EMPIRE
RESORTS, INC. AND SUBSIDIARIES
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18-21
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23
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23
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24
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PART I—FINANCIAL INFORMATION
Item 1.—FINANCIAL STATEMENTS
EMPIRE RESORTS, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
(In
thousands, except for per share data)
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March
31, 2008
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ASSETS
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Current
assets:
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Cash
and cash equivalents
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$ |
10,171 |
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$ |
15,008 |
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Restricted
cash
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813 |
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1,266 |
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Accounts
receivable
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1,613 |
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1,401 |
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Prepaid
expenses and other current assets
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3,672 |
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2,967 |
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Total
current assets
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16,269 |
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20,642 |
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Property
and equipment, net
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30,583 |
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30,860 |
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Deferred
financing costs, net of accumulated amortization of $1,885 in 2008 and
$1,783 in 2007
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2,595 |
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2,697 |
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TOTAL
ASSETS
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$ |
49,447 |
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$ |
54,199 |
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LIABILITIES
AND STOCKHOLDERS’ DEFICIT
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Current
liabilities:
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Accounts
payable
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$ |
3,625 |
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$ |
3,530 |
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Accrued
expenses and other current liabilities
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4,783 |
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6,129 |
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Total
current liabilities
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8,408 |
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9,659 |
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Revolving
credit facility
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7,617 |
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7,617 |
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Senior
convertible notes
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65,000 |
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65,000 |
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Total
liabilities
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81,025 |
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82,276 |
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Commitments
and contingencies
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Stockholders’
deficit:
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Preferred
stock, 5,000 shares authorized; $0.01 par value -
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Series
B, $29 per share liquidation value, 44 shares issued and
outstanding
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---- |
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----- |
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Series
E, $10.00 per share redemption value, 1,731 shares issued and
outstanding
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6,855 |
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6,855 |
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Common
stock, $0.01 par value, 75,000 shares authorized, 29,713 and 29,582 shares
issued and outstanding in 2008 and 2007, respectively
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297 |
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296 |
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Additional
paid-in capital
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53,444 |
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52,845 |
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Accumulated
deficit
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(92,174 |
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(88,073 |
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Total
stockholders’ deficit
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(31,578 |
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(28,077 |
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TOTAL
LIABILITIES AND STOCKHOLDERS’ DEFICIT
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$ |
49,447 |
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$ |
54,199 |
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The
accompanying notes are an integral part of these condensed consolidated
financial statements.
EMPIRE RESORTS, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(In
thousands, except for per share data) (Unaudited)
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Three
Months Ended March 31,
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REVENUES:
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Racing
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$ |
1,925 |
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$ |
2,401 |
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Gaming
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13,215 |
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15,117 |
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Food,
beverage and other
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1,007 |
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1,262 |
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Gross
revenues
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16,147 |
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18,780 |
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Less:
Promotional allowances
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(495 |
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(550 |
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Net
revenues
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15,652 |
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18,230 |
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COSTS
AND EXPENSES:
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Racing
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1,764 |
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2,065 |
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Gaming
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12,189 |
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13,964 |
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Food,
beverage and other
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412 |
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553 |
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Selling,
general and administrative
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3,364 |
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4,132 |
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Depreciation
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303 |
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291 |
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Total
costs and expenses
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18,032 |
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21,005 |
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Loss
from operations
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(2,380 |
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(2,775 |
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Amortization
of deferred financing costs
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(102 |
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(170 |
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Interest
expense
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(1,446 |
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(1,491 |
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Interest
income
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88 |
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185 |
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NET
LOSS
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(3,840 |
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(4,251 |
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Undeclared
dividends on preferred stock
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(388 |
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(388 |
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NET
LOSS APPLICABLE TO COMMON SHARES
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$ |
(4,228 |
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$ |
(4,639 |
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Weighted
average common shares outstanding, basic and diluted
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29,630 |
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26,437 |
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Loss
per common share, basic and diluted
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$ |
(0.14 |
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$ |
(0.16 |
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The
accompanying notes are an integral part of these condensed consolidated
financial statements.
EMPIRE RESORTS, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
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Three
Months Ended
March
31,
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CASH
FLOWS FROM OPERATING ACTIVITIES
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Net
loss
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$ |
(3,840 |
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$ |
(4,251 |
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Adjustments
to reconcile net loss to net cash used in operating
activities:
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Depreciation
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303 |
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291 |
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Amortization
of deferred financing costs
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102 |
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170 |
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Allowance
for doubtful accounts – Advances to Litigation Trust
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--- |
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250 |
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Stock-based
compensation
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326 |
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925 |
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Changes
in operating assets and liabilities:
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Restricted
cash (VGM Marketing Account)
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163 |
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(179 |
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Accounts
receivable
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(212 |
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1,344 |
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Prepaid
expenses and other current assets
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(706 |
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(534 |
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Accounts
payable
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95 |
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(767 |
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Accrued
expenses and other current liabilities
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(1,346 |
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(3,756 |
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NET
CASH USED IN OPERATING ACTIVITIES
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(5,115 |
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(6,507 |
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CASH
FLOWS FROM INVESTING ACTIVITIES
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Purchases
of property and equipment
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(26 |
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(78 |
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Advances
to Litigation Trust
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--- |
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(250 |
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Restricted
cash (Racing capital improvement)
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294 |
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(40 |
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Deferred
development costs
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--- |
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(701 |
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NET
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
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268 |
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(1,069 |
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CASH
FLOWS FROM FINANCING ACTIVITIES
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Proceeds
from exercise of stock options
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14 |
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18,815 |
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Restricted
cash (Revolving credit facility)
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(4 |
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(6 |
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NET
CASH PROVIDED BY FINANCING ACTIVITIES
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10 |
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18,809 |
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NET
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
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(4,837 |
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11,233 |
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CASH
AND CASH EQUIVALENTS, beginning of period
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15,008 |
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9,471 |
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CASH
AND CASH EQUIVALENTS, end of period
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$ |
10,171 |
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$ |
20,704 |
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SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION:
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Cash
paid for interest during the period
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$ |
2,746 |
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$ |
2,729 |
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SUPPLEMENTAL
SCHEDULE OF NONCASH INVESTING AND
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Common
stock issued in settlement of preferred stock dividends
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$ |
261 |
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$ |
190 |
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The
accompanying notes are an integral part of these condensed consolidated
financial statements.
EMPIRE RESORTS, INC. AND SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note
A. Summary of Business and Basis for Presentation
Basis
for Presentation
The
condensed consolidated financial statements and notes as of March 31, 2008 and
for the three–month periods ended March 31, 2008 and 2007 are
unaudited and include the accounts of Empire Resorts, Inc. and subsidiaries
(“Empire” or “the Company” or “we”).
The
condensed consolidated financial statements have been prepared in accordance
with the instructions to Form 10-Q and do not include all the information and
the footnotes required by accounting principles generally accepted in the United
States of America for complete financial statements and reflect all adjustments
(consisting of normal recurring accruals) which are, in the opinion of
management, necessary for the fair presentation of the financial position,
results of operations and cash flows for the interim periods. These
condensed consolidated financial statements and notes should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company’s Annual Report on Form 10-K for the year ended December
31, 2007. The results of operations for the interim period should not
be indicative of results to be expected for the full year.
Liquidity
We
believe that we have access to sources of working capital that are sufficient to
fund our operations for the twelve months ending March 31, 2009. We
have an agreement to sell 4.2 million shares of our common stock to a major
shareholder for a total amount of approximately $5.2 million and we have
approximately $2.4 million available from our revolving credit
facility.
Beginning
on April 1, 2008, the results of operations of our Video Gaming Machine (“VGM”)
facility will benefit from legislation that was passed on February 13, 2008,
which increases our share of VGM revenues. We estimate that the benefit could be
as much as $4.8 million for the year ending December 31, 2008.
Our
credit facility with the Bank of Scotland requires repayment of approximately $
7,158,000 (outstanding balance of $ 7,617,000 less restricted cash on deposit of
$459,000) on May 29, 2009.
