members and would not be
detrimental to the surrounding communities. In addition, on February 19, 2007,
Governor Spitzer signed an amendment to the gaming compact between the St. Regis
Mohawk Tribe and New York State pursuant to which New York State would receive
20 percent of slot-machine revenues for the first two years after the St. Regis
Mohawk Tribe's Class III casino to be located at Monticello Raceway opens, 23
percent for the next two years and 25 percent thereafter.

On February 19, 2007 we were notified by the St. Regis Mohawk Tribe that,
on February 16, 2007, a complaint was filed in the United States District Court
for the Southern District of New York in the case of Sullivan County Farm
Bureau, Catskill Center for Conservation and Development, Inc., Orange
Environment, Inc. and Natural Resources Defense Council v. United States
Department of the Interior, Dirk Kempthorne, in his official capacity as
Secretary of the Interior, James E. Cason, in his official capacity as Associate
Deputy Secretary of the Interior and Acting Assistant Secretary of the Interior
for Indian Affairs and BIA. The claim alleges that the BIA violated the National
Environmental Policy Act ("NEPA") and the Administrative Procedure Act by
issuing a Finding of No Significant Impact without requiring an environmental
impact statement ("EIS") under NEPA. The plaintiffs are seeking an order
requiring the preparation of an EIS prior to Department of the Interior's
granting final approvals for the proposed St. Regis Mohawk Casino at Monticello
Raceway and prior to the Department of the Interior's causing the transfer of
the subject land into federal trust. We expect that the defendants will respond
to the complaint within the next 60 days.

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

CAYUGA CATSKILL RESORT DEVELOPMENT

On April 3, 2003, we, the Cayuga Nation of New York and the Cayuga
Catskill Gaming Authority (the "Authority"), an instrumentality of the Cayuga
Nation of New York formed to develop and conduct gaming operations, signed an
initial form of gaming facility management agreement and related agreements. The
agreements provided for us to supply technical and financial assistance to the
Cayuga Nation of New York and to serve as its exclusive partner in the
development, construction, financing, operation and management of a proposed
casino in the Monticello area. The principal agreements were extended in
December 2005 to December 31, 2006. Subsequent to entering into our initial
agreement with the Cayuga Nation of New York, but prior to the execution of our
recent extensions, leadership issues arose within the Cayuga Nation of New York,
which resulted in the suspension of federal processing of the applications made
under our earlier agreements. We did not attempt to extend the principal
agreements beyond December 31, 2006.

NOTE B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

share of the net win and (iii) amounts paid for harness racing purses, stakes
and awards. Also included in operating costs are the costs associated with the
sale of food, beverage and other miscellaneous items and the marketing allowance
from the New York State Lottery.

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

CASH AND CASH EQUIVALENTS. Cash and cash equivalents include cash on
account, demand deposits and certificates of deposit with original maturities of
three months or less at acquisition. The Company maintains significant cash
balances with financial institutions, which are not covered by the Federal
Deposit Insurance Corporation. The Company has not incurred any losses in such
accounts and believes it is not exposed to any significant credit risk on cash.
Approximately $1.1 million of cash is held in reserve according to the New York
State Lottery Rules and Regulations.

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

Under New York State Racing, Pari-Mutuel Wagering and Breeding Law,
Monticello Raceway Management is obliged to withhold a certain percentage of
certain types of wagers towards the establishment of a pool of money, the use of
which is restricted to the funding of approved capital improvements.
Periodically during the year, Monticello Raceway Management petitions the Racing
and Wagering Board to certify that the noted expenditures are eligible for
reimbursement from the capital improvement fund. The balances in this account
were approximately $ 239,000 and $153,000 at December 31, 2006 and 2005,
respectively.

In April 2005, the New York law governing VGM operations was modified to
provide an increase in the revenues retained by the VGM operator. A portion of
that increase was designated as a reimbursement of marketing expenses incurred
by the VGM operator. The amount of revenues directed toward this reimbursement
is deposited in a bank account under the control of the New York State Lottery
and the VGM operator. The funds are transferred from this account to the
operator upon the approval by the Lottery officials of the reimbursement
requests submitted by the operator. The balances in this account were
approximately $1,076,000 and $4,151,000 at December 31, 2006 and 2005,
respectively.

In connection with our revolving credit agreement, we agreed to maintain a
restricted reserve bank account with the lending institution. The balances in
this account were approximately $432,000 and $412,000 at December 31, 2006 and
2005, respectively.

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

PROPERTY AND EQUIPMENT. Property and equipment is stated at cost less
accumulated depreciation. The Company provided for depreciation on property and
equipment used by applying the straight-line method over the following estimated
useful lives:

Estimated
Useful
Assets Lives
--------------------------------- ----------
Vehicles 5-10 years
Furniture, fixtures and equipment 5-10 years
Land improvements 20 years
Building improvements 40 years
Buildings 40 years

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

DEFERRED DEVELOPMENT COSTS.

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

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

IMPAIRMENT OF LONG-LIVED ASSETS. We periodically review the carrying value
of our long-lived assets in relation to historical results, as well as
management's best estimate of future trends, events and overall business
climate. If such reviews indicate an issue as to whether that the carrying value
of such assets may not be recoverable, we will then estimate the future cash
flows generated by such assets (undiscounted and without interest charges). If
such future cash flows are insufficient to recover the carrying amount of the
assets, then impairment is triggered and the carrying value of any impaired
assets would then be reduced to fair value.

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

LOSS PER COMMON SHARE. We compute basic loss per share by dividing loss
applicable to common shares by the weighted-average common shares outstanding
for the year. Diluted loss per share reflects the potential dilution of losses
that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the losses of the entity. Since the effect of
outstanding options and warrants is anti-dilutive with respect to losses, they
have been excluded from our computation of loss per common share. Therefore,
basic and diluted losses per common share for the years ended December 31, 2006,
2005 and 2004 were the same.

The following table shows the securities outstanding at December 31, 2006,
2005 and 2004 that could potentially dilute basic earnings per share in the
future but were not included in the calculation of diluted loss per share
because their inclusion would have been anti-dilutive.

Outstanding at December 31,
2006 2005 2004
---------- ---------- ----------
Options 3,284,000 7,786,000 1,028,000
Warrants 250,000 250,000 250,000
Shares issuable upon conversion of convertible debt 5,175,000 5,175,000 4,727,000
Unvested restricted stock 89,000 175,000 --
---------- ---------- ----------
Total 8,798,000 13,386,000 6,005,000
========== ========== ==========

ADVERTISING. We record as current operating expense the costs of general
advertising, promotion and marketing programs at the time those costs are
incurred. Advertising expense was approximately $1,740,000, $890,000 and
$776,000 for the years ended December 31, 2006, 2005 and 2004, respectively.

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

USE OF ESTIMATES. The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.

STOCK-BASED COMPENSATION. In December 2004, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 123 (revised 2004), "Share Based Payment" ("SFAS No. 123(R)"). SFAS
No. 123(R) supersedes Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," and amends SFAS No. 95, "Statement
of Cash Flows." Generally, the fair value approach in SFAS No. 123(R) is similar
to the fair value approach described in SFAS No. 123. Effective January 1, 2003,
our Company has adopted SFAS No. 123 and used the Black-Scholes-Merton formula
to estimate the fair value of stock options granted to employees. Our Company
adopted SFAS No. 123(R), using the modified-prospective method, beginning
January 1, 2006. Based on the terms of our plans, our Company did not have a
cumulative effect related to our plans. Our Company also elected to continue to
estimate the fair value of stock options using the Black-Scholes-Merton formula.
In the first quarter of 2006, the adoption of SFAS No. 123(R) did not have a
material impact on our first quarter stock-based compensation expense. Further,
we believe the adoption of SFAS No. 123(R) will not have a material impact on
our Company's future stock-based compensation expense. As of December 31, 2006,
there was approximately $1.7 million of total unrecognized compensation cost
related to non-vested share-based compensation arrangements granted under our
plans. That cost is expected to be recognized over a period of 3 years. This
expected cost does not include the impact of any future stock-based compensation
awards.

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

RECENT ACCOUNTING PRONOUNCEMENTS.

SFAS NO. 155

SFAS NO. 156

FIN NO. 48

In June 2006, the FASB issued FASB Interpretation No. 48, "ACCOUNTING FOR
UNCERTAINTY IN INCOME TAXES--AN INTERPRETATION OF FASB STATEMENT NO. 109" ("FIN
48"). We will adopt the provisions of FIN 48 for fiscal years beginning after
December 15, 2006. We do not expect FIN 48 to have a material impact on our
consolidated results of operations, financial position, or cash flows.

SFAS NO. 157

In September 2006, the FASB issued SFAS No. 157,"FAIR VALUE MEASUREMENTS"
("SFAS 157"). SFAS 157 defines fair value, establishes a framework for measuring
fair value in generally accepted accounting principles (GAAP), and expands
disclosures about fair value measurements. We will adopt the provisions of SFAS
157 effective January 1, 2008. We do not expect SFAS 157 to have a material
impact on our consolidated results of operations, financial position, or cash
flows.

SFAS NO. 158

STAFF ACCOUNTING BULLETIN ("SAB") NO. 108

SFAS NO. 159

On February 15, 2007, the FASB issued SFAS No. 159, "The Fair Value Option
for Financial Assets and Financial Liabilities" ("SFAS 159"). Under this
standard, we may elect to report financial instruments and certain other items
at fair value on a contract-by-contract basis with changes in value reported in
earnings. This election is irrevocable. SFAS 159 provides an opportunity to
mitigate volatility in reported earnings that is caused by measuring hedged
assets and liabilities that were previously required to use a different
accounting method than the related hedging contracts when the complex provisions
of SFAS 133 hedge accounting are not met. SFAS 159 is effective for years
beginning after November 15, 2007. Early adoption within 120 days of the
beginning of our 2007 fiscal year is permissible, provided that we have not yet
issued interim financial statements. We are currently evaluating the impact SFAS
159 will have on our results of operations, financial position, and cash flows.

NOTE C. PROPERTY AND EQUIPMENT

Property and equipment at December 31 consists of:

(in thousands)
2006 2005
--------- --------
Land $ 770 $ 770
Land improvements 1,510 1,495
Buildings 4,583 4,583
Building improvements 24,513 24,454
Vehicles 140 120
Furniture, fixtures and equipment 2,949 2,738
-------- --------
34,465 34,160
Less - Accumulated depreciation (2,762) (1,624)
-------- --------
$ 31,703 $ 32,536
======== ========

Depreciation expense was approximately $1,144,000, $1,121,000 and $507,000
for the years ended December 31, 2006, 2005 and 2004, respectively.

NOTE D. DEFERRED DEVELOPMENT COSTS

We have made payments to fund certain expenses of the Cayuga Nation of New
York (the "Cayuga Nation"), the Seneca-Cayuga Tribe of Oklahoma (the
"Seneca-Cayugas") and the St. Regis Mohawk Tribe in connection with the
development of proposed Indian tribal casino facilities. We also incur
development costs associated with other development projects.

In 2003 and 2004, we issued a total of 300,000 shares of our common stock
to the Cayuga Nation as part of our agreement with them to work together in the
development of a casino in Sullivan County, New York. The aggregate market value
of these shares when issued was approximately $3.9 million and was capitalized
as an addition to deferred development costs at that value.

