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, 2008





OR





o
              TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      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
              incorporation
      or organization)
            
            (I.R.S.
      Employer Identification No.)  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 registeredCommon
      Stock, $.01 par value per share
                          
                          Nasdaq
      Global MarketRights
      to Purchase Series A Junior Participating Preferred
      Stock
                          
                          Nasdaq
      Global Market5-1/2%
      Secured Convertible Notes Due 2014
                          
                          The
      PORTAL Market
  Securities
      registered under Section 12(g) of the Act:
                          None(Title
      of
class)





Indicate
      by check mark if the registrant is a well-known seasoned issuer, as
      defined in Rule 405 of the Securities Act.
              Yes
      o No xIndicate
      by check mark if the registrant is not required to file reports pursuant
      to Section 13 or Section 15(d) of the Act.
              Yes
      o 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 oIndicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K (§229.405 of this chapter) is not contained herein, and
      will not be contained, to the best of registrant’s knowledge, in
      definitive proxy or information statements incorporated by reference in
      Part III of this Form 10-K or any amendment to this Form
    10-K
              o
 
 Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, a non-accelerated filer, or a smaller reporting
      company. See definitions of “large accelerated filer,” “accelerated
      filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
      (Check one):
 
 Large
      accelerated filer  o
              Accelerated
      filer  xNon-accelerated
      filer  o
              Smaller
      reporting company  o
 
 Indicate
      by check mark whether the registrant is a shell company (as defined in
      Rule 12b-2 of the Act).
              Yes
      o No x


The
aggregate market value of the issuer’s common equity held by non-affiliates, as
of June 30, 2008 was $86,156,755, based on the closing price of the common stock
on the Nasdaq Global Market.





As of March 12, 2009, there were
34,037,961 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.










INDEX




PART IItem 1.
              Business.
              1Item 1A.
              Risk Factors.
              8Item 1B.
              Unresolved Staff Comments.
              19Item 2.
              Properties.
              19Item 3.
              Legal Proceedings.
              20Item 4.
              Submission of Matters to a Vote of Security
      Holders.
              20PART IIItem 5.
              Market for Registrant’s Common Equity, Related Stockholder
      Matters and Issuer Purchases of Equity Securities.
              21Item 6.
              Selected Financial Data.
              23Item 7.
              Management’s Discussion and Analysis of Financial Condition
      and Results of Operations.
              24Item 7A.
              Quantitative and Qualitative Disclosures About Market
      Risk
              32Item 8.
              Financial Statements and Supplementary
    Data.
              33Item 9.
              Changes In and Disagreements With Accountants on Accounting
      and Financial Disclosure.
              56Item 9A.
              Controls and Procedures.
              56Item 9B.
              Other Information.
              58PART IIIItem 10.
              Directors, Executive Officers and Corporate
      Governance.
              58Item 11.
              Executive Compensation.
              61Item 12.
              Security Ownership of Certain Beneficial Owners and
      Management and Related Stockholder Matters.
              62Item 13.
              Certain Relationships and Related Transactions, and
      Director Independence.
              64Item 14.
              Principal Accountant Fees and Services.
              65PART IVItem 15.
              Exhibits and Financial Statement
    Schedules
              66