The
holders of our Senior Convertible Notes ($65,000,000 principal balance due) have
the right to demand repayment of the principal amount due on July 31,
2009. We do not presently have a source for repayment of these notes
and our operations will not provide sufficient cash flow to repay this
obligation.
Nature
of Business
During
the past four years, we have concentrated on developing gaming operations in New
York State. Through our subsidiaries, we currently own and operate
Monticello Gaming and Raceway, a VGM and harness horseracing facility located in
Monticello, New York.
On
February 8, 2008, we entered into an Agreement to Form Limited Liability Company
and Contribution Agreement (the “Contribution Agreement”) with Concord
Associates, L.P. (“Concord”), pursuant to which we and Concord will form a
limited liability company (the “LLC”). In addition, pursuant to the
Contribution Agreement, we will move our existing operations at Monticello
Gaming and Raceway to 160 acres of land located in Kiamesha Lake, New York in
order to develop an entertainment complex consisting of a hotel, convention
center, VGM facility and harness horseracing track (the “Entertainment City
Project”). Concord will be responsible for the development of the
Entertainment City Project. Concord’s affiliate, George A. Fuller
Company, will be the general contractor. We will be responsible for
development of the gaming facility and for managing and operating the hotel,
gaming facility and harness horseracing track. We and Concord will share equally
the fees that we each earn in connection with our respective development and
management efforts, as well as share equally any distributions available
following the repayment of any debt service and the payment of any preferred
returns due to any of the members of the LLC. We will receive a
preference
on the first $8 million of distributions. Construction fees earned by
George A. Fuller Company will not be shared with us. The closing of
the transaction is conditioned on, among other things, (i) distribution to us of
$50 million (less amounts outstanding under our existing credit facility with
Bank of Scotland that are to be assumed by the LLC); (ii) receipt of all
necessary approvals for the transfer of our gaming and racing licenses,
including from the Bank of Scotland, holders of our convertible senior notes,
the New York State Racing and Wagering Board and the New York State Lottery;
(iii) transfer of our obligations related to our credit facility to the LLC;
(iv) entry into construction, development, casino development, casino and hotel
management contracts; and (v) approval by our stockholders, if required by
law. No assurance can be given that the conditions to the closing of
the transaction will be satisfied in order to complete the transaction, as
planned.
In
addition, we continue to set aside 29.31 acres of land adjacent to Monticello
Gaming and Raceway for the development of a Class III casino. We will also
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 generate 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 County and Catskill Off Track Betting
facilities; (iv) wagering at the Raceway on races broadcast from out-of-state
racetracks using import simulcasting; and (v) admission fees, program and racing
form sales, the sale of food and beverages and certain other ancillary
activities.
A 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.
Note
B. Summary of Significant Accounting Policies
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 for development and operation of the proposed Class
III casino developments. We periodically review deferred development costs for
impairment. During the three months ended March 31, 2008, we had no
capitalized development costs.
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 period. Diluted loss per share reflects the potential
dilution of earnings that could occur if securities or contracts to issue common
stock were exercised or converted into common stock or resulted in the issuance
of common stock that then shared in the loss of the entity. Since the
effect of outstanding options and warrants is anti-dilutive with respect to
losses, they have been excluded from our computation of loss per common
share. Therefore, basic and diluted losses per common share for the
three months ended March 31, 2008 and 2007 were the same.
The
following table shows the approximate number of securities outstanding at March
31, 2008 and 2007 that could potentially dilute basic income 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.
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Options
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2,565,000 |
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3,334,000 |
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Warrants
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250,000 |
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250,000 |
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Shares
to be issued upon conversion of convertible debt
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5,175,000 |
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5,175,000 |
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Unvested
restricted stock
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--- |
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89,000 |
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Total
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7,990,000 |
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|
8,848,000 |
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Advertising. We
expense the costs of general advertising, promotion and marketing programs at
the time the costs are incurred. Advertising expense was
approximately $166,000 and $289,000, respectively, for the three months ended
March 31, 2008 and 2007.
Fair Value. Our
financial instruments are comprised of a revolving credit facility and senior
convertible notes at March 31, 2008 and December 31, 2007. The fair
value of the revolving credit facility approximates its carrying value, because
this obligation had market-based interest rates. The senior
convertible notes are recorded at their carrying value, because there is no
market for these senior convertible notes and it was impracticable to estimate
fair value of these notes.
Estimates and
Assumptions. The preparation of financial statements in
conformity with GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting
period. We use significant estimates including those related to
customer incentives, bad debts, inventories, estimated useful lives for
depreciable and amortizable assets, valuation reserves and estimated cash flows
in assessing the recoverability of long-lived assets, estimated liabilities for
point based customer loyalty programs, income taxes, contingencies and
litigation. Actual results may differ from estimates.
Reclassifications. Certain
prior period amounts have been reclassified to conform to the current period
presentation.
Recent Accounting
Pronouncements.
In April
2008, the Financial Accounting Standards Board (“FASB”) issued FASB Staff
Position (“FSP”) Financial Accounting Standard (“FAS”) 142-3, “Determination of the Useful Life of
Intangible Assets” (“FSP FAS 142-3”). This FSP amends the factors that
should be considered in developing renewal or extension assumptions used to
determine the useful life of a recognized intangible asset under Statement of
Financial Accounting Standards (“SFAS”) No. 142, Goodwill and Other Intangible
Assets. The intent of this FSP is to improve the consistency between the
useful life of a recognized intangible asset under SFAS No. 142 and the period
of expected cash flows used to measure the fair value of the asset under SFAS
No. 141 (Revised 2007), Business Combinations, and
other U.S. generally accepted accounting principles (“GAAP”). This FSP is
effective for financial statements issued for fiscal years beginning after
December 15, 2008, and interim periods within those fiscal years. Early adoption
is prohibited. We are currently assessing the potential impact, if any, of the
adoption of FSP FAS 142-3 on our condensed consolidated financial
statements.
In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities” (“SFAS 161”), an amendment of FASB
133, “Accounting for
Derivative Instruments and Hedging Activities”. SFAS 161 requires
enhanced disclosures about an entity’s derivative and hedging activities and
thereby improves the transparency of financial reporting. SFAS 161 is effective
for financial statements for fiscal years and interim periods beginning after
November 15, 2008 and is not expected to have an impact on our condensed
consolidated financial statements.
In
December 2007, the Emerging Issues Task Force (“EITF”) met and ratified EITF No.
07-01, “Accounting for
Collaborative Arrangements” (“EITF 07-01”), in order to define
collaborative arrangements and to establish reporting requirements for
transactions between participants in a collaborative arrangement and between
participants in the arrangement and third parties. EITF 07-01 is effective for
financial statements issued for fiscal years beginning after December 15, 2008,
and interim periods within those fiscal years. EITF 07-01 is to be applied
retrospectively to all prior periods presented for all collaborative
arrangements existing as of the effective date. We are currently assessing the
potential impact, if any, of the adoption of EITF 07-01 on our condensed
consolidated financial statements.
In June
2007, the FASB ratified the consensus on EITF Issue No. 06-11, Accounting for
Income Tax Benefits of Dividends on Share-Based Payment Awards (“EITF 06-11”).
EITF 06-11 requires companies to recognize the income tax benefit realized from
dividends or dividend equivalents that are charged to retained earnings and paid
to employees for non-vested equity-classified employee share-based payment
awards as an increase to additional paid-in capital. EITF 06-11 is effective for
fiscal years beginning after September 15, 2007 (fiscal year 2008 for the
Company). We adopted EITF 06-11 effective January 1, 2008, and it did not have
any impact on our condensed consolidated financial statements.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial
Assets and Financial Liabilities” (“SFAS 159”), which provides companies
with an option to report selected financial assets and liabilities at fair value
in an attempt to reduce both complexity in accounting for financial instruments
and the volatility in earnings caused by measuring related assets and
liabilities differently. SFAS 159 is effective as of the beginning of an
entity’s first fiscal year beginning after November 15, 2007. Upon adoption of
SFAS 159, we did not elect the SFAS 159 option for our existing financial assets
and liabilities and therefore adoption of SFAS 159 did not have any impact on
our condensed consolidated financial statements.