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

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

In accordance with our accounting policy on impairment of long-lived
assets, we reviewed the carrying value of the deferred development costs and
determined that circumstances warranted the recognition of an impairment loss
for the year ended December 31, 2005.

The following tables reflect activity in the deferred development cost accounts
for the years ended December 31, 2006 and 2005.

Activity for the Year Ended
December 31, 2006
-------- -------------------------- --------
Balance Balance
January 1, December 31,
2006 Additions Impairment 2006
-------- --------- ---------- --------
(in thousands)
Advances to and payments on behalf of the St.
Regis Mohawk Tribe:
Advances for operations of Tribal Gaming Authority $ 67 $ 314 $ -- $ 381
Legal fees and other professional fees relating to
casino resort development 163 1,732 -- 1,895
-------- -------- -------- --------
230 2,046 -- 2,276
Costs specifically associated with site at Raceway 5,328 125 -- 5,453
-------- -------- -------- --------
Total development costs $ 5,558 $ 2,171 $ -- $ 7,729
======== ======== ======== ========

Activity for the Year Ended
December 31, 2005
-------- -------------------------- --------
Balance Balance
January 1, December 31,
2005 Additions Impairment 2005
-------- --------- ---------- --------
(in thousands)
Advances to and payments on behalf of the
Cayuga Nation of New York:
Advances for operations of Tribal Gaming Authority $ 305 $ 410 $ (715) $ --
Legal fees and other professional fees relating to
casino resort development 2,202 1,705 (3,907) --
Value of common stock issued to Tribe in connection
with exclusive development agreement 3,890 -- (3,890) --
-------- -------- -------- --------
6,397 2,115 (8,512) --
-------- -------- -------- --------
Advances to and payments on behalf of the
Seneca-Cayuga Tribe of Oklahoma:
Advances for operations of Tribal Gaming Authority 620 -- (620) --
Legal fees and other professional fees relating to
casino resort development 1,123 620 (1,743) --
-------- -------- -------- --------
1,743 620 (2,363) --
-------- -------- -------- --------
Advances to and payments on behalf of the St
Regis Mohawk Tribe:
Advances for operations of Tribal Gaming Authority -- 67 -- 67
Legal fees and other professional fees relating to
casino resort development -- 163 -- 163
Costs specifically associated with site at Raceway
and other activities, including proposed merger 5,580 3,164 (3,416) 5,328
-------- -------- -------- --------
Total development costs $ 13,720 $ 6,129 $(14,291) $ 5,558
======== ======== ======== ========

In connection with our development project with the St. Regis Mohawk Tribe
we have agreed to make payments to the tribe to support operations of the Tribal
Gaming Authority and will provide technical assistance, payment of professional
and legal consultants and other support as we seek the necessary licenses and
approvals to commence construction. Our payments to the tribe are estimated to
be approximately $25,000 per month for the remainder of 2007.

NOTE E. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

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

2006 2005
------ ------
(in thousands)
Liability for horseracing purses $4,862 $3,328
Accrued interest 2,167 2,284
Accrued payroll 710 624
Accrued other 2,197 2,219
------ ------
Total accrued expenses and other current liabilities $9,936 $8,455
====== ======

NOTE F. SENIOR CONVERTIBLE NOTES

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

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

The notes initially accrued interest at an annual rate of 5.5%, subject to
the occurrence of the "Trigger Event". All of the following events constitute a
Trigger Event under the notes: publication in the Federal Register of approval
by the Secretary of the Interior of a Class III gaming compact for the Cayuga
Catskill Resort; written approval of a gaming facility management agreement on
behalf of the chairman of the National Indian Gaming Commission; and the land in
Monticello, New York to be used for the development of the Cayuga Catskill
Resort having been transferred to the United States in trust for the Cayuga
Nation. Since these events have not occurred, the notes have accrued interest
from and after July 31, 2005 at an annual rate of 8%. The interest rate will
return to 5.5% upon the occurrence of the Trigger Event.

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

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

We recognized approximately $5.2 million, $4.3 million and $1.5 million in
interest expense associated with the senior convertible notes for the years
ended December 31, 2006, 2005 and 2004, respectively.

NOTE G. REVOLVING CREDIT FACILITY

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

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

We recognized approximately $789,000 and $526,000 in interest expense
associated with the facility for the years ended December 31, 2006 and 2005,
respectively. At December 31, 2006 we were in compliance with the financial
covenants contained in our agreement with the Bank of Scotland.

NOTE H. NOTES PAYABLE

Bryanston Group and Beatrice Tollman

On January 9, 2004, we redeemed 2,392,857 shares of common stock at a
redemption price of $2.12 per share by issuing promissory notes in the sum of
approximately $5.1 million. On July 26, 2004, approximately $5.3 million of
proceeds from the senior convertible notes was expended to pay in full the
principal of the notes and accrued interest to Bryanston Group and Beatrice
Tollman.

Under the terms of the notes, interest accrued on the outstanding
principal amount at the rate of 7% per annum. For the year ended December 31,
2004 the Company recognized approximately $195,000 in interest expense
associated with the promissory notes.

NOTE I. SUPPLEMENTAL GUARANTOR INFORMATION

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

EMPIRE RESORTS, INC AND SUBSIDIARIES
CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2006
( in thousands) (Unaudited)
Empire Guarantor Non-Guarantor Eliminating
ASSETS Resorts Subsidiaries Subsidiaries Entries Consolidated
--------- ------------ ------------ ---------- ------------
Cash and cash equivalents $ 383 $ 9,088 $ -- $ -- $ 9,471
Restricted cash 432 1,315 -- -- 1,747
Accounts receivable -- 5,253 -- -- 5,253
Prepaid expenses and other assets 115 1,430 -- -- 1,545
Investments in subsidiaries 5,060 -- -- (5,060) --
Inter-company accounts 146,977 -- -- (146,977) --
Property and equipment, net 6 31,697 -- -- 31,703
Deferred financing costs, net 3,116 -- -- -- 3,116
Deferred development costs 125 7,604 -- -- 7,729
--------- --------- --------- --------- ---------
Total assets $ 156,214 $ 56,387 $ -- $(152,037) $ 60,564
========= ========= ========= ========= =========

LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
Revolving credit facility $ 7,617 $ -- $ -- $ -- $ 7,617
Accounts payable 1,136 2,598 -- -- 3,734
Accrued expenses and other liabilities 2,313 7,623 -- -- 9,936
Inter-company accounts -- 53,395 93,582 (146,977) --
Senior convertible notes 65,000 -- -- -- 65,000
--------- --------- --------- --------- ---------
Total liabilities 76,066 63,616 93,582 (146,977) 86,287
Stockholders' equity (deficit) 80,148 (7,229) (93,582) (5,060) (25,723)
--------- --------- --------- --------- ---------
Total liabilities
and stockholders' equity (deficit) $ 156,214 $ 56,387 $ -- $(152,037) $ 60,564
========= ========= ========= ========= =========

EMPIRE RESORTS, INC AND SUBSIDIARIES
CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2005
(in thousands) (Unaudited)
Empire Guarantor Non-Guarantor Eliminating
ASSETS Resorts Subsidiaries Subsidiaries Entries Consolidated
--------- ------------ ------------ ---------- ------------
Cash and cash equivalents $ 636 $ 6,356 $ -- $ -- $ 6,992
Restricted cash 412 4,304 -- -- 4,716
Accounts receivable -- 3,358 -- -- 3,358
Prepaid expenses and other assets 86 1,026 -- -- 1,112
Investments in subsidiaries 5,060 -- -- (5,060) --
Inter-company accounts 152,108 -- -- (152,108) --
Property and equipment, net 11 32,525 -- -- 32,536
Deferred financing costs, net 2,973 -- -- -- 2,973
Deferred development costs -- 5,558 -- -- 5,558
--------- --------- --------- --------- ---------
Total assets $ 161,286 $ 53,127 $ -- $(157,168) $ 57,245
========= ========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
Revolving credit facility $ 7,476 -- -- -- $ 7,476
Accounts payable 982 2,547 -- -- 3,529
Accrued expenses and other liabilities 2,461 5,994 -- -- 8,455
Inter-company accounts -- 58,526 93,582 (152,108) --
Senior convertible notes 65,000 -- -- -- 65,000
--------- --------- --------- --------- ---------
Total liabilities 75,919 67,067 93,582 (152,108) 84,460
Stockholders' equity (deficit) 85,367 (13,940) (93,582) (5,060) (27,215)
--------- --------- --------- --------- ---------
Total liabilities
and stockholders' equity (deficit) $ 161,286 $ 53,127 $ -- $(157,168) $ 57,245
========= ========= ========= ========= =========

EMPIRE RESORTS, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2006
(in thousands) (Unaudited)
Empire Guarantor Non-Guarantor Eliminating
Resorts Subsidiaries Subsidiaries Entries Consolidated
--------- ------------ ------------ ---------- ------------
Net revenues $ 21 $ 98,089 $ -- $ -- $ 98,110
--------- --------- --------- --------- ---------

Operating costs -- 79,108 -- -- 79,108
Selling, general and administrative 12,048 6,242 -- -- 18,290
Depreciation 4 1,140 -- -- 1,144
Impairment loss - deferred development costs -- -- -- -- --
--------- --------- --------- --------- ---------
Total costs and expenses 12,052 86,490 -- -- 98,542
--------- --------- --------- --------- ---------
Income (loss) from operations (12,031) 11,599 -- -- (432)
Amortization of deferred finance costs (655) -- -- -- (655)
Inter-company interest and other 4,889 (4,889) -- -- --
Interest expense (5,989) -- -- -- (5,989)
--------- --------- --------- --------- ---------
Net income (loss) $ (13,786) $ 6,710 $ -- $ -- $ (7,076)
========= ========= ========= ========= =========

EMPIRE RESORTS, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2005
(in thousands) (Unaudited)
Empire Guarantor Non-Guarantor Eliminating
Resorts Subsidiaries Subsidiaries Entries Consolidated
--------- ------------ ------------ ---------- ------------
Net revenues $ 16 $ 86,748 $ -- $ -- $ 86,764
-------- --------- --------- --------- --------

Operating costs -- 71,174 -- -- 71,174
Selling, general and administrative 9,201 4,151 -- -- 13,352
Depreciation 2 1,119 -- -- 1,121
Impairment loss - deferred development costs 1,712 12,579 -- -- 14,291
-------- --------- --------- --------- --------
Total costs and expenses 10,915 89,023 -- -- 99,938
-------- --------- --------- --------- --------
Loss from operations (10,899) (2,275) (13,174)
Amortization of deferred finance costs (575) -- -- -- (575)
Inter-company interest and other 6,012 (6,012) -- -- --
Interest expense (4,778) -- -- -- (4,778)
-------- --------- --------- --------- --------
Net loss $(10,240) $ (8,287) $ -- $ -- $(18,527)
======== ========= ========= ========= ========

EMPIRE RESORTS, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2004
(in thousands) (Unaudited)
Empire Guarantor Non-Guarantor Eliminating
Resorts Subsidiaries Subsidiaries Entries Consolidated
--------- ------------ ------------ ---------- ------------
Net revenues $ 118 $ 44,888 $ -- $ -- $ 45,006
-------- -------- --------- --------- --------

Operating costs -- 44,171 -- -- 44,171
Selling, general and administrative 7,593 3,243 -- -- 10,836
Depreciation -- 507 -- -- 507
-------- -------- --------- --------- --------
Total costs and expenses 7,593 47,921 -- -- 55,514
-------- -------- --------- --------- --------
Loss from operations (7,475) (3,033) -- -- (10,508)
Amortization of deferred finance costs (134) (244) -- -- (378)
Inter-company interest and other 2,251 (2,251) -- -- --
Interest expense (1,735) (124) -- -- (1,859)
-------- -------- --------- --------- --------
Net loss $ (7,093) $ (5,652) $ -- $ -- $(12,745)
======== ======== ========= ========= ========

EMPIRE RESORTS, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2006
(in thousands) (Unaudited)
Empire Guarantor Non-Guarantor Eliminating
Resorts Subsidiaries Subsidiaries Entries Consolidated
--------- ------------ ------------ ---------- ------------
Net cash provided by (used in)
operating activities $ (5,243) $ 10,508 $ -- $ -- $ 5,265
-------- -------- --------- --------- --------
Cash flows from investing activities:
Purchase of property and equipment -- (320) -- -- (320)
Restricted cash (Racing capital imp.) -- (86) -- -- (86)
Advances to Litigation Trust (505) -- -- -- (505)
Deferred development costs (125) (2,238) -- -- (2,363)
Advances to Empire Resorts -- (5,133) -- 5,133 --
-------- -------- --------- --------- --------
Net cash used in investing activities (630) (7,777) -- 5,133 (3,274)
-------- -------- --------- --------- --------
Cash flows from financing activities:
Proceeds from revolving credit facility 141 -- -- -- 141
Proceeds from exercise of stock options 1,166 -- -- -- 1,166
Advances from subsidiaries 5,133 -- -- (5,133) --
Deferred financing costs (798) -- -- -- (798)
Restricted cash (revolving credit facility) (21) -- -- -- (21)
-------- -------- --------- --------- --------
Net cash provided by financing activities 5,621 -- -- (5,133) 488
-------- -------- --------- --------- --------
Net increase (decrease) in cash and cash (252) 2,731 -- -- 2,479
equivalents
Cash and cash equivalents, beginning of year 635 6,357 -- -- 6,992
-------- -------- --------- --------- --------
Cash and cash equivalents, end of year $ 383 $ 9,088 $ -- $ -- $ 9,471
======== ======== ========= ========= ========

EMPIRE RESORTS, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2005
( in thousands ) ( Unaudited )
Empire Guarantor Non-Guarantor Eliminating
Resorts Subsidiaries Subsidiaries Entries Consolidated
--------- ------------ ------------ ---------- ------------
Net cash provided by (used in)
operating activities $(2,748) $ 1,543 $-- $ -- $(1,205)
------- ------- ----- ------- -------
Cash flows from investing activities:
Purchase of property and equipment (13) (1,954) -- -- (1,967)
Restricted cash (Racing capital imp.) -- 6 -- -- 6
Advances to Litigation Trust (505) -- -- -- (505)
Deferred development costs -- (3,309) -- -- (3,309)
Advances to subsidiaries (4,810) -- -- 4,810 --
------- ------- ----- ------- -------
Net cash used in investing activities (5,328) (5,257) -- 4,810 (5,775)
------- ------- ----- ------- -------
Cash flows from financing activities:
Proceeds from revolving credit facility 7,476 -- -- -- 7,476
Proceeds from exercise of stock options 283 -- -- -- 283
Deferred financing costs (539) -- -- -- (539)
Advances from Empire Resorts, Inc. -- 4,810 -- (4,810) --
Restricted cash (revolving credit facility) (412) -- -- -- (412)
------- ------- ----- ------- -------
Net cash provided by financing activities 6,808 4,810 -- (4,810) 6,808
------- ------- ----- ------- -------
Net increase (decrease) in cash and cash (1,268) 1,096 -- -- (172)
equivalents
Cash and cash equivalents, beginning of year 1,903 5,261 -- -- 7,164
------- ------- ----- ------- -------
Cash and cash equivalents, end of year $ 635 $ 6,357 $-- $ -- $ 6,992
======= ======= ===== ======= =======

EMPIRE RESORTS, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2004
( in thousands ) ( Unaudited )
Empire Guarantor Non-Guarantor Eliminating
Resorts Subsidiaries Subsidiaries Entries Consolidated
--------- ------------ ------------ ---------- ------------
Net cash used in operating activities $ (2,033) $ (6,608) $-- $ -- $ (8,641)
-------- -------- ----- -------- --------
Cash flows from investing activities:
Purchase of property and equipment -- (31,079) -- -- (31,079)
Restricted cash (Racing capital imp.) -- (37) -- -- (37)
Cash acquired in acquisition 18 -- -- -- 18
Advances to Litigation Trust (505) -- -- -- (505)
Deferred development costs -- (4,614) -- -- (4,614)
Advances to subsidiaries (49,715) -- -- 49,715 --
-------- -------- ----- -------- --------
Net cash used in investing activities (50,202) (35,730) -- 49,715 (36,217)
-------- -------- ----- -------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock 30,375 -- -- -- 30,375
Proceeds from issuance of senior convertible
notes 65,000 -- -- -- 65,000
Proceeds from exercise of stock options 151 -- -- -- 151
Stock issuance expenses (2,317) -- -- -- (2,317)
Deferred financing costs (3,143) -- -- -- (3,143)
Excess of market value over carrying value of
property and equipment purchased from
related party (30,825) -- -- -- (30,825)
Advances from Empire Resorts, Inc. -- 49,715 -- (49,715) --
Repayment of bank loans and promissory
notes (5,073) (3,470) -- -- (8,543)
Dividends paid on preferred stock (30) -- -- -- (30)
-------- -------- ----- -------- --------
Net cash provided by financing activities 54,138 46,245 -- (49,715) 50,668
-------- -------- ----- -------- --------
Net increase in cash and cash equivalents 1,903 3,907 -- -- 5,810
Cash and cash equivalents, beginning of year -- 1,354 -- -- 1,354
-------- -------- ----- -------- --------
Cash and cash equivalents, end of year $ 1,903 $ 5,261 $-- $ -- $ 7,164
======== ======== ===== ======== ========

NOTE J. STOCKHOLDERS' EQUITY

COMMON STOCK

On May 23, 2005 we granted our Chief Executive Officer 261,023 restricted
shares of common stock pursuant to his employment agreement, of which 86,138
shares vested on August 17, 2005, 86,138 shares on May 23, 2006 and 88,747 will
vest on May 23, 2007. The expense associated with these issues was approximately
$387,000 and 530,000 for the years ended December 31, 2006 and 2005,
respectively.

In January and June, 2004 we issued a total of 40,000 shares of common
stock to our former Chairman of the Board, David Matheson, as consideration for
his service on a special committee of the Board of Directors involved with the
various regulatory agencies considering our development with the Cayuga Nation
of New York. Mr. Matheson abstained from any votes if the Board of Directors on
this subject. The expense associated with these issues was approximately
$541,000 and the corresponding credit was recorded as an increase in common
stock and additional paid in capital.

In connection with our January 12, 2004 merger, we issued 18,219,075
shares of our common for the acquisition of Monticello Raceway Management,
Monticello Casino Management, Monticello Raceway Development and Mohawk
Management, LLC. We also filed a Registration Statement covering these shares.

On January 30, 2004, we issued 4,050,000 shares of our common stock in a
private placement sale with proceeds of approximately $30.3 million.

PREFERRED STOCK AND DIVIDENDS

Our Series B Preferred Stock has voting rights of 0.8 votes per share and
each share is convertible into 0.8 shares of common stock. It has a liquidation
value of $29 per share and is entitled to annual cumulative dividends of $2.90
per share payable quarterly in cash. We have the right to pay the dividends on
an annual basis by issuing shares of our common stock at the rate of $3.77 per
share. The value of common shares issued as payment is based upon the average
closing price for the common shares for the 20 trading days preceding January 30
of the year following that for which the dividend is due. At December 31, 2006
and 2005 there were 44,258 shares of Series B Preferred Shares outstanding.

At December 31, 2006 we had undeclared dividends on the Series B Preferred
Stock of approximately $167,000. On March 8, 2007, our Board of Directors
authorized the issuance of 18,884 shares of our common stock in payment of the
amount due. The value of these shares when issued was approximately $190,000

At December 31, 2005 we had undeclared dividends on the Series B Preferred
Stock of approximately $167,000. On March 8, 2006 our Board of Directors
authorized issuance of 23,103 shares of common stock in payment of the amount
due. The value of these shares when issued was approximately $98,000.

On February 16, 2005 we issued 12,640 shares of common stock in payment of
dividends for the last three quarters of 2004 on our Series B Preferred Stock.
The value of these shares when issued was approximately $142,000. On April 29,
2004 we paid $30,000 in cash dividends due for the three months ended March 31,
2004.

Our Series E Preferred Stock is non-convertible and has no fixed date for
redemption or liquidation. It has a redemption value of $10 per share plus
accrued but unpaid dividends. It is entitled to cumulative dividends at the
annual rate of 8% of redemption value and the holders of these shares are
entitled to voting rights of 0.25 per share. Dividends on common stock and
certain other uses of our cash are subject to restrictions for the benefit of
holders of the Series E Preferred Stock.

At December 31, 2006 we had undeclared dividends on our Series E Preferred
Stock of approximately $5.6 million.

NOTE K. STOCK OPTIONS AND WARRANTS

On August 17, 2005 our shareholders approved the 2005 Equity Incentive
Plan. We have reserved 3.5 million shares of common stock for issuance in
connection with this plan.

On May 12, 2004 our shareholders approved the 2004 Stock Option Plan. We
have reserved 250,000 shares of common stock for issuance in connection with
this plan.

On January 30, 2004, in connection with our private placement of common
stock, we issued a warrant to purchase 250,000 shares of our common stock to the
placement agent, Jeffries & Co. The warrant has a five year term and entitles
the holder to purchase those shares at $7.50 per share. The estimated value of
that warrant was approximately $2.1 million and was recorded, with other
issuance costs of approximately $2.3 million, as a financing cost for the
transaction.

Stock options issued to employees, officers and directors are reported as
Stock Based Compensation and include the following grants.