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”
(“SFAS 157”), which defines fair value, establishes a framework for measuring
fair value in generally accepted accounting principles, and expands disclosures
about fair value measurements. SFAS 157 does not require any new fair value
measurements, but provides guidance on how to measure fair value by providing a
fair value hierarchy used to classify the source of the information. For
financial assets and liabilities, SFAS No. 157 is effective for us beginning
January 1, 2008. In February 2008, the FASB deferred the effective date of SFAS
No. 157 for all non-financial assets and non-financial liabilities, except those
that are recognized or disclosed at fair value in the financial statements on a
recurring basis (at least annually) until January 1, 2009. We believe the impact
will not require material modification related to our non-recurring fair value
measurements and will be substantially limited to expanded disclosures in the
Notes to our condensed consolidated financial statements for notes that
currently have components measured at fair value. Effective January 1, 2008, we
adopted SFAS No. 157 for financial assets and liabilities measured at fair value
on a recurring basis. The partial adoption of SFAS No. 157 for financial assets
and liabilities did not have a material impact on our condensed consolidated
financial statements. See Note G for information and related
disclosures.
Note
C. 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 Class III casino facilities. We also incur expenses associated with other
development projects.
We have
been working to develop a Class III casino with various Indian tribes beginning
in 1996. Our most recent efforts have been in partnership with the
St. Regis Mohawk Tribe focused on a site owned by us adjacent to our Monticello,
New York facility.
We were
advised, however, that on January 4, 2008, the St. Regis Mohawk Tribe received a
letter from James E. Cason of the Bureau of Indian Affairs (the “BIA”) denying
the St. Regis Mohawk Tribe's request to take 29.31 acres into trust for the
purpose of building a Class III gaming facility to be located at Monticello
Gaming and Raceway. On January 11, 2008, the St. Regis Mohawk Tribe
filed a lawsuit against the 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 Carl J. Artman, in his official capacity as Associate Secretary of the
Interior for Indian Affairs, in federal district court in New York for
unlawfully rejecting the St. Regis Mohawk Tribe’s application under the Indian
Gaming Regulatory Act of 1988 to place 29.31 acres of land in Sullivan County in
trust for the St. Regis Mohawk Tribe.
The St.
Regis Mohawk Gaming Authority failed to establish a closing date by December 31,
2007 for the consummation of the transactions contemplated by the Second Amended
and Restated Land Purchase Agreement by and between St. Regis Mohawk Gaming
Authority and Monticello Raceway Management, dated as of December 1, 2005, as
amended. As a result, the Second Amended and Restated Land Purchase
Agreement, and related agreements, have expired by their terms. On February 5,
2008, we notified the St. Regis Mohawk Tribe that as a result of the BIA
decision we were postponing further development efforts, but would continue to
work with the St. Regis Mohawk Tribe with respect to their litigation to
overturn the Secretary of the Interior's decision. On February 6, 2008, the St.
Regis Mohawk Tribe issued a press release accusing us of abandoning the St.
Regis Mohawk Tribe and breaching our gaming agreements with it. We
issued a press release on February 6, 2008 in which we confirmed that we had not
abandoned the St. Regis Mohawk casino project in Monticello and had no intention
of doing so. On February 13, 2008, the St. Regis Mohawk Tribe issued a press
release stating that they were formally parting ways with us and had notified
local officials and leaders in New York State and Congress, including the
National Indian Gaming Commission (the “NIGC”), of their formal departure from
our proposed project. Additionally, the St. Regis Mohawk Tribe announced on
February 13, 2008 that it had formally withdrawn its federal lawsuit against the
Secretary of the Interior. On February 14, 2008, three of our
subsidiaries filed for arbitration with the American Arbitration Association
against the St. Regis Mohawk Tribe and the St. Regis Mohawk Gaming Authority
seeking declarations as to the effectiveness of each of the
agreements. On February 20, 2008, however, the St. Regis Mohawk Tribe
announced in a news article that it did not view arbitration as necessary since
it acknowledges that the agreements have expired.
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, 2007. During the three months ended March 31,
2008, we had no capitalized development costs.
Note
D. Accrued Expenses and Other Current Liabilities
Accrued
expenses and other current liabilities is comprised of the following at March
31, 2008 and December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability
for horseracing purses
|
|
$ |
1,788 |
|
|
$ |
1,113 |
|
|
Accrued
interest
|
|
|
867 |
|
|
|
2,167 |
|
|
Accrued
payroll
|
|
|
474 |
|
|
|
716 |
|
|
Accrued
other
|
|
|
1,654 |
|
|
|
2,133 |
|
|
Total
accrued expenses and other current liabilities
|
|
$ |
4,783 |
|
|
$ |
6,129 |
|
Note
E. Senior Convertible Notes
On July
26, 2004, we issued $65 million of 5.5% senior convertible notes (the “notes”),
which are currently 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.
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”. Since the events that constitute the “Trigger
Event” 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. All of the following events must
occur to create the “Trigger Event” under the notes: publication in the Federal
Register of approval by the Secretary of the Interior of a Class III gaming
compact for the Cayuga Catskill Resort; written approval of a gaming facility
management agreement on behalf of the chairman of the National Indian Gaming
Commission; and the land in Monticello, New York to be used for the development
of the Cayuga Catskill Resort having been transferred to the United States in
trust for the Cayuga Nation of New York.
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. 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. This rate would result in the
issuance of 5,175,159 shares upon conversion.
We
recognized interest expense associated with the notes of approximately $1.3
million in each of the three-month periods ended March 31, 2008 and
2007.
Note
F. 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 May 29,
2009. 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. The credit facility also contains an acceleration clause
which states that Bank of Scotland may accelerate the maturity in the event of a
default by the Company.
In
connection with this credit facility, the 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.
At our
option, loans under the Credit Facility initially bore interest at the rate of
prime plus 2% or LIBOR plus 4%. On June 21, 2007, we entered into an amendment
to our credit facility with Bank of Scotland. The amendment, dated as of June
20, 2007, among other things, (i) extended the maturity date of the loan
agreement from January 11, 2008 to January 7, 2009, (ii) amended the interest
rates of loans under the credit facility to a rate of prime plus 1.5% until July
31, 2008 and prime plus 2.0% thereafter or LIBOR plus 3.5% until July 31, 2008
and LIBOR plus 4.0% thereafter and (iii) deleted all references to
Interest Advances and Line of Credit Cash Collateral Advances such that the Loan
Agreement now provides for total loans of up to $10 million. In
addition, pursuant to this amendment, we are required to maintain an
unrestricted cash balance of an amount that, when added to the unused balance
available under the credit facility, is not less than $5 million. On
March 14, 2008, we entered into an additional amendment to our credit facility
with Bank of Scotland that extends the maturity date of the loan agreement from
January 7, 2009 to May 29, 2009.
We
recognized interest expense for the credit facility of approximately $146,000
and $191,000, respectively, in the three months ended March 31, 2008 and
2007. At March 31, 2008, we were in compliance with the financial
covenants contained in our agreement with the Bank of Scotland.
Note
G. Fair Value Measurements
In the
first quarter of 2008, we adopted SFAS No. 157, “Fair Value Measurements,” for
financial assets and liabilities. This standard defines fair value, provides
guidance for measuring fair value and requires certain disclosures. This
standard does not require any new fair value measurements, but rather applies to
all other accounting pronouncements that require or permit fair value
measurements. SFAS No. 157 discusses valuation techniques, such as the market
approach (comparable market prices), the income approach (present value of
future income or cash flow), and the cost approach (cost to replace the service
capacity of an asset or replacement cost). The statement provides for a fair
value hierarchy that prioritizes the inputs to valuation techniques used to
measure fair value into three broad levels. The following is a brief description
of those three levels:
Level
1: Observable inputs such as quoted prices (unadjusted)
in active markets for identical assets or liabilities.