Approximate Compensation Cost
(in thousands)
--------------------
Term
Number Strike in
Date of Grant Recipient Of Shares Price Years Vesting Schedule 2006 2005 2004
------------- --------- --------- ----- ----- ---------------- ---- ---- ----
33% - 90 days and
Employees and one year, remainder
August, 2006 officers 170,000 $5.53 10 - two to three years $395 $ --- $ ---
August, 2006 Director 10,000 $5.53 10 Fully upon grant 49 --- ---
Directors
March, 2006 (6 directors) 65,000 $4.26 10 Fully upon grant 249 --- ---
December, 2005 Employees and
officers 309,500 $6.75 10 Three years 1,122 48 ---
November, 2005 Director (1) 15,000 $5.10 10 Fully upon grant --- 70 ---
33% -90 days,
remainder - two
August, 2005 Employee 50,000 $3.93 10 years 66 90 ---
July, 2005 Director (1) 15,000 $4.02 10 Fully upon grant --- 54 ---
May, 2005 Non-executive
Chairman of the
Board (1) 50,000 $3.99 10 Fully upon grant --- 175 ---
May, 2005 33% - 90 days,
Chief Financial remainder - two
Officer (1) 150,000 $3.99 10 years 198 271 ---
May, 2005 33% - 90 days,
Chief Executive remainder - two
Officer (1) 1,044,092 $3.99 10 years 1,378 1,887 ---
March, 2005 Employee 30,000 $8.26 10 One year 10 208 ---
January, 2005 Directors annual
grant (6 directors) 60,000 $8.51 5 Fully upon grant --- 380 ---
November, 2004 Directors (2) for
services - new
business initiatives 100,000 $8.11 3 Fully upon grant --- --- 511
33% upon grant,
remainder - two
August, 2004 Employees (2) 20,000 $8.63 10 years 9 32 80
50% upon grant,
remainder - one
May, 2004 Employee 50,000 $14.25 10 year --- 137 576
33% upon grant,
remainder - two
May, 2004 Employees 25,000 $14.25 10 years --- 105 229
May, 2004 Employees 34,500 $14.25 10 Three years 58 85 185
March, 2004 Directors annual
grant (7directors) 70,000 $11.97 10 Fully upon grant --- --- 838

(1) Option grant as result of the appointment of the grantee to the position
indicated.

On May 23, 2005 we granted one year extensions of the expiration dates of
options to purchase 598,878 shares of common stock held by our former Chief
Executive Officer and two other officers who resigned their positions at that
time. The original terms of those options provided for an expiration date 90
days after such an event. The options involved had been issued in 2003 and have
a strike price of $2.12. We recorded stock based compensation expense associated
with this action of approximately $234,000 in 2005.

On November 12, 2004 we granted an option to purchase, under certain
conditions, 5,188,913 shares of our common stock at $7.50 per share to entities
with whom we had reached a merger and contribution agreement. The grant became
effective on August 20, 2005. On December 30, 2005 we reached a agreement with
those entities to terminate the agreement. The options expire on December 29,
2006 and we recorded the value of those options at the effective date
(approximately $1.7 million) as stock based compensation included in the write
off of deferred development costs for the year ended December 31, 2005. On
December 28, 2006 the grantee elected to exercise 2.5 million of the options
pursuant to this agreement and we agreed that receipt of the option purchase
price be no later than January 31, 2007. Also on December 28, 2006, we modified
the agreement to extend the expiration date for 1.0 million of the original
options to December 27, 2007 and to let expire the balance of 1,688,913 of the
options granted on November 12, 2004. In January 2007, we received proceeds of
$18.75 million for the option purchase price as mentioned above. Stock based
compensation expense for the year ended December 31, 2006 includes approximately
$3.5 million in expense for this extension.

During the years ended December 31, 2006, 2005 and 2004 we received
approximately $1,166,000, $283,000 and $151,000, respectively, of proceeds from
shares of common stock issued as a result of the exercise of stock options. We
issued approximately 507,000, 133,000 and 61,000 shares of common stock as a
result of these exercises.

The following table sets forth the weighted average assumptions used in
applying the Black Sholes option pricing model to the option grants in 2006,
2005 and 2004.

2006 2005 2004
---- ---- ----
Weighted average fair value of options granted $5.19 $ 6.81 $ 11.36
Expected dividend yield 0 % 0 % 0 %
Expected volatility 89.5% - 96.17% 91.1% - 100.3% 97.9% - 99.7%
Risk - free interest rate 4.7% - 4.9% 3.7% - 4.5% 3.1% - 4.2%
Expected life of options 10 years 0.5 - 10 years 3 - 10 years

The following table reflects stock option activity in 2006, 2005 and 2004.

Approximate Weighted
number of Range of exercise average exercise
Shares prices per share price per share
----------- ----------------- ----------------
Options outstanding at January 1, 2004 821,000 $ 2.67
Granted in 2004 300,000 $8.11 - $14.25 $ 11.36
Exercised in 2004 (61,000) $2.12 - $8.63 $ 2.48
Cancelled in 2004 (32,000) $2.12 - $11.97 $ 8.83
---------
Options outstanding at December 31, 2004 1,028,000 $ 5.00
Granted in 2005 6,913,000 $3.93 - $8.51 $ 6.81
Exercised in 2005 (134,000) $2.12 $ 2.12
Cancelled in 2005 (21,000) $14.25 $ 14.25
---------
Options outstanding at December 31, 2005 7,786,000 $ 6.63
Granted in 2006 245,000 $4.26 - $5.53 $ 5.19
Exercised in 2006 (3,007,000) $2.12 - $7.50 $ 6.62
Cancelled in 2006 (1,740,000) $2.12 - $11.97 $ 7.51
---------
Options outstanding at December 31, 2006 3,284,000 $ 6.06
========= =========

The following table reflects information on stock options outstanding at
December 31, 2006.

Options Outstanding Options Exercisable
------------------- -------------------
Weighted
Average Average Weighted
Exercise Number of Contractual Exercise Number of Average
Price Shares Life Price Shares Exercise Price
-------- --------- ----------- ---------- --------- --------------
$ 2.12 72,250 4.0 $ 2.12 72,250 $ 2.12
$ 4.40 5,500 2.5 $ 4.40 5,500 $ 4.40
$ 7.00 60,000 5.6 $ 7.00 60,000 $ 7.00
$11.97 50,000 7.2 $ 11.97 50,000 $ 11.97
$14.25 89,000 7.4 $ 14.25 84,333 $ 14.25
$ 8.63 10,000 7.6 $ 8.63 10,000 $ 8.63
$ 8.11 100,000 0.9 $ 8.11 100,000 $ 8.11
$ 8.51 50,000 3.0 $ 8.51 50,000 $ 8.51
$ 8.26 30,000 8.2 $ 8.26 30,000 $ 8.26
$ 3.99 1,214,092 8.4 $ 3.99 808,101 $ 3.99
$ 4.02 15,000 8.6 $ 4.02 15,000 $ 4.02
$ 3.93 35,000 8.6 $ 3.93 18,000 $ 3.93
$ 5.10 15,000 8.9 $ 5.10 15,000 $ 5.10
$ 6.75 293,067 9.0 $ 6.75 96,379 $ 6.75
$ 7.50 1,000,000 1.0 $ 7.50 1,000,000 $ 7.50
$ 4.26 65,000 9.2 $ 4.26 65,000 $ 4.26
$ 5.53 180,000 9.6 $ 5.53 56,667 $ 5.53

3,283,909 5.8 $ 6.06 2,536,230 $ 6.36
========= === ========= ========= =========

NOTE L. INCOME TAXES

The Company and all of its subsidiaries file a consolidated income tax
return. At December 31, 2006 and 2005, the estimated Company's deferred income
tax assets and liability were comprised of the following:

2006 2005
--------- --------
Deferred tax assets: (in thousands)
--------------
Net operating loss carry forwards $ 50,451 $ 39,742
Stock - based compensation 242 5,966
Allowance for doubtful accounts - Litigation Trust 667 444
Contributions 92 72
-------- --------
51,452 46,224
Deferred tax liabilities:
Depreciation (168) (168)
-------- --------
Net deferred tax assets 51,284 46,056
Valuation allowance (51,284) (46,056)
-------- --------
Deferred tax assets, net $ -- $ --
======== ========

The following is a reconciliation of the federal statutory tax rate to our
effective tax rate:

Year ended December 31,
-----------------------
2006 2005 2004
------- ------- -------
Tax provision at federal statutory tax rate 35.0% 35.0% 35.0%
State income taxes, net 9.0% 9.0% 9.0%
Permanent items 29.9% 1.2% 0.2%
Change in valuation allowance (73.9)% (45.2)% (44.2)%
----- ----- -----
Effective tax rate 0.0% 0.0% 0.0%
===== ===== =====

The Company's merger with CDL will limit the Company's ability to use its
current net operating loss carry forwards, potentially increasing future tax
liability. As of December 31, 2006, the Company had net operating loss carry
forwards of approximately $115 million that expire between 2008 and 2026. The
merger of the Company's operations with CDL, however, will not permit the
Company to use the entire amount of the net operating losses due to the change
in control of the Company. A limited amount of the net operating loss
carry-forward may be applied in future years based upon the change of control
and existing income tax laws.

NOTE M. CONCENTRATION

One debtor, New York Off-track Betting Corporation ("OTB"), represented
approximately 42% of the total outstanding accounts receivable as of December
31, 2006 and three debtors, New York OTB, Nassau OTB, and Catskill OTB,
represented approximately 52% of the total outstanding accounts receivable as of
December 31, 2005.

Note N: EMPLOYEE BENEFIT PLAN

Our eligible employees may participate in a Company-sponsored 401(k)
benefit plan. This Plan covers substantially all employees not eligible for
plans resulting from collective bargaining agreements and permits employees to
defer up to 15% of their salary up to statutory maximums. The plan also provides
for matching contributions by us of up to 100 % of the first 3% of salary
deferral and 66.7% of the next 3% of salary deferral. Our matching contributions
in 2006 were approximately $136,000. As of December 31, 2006, 115 employees
participated in the plan.

NOTE O. COMMITMENTS AND CONTINGENCIES

CASINO DEVELOPMENT. We are committed to provide development assistance
in connection with the establishment and initial operations of tribal gaming
authorities for New York State gaming operations for the St. Regis Mohawk
Tribe. We are also committed to incur costs associated with the development
of casino resorts with the St. Regis Mohawk Tribe.

LEGAL PROCEEDINGS.

The Monticello Harness Horsemen's Association, Inc. ("Horsemen",
"Horsemen's Association") has brought multiple actions against our subsidiary,
Monticello Raceway Management, Inc.

Monticello Harness Horsemen's Association v. Monticello Raceway Management
State of New York, Supreme Court, Sullivan County Index No.: 1750/03: This is an
action brought by the Horsemen's Association of Monticello Raceway against
Monticello Raceway Management, Inc. The claim is that the barn area at
Monticello Raceway has been reduced in size and there are less available stalls
for Horsemen at the track in prior years. An additional claim is that some of
the Horsemen who are no longer eligible for stall use due to consolidation of
the barn area were discriminated against by reason of their membership in the
Horsemen's Association. The action was commenced July 31, 2003, and the
plaintiff obtained a temporary restraining order upon commencement of the
action. The temporary restraining order was dismissed and an injunction denied
to the Horsemen after a hearing which was held the following week and the case
had not been pursued further by the plaintiff, although it is still pending. The
consolidation of the barn area at Monticello Raceway was completed.

Monticello Harness Horsemen's Association v. Monticello Raceway Management
Index Numbers: 1765/03 and 2624/03 Supreme Court, State of New York, Sullivan
County. These are consolidated actions brought by the Horsemen's Association
seeking damages for alleged underpayment of purses due to the Horsemen from
various raceway revenue sources. These actions were commenced respectively on
September 30, 2003 and December 12, 2003. The actions were consolidated by order
of the Sullivan County Supreme Court in November 2004. One case alleges that
certain monies designated by contract for the Horsemen's overnight purses were
used to fund a special racing series at Monticello Raceway. That portion of the
claim seeks a recoupment of approximately $60,000 dollars in purse monies. That
action also seeks control by the Horsemen of the setting of purses as opposed to
Monticello Raceway. The second action which was consolidated with the first
action involves a claim that the Horsemen's purse account has not been properly
credited with various simulcasting revenues and that there were deductions from
the Horsemen's purse account for simulcast expenses which the plaintiff claims
were not authorized by the parties' contract. That complaint seeks approximately
$2.0 million dollars in compensatory damages and a similar amount in punitive
damages. This consolidated action is pending. There has been certain paper
discovery completed (bill of particulars) and there are outstanding requests for
further interrogatories and discovery items. Depositions have not yet been held.
There have been numerous settlement conferences in the context of the ongoing
global contract negotiations between the parties.

On June 15, 2005, various Article 78 proceedings were commenced by four
regional OTBs against the New York State Racing and Wagering Board, Monticello
Raceway and Yonkers Raceway seeking the return to the OTBs of various racing
revenues previously paid by the OTBs to Monticello Raceway and Yonkers Raceway,
more commonly known in the industry as "dark day monies" and out-of-state OTB
commissions. All of the petitions have been consolidated into one proceeding now
pending in the New York State Supreme Court Albany County. . The approximate
amount of reimbursement which the OTBs are seeking from Monticello Raceway, as
prosecuted, is in excess of $4.0 million together with ongoing payments which
the OTBs are making to Monticello Raceway as per the direction and rulings of
the New York State Racing and Wagering Board. In September 2006, a favorable
outcome was achieved when the combined petition was dismissed. An appeal by the
petitioners is pending in the appellate court.

In the opinion of management, the resolution of the actions described
above will not have a material adverse effect on our consolidated financial
position, results of operations or cash flows.

LITIGATION TRUST. On January 12, 2004, in order to better focus on the
development of a VGM facility at the Raceway and current business and as a
condition to the consolidation transaction with CDL, all interests of the
plaintiffs, including any interest of the Empire, with respect to litigation
against Caesars Entertainment, Inc were transferred to a liquidating Litigation
Trust. The Company agreed to provide the Litigation Trust with a $2.5 million
line of credit. For each of the years ended December 31, 2006, 2005 and 2004, we
made advances to the Trust of $505,000 under the line of credit. Due to the
unpredictable nature of the litigation we provided for a valuation allowance of
$505,000 in each of those years against the receivable from the Litigation
Trust.

NOTE P. SUBSEQUENT EVENTS

On March 8, 2007, our Board of Directors authorized the issuance of
18,884 shares of our common stock in payment of dividends on our Series B
Preferred Stock for 2006. The value of these shares when issued was
approximately $190,000.

On February 19, 2007, New York Governor Eliot Spitzer issued his
concurrence with regard to the April 2000 Secretarial Determination which found
that gaming in Sullivan County by the St. Regis Mohawk Tribe would be in the
best interest of the St. Regis Mohawk Tribe and its members and would not be
detrimental to the surrounding communities. In addition, on February 19, 2007,
Governor Spitzer signed an amendment to the gaming compact between the St. Regis
Mohawk Tribe and New York State pursuant to which New York State would receive
20 percent of slot-machine revenues for the first two years after the St. Regis
Mohawk Tribe's Class III casino to be located at Monticello Raceway opens, 23
percent for the next two years and 25 percent thereafter.

Environment, Inc. and Natural Resources Defense Council v. United States
Department of the Interior, Dirk Kempthorne, in his official capacity as
Secretary of the Interior, James E. Cason, in his official capacity as Associate
Deputy Secretary of the Interior and Acting Assistant Secretary of the Interior
for Indian Affairs and BIA. The claim alleges that the BIA violated the National
Environmental Policy Act ("NEPA") and the Administrative Procedure Act by
issuing a Finding of No Significant Impact without requiring an environmental
impact statement ("EIS") under NEPA. The plaintiffs are seeking an order
requiring the preparation of an EIS prior to Department of the Interior's
granting final approvals for the proposed St. Regis Mohawk Casino at Monticello
Raceway and prior to the Department of the Interior's causing the transfer of
the subject land into federal trust. We expect that the defendants will respond
to the complaint within the next 60 days.

NOTE Q. UNAUDITED QUARTERLY DATA (IN THOUSANDS)

First Second Third Fourth
Quarter Quarter Quarter Quarter
------------- ------------- ------------- -------------
2006
----
Net revenue $ 22,661 $ 25,882 $ 28,721 $ 20,846
Net income (loss) (1,796) (386) 191 (5,085)
Net loss applicable to common
shares (2,184) (774) (197) (5,472)
Net loss per common share, basic
and diluted (0.08) (0.03) (0.01) (0.20)

2005
----
Net revenue $ 16,690 21,953 $ 25,648 $ 22,473
Net loss (2,858) (2,758) (1,194) (11,717)
Net loss applicable to common
shares (3,246) (3,146) (1,582) (12,104)
Net loss per common share, basic
and diluted (0.12) (0.12) (0.06) (0.46)

2004
----
Total revenue $ 2,511 $ 2,654 $ 21,856 $ 17,985
Net loss (3,653) (4,626) (1,533) (2,933)
Net loss applicable to common
shares (4,031) (5,014) (1,921) (3,319)
Net loss per common share, basic
and diluted (0.18) (0.19) (0.07) (0.13)

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

None.

Item 9A. CONTROLS AND PROCEDURES.

We carried out an evaluation required by Rule 13a-15 of the Securities
Exchange Act of 1934 under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial Officer,
of the effectiveness of the design and operation of Empire Resorts, Inc.'s
"disclosure controls and procedures" and "internal control over financial
reporting" as of the end of the period covered by this Annual Report.

The evaluation of Empire Resorts, Inc.'s disclosure controls and
procedures and internal control over financial reporting included a review of
our objectives and processes, implementation by us and the effect on the
information generated for use in this Annual Report. In the course of this
evaluation and in accordance with Section 302 of the Sarbanes Oxley Act of 2002,
we sought to identify material weaknesses in our controls, to determine whether
we had identified any acts of fraud involving personnel who have a significant
role in our internal control over financial reporting that would have a material
effect

on our consolidated financial statements, and to confirm that any necessary
corrective action, including process improvements, were being undertaken. Our
evaluation of our disclosure controls and procedures is done quarterly and
management reports the effectiveness of our controls and procedures in our
periodic reports filed with the SEC. Our internal control over financial
reporting is also evaluated on an ongoing basis by our internal auditors and by
other individuals in our finance organization. The overall goals of these
evaluation activities are to monitor our disclosure controls and procedures and
internal control over financial reporting and to make modifications as
necessary. We periodically evaluate our processes and procedures and make
improvements as required.

Because of inherent limitations, disclosure controls and procedures and
internal control over financial reporting may not prevent or detect
misstatements. In addition, 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. Management applies its judgment in
assessing the benefits of controls relative to their costs. Because of the
inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within the company have been detected. The design of any system of controls
is based in part upon certain assumptions about the likelihood of future events,
and there can be no assurance that any design will succeed in achieving its
stated goals under all potential future conditions, regardless of how remote.

DISCLOSURE CONTROLS AND PROCEDURES

Disclosure controls and procedures are designed with the objective of
ensuring that (i) information required to be disclosed in our reports filed
under the Securities Exchange Act of 1934 is recorded, processed, summarized and
reported within the time periods specified in the rules and forms of the
Securities and Exchange Commission and (ii) information is accumulated and
communicated to management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate to allow timely decisions regarding required
disclosures. Based on their evaluation, our Chief Executive Officer and Chief
Financial Officer have concluded that our disclosure controls and procedures are
effective.

MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Our management is responsible for establishing and maintaining adequate
internal control over financial reporting, as such term is defined in Exchange
Act Rule 13a-15(f). Under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial Officer,
we conducted an evaluation of the effectiveness of our internal control over
financial reporting based on the framework in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. 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 and includes those policies and
procedures that (a) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the
assets of the Company; (b) provide reasonable assurance that transactions are
recorded as necessary to permit the 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 our management and directors; and (c) 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. Based on our evaluation under the framework in
Internal Control - Integrated Framework, our management concluded that our
internal control over financial reporting was effective as of December 31, 2006.

Our management's assessment of the effectiveness of our internal control
over financial reporting as of December 31, 2006 and the effectiveness of our
internal control over financial reporting as of December 31, 2006 has been
audited by Freidman LLP, an independent registered public accounting firm, as
stated in their report which appears in Item 8 of this Annual Report.

Item 9B. Other Information.

None.

PART III

Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

DIRECTORS AND EXECUTIVE OFFICERS

Our directors and executive officers are as follows:

Name Age Position
---- --- --------
John Sharpe 64 Chairman of the Board(1)
David P. Hanlon 62 Chief Executive Officer, President and Director(2)
Paul A. deBary 60 Director(1)
Joseph E. Bernstein 57 Director(3)
Ralph J. Bernstein 48 Director(1)
Robert H. Friedman 53 Director(2)
Frank Catania 65 Director(3)
Ronald J. Radcliffe 63 Chief Financial Officer
Thomas W. Aro 63 Chief Operating Officer
Hilda Manuel 55 Senior V. P. for Native American Affairs and Chief
Compliance Officer
-------------
(1) Class I Director

(2) Class II Director

(3) Class III Director

In January 2004, we amended our certificate of incorporation and bylaws to
create a staggered board of directors. The amendment provided for the creation
of three classes of directors, as nearly equal in size as possible. Upon their
initial election, Class I directors were to hold office for a term expiring in
one year, at the 2004 annual meeting of stockholders; Class II directors were to
hold office for a term expiring in two years, at the 2005 annual meeting of
stockholders; and Class III directors were to hold office for a term expiring in
three years, at the 2006 annual meeting of stockholders. Commencing at the 2004
annual meeting of stockholders, the stockholders would elect only one class of
directors each year, beginning with Class I directors, with each director so
elected holding office for a term of three years. The initial Class I, Class II
and Class III directors were selected in January 2004, concurrently with the
adoption of this amendment, and the Class I directors were all reelected at the
2004 annual stockholders meeting in May 2004.

The business experience of each or our directors and executive officers is
as follows:

JOHN SHARPE. John Sharpe, 64, is our Chairman of the Board of Directors.
Most recently, Mr. Sharpe served as President and Chief Operating Officer of
Four Seasons Hotels & Resorts, from which he retired in 1999 after 23 years of
service. During his tenure at Four Seasons, the world's largest operator of
luxury hotels, Mr. Sharpe directed worldwide hotel operations, marketing and
human resources, and helped create Four Seasons' renowned reputation for the
highest level of service in the worldwide hospitality industry. In 1999, Mr.
Sharpe was bestowed with the "Corporate Hotelier of the World" award by Hotels
Magazine, Inc. Mr. Sharpe also received the "Silver Plate" award from the
International Food Manufacturers Association, and the "Gold Award" from the
Ontario Hostelry Institute. Mr. Sharpe graduated with a B.S. in hotel
administration from Cornell University and is a former trustee of the Culinary
Institute of America, and former chair of the Industry Advisory Council at the
Cornell Hotel School. Mr. Sharpe previously served as executive-in-residence,
School of Hotel Administration, Cornell University; chair, board of governors,
Ryerson University, Toronto, Canada, and co-chair, American Hotel Foundation,
Washington, D.C. Mr. Sharpe has served as a director since August 2003 and
became Chairman of the Board in May 2005.