Level
2: Inputs other than quoted prices that are observable
for the asset or liability, either directly or indirectly. These include quoted
prices for similar assets or liabilities in active markets and quoted prices for
identical or similar assets or liabilities in markets that are not
active.
Level
3: Unobservable inputs that reflect our own
assumptions.
We chose
not to elect the fair value option as prescribed by FASB SFAS No. 159, The Fair
Value Option For Financial Assets and Financial Liabilities—Including an
Amendment of FASB Statement No. 115, for our financial assets and liabilities
that had not been previously carried at fair value. Therefore, material
financial assets and liabilities not carried at fair value, such as senior
convertible notes, accounts payable, and accounts receivable are reported at
their carrying values.
Our
population of financial liabilities subject to recurring fair value measurements
and the necessary disclosures are as follows:
|
(In
thousands)
|
|
At March 31, 2008
|
|
|
Fair
Value Measurements at March 31, 2008
using
Fair Value Hierarchy
|
|
|
|
|
Cost
|
|
|
Fair Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving
credit facility
|
|
$ |
7,617 |
|
|
$ |
7,617 |
|
|
$ |
7,617 |
|
|
$ |
--- |
|
|
$ |
--- |
|
Note
H. Supplemental Guarantor Information
As
discussed in Notes E and F, our obligations with respect to our Senior
Convertible Notes and Revolving Credit Facility are guaranteed by our operating
subsidiaries.
EMPIRE
RESORTS, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATING BALANCE SHEET
March
31, 2008
(Unaudited)
(In
Thousands)
|
|
|
|
|
|
|
|
|
Non-Guarantor
Subsidiaries
|
|
|
|
|
|
Consolidated
Empire
Resorts,
Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
6,116 |
|
|
$ |
4,055 |
|
|
$ |
--- |
|
|
$ |
--- |
|
|
$ |
10,171 |
|
|
Restricted
cash
|
|
|
459 |
|
|
|
354 |
|
|
|
--- |
|
|
|
--- |
|
|
|
813 |
|
|
Accounts
receivable
|
|
|
--- |
|
|
|
1,613 |
|
|
|
--- |
|
|
|
--- |
|
|
|
1,613 |
|
|
Prepaid
expenses and other assets
|
|
|
650 |
|
|
|
3,022 |
|
|
|
--- |
|
|
|
--- |
|
|
|
3,672 |
|
|
Investments
in subsidiaries
|
|
|
5,060 |
|
|
|
--- |
|
|
|
--- |
|
|
|
(5,060 |
) |
|
|
--- |
|
|
Inter-company
accounts
|
|
|
149,340 |
|
|
|
--- |
|
|
|
--- |
|
|
|
(149,340 |
) |
|
|
--- |
|
|
Property
and equipment, net
|
|
|
1 |
|
|
|
30,582 |
|
|
|
--- |
|
|
|
--- |
|
|
|
30,583 |
|
|
Deferred
financing costs, net
|
|
|
2,595 |
|
|
|
--- |
|
|
|
--- |
|
|
|
--- |
|
|
|
2,595 |
|
|
TOTAL
ASSETS
|
|
$ |
164,221 |
|
|
$ |
39,626 |
|
|
$ |
--- |
|
|
$ |
(154,400 |
) |
|
$ |
49,447 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’
EQUITY
(DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
1,195 |
|
|
$ |
2,430 |
|
|
$ |
--- |
|
|
$ |
--- |
|
|
$ |
3,625 |
|
|
Accrued
expenses and other liabilities
|
|
|
1,042 |
|
|
|
3,741 |
|
|
|
--- |
|
|
|
--- |
|
|
|
4,783 |
|
|
Inter-company
accounts
|
|
|
--- |
|
|
|
55,758 |
|
|
|
93,582 |
|
|
|
(149,340 |
) |
|
|
--- |
|
|
Revolving
credit facility
|
|
|
7,617 |
|
|
|
--- |
|
|
|
--- |
|
|
|
--- |
|
|
|
7,617 |
|
|
Senior
convertible notes
|
|
|
65,000 |
|
|
|
--- |
|
|
|
--- |
|
|
|
--- |
|
|
|
65,000 |
|
|
Total
liabilities
|
|
|
74,854 |
|
|
|
61,929 |
|
|
|
93,582 |
|
|
|
(149,340 |
) |
|
|
81,025 |
|
|
Stockholders'
equity (deficit)
|
|
|
89,367 |
|
|
|
(22,303 |
) |
|
|
(93,582 |
) |
|
|
(5,060 |
) |
|
|
(31,578 |
) |
|
TOTAL
LIABILITIES AND STOCKHOLDERS’
EQUITY (DEFICIT)
|
|
$ |
164,221 |
|
|
$ |
39,626 |
|
|
$ |
--- |
|
|
$ |
(154,400 |
) |
|
$ |
49,447 |
|
EMPIRE
RESORTS, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATING BALANCE SHEET
December
31, 2007
(In
Thousands)
|
|
|
|
|
|
|
|
|
Non-Guarantor
Subsidiaries
|
|
|
|
|
|
Consolidated
Empire
Resorts,
Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
11,192 |
|
|
$ |
3,816 |
|
|
$ |
--- |
|
|
$ |
--- |
|
|
$ |
15,008 |
|
|
Restricted
cash
|
|
|
454 |
|
|
|
812 |
|
|
|
--- |
|
|
|
--- |
|
|
|
1,266 |
|
|
Accounts
receivable
|
|
|
--- |
|
|
|
1,401 |
|
|
|
--- |
|
|
|
--- |
|
|
|
1,401 |
|
|
Prepaid
expenses and other assets
|
|
|
147 |
|
|
|
2,820 |
|
|
|
--- |
|
|
|
--- |
|
|
|
2,967 |
|
|
Investments
in subsidiaries
|
|
|
5,060 |
|
|
|
--- |
|
|
|
--- |
|
|
|
(5,060 |
) |
|
|
--- |
|
|
Inter-company
accounts
|
|
|
147,551 |
|
|
|
--- |
|
|
|
--- |
|
|
|
(147,551 |
) |
|
|
--- |
|
|
Property
and equipment, net
|
|
|
2 |
|
|
|
30,858 |
|
|
|
--- |
|
|
|
--- |
|
|
|
30,860 |
|
|
Deferred
financing costs, net
|
|
|
2,697 |
|
|
|
--- |
|
|
|
--- |
|
|
|
--- |
|
|
|
2,697 |
|
|
TOTAL
ASSETS
|
|
$ |
167,103 |
|
|
$ |
39,707 |
|
|
$ |
--- |
|
|
$ |
(152,611 |
) |
|
$ |
54,199 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’
EQUITY
(DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
664 |
|
|
$ |
2,866 |
|
|
$ |
--- |
|
|
$ |
--- |
|
|
$ |
3,530 |
|
|
Accrued
expenses and other liabilities
|
|
|
2,391 |
|
|
|
3,738 |
|
|
|
--- |
|
|
|
--- |
|
|
|
6,129 |
|
|
Inter-company
accounts
|
|
|
--- |
|
|
|
53,969 |
|
|
|
93,582 |
|
|
|
(147,551 |
) |
|
|
--- |
|
|
Revolving
credit facility
|
|
|
7,617 |
|
|
|
--- |
|
|
|
--- |
|
|
|
--- |
|
|
|
7,617 |
|
|
Senior
convertible notes
|
|
|
65,000 |
|
|
|
--- |
|
|
|
--- |
|
|
|
--- |
|
|
|
65,000 |
|
|
Total
liabilities
|
|
|
75,672 |
|
|
|
60,573 |
|
|
|
93,582 |
|
|
|
(147,551 |
) |
|
|
82,276 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity (deficit)
|
|
|
91,431 |
|
|
|
(20,866 |
) |
|
|
(93,582 |
) |
|
|
(5,060 |
) |
|
|
(28,077 |
) |
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
|
|
$ |
167,103 |
|
|
$ |
39,707 |
|
|
$ |
--- |
|
|
$ |
(152,611 |
) |
|
$ |
54,199 |
|
EMPIRE
RESORTS, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATING STATEMENT OF OPERATIONS
Three
Months Ended March 31, 2008
(Unaudited)
(In
Thousands)
|
|
|
|
|
|
|
|
|
Non-Guarantor
Subsidiaries
|
|
|
|
|
|
Consolidated
Empire
Resorts,
Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Racing
|
|
$ |
-- |
|
|
$ |
1,925 |
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
1,925 |
|
|
Gaming
|
|
|
-- |
|
|
|
13,215 |
|
|
|
-- |
|
|
|
-- |
|
|
|
13,215 |
|
|
Food,
beverage and other
|
|
|
-- |
|
|
|
1,007 |
|
|
|
-- |
|
|
|
-- |
|
|
|
1,007 |
|
|
Gross
revenues
|
|
|
-- |
|
|
|
16,147 |
|
|
|
-- |
|
|
|
-- |
|
|
|
16,147 |
|
|
Less:
Promotional allowances
|
|
|
-- |
|
|
|
(495 |
) |
|
|
-- |
|
|
|
-- |
|
|
|
(495 |
) |
|
Net
revenues
|
|
|
-- |
|
|
|
15,652 |
|
|
|
-- |
|
|
|
-- |
|
|
|
15,652 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS
AND EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Racing
|
|
|
-- |
|
|
|
1,764 |
|
|
|
-- |
|
|
|
-- |
|
|
|
1,764 |
|
|
Gaming
|
|
|
-- |
|
|
|
12,189 |
|
|
|
-- |
|
|
|
-- |
|
|
|
12,189 |
|
|
Food,
beverage and other
|
|
|
-- |
|
|
|
412 |
|
|
|
-- |
|
|
|
-- |
|
|
|
412 |
|
|
Selling,
general and administrative
|
|
|
2,049 |
|
|
|
1,315 |
|
|
|
-- |
|
|
|
-- |
|
|
|
3,364 |
|
|
Depreciation
|
|
|
1 |
|
|
|
302 |
|
|
|
-- |
|
|
|
-- |
|
|
|
303 |
|
|
Total
costs and expenses
|
|
|
2,050 |
|
|
|
15,982 |
|
|
|
-- |
|
|
|
-- |
|
|
|
18,032 |
|
|
Loss
from operations
|
|
|
(2,050 |
) |
|
|
(330 |
) |
|
|
-- |
|
|
|
-- |
|
|
|
(2,380 |
) |
|
Amortization
of deferred financing costs
|
|
|
(102 |
) |
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
(102 |
) |
|
Inter-company
interest income (expense) & other
|
|
|
1,109 |
|
|
|
(1,109 |
) |
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
Interest
expense
|
|
|
(1,446 |
) |
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
(1,446 |
) |
|
Interest
income
|
|
|
85 |
|
|
|
3 |
|
|
|
-- |
|
|
|
-- |
|
|
|
88 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(2,404 |
) |
|
$ |
(1,436 |
) |
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
(3,840 |
) |
EMPIRE
RESORTS, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATING STATEMENT OF OPERATIONS
Three
Months Ended March 31, 2007
(Unaudited)
(In
Thousands)
|
|
|
|
|
|
|
|
|
Non-Guarantor
Subsidiaries
|
|
|
|
|
|
Consolidated
Empire
Resorts,
Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Racing
|
|
$ |
-- |
|
|
$ |
2,401 |
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
2,401 |
|
|
Gaming
|
|
|
-- |
|
|
|
15,117 |
|
|
|
-- |
|
|
|
-- |
|
|
|
15,117 |
|
|
Food,
beverage and other
|
|
|
-- |
|
|
|
1,262 |
|
|
|
-- |
|
|
|
-- |
|
|
|
1,262 |
|
|
Gross
revenues
|
|
|
-- |
|
|
|
18,780 |
|
|
|
-- |
|
|
|
-- |
|
|
|
18,780 |
|
|
Less:
Promotional allowances
|
|
|
-- |
|
|
|
(550 |
) |
|
|
-- |
|
|
|
-- |
|
|
|
(550 |
) |
|
Net
revenues
|
|
|
-- |
|
|
|
18,230 |
|
|
|
-- |
|
|
|
-- |
|
|
|
18,230 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS
AND EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Racing
|
|
|
-- |
|
|
|
2,065 |
|
|
|
-- |
|
|
|
-- |
|
|
|
2,065 |
|
|
Gaming
|
|
|
-- |
|
|
|
13,964 |
|
|
|
-- |
|
|
|
-- |
|
|
|
13,964 |
|
|
Food,
beverage and other
|
|
|
-- |
|
|
|
553 |
|
|
|
-- |
|
|
|
-- |
|
|
|
553 |
|
|
Selling,
general and administrative
|
|
|
2,623 |
|
|
|
1,509 |
|
|
|
-- |
|
|
|
-- |
|
|
|
4,132 |
|
|
Depreciation
|
|
|
1 |
|
|
|
290 |
|
|
|
-- |
|
|
|
-- |
|
|
|
291 |
|
|
Total
costs and expenses
|
|
|
2,624 |
|
|
|
18,381 |
|
|
|
-- |
|
|
|
-- |
|
|
|
21,005 |
|
|
Loss
from operations
|
|
|
(2,624 |
) |
|
|
(151 |
) |
|
|
-- |
|
|
|
-- |
|
|
|
(2,775 |
) |
|
Amortization
of deferred financing costs
|
|
|
(170 |
) |
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
(170 |
) |
|
Inter-company
interest income (expense) & other
|
|
|
1,115 |
|
|
|
(1,115 |
) |
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
Interest
expense
|
|
|
(1,491 |
) |
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
(1,491 |
) |
|
Interest
income
|
|
|
166 |
|
|
|
19 |
|
|
|
-- |
|
|
|
-- |
|
|
|
185 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(3,004 |
) |
|
$ |
(1,247 |
) |
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
(4,251 |
) |
EMPIRE
RESORTS, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATING STATEMENT OF CASH FLOWS
Three
Months Ended March 31, 2008
(Unaudited)
(In
thousands)
|
|
|
|
|
|
|
|
|
Non-
Guarantor Subsidiaries
|
|
|
|
|
|
Consolidated
Empire
Resorts,
Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in operating activities
|
|
$ |
(3,296 |
) |
|
$ |
(1,819 |
) |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
(5,115 |
) |
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
of property and equipment
|
|
|
-- |
|
|
|
(26 |
) |
|
|
-- |
|
|
|
-- |
|
|
|
(26 |
) |
|
Restricted
cash (Racing capital improvement)
|
|
|
-- |
|
|
|
294 |
|
|
|
-- |
|
|
|
-- |
|
|
|
294 |
|
|
Advances
to subsidiaries
|
|
|
(1,790 |
) |
|
|
-- |
|
|
|
-- |
|
|
|
1,790 |
|
|
|
-- |
|
|
Net
cash provided by (used in) investing activities
|
|
|
(1,790 |
) |
|
|
268 |
|
|
|
- |
|
|
|
1,790 |
|
|
|
268 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from exercise of stock options
|
|
|
14 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
14 |
|
|
Restricted
cash (Revolving credit facility)
|
|
|
(4 |
) |
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
(4 |
) |
|
Advances
from Empire Resorts, Inc.