RALPH J. BERNSTEIN. Ralph J. Bernstein, 48, is a co-founder and general
partner of Americas Partners, a real estate development and investment firm,
and, since 1981 has been responsible for the acquisition, renovation,

development and financing of several million square feet of commercial
space. Mr. Bernstein also serves as a director for Air Methods Corporation,
a publicly traded company that provides air medical emergency transport
services and systems throughout the United States of America. Mr. Bernstein
received a B.A. in economics from the University of California at Davis. Mr.
Bernstein has served as a director since August 2003.

PAUL A. DEBARY. Paul A. deBary, 60, is a managing director at Marquette
deBary Co., Inc., a New York based broker-dealer, where he serves as a
financial advisor for state and local government agencies, public and private
corporations and non-profit organizations. Prior to assuming his current
position, Mr. deBary was a managing director in the Public Finance Department
of Prudential Securities from 1994 to 1997. Mr. deBary was also a partner in
the law firm of Hawkins, Delafield & Wood in New York from 1975 to 1994. Mr.
deBary received an AB in 1968, and an M.B.A. and J.D. in 1971 from Columbia
University. Mr. deBary is a member of the American Bar Association, the New
York State Bar Association, the Association of the Bar of the City of New
York and the National Association of Bond Lawyers. Mr. deBary is also a
member of the Board of Managers of Teleoptic Digital Imaging, LLC, and serves
as a director of several non-profit organizations, including New
Neighborhoods, Inc., AA Alumni Foundation and the Society of Columbia
Graduates. Mr. deBary has served as a director since March 2002.

DAVID P. HANLON. David P. Hanlon, 62, is currently our Company's Chief
Executive Officer and President and a member of the Board of Directors. He
previously served as Vice Chairman of the Board and has been a director since
2003. Prior to starting his own gaming consulting business in 2000, in which
he advised a number of Indian and international gaming ventures, Mr. Hanlon
was President and Chief Operating Officer of Rio Suites Hotel & Casino from
1996-1999, a period in which the Rio Suites Hotel & Casino underwent a major
expansion. From 1994-1995, Mr. Hanlon served as President and Chief
Executive Officer of International Game Technology, the world's leading
manufacturer of microprocessor gaming machines. From 1988-1993, Mr. Hanlon
served as President and Chief Executive Officer of Merv Griffin's Resorts
International, and prior to that, Mr. Hanlon served as President of Harrah's
Atlantic City (Harrah's Marina and Trump Plaza). Mr. Hanlon's education
includes a B.S. in Hotel Administration from Cornell University, an M.S. in
Accounting, an M.B.A. in Finance from the Wharton School, University of
Pennsylvania, and he completed the Advanced Management Program at the Harvard
Business School.

ROBERT H. FRIEDMAN. Robert H. Friedman, 53, has served as our Secretary
since May 2004. Mr. Friedman has been a partner with Olshan Grundman Frome
Rosenzweig & Wolosky LLP, a New York City law firm, since August 1992. Prior
to that time and since September 1983 he was associated with Cahill Gordon &
Reindel, also a New York City law firm. Mr. Friedman specializes in corporate
and securities law matters. Mr. Friedman received his B.A. and J.D. degrees
from Rutgers University, and has been on the faculty of the Practicing Law
Institute since August 2000. Mr. Friedman became a director in July 2005.

JOSEPH E. BERNSTEIN. Joseph E. Bernstein, 57, started his career as a
corporate tax attorney on Wall Street at Cahill Gordon & Reindel and as an
international tax attorney at Rosenman & Colin. He later started his own
international tax practice. Since the early 1980s, Mr. Bernstein (along with his
brother Ralph, and their partner, Morad Tahbaz, through Americas Tower Partners)
has been involved in the development of three million square feet of commercial
property in Manhattan, including Americas Tower, a 50-story office building on
Avenue of the Americas and 46th Street in New York City, serving as US
headquarters to Israel's largest bank, Bank Hapoalim. Mr. Bernstein has served
as a director since August 2003.

FRANK CATANIA. Frank Catania, 65, has been a principal at Catania
Consulting Group and a lawyer at Catania & Associates since January 1999. Prior
to this, he was the assistant attorney general and director of New Jersey's
Division of Gaming Enforcement, a position he took in 1994. Mr. Catania was a
managing partner at the law offices of Catania & Harrington up until that time
and was engaged in all aspects of civil and criminal litigation, real estate
transactions, and corporate representation. He was also elected and served as
the assemblyman for New Jersey's 35th Legislative District from 1990 through
1994. Mr. Catania is currently a member of the International Masters of Gaming
Law association and was chairman of the International Association of Gaming
Regulators from 1998 to 1999. He has a J.D. from Seton Hall University School of
Law and a B.A. from Rutgers College. Mr. Catania became a director in November
2005.

RONALD J. RADCLIFFE. Ronald J. Radcliffe, 63, joined us as our Chief
Financial Officer in May 2005. Mr. Radcliffe was previously Chief Financial
Officer, Treasurer and Vice President of the Rio Suites Hotel & Casino in Las
Vegas from 1996-2000, where he negotiated the sale of the company to Harrah's
Entertainment, Inc. He was also the lead company representative in the company's
$125 million secondary public offering, negotiating a $300 million revolving
line of credit, and a public offering of $125 million in subordinated debt. In
2001, Mr. Radcliffe started a gaming consultancy business, and in 2002 became
Chief Financial Officer, Treasurer, Vice President and Principal of Siren
Gaming, LLC, a management company for an Indian casino. From 1993 to 1995, Mr.
Radcliffe was Chief Financial Officer, Treasurer and Vice President of Mikohn
Gaming Corporation, Las Vegas, NV. Prior to this, he was Vice Chairman,
President, Chief Operating Officer and Chief Financial Officer for Sahara
Resorts, Las Vegas, NV. Mr. Radcliffe is a licensed C.P.A. and received a B.S.
in business administration in 1968 from the University of Nevada.

THOMAS W. ARO. Thomas W. Aro, 63, is our Chief Operating Officer and
was a member of our Board of Directors from 1994 through July 2003. Mr. Aro
was also our Executive Vice President since our formation in 1993 through
November 11, 2003 and served as our Secretary from 1998 until May 2004. Mr.
Aro also serves as our Chief Operating Officer of our gaming subsidiaries and
has over 30 years experience in the hospitality and gaming industries. Mr.
Aro received a B.S. from the University of Arizona and is a licensed C.P.A.

HILDA MANUEL. Hilda A. Manuel, 55, joined us in March 2005 as our Senior
Vice President for Native American Affairs and Chief Compliance Officer. From
February 2003 through December 2004, Ms. Manuel served as deputy general counsel
for the Gila River Indian Community, where she supervised general employees and
attorneys with respect to civil and criminal matters. From May 2000 through
March 2002, Ms. Manuel served as special counsel to the law firm of Steptoe &
Johnson, LLP, where she oversaw business development with Indian tribes and
Indian organizations, along with supervising the management of cases for Indian
clients. From October 1994 through April 2000, Ms. Manuel served as the Deputy
Commissioner of the BIA for the U.S. Department of the Interior. As Deputy
Commissioner, Ms. Manuel was responsible for the overall management of the BIA,
including the maintenance of government-to-government relationships with Indian
tribes, protecting trust resources and the trust assets of Indian tribes, the
fiscal administration and expenditure of $2.8 billion in appropriated funds and
the supervision of 12 regional offices, 83 tribe-agencies and over 13,000
employees. From February 1992 through May 1994, Ms. Manuel served as Staff
Director for the Indian Gaming Management Office of the BIA, where she was
responsible for implementing the responsibilities of the Secretary of the
Interior under the Indian Gaming Regulatory Act of 1988, along with supervising
acts related to the approval of Class III gaming tribal-state compacts, fee to
trust land acquisitions for gaming purposes, revenue allocation plans, including
per capita distributions of gaming revenues, and the development of policy
guidelines and directives on gaming related issues within the authority of the
Secretary of the Interior. Finally, from May 1991 through February 1992, Ms.
Manuel served as Division Chief for Tribal Government Affairs for the BIA and
from February 1990 through July 1991, Ms. Manuel was a Judicial Services
Specialist for the BIA.

Ralph J. Bernstein and Joseph E. Bernstein are brothers.

AUDIT COMMITTEE AND AUDIT COMMITTEE FINANCIAL EXPERT

We maintain a separately designated audit committee established in
accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as
amended. The members of our audit committee are Paul A. deBary, Frank Catania
and John Sharpe. Mr. deBary is its chairman. Each member of the audit committee
is independent, within the meaning of the National Association of Securities
Dealers' listing standards. In addition, each audit committee member satisfies
the audit committee independence standards under the Securities Exchange Act of
1934, as amended.

Our board of directors believes that Mr. Paul A. deBary is an audit
committee financial expert, as such term is defined in Item 401(h) of Regulation
S-K.

CODE OF ETHICS

We adopted a code of ethics that is available on our internet website
(www.empireresorts.com) and will be provided in print without charge to any
stockholder who submits a request in writing to Empire Resorts, Inc. Investor

Relations, Route 17B, P.O. Box 5013, Monticello, New York 12701. The code of
ethics applies to each of our directors and officers, including the chief
financial officer and chief executive officer, and all of our other employees
and the employees of our subsidiaries. The code of ethics provides that any
waiver of the code of ethics may be made only by our board of directors.

COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
our executive officers and directors, and persons who beneficially own more than
ten percent of our common stock, to file initial reports of ownership and
reports of changes in ownership with the Securities and Exchange Commission.
Executive officers, directors and greater than ten percent beneficial owners are
required by Securities and Exchange Commission regulations to furnish us with
copies of all Section 16(a) forms they file. Based upon a review of the copies
of such forms furnished to us and written representations from our executive
officers and directors, we believe that during the year ended December 31, 2006
there were no delinquent filers except as follows: Ralph J. Bernstein filed a
late Form 4 for a transaction that occurred on March 8, 2006 (one transaction);
John Sharpe filed a late Form 4 for one transaction that occurred on March 8,
2006 (one transaction); Frank Catania filed a late Form 4 for a transaction that
occurred on March 8, 2006 (one transaction); Hilda Manuel filed a late Form 4
for a transaction that occurred on August 10, 2006 (one transaction); Ronald J.
Radcliffe filed a late Form 4 for a transaction that occurred on August 10, 2006
(one transaction); and Paul A. deBary filed a late Form 4 for a transaction that
occurred on August 10, 2006 (one transaction).

Item 11. EXECUTIVE COMPENSATION.

The information required by this Item 11 will be in the Company's
definitive proxy materials to be filed with the Securities and Exchange
Commission and is incorporated in this Annual Report on Form 10-K by this
reference.