|
|
|
-- |
|
|
|
1,790 |
|
|
|
-- |
|
|
|
(1,790 |
) |
|
|
-- |
|
|
Net
cash provided by financing activities
|
|
|
10 |
|
|
|
1,790 |
|
|
|
-- |
|
|
|
(1,790 |
) |
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
(5,076 |
) |
|
|
239 |
|
|
|
-- |
|
|
|
-- |
|
|
|
(4,837 |
) |
|
Cash
and cash equivalents, beginning of period
|
|
|
11,192 |
|
|
|
3,816 |
|
|
|
-- |
|
|
|
-- |
|
|
|
15,008 |
|
|
Cash
and cash equivalents, end of period
|
|
$ |
6,116 |
|
|
$ |
4,055 |
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
10,171 |
|
EMPIRE
RESORTS, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATING STATEMENT OF CASH FLOWS
Three
Months Ended March 31, 2007
(Unaudited)
(In
Thousands)
|
|
|
|
|
|
|
|
|
Non-
Guarantor Subsidiaries
|
|
|
|
|
|
Consolidated
Empire
Resorts,
Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in operating activities
|
|
$ |
(4,258 |
) |
|
$ |
(2,249 |
) |
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
(6,507 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
of property and equipment
|
|
|
-- |
|
|
|
(78 |
) |
|
|
-- |
|
|
|
-- |
|
|
|
(78 |
) |
|
Advances
to Litigation Trust
|
|
|
(250 |
) |
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
(250 |
) |
|
Restricted
cash (Racing capital improvement)
|
|
|
-- |
|
|
|
(40 |
) |
|
|
-- |
|
|
|
-- |
|
|
|
(40 |
) |
|
Deferred
development costs
|
|
|
(37 |
) |
|
|
(664 |
) |
|
|
-- |
|
|
|
-- |
|
|
|
(701 |
) |
|
Advances
to Empire Resorts, Inc.
|
|
|
-- |
|
|
|
(2,360 |
) |
|
|
-- |
|
|
|
2,360 |
|
|
|
-- |
|
|
Net
cash used in investing activities
|
|
|
(287 |
) |
|
|
(3,142 |
) |
|
|
-- |
|
|
|
2,360 |
|
|
|
(1,069 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
form exercise of stock options
|
|
|
18,815 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
18,815 |
|
|
Restricted
cash (related to revolving credit facility)
|
|
|
(6 |
) |
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
(6 |
) |
|
Advances
from subsidiaries
|
|
|
2,360 |
|
|
|
|
|
|
|
|
|
|
|
(2,360 |
) |
|
|
-- |
|
|
Net
cash provided by financing activities
|
|
|
21,169 |
|
|
|
-- |
|
|
|
-- |
|
|
|
(2,360 |
) |
|
|
18,809 |
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
16,624 |
|
|
|
(5,391 |
) |
|
|
-- |
|
|
|
-- |
|
|
|
11,233 |
|
|
Cash
and cash equivalents, beginning of period
|
|
|
383 |
|
|
|
9,088 |
|
|
|
-- |
|
|
|
-- |
|
|
|
9,471 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, end of period
|
|
$ |
17,007 |
|
|
$ |
3,697 |
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
20,704 |
|
Note
I. Stockholders’ Equity
Stock-based
compensation expense included in selling, general and administrative expenses is
approximately $326,000 and $925,000 respectively, for the three months ended
March 31, 2008 and 2007. As of March 31, 2008, there was approximately $476,000
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 2 years. This expected cost does not include the
impact of any future stock-based compensation awards.
On
February 24, 2008, we authorized issuance of 117,419 shares of our common stock
as payment of dividends due for the year ended December 31, 2007 on our Series B
preferred stock. The approximate value of $261,000 was recorded as a
reduction of retained earnings and an increase in common stock and additional
paid-in capital in the three months ended March 31, 2008.
On March
8, 2007, we authorized issuance of 18,884 shares of our common stock as payment
of dividends due for the year ended December 31, 2006 on our Series B preferred
stock. The approximate value of $190,000 was recorded as a reduction
of retained earnings and an increase in common stock and additional paid-in
capital in the three months ended March 31, 2007.
On March
24, 2008, we adopted a stockholders rights plan and initially declared a
dividend distribution of one right for each outstanding share of common stock to
stockholders of record as of April 3, 2008. Each right entitles the holder to
purchase one unit consisting of one one-thousandth of a share of our Series A
Junior Participating Preferred Stock for $20 per unit. Under certain
circumstances, if a person or group acquires 20 percent or more of our
outstanding common stock, holders of the rights (other than the person or group
triggering their exercise) will be able to purchase, in exchange for the $20
exercise price, shares of our common stock or that of any company into which we
are merged having a value of $40. The rights expire on March 24, 2010. Because
the rights may substantially dilute the stock ownership of a person or group
attempting to take over our company without the approval of our Board of
Directors, our rights plan could make it more difficult for a third-party to
acquire us (or a significant percentage of our outstanding common stock) without
first negotiating with our Board of Directors regarding that
acquisition.
On March
31, 2008, we entered into an agreement with a major stockholder to issue 4.2
million shares of our common stock at a price per share of $1.233 for an
aggregate amount of $5,178,600. That agreement was amended on April 28, 2008 to
provide for the sale of 811,030 shares (for $1 million) on April 28, 2008,
811,030 shares (for $1 million) on May 28, 2008 and 2,577,940 shares (for
$3,178,600) on June 30, 2008.
Note
J. Concentration
Two
debtors, New York Off-Track Betting Corporation ("OTB") and Nassau OTB,
represented approximately 71% of the total outstanding accounts receivable as of
March 31, 2008. One debtor, New York OTB, represented approximately
39 % of the total outstanding accounts receivable as of December 31,
2007.
Note
K. Commitments and Contingencies
Legal
Proceedings. We are a party to various non-environmental legal
proceedings and administrative actions, all arising from the ordinary course of
business. Although it is impossible to predict the outcome of any
legal proceeding, we believe any liability that may finally be determined with
respect to such legal proceedings should not have a material effect on our
consolidated financial position, results of operations or cash
flows.
On June
15, 2005, various Article 78 proceedings were commenced by the OTBs against the
New York State Racing and Wagering Board, Monticello Gaming and Raceway and
Yonkers Raceway seeking the return to the OTBs of various racing revenues
previously paid by the OTBs to Monticello Gaming and Raceway and Yonkers
Raceway, more commonly known in the industry as “dark day monies” and
out-of-state OTB commissions. Dark day monies are revenue received
from OTBs when racing is held at Monticello Gaming and Raceway and thoroughbred
racing facilities are closed. 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 Gaming and Raceway, as prosecuted, is in excess of $4.0
million together with ongoing payments which the OTBs are making to Monticello
Gaming and 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. In November 2007,
however, the Appellate Division – Third Department of the New York State Supreme
Court essentially reversed the September 2006 decision as to dark day monies and
out-of-state OTB commissions (“OTB Appellate Decision”). The
practical result of this reversal is that OTBs are no longer responsible to pay
dark day monies to Monticello Gaming and Raceway or Yonkers Raceway and will
have to pay a lesser amount of out-of-state OTB
commissions
to the tracks. The approximate amount of the revenue shortfall to us
going forward for the fiscal year ending 2008 is estimated to be in the range of
$1.5 million. There is presently pending a motion for leave to appeal
the OTB Appellate Decision to the New York State Court of Appeals, which motion
was brought jointly by the New York State Racing and Wagering Board, Monticello
Raceway, Yonkers Raceway and Saratoga Raceway. Until that motion for
leave to appeal is decided, there is no further activity in any OTB
litigation. If the Court of Appeals grants leave to hear the appeal,
the matter is not expected to be decided for approximately 12 to 18 months,
during which time there is not expected to be any further action on behalf of
the OTBs to recoup prior dark day monies. In the event the OTB
Appellate Decision is not overturned on appeal, the OTBs will have to bring a
separate lawsuit claiming entitlement to recoupment of past dark day
monies. Any such litigation will be vigorously contested upon the
grounds that there has been no unjust enrichment of Monticello Raceway since the
OTBs voluntarily paid those amounts and there was a general understanding in the
industry that according to statute they were required to pay the dark day monies
to all of their regional tracks. It is estimated that there would be
no final judgment on any separate action to recoup past payments brought by the
OTBs for at least 24 to 36 months after commencement of such
action. No provision has been made for this contingent
liability.
On March
25, 2008, the Court of Appeals granted the motion for leave to hear the appeal
by the New York State Racing and Wagering Board, Monticello Raceway, Yonkers
Raceway and Saratoga Raceway.
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The
Management's Discussion and Analysis of the Financial Condition and Results of
Operations should be read together with the Management's Discussion and Analysis
of Financial Condition and Results of Operations and the Consolidated Financial
Statements and related notes thereto in our Annual Report on Form 10-K for the
fiscal year ended December 31, 2007.
Forward-Looking
Statements
This
Quarterly Report on Form 10-Q contains statements which constitute
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. These forward-looking statements generally relate to our
strategies, plans and objectives for future operations and are based upon
management’s current plans and beliefs or estimates of future results or
trends. Forward-looking statements also involve risks and
uncertainties, including, but not restricted to, the risks and uncertainties
described in Item 1A of the Company’s Annual Report on Form 10-K for the year
ended December 31, 2007, which could cause actual results to differ materially
from those contained in any forward-looking statement. Many of these
factors are beyond our ability to control or predict.
You
should not place undue reliance on any forward-looking statements, which are
based on current expectations. Further, forward-looking statements
speak only as of the date they are made, and we will not update these
forward-looking statements, even if our situation changes in the
future. We caution the reader that a number of important factors
discussed herein, and in other reports filed with the Securities and Exchange
Commission, could affect our actual results and cause actual results to differ
materially from those discussed in forward-looking statements.
Overview
Empire
Resorts, Inc. (“Empire,” the “Company,” “us” or “we”) was organized as a
Delaware corporation on March 19, 1993, and since that time has served as a
holding company for various subsidiaries engaged in the hospitality and gaming
industries.
Through
our wholly-owned subsidiary, Monticello Raceway Management, Inc., we currently
own and operate Monticello Gaming and Raceway, a VGM and harness horseracing
facility located in Monticello, New York, 90 miles Northwest of New York
City. At Monticello Gaming and 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. In addition, we operate more than 1,500 video gaming
machines (“VGMs”) in conjunction with the New York State Lottery at the
grandstand of Monticello Gaming and Raceway.
We also
plan to grow and diversify our current business operations by marketing our
management and consulting services to gaming and hospitality clients and
pursuing joint ventures or other growth opportunities, including the commercial
development of our existing real estate holdings. We have an
agreement, subject to certain conditions, with Concord Associates, L.P.
(“Concord”) to develop a hotel, convention center, gaming facility and harness
horseracing track on 160 acres of land located in Kiamesha Lake, New York (the
“Entertainment City Project”). Implementation of this project will
involve the relocation of our current VGM facility and harness horseracing track
to this new site. Despite the current position of the Bureau of
Indian Affairs (“BIA”), we are also continuing to explore the possibility of
developing a Class III casino on the site adjacent to Monticello Gaming and
Raceway. The development of a Class III casino would, however,
require either an amendment to the New York State Constitution to permit Class
III casino gaming or an agreement with either the St. Regis Mohawk Tribe or
another Indian tribe for the development of a Class III casino, together with
the necessary federal and state regulatory approvals. In addition, we
are pursuing additional commercial and entertainment projects on the remaining
200 acres of land owned by the Company.
We have
been working since 1996 to develop a Class III casino on a site 29.31 acre owned
by us adjacent to our Monticello, New York facility. As used herein,
Class III gaming means a full casino including slot machines, on which the
outcome of play is based upon randomness, and various table games including, but
not limited to, poker, blackjack and crap. Initially, this effort was pursued
through agreements with various Indian tribes Our most recent efforts
were pursuant to agreements with the St. Regis Mohawk Tribe. We were
advised, however, that on January 4, 2008, the St. Regis Mohawk Tribe received a
letter from James E. Cason of the BIA denying the St. Regis Mohawk Tribe's
request to take 29.31 acres into trust for the purpose of building a Class III
gaming facility to be located at Monticello Gaming and Raceway. In
addition, our agreements with the St. Regis Mohawk Tribe and the St. Regis
Mohawk Gaming Authority expired by their terms on December 31,
2007.
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.
Competition
We
continue to face significant competition for our VGM operation from a VGM
facility at Yonkers Raceway. In addition, several slot machine facilities have
opened in Pennsylvania and one, operated by the Mohegan Tribal Gaming Authority,
is within 65 miles of our Monticello property. This newly renovated Yonkers
facility is much closer to New York City than us and has approximately 5,500
VGMs, food and beverage outlets and other amenities. The harness racing
operation at this facility has reopened as well. We believe that our operations
for the three months ended March 31, 2008 have been adversely affected by this
competition when compared with the corresponding period in 2007.
A number
of states are currently considering or implementing legislation to legalize or
expand gaming. Such legislation presents both potential opportunities
to establish new properties and potential competitive threats to business at our
existing property. The timing and occurrence of these events remain
uncertain.
Critical
Accounting Policies and Estimates
Our
Annual Report on Form 10-K for the year ended December 31, 2007 includes a
discussion of the critical accounting policies and estimates that we use in the
preparation of our consolidated financial statements. There were no
significant changes in our critical accounting policies and estimates during the
three months ended March 31, 2008.
Results
of Operations
Three
Months Ended March 31, 2008 Compared to Three Months Ended March 31,
2007.
Revenues. Net
revenues decreased approximately $2.6 million (or 14%) for the quarter ended
March 31, 2008 compared to the quarter ended March 31, 2007. Revenue
from racing decreased by approximately $476,000 (or 20%); revenue from VGM
operations decreased by approximately $1.9 million (or 13%) and food, beverage
and other revenue decreased by approximately $255,000 (or
20%). Complimentary expenses decreased by approximately $55,000 (or
10%).
The
decrease in racing revenues was primarily a result of continued competition from
harness racing at the newly remodeled Yonkers Raceway. Among other things, the
VGM operations at Yonkers Raceway allow for increased contributions to their
purse amounts and could result in a more competitive racing
product.
We
believe that our VGM operations continue to be adversely affected by the opening
of a competing VGM facility at Yonkers Raceway in late 2006 and slot machine
facilities in Pennsylvania during 2007. Our number of daily visits decreased
approximately 21% and the daily win per unit fell from $105.84 for the three
months ended March 31, 2007 to $91.51 for the three months ended March 31, 2008
(or 13.5%). The average number of machines in service was 1,587 in
both periods and the three months ended March 31, 2008 had one more day of
operations than the corresponding period in 2007.
Food,
beverage and other revenue decreased primarily as a result of lower patron
counts.
Racing
costs. Racing costs decreased by approximately $301,000 (or
15%) to approximately $1.8 million for the three months ended March 31,
2008. This percentage decrease is less than the percentage decrease
in racing revenues because not all of our operating expenses will vary directly
with revenue changes.
Gaming
costs. Gaming (VGM) costs decreased by approximately $1.8
million (or 13%) to approximately $12.2 million for the three months ended March
31, 2008 compared with the corresponding period in 2007. This
percentage decrease is identical to the reduction in VGM revenues primarily as a
result of cost cutting initiatives in 2008. Normally, not all of our operating
expenses will vary directly with revenue changes as a substantial amount of our
expenses are fixed in the short term.
Food, beverage and other
costs. Food, beverage and other costs decreased approximately
$141,000 (or 25%) to approximately $412,000 primarily as a result of lower
patron counts in 2008.
Selling, General and Administrative
expenses. Selling, general and administrative expenses
decreased approximately $768,000 (or 19%) for the three months ended March 31,
2008 as compared to the three months ended March 31, 2007. This
decrease was due primarily to a reduction in stock-based compensation of
approximately $599,000 and a reduction in marketing expenses of approximately
$343,000. These reductions were offset by increases in professional fees and
other expenses of approximately $174,000.
Interest
expense. Interest expense decreased slightly (approximately
$45,000) as a result of lower interest rates on our bank line of
credit.
Liquidity
and Capital Resources
We
believe that we have access to sources of working capital that are sufficient to
fund our operations for the twelve months ending March 31, 2009. We
have an agreement to sell 4.2 million shares of our common stock to a major
stockholder for a total amount of approximately $5.2 million and we have
approximately $2.4 million available from our revolving credit
facility.