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

The following table sets forth information concerning beneficial ownership
of our capital stock outstanding at March 9, 2007 by (i) each director as of
March 9, 2007; (ii) each executive officer of the Company as of March 9, 2007,
(iii) each stockholder known to be the beneficial owner of more than five
percent of any class of the Company's voting securities and (iv) by all
directors and executive officers of the Company, as a group.

The information regarding beneficial ownership of our common stock has
been presented in accordance with the rules of the Securities and Exchange
Commission. Under these rules, a person may be deemed to beneficially own any
shares of capital stock as to which such person, directly or indirectly, has or
shares voting power or investment power, and to beneficially own any shares of
our capital stock as to which such person has the right to acquire voting or
investment power within 60 days through the exercise of any stock option or
other right. The percentage of beneficial ownership as to any person as of a
particular date is calculated by dividing (a) (i) the number of shares
beneficially owned by such person plus (ii) the number of shares as to which
such person has the right to acquire voting or investment power within 60 days
by (b) the total number of shares outstanding as of such date, plus any shares
that such person has the right to acquire from us within 60 days. Including
those shares in the tables does not, however, constitute an admission that the
named stockholder is a direct or indirect beneficial owner of those shares.
Unless otherwise indicated, each person or entity named in the table has sole
voting power and investment power (or shares that power with that person's
spouse) with respect to all shares of capital stock listed as owned by that
person or entity.

Series B Preferred
Name and Address of Common Stock Stock Beneficially Series E Preferred Stock
Beneficial Owner(1) Beneficially Owned Owned Beneficially Owned
------------------------------- -------------- -------------- ------------ ------------- ------------- -------------
Shares Percentage Shares Percentage Shares Percentage
------ ---------- ------ ---------- ------ ----------
Thomas W. Aro 107,700(2) * -- -- -- --

Paul A. deBary 223,508(3) * -- -- -- --

John Sharpe 157,000(4) * -- -- -- --

David P. Hanlon 933,876(5) 3.09% -- -- -- --

Joseph E. Bernstein 2,086,143(6) 7.08% -- -- -- --

Ralph J. Bernstein 2,276,243(7) 7.72% -- -- -- --

Robert H. Friedman 35,000(8) * -- -- -- --

Frank Catania 35,000(9) * -- -- -- --

Ronald J. Radcliffe 89,000(10) * -- -- -- --

Hilda Manuel 49,500(11) * -- -- -- --

Concord Associates, L.P. 3,500,000(12) 11.89% -- -- -- --
c/o Cappelli Enterprises, Inc.
115 Stevens Avenue
Valhalla, NY 10595
Attention: Louis R. Cappelli

Wells Fargo & Company 1,608,845(13) 5.47% -- -- -- --
420 Montgomery Street
San Francisco, CA 94104

Directors and Officers as a 5,992,970 19.44% -- -- -- --
Group

Patricia Cohen -- -- 44,258 100% -- --
8306 Tibet Butler Drive
Windmere, FL 34786

Bryanston Group, Inc. -- -- -- -- 1,551,213 89.6%
2424 Route 52
Hopewell Junction, NY 12533

Stanley Tollman -- -- -- -- 152,817 8.8%
c/o Bryanston Group, Inc.
2424 Route 52
Hopewell Junction, NY 12533

---------------
* less than 1%

(1) Unless otherwise indicated, the address of each stockholder, director, and
executive officer listed above is Empire Resorts, Inc., c/o Monticello
Raceway, Route 17B, P.O. Box 5013, Monticello, New York, 12701.

(2) Includes 4,200 shares of common stock owned directly by Thomas W. Aro and
options that are currently exercisable into 103,500 shares of common
stock. Does not include options that will be exercisable into 10,000
shares of common stock on December 16, 2007 and into an additional 10,000
shares of common stock on December 16, 2008.

(3) Includes 155,913 shares of common stock owned directly by Paul deBary,
12,595 shares of common stock held in an individual retirement account for
Mr. deBary's benefit and options that are currently exercisable into
55,000 shares of common stock.

(4) Includes 2,000 shares of common stock owned directly by John Sharpe and
options that are currently exercisable into 155,000 shares of common
stock.

(5) Consists of 172,276 shares of restricted stock and options that are
currently exercisable into 761,600 shares of common stock. Does not
include 88,747 shares of restricted stock which vest on May 23, 2007, and
options that will be exercisable into 354,991 shares of common stock which
become exercisable on May 23, 2007.

(6) Includes 2,031,143 shares of common stock owned directly by Mr. Bernstein
and options that are currently exercisable into 55,000 shares of common
stock.

(7) Includes 2,221,243 shares of common stock owned directly by Ralph J.
Bernstein and options that are currently exercisable into 55,000 shares of
common stock.

(8) Consists of options that are currently exercisable into 35,000 shares
of common stock.

(9) Consists of options that are currently exercisable into 35,000 shares
of common stock.

(10) Consists of options that are currently exercisable into 89,000 shares of
common stock. Does not include options that will be exercisable into
51,000 shares of common stock on May 23, 2007, 20,000 shares of common
stock on August 10, 2007 and into 20,000 shares of common stock on August
10, 2008.

(11) Consists of options that are currently exercisable into 49,500 shares of
common stock. Does not include options that will be exercisable into
16,666 shares of common stock on August 10, 2007, into 2,833 shares of
common stock on December 16, 2007, into 16,668 shares of common stock on
August 10, 2008 and into an additional 2,834 shares of common stock on
December 16, 2008.

(12) Includes 2,500,000 shares of common stock owned directly by Concord
Associates Limited Partnership and options that are currently exercisable
into 1,000,000 shares of common stock.

(13) According to a Schedule 13G filed by Wells Fargo & Company filed on
February 2, 2007, it and Wells Capital Management Incorporated, Wells
Fargo Funds Management, LLC and Wells Fargo Bank, National Association
have sole dispositive power and sole voting power with respect to the
1,608,845 shares.

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

None.

Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.

Our principal accountant for the audit and review of our annual and
quarterly financial statements, respectively, during each of the past two fiscal
years was Friedman LLP. Moreover, the following table shows the fees paid or
accrued by us to Friedman LLP during this period.

Type of Service 2006 2005
--------------- -------- --------
Audit Fees (1) $607,322 $418,194
Audit-Related Fees (2) 23,590 83,486
Tax Fees (3) 39,277 77,068
All Other Fees (4) -- --
-------- --------
TOTAL $670,189 $578,748

(1) Comprised of the audit of our annual financial statements and reviews of
our quarterly financial statements.

(2) Comprised of services rendered in connection with our capital raising
efforts, registration statements, and consultations regarding financial
accounting and reporting.

(3) Comprised of services for tax compliance, tax return preparation, tax
advice, and tax planning.

(4) Fees related to other filings with the Securities and Exchange Commission,
including consents.

In accordance with the Sarbanes-Oxley Act of 2002, the Audit Committee
established policies and procedures under which all audit and non-audit services
performed by our principal accountants must be approved in advance by the Audit
Committee. As provided in the Sarbanes-Oxley Act of 2002, all audit and
non-audit services to be provided after May 6, 2003 must be pre-approved by the
Audit Committee in accordance with these policies and procedures.

PART IV

Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

FINANCIAL STATEMENTS

Schedule II - Valuation and Qualifying Accounts

Empire Resorts, Inc and Subsidiaries
Valuation and Qualifying Accounts
December 31, 2006, 2005 and 2004
(in thousands)

Addition
Balance at charged to Other
beginning of costs and additions Less Balance at
Description year expenses (deductions) deductions end of year
----------- ------------ ---------- ------------ ---------- -----------
YEAR ENDED DECEMBER 31, 2006
Allowance for advances to Litigation Trust $ 1,010 $ 505 $ -- $-- $ 1,515
Deferred tax asset valuation allowance $46,056 $ -- 5,228 $-- 51,284
YEAR ENDED DECEMBER 31, 2005
Allowance for advances to Litigation Trust $ 505 $ 505 $ -- $-- $ 1,010
Deferred tax asset valuation allowance $37,678 $ -- $ 8,378 $-- $46,056
YEAR ENDED DECEMBER 31, 2004
Allowance for advances to Litigation Trust $ -- $ 505 $ -- $-- $ 505
Deferred tax asset valuation allowance $26,800 $ -- $10,878 $-- $37,678

EXHIBITS

2.1 Agreement and Plan of Merger and Contribution, dated as of March 3,
2005, by and among Empire Resorts, Inc., Empire Resorts Holdings,
Inc., Empire Resorts Sub, Inc., Concord Associates Limited
Partnership, and Sullivan Resorts, LLC (filed without exhibits or
schedules, all of which are available upon request, without cost) (12)

3.1 Certificate of Incorporation, dated March 19, 1993. (4)

3.2 Certificate of Amendment of Certificate of Incorporation, dated August
15, 1993. (4)

3.3 Certificate of Amendment of Certificate of Incorporation, dated
December 18, 1996. (4)

3.4 Certificate of Amendment of Certificate of Incorporation, dated
September 22, 1999. (4)

3.5 Certificate of Amendment of the Certificate of Incorporation, dated
June 13, 2001. (4)

3.6 Certificate of Amendment to the Certificate of Incorporation, dated
May 15, 2003. (4)

3.7 Certificate of Amendment to the Certificate of Incorporation, January
12, 2004. (4)

3.8 Second Amended and Restated By-Laws, as of Feb. 12, 2002. (4)

3.9 Amendment No. 1 to the Second Amended and Restated By-Laws, dated
November 11, 2003. (4)

4.1 Form of Common Stock Certificate. (2)

4.2 Certificate of Designations, Preferences and Rights of Series B
Preferred Stock dated July 31, 1996. (4)

4.3 Certificate of Designation setting forth the Preferences, Rights and
Limitations of Series B Preferred Stock and Series C Preferred Stock,
dated May 29, 1998. (4)

4.4 Certificate of Amendment to the Certificate of Designation setting
forth the Preferences, Rights and Limitations of Series B Preferred
Stock and Series C Preferred Stock, dated June 13, 2001. (4)

4.5 Certificate of Designations setting forth the Preferences, Rights and
Limitations of Series D Preferred Stock, dated February 7, 2000. (11)

4.6 Certificate of the Designations, Powers, Preferences and Rights of the
Series E Preferred Stock, dated December 10, 2002. (4)

4.7 Certificate of Amendment of Certificate of the Designations, Powers,
Preferences and Other Rights and Qualifications of the Series E
Preferred Stock, dated January 12, 2004. (4)

4.8 Indenture dated as of July 26, 2004 among Empire Resorts, Inc., The
Bank of New York and the Guarantors named therein. (8)

10.1 1998 Stock Option Plan. (3)

10.2 2004 Stock Option Plan. (5)

10.3 2005 Equity Incentive Plan. (15)

10.4 Declaration of Trust of the Catskill Litigation Trust, dated as of
January 12, 2004, made by Catskill Development, L.L.C., Mohawk
Management, LLC, Monticello Raceway Development Company, LLC, Empire
Resorts, Inc., the trustees and Christiana Bank & Trust Company. (11)

10.5 Line of credit dated January 12, 2004 between Empire Resorts, Inc and
Catskill Litigation Trust. (8)

10.6 Promissory Note issued by Catskill Litigation Trust on January 12,
2004 to Empire Resorts, Inc. for the Principal Sum of $10,000,000. (8)

10.7 Securities Purchase Agreement, dated as of January 26, 2004, among
Empire Resorts, Inc. and the purchasers identified on the signature
pages thereto. (4)

10.8 Registration Rights Agreement, dated as of January 26, 2004, by and
among Empire Resorts, Inc. and the investors signatory thereto. (4)

10.9 Five Year Warrant issued to Jefferies & Company, Inc., dated January
30, 2004, to purchase 250,000 shares of Common Stock at an exercise
price of $7.50 per share. (4)

10.10 Registration Rights Agreement, dated as of January 30, 2004, by and
among Empire Resorts, Inc. and Jefferies & Company, Inc. (4)

10.11 Security Agreement dated as of July 26, 2004 between Empire Resorts,
Inc., The Bank of New York and the Guarantors named therein. (6)

10.12 Pledge Agreement dated as of July 26, 2004 Empire Resorts, Inc., The
Bank of New York and the Guarantors named therein. (6)

10.13 Registration Rights Agreement dated as of July 26, 2004 Empire
Resorts, Inc., the Guarantors named therein and Jefferies & Company,
Inc. (6)

10.14 Option Agreement, dated November 12, 2004, by and among Empire
Resorts, Inc. and Concord Associates Limited Partnership. (9)

10.15 Loan Agreement, dated as of January 11, 2005, by and among Empire
Resorts, Inc., Monticello Raceway Management, Inc., Alpha Monticello,
Inc., Alpha Casino Management Inc., Mohawk Management, LLC, Monticello
Raceway Development Company, LLC and Monticello Casino Management, LLC
and Bank of Scotland, as lender and as agent. (10)

10.16 Security Agreement, dated as of January 11, 2005, by Empire Resorts,
Inc., Monticello Raceway Management, Inc., Alpha Monticello, Inc.,
Alpha Casino Management Inc., Mohawk Management, LLC, Monticello
Raceway Development Company, LLC and Monticello Casino Management,
LLC, in favor of Bank of Scotland. (10)

10.17 Pledge Agreement, dated as of January 11, 2005, by Empire Resorts,
Inc., Alpha Monticello, Inc. and Alpha Casino Management Inc. in favor
of Bank of Scotland. (10)

10.18 Mortgage, Security Agreement, Assignment of Leases and Rents, and
Fixture Filing, dated as of January 11, 2005, by Monticello Raceway
Management, Inc., a New York corporation to Bank of Scotland. (10)

10.19 Promissory Note issued by Empire Resorts, Inc. on January 11, 2005 to
Bank of Scotland for the Principal Sum of $10,000,000. (10)

10.20 Intercreditor Agreement, dated as of January 11, 2005, by and among
Bank of Scotland, The Bank of New York, Empire Resorts, Inc.,
Monticello Raceway Management, Inc., Alpha Monticello, Inc., Alpha
Casino Management Inc., Mohawk Management, LLC, Monticello Raceway
Development Company, LLC and Monticello Casino Management, LLC. (10)

10.21 Amendment No. 1 to Option Agreement, dated November 12, 2004, by and
among Empire Resorts, Inc. and Concord Associates Limited Partnership,
dated as of March 3. 2005. (12)

10.22 Employment Agreement dated as of May 23, 2005 between Empire Resorts,
Inc. and David P. Hanlon (filed without exhibits or schedules, all of
which are available upon request, without cost). (13)

10.23 Employment Agreement dated as of May 23, 2005 between Empire Resorts,
Inc. and Ronald J. Radcliffe. (13)

10.24 Amendment by and among Empire Resorts, Inc., certain of its current
and former affiliates, the Cayuga Nation of New York and the Cayuga
Catskill Gaming Authority, dated June 29, 2005. (14)

10.25 Agreement, dated July 22, 2005, between Empire Resorts, Inc., Cayuga
Nation of New York and Cayuga Catskill Gaming Authority. (16)

10.26 Agreement, dated August 1, 2005, between Empire Resorts, Inc. and St.
Regis Mohawk Tribe. (16)

10.27 Restated Amendment No. 2 to Loan Agreement, dated January 11, 2005 by
and among Empire Resorts, Inc., the guarantors listed on the signature
page thereto and Bank of Scotland, dated as of November 30, 2005. (17)

10.28 Amendment by and among Empire Resorts, Inc., Monticello Raceway
Management, Inc., the Cayuga Nation of New York and the Cayuga
Catskill Gaming Authority, dated December 19, 2005. (18)

10.29 Agreement by and among Empire Resorts, Inc., Concord Associates
Limited Partnership and Sullivan Resorts LLC, dated December 30, 2005.
(19)

10.30 Second Amended and Restated Gaming Facility Management Agreement by
and among the St. Regis Mohawk Tribe, St. Regis Mohawk Gaming
Authority and Monticello Casino Management, L.L.C., dated as of
December 1, 2005. (20)

10.31 Second Amended and Restated Gaming Development and Construction
Agreement by and among the St. Regis Mohawk Tribe, St. Regis Mohawk
Gaming Authority and Monticello Raceway Development Company, L.L.C.,
dated as of December 1, 2005. (20)

10.32 Second Amended and Restated Land Purchase Agreement by and between St.
Regis Mohawk Gaming Authority and Monticello Raceway Management, Inc.,
dated as of December 1, 2005. (20)

10.33 Second Amended and Restated Shared Facilities Agreement by and between
St. Regis Mohawk Gaming Authority and Monticello Raceway Management,
Inc., dated as of December 1, 2005. (20)

10.34 Mortgage, Security Agreement, Assignment of Leases and Rents, and
Fixture Filing, dated as of March 22, 2006, by Monticello Raceway
Management, Inc., a New York corporation to the Bank of New York
(filed without exhibits or schedules, all of which are available upon
request, without cost). (21)

10.35 Amendment No. 3 to Option Agreement, dated November 12, 2004, by and
among Empire Resorts, Inc. and Concord Associates Limited Partnership,
dated as of December 28, 2006. (22)

14.1 Code of Ethics. (4)

21.1 List of Subsidiaries. (1)

23.1 Consent of Independent Registered Public Accounting Firm. (1)

31.1 Section 302 Certification of Principal Executive Officer. (1)

31.2 Section 302 Certification of Principal Financial Officer. (1)

32.1 Section 906 Certification of Principal Executive Officer. (1)

32.2 Section 906 Certification of Principal Financial Officer. (1)

99.1 Letter from James R. Cason of the Department of the Interior's Bureau
of Indian Affairs, dated December 21, 2006, to the St. Regis Mohawk
Tribe. (1)

-------------
(1) Filed herewith.

(2) Incorporated by reference to Empire Resorts, Inc.'s Registration Statement
on Form SB-2 (File No. 33-64236), filed with the Securities and Exchange
Commission on June 10, 1993 and as amended on September 30, 1993, October
25, 1993, November 2, 1993 and November 4, 1993, which Registration
Statement became effective November 5, 1993. Such Registration Statement
was further amended by Post Effective Amendment filed on August 20, 1999.

(3) Incorporated by reference to Empire Resorts, Inc.'s Definitive Proxy
Statement on Schedule 14A, filed with the Securities and Exchange
Commission on August 25, 1999.

(4) Incorporated by reference to Empire Resorts, Inc.'s Form 10-KSB for the
year ended December 31, 2003.

(5) Incorporated by reference to Empire Resorts, Inc.'s Definitive Proxy
Statement on Schedule 14A, filed with the Securities and Exchange
Commission on April 28, 2004.

(6) Incorporated by reference to Empire Resorts, Inc.'s Quarterly Report on
Form 10-QSB for the quarter ended June 30, 2004.

(7) Incorporated by reference to Empire Resorts, Inc.'s Quarterly Report on
Form 10-QSB for the quarter ended September 30, 2004.

(8) Incorporated by reference to Empire Resorts, Inc.'s Current Report on Form
8-K, filed with the Securities and Exchange Commission on November 18,
2004.

(9) Incorporated by reference to Empire Resorts, Inc.'s Current Report on Form
8-K, filed with the Securities and Exchange Commission on January 3, 2005.

(10) Incorporated by reference to Empire Resorts, Inc.'s Current Report on Form
8-K, filed with the Securities and Exchange Commission on January 14,
2005.

(11) Incorporated by reference to Empire Resorts, Inc.'s Form 10-KSB for the
year ended December 31, 2004.

(12) Incorporated by reference to Empire Resorts, Inc.'s Current Report on Form
8-K, filed with the Securities and Exchange Commission on March 8, 2005.

(13) Incorporated by reference to Empire Resorts, Inc.'s Current Report on Form
8-K, filed with the Securities and Exchange Commission on May 27, 2005.

(14) Incorporated by reference to Empire Resorts, Inc.'s Current Report on Form
8-K, filed with the Securities and Exchange Commission on July 6, 2005.

(15) Incorporated by reference to Empire Resorts, Inc.'s Current Report on Form
8-K, filed with the Securities and Exchange Commission on August 19, 2005.

(16) Incorporated by reference to Empire Resorts, Inc.'s Current Report on Form
8-K, filed with the Securities and Exchange Commission on September 1,
2005.

(17) Incorporated by reference to Empire Resorts, Inc.'s Current Report on Form
8-K/A, filed with the Securities and Exchange Commission on December 15,
2005.

(18) Incorporated by reference to Empire Resorts, Inc.'s Current Report on Form
8-K, filed with the Securities and Exchange Commission on December 22,
2005.

(19) Incorporated by reference to Empire Resorts, Inc.'s Current Report on Form
8-K, filed with the Securities and Exchange Commission on January 4, 2006.

(20) Incorporated by reference to Empire Resorts, Inc.'s Current Report on Form
8-K, filed with the Securities and Exchange Commission on March 20, 2006.

(21) Incorporated by reference to Empire Resorts, Inc.'s Form 10-K for the year
ended December 31, 2005.

(22) Incorporated by reference to Empire Resorts, Inc.'s Current Report on Form
8-K, filed with the Securities and Exchange Commission on January 3, 2007.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

EMPIRES RESORTS, INC.

By: /s/ David P. Hanlon
-----------------------------------
Name: David P. Hanlon
Title: Chief Executive Officer
Date: March 14, 2007

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

Signature Title Date
--------- ----- ----

Chief Executive Officer, President and
/s/ David P. Hanlon Director (Principal Executive Officer) March 14, 2007
---------------------------------
David P. Hanlon

Chief Financial Officer (Principal
/s/ Ronald J. Radcliffe Accounting and Financial Officer) March 14, 2007
---------------------------------
Ronald J. Radcliffe

/s/ John Sharpe Chairman of the Board and Director March 14, 2007
---------------------------------
John Sharpe

/s/ Paul A. deBary Director March 14, 2007
---------------------------------
Paul A. deBary

/s/ Joseph E. Bernstein Director March 14, 2007
---------------------------------
Joseph E. Bernstein

/s/ Ralph J. Bernstein Director March 14, 2007
---------------------------------
Ralph J. Bernstein

/s/ Robert H. Friedman Director March 14, 2007
---------------------------------
Robert H. Friedman

/s/ Frank Catania Director March 14, 2007
---------------------------------
Frank Catania