Beginning
on April 1, 2008, the results of operations of our Video Gaming Machine (“VGM”)
facility will benefit from legislation that was passed on February 13, 2008,
which increases our share of VGM revenues. We estimate that the benefit could be
as much as $4.8 million for the year ending December 31, 2008.
Our
credit facility with the Bank of Scotland requires repayment of approximately $
7,158,000 (outstanding balance of $ 7,617,000 less restricted cash on deposit of
$459,000) on May 29, 2009.
The
holders of our Senior Convertible Notes ($65,000,000 principal balance due) have
the right to demand repayment of the principal amount due on July 31,
2009. We do not presently have a source for repayment of these notes
and our operations will not provide sufficient cash flow to repay this
obligation.
Net cash
used in operating activities during the three months ended March 31, 2008 was
approximately $5.1 million compared to net cash used in operating activities for
the three months ended March 31, 2007 of approximately $6.5 million, a decrease
of approximately $1.4 million.
The most
significant factor in the net change was that accrued expenses and other
liabilities were reduced by approximately $3.8 million in 2007 compared with a
reduction of approximately $1.3 million in 2008 for a net positive effect of
approximately $2.5 million; this was largely as a result of a decrease in our
purse liability of approximately $1.7 million in 2007 versus an increase in that
account of approximately $675,000 in 2008.
The
relatively large changes in accounts receivable and the purse liability in 2007
are related to the higher revenues from racing in 2006. The higher revenues
resulted in increased accounts receivable at December 31, 2006 and as those
receivables were collected we directed a substantial amount of the collections
to increased payments for purses during 2007. These payments had the effect of
reducing the amount of the purse liability at March 31, 2007.
Net cash
used in investing activities was approximately $1.1 million for three months
ended March 31, 2007 compared with net cash provided of approximately $268,000
in 2008. In 2008, we benefited from collections of restricted cash from the
Racing Capital Improvement account of approximately $294,000 and the primary
uses in 2007 were advances to the Litigation Trust of $250,000 and deferred
development costs of approximately $701,000.
Net cash
provided by financing activities for the three months ended March 31, 2007 was
approximately $18.8 million and was almost entirely a result of the proceeds
from the exercise of options to purchase our common stock.
On
February 24, 2008, we authorized issuance of 117,419 shares of our common stock
as payment of dividends due for the year ended December 31, 2007 on our Series B
preferred stock. The recorded value of these shares was approximately
$261,000.
On March
8, 2007, we authorized issuance of 18,884 shares of our common stock as payment
of dividends due for the year ended December 31, 2006 on our Series B preferred
stock. The recorded value of these shares was approximately
$190,000.
As of
December 31, 2007, we had net operating loss carry forwards of approximately
$136 million that expire between 2008 and 2027. The Internal Revenue
Code allows the offset of these net operating loss carry forwards against income
earned in future years, thus reducing the tax liability in future
years. Our merger with the operations of Catskill Development, L.L.C.
in 2004 limits the amount of usable net operating losses due to the change in
control. We are evaluating the impact of the limitations for future
application.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
We do not
utilize financial instruments for trading purposes and hold no derivative
financial instruments which could expose us to market risk. Our
exposure to market risks related to fluctuations in interest rates is limited to
our variable rate borrowings of $7.6 million at March 31, 2008 under our
revolving credit facility. A change in interest rates of one percent
on the balance outstanding at March 31, 2008 would cause a change in total
annual interest costs of $76,000. The carrying values of these
borrowings approximate their fair values at March 31, 2008.
ITEM 4. CONTROLS AND PROCEDURES
We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our reports filed under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported within the
time periods specified in the Securities and Exchange Commission’s rules and
forms, and that such information is accumulated and communicated to our
management, including the Chief Executive Officer and Chief Financial Officer,
as appropriate, to allow timely decisions regarding required disclosure. In
designing and evaluating the disclosure controls and procedures, management
recognized that any controls and procedures, no matter how well designed and
operated can provide only reasonable assurance of achieving the desired control
objectives, and management is required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and
procedures. Management believes, however, that a controls system, no
matter how well designed and operated, cannot provide absolute assurance that
the objectives of the controls system are met, and no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within a company have been detected.
We
carried out an evaluation as of March 31, 2008 under the supervision and with
the participation of management, including the Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of its
disclosure controls and procedures as required by Rule 13a-15 of the Securities
Exchange Act of 1934, as amended. Based upon that evaluation, the
Chief Executive Officer and the Chief Financial Officer concluded that our
disclosure controls and procedures are effective to timely alert them to any
material information (including our consolidated subsidiaries) that must be
included in our periodic Securities and Exchange Commission
filings.
Changes
in Our Financial Reporting Internal Controls.
There has
been no change in our internal control over financial reporting (as defined in
Rules 13a-15(f) and 15d-15(f) promulgated under the Securities Exchange Act of
1934, as amended) during the fiscal quarter ended March 31, 2008 that has
materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.
OTHER
INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On June
15, 2005, various Article 78 proceedings were commenced by the Off-Track Betting
Corporations ("OTBs") against the New York State Racing and Wagering Board,
Monticello Gaming and Raceway and Yonkers Raceway seeking the return to the OTBs
of various racing revenues previously paid by the OTBs to Monticello Gaming and
Raceway and Yonkers Raceway, more commonly known in the industry as “dark day
monies” and out-of-state OTB commissions. Dark day monies are revenue
received from OTBs when racing is held at Monticello Gaming and Raceway and
thoroughbred racing facilities are closed. 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 Gaming and Raceway, as prosecuted, is in excess of
$4.0 million together with ongoing payments which the OTBs are making to
Monticello Gaming and 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. In
November 2007, however, the Appellate Division – Third Department of the New
York State Supreme Court essentially reversed the September 2006 decision as to
dark day monies and out-of-state OTB commissions (“OTB Appellate
Decision”). The practical result of this reversal is that OTBs are no
longer responsible to pay dark day monies to Monticello Gaming and Raceway or
Yonkers Raceway and will have to pay a lesser amount of out-of-state OTB
commissions to the tracks. The approximate amount of the revenue
shortfall to us going forward for the fiscal year ending 2008 is estimated to be
in the range of $1.5 million. There is presently pending a motion for
leave to appeal the OTB Appellate Decision to the New York State Court of
Appeals, which motion was brought jointly by the New York State Racing and
Wagering Board, Monticello Raceway, Yonkers Raceway and Saratoga
Raceway. Until that motion for leave to appeal is decided, there is
no further activity in any OTB litigation. If the Court of Appeals
grants leave to hear the appeal, the matter is not expected to be decided for
approximately 12 to 18 months, during which time there is not expected to be any
further action on behalf of the OTBs to recoup prior dark day
monies. In the event the OTB Appellate Decision is not overturned on
appeal, the OTBs will have to bring a separate lawsuit claiming entitlement to
recoupment of past dark day monies. Any such litigation will be
vigorously contested upon the grounds that there has been no unjust enrichment
of Monticello Raceway since the OTBs voluntarily paid those amounts and there
was a general understanding in the industry that according to statute they were
required to pay the dark day monies to all of their regional
tracks. It is estimated that there would be no final judgment on any
separate action to recoup past payments brought by the OTBs for at least 24 to
36 months after commencement of such action. No provision has been
made for this contingent liability.
On March
25, 2008, the Court of Appeals granted the motion for leave to hear the appeal
by the New York State Racing and Wagering Board, Monticello Raceway, Yonkers
Raceway and Saratoga Raceway.
31.1 Certification
of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
31.2 Certification
of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
32.1 Certification
of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
32.2 Certification
of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
In
accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
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Empire
Resorts, Inc.
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Dated: May
9, 2008
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/s/
David
P. Hanlon |
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David
P. Hanlon
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President
and Chief Executive Officer
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Dated: May
9, 2008
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/s/
Ronald
J. Radcliffe |
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Ronald
J. Radcliffe
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Chief
Financial Officer
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