i
 INDEX


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 assurance 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
that 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. (“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 video gaming machine (“VGM”)
and harness horseracing facility located in Monticello, New York, 90 miles
Northwest of New York City.  At Monticello Gaming and Raceway, we
operate more than 1,500 VGMs as an agent for the New York State Lottery and
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 February 2008, we entered into an
agreement, subject to certain conditions, with Concord Associates, L.P.
(“Concord”) to form a joint venture to develop, finance and construct 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”).  For a variety of factors, including recent conditions in
the financial markets, certain contingencies for the implementation of this
agreement have not been able to be achieved, and we have been exploring a number
of different modifications and strategic alternatives with Concord, which could
substantially affect the structure and scope of the venture.  The
agreement became terminable by either party on February 28, 2009, but has not
been terminated at the date of this filing.  It is not expected that
the conditions to the closing of the transaction will be satisfied in order to
complete the transaction, and no assurances can be given that we will be able to
agree upon the necessary modifications to enable the consummation of a new
agreement.  In the past, we have also made efforts to develop a 29.31
acre parcel of land adjacent to Monticello Gaming and Raceway as the site for
the development of a Class III casino and may pursue additional commercial and
entertainment projects on the remaining 200 acres of land owned by the Company
that encompass the site of our current gaming and racing
facility.  The development of a Class III casino would require either
an amendment to the New York State Constitution to permit Class III casino
gaming or an agreement with an Indian tribe for the development of a Class III
casino, together with certain necessary federal and state regulatory
approvals.
  1
 INDEX
  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 craps.  As used herein, Class
II gaming means a gaming facility with VGMs and no table games.  VGMs
are similar to slot machines, but they are electronically controlled from a
central station and the procedure for determining winners is based on algorithms
that distribute wins based on fixed odds, rather than mechanical or other
methods designed to produce a random outcome for each play.
  Monticello
Gaming and Raceway
  Monticello
Gaming and Raceway began operations in 1958 and currently features:
  ·
              1,587
      VGMs;
  ·
              year-round
      live harness horse racing;
  ·
              year-round
      simulcast pari-mutuel wagering on thoroughbred and harness horse racing
      from across the country;
  ·
              a
      5,000-seat grandstand and a 100-seat clubhouse with retractable
      windows;
  ·
              parking
      spaces for 2,000 cars and 10 buses;
  ·
              a
      350-seat buffet and food court with three
  outlets;
  ·
              a
      large central bar and an additional clubhouse bar;
  and
  ·
              an
      entertainment lounge with seating for 75
people.
  VGM Operations.  We
currently operate a 45,000 square foot VGM facility at Monticello Gaming and
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,
2008, the number of VGMs in operation was 1,587.
  Revenues
derived from our VGM operations consist of VGM revenues and related food and
beverage concession revenues.  Each of the VGMs is owned by the State
of New York.  By statute, for a period of five years which began on
April 1, 2008, 42% of gross VGM revenue is distributed to us for the first $50
million annually, 29% for the next $100 million annually, and 26%
thereafter.  Following that five-year period, 40% of the first $50
million, 29% of the next $100 million and 26% thereafter of gross VGM revenue
will be distributed to us. Gross VGM revenues consist of the total amount
wagered at our VGMs, less prizes awarded.   The statute also
provides a vendor’s marketing allowance for racetracks operating video lottery
programs of 10% on the first $100 million of net revenues generated and 8%
thereafter.  The legislation authorizing the implementation of VGMs at
Monticello Gaming and Raceway expires in 2013.
  During
the past decade, the operation of video gaming devices at racetracks in New York
and several other states 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.
  Raceway
Operations.  Monticello Gaming and Raceway derives its racing
revenue principally from:
  ·
              wagering
      at Monticello Gaming and Raceway on live races run at Monticello Gaming
      and Raceway;
  2
 INDEX
  ·
              fees
      from wagering at out-of-state locations on races run at Monticello Gaming
      and Raceway using export
simulcasting;
  ·
              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;
  ·
              wagering
      at Monticello Gaming and Raceway on races broadcast from out-of-state
      racetracks using import simulcasting;
and
  ·
              admission
      fees, program and racing form sales, food and beverages sales and certain
      other ancillary activities.
  Simulcasting.  Import
and, particularly, export simulcasting is an important part of Monticello Gaming
and 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 Gaming
and Raceway offers year-round simulcast wagering from racetracks across the
country, including Churchill Downs, Hollywood Park, Santa Anita Racetrack,
Gulfstream Park, Aqueduct Racetrack, 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 Gaming and Raceway also exports live
broadcasts of its own races to casinos and off-track betting facilities in other
states.
  Pari-mutuel
Wagering.  Monticello Gaming and 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 Gaming and
Raceway’s pari-mutuel commission rates are fixed as a percentage of the total
handle or amounts wagered.
  Electronic Table
Games.  In January 2009, legislation was introduced in the New
York State legislature to permit the expansion of gaming options at the state's
existing video lottery facilities to include electronic table
games.  If approved, such legislation would permit New York’s video
lottery facilities, including Monticello Gaming and Raceway to offer electronic
versions of casino games such as roulette and blackjack.
  CompetitiveAdvantages
  Our
gaming operations are located in the Catskills region in the State of New York,
which has historically been a resort area, although its popularity declined with
the growth of destinations such as Atlantic City and Las
Vegas.  Located approximately 90 miles northwest of New York City, a
Class III casino resort at the current Monticello Gaming and Raceway site would
be 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 18.4 million adults live
within 100 miles of the Catskills area, an area where household income averages
approximately $76,000.  Specifically, Monticello Gaming and 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 55 miles of
Monticello Gaming and Raceway.
  3
 INDEX
  Development
  Entertainment
City Project
  On
February 8, 2008, we entered into an Agreement to Form Limited Liability Company
and Contribution Agreement with Concord (the “Contribution Agreement”), which
provides that we and Concord are to form a limited liability company (the “LLC”)
and enter into an Operating Agreement for the Entertainment City
Project.
 The
closing of the transaction is conditioned on, among other things, (i)
distribution to us of at least $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 particular, for a variety of factors,
including recent conditions in the financial markets, certain contingencies for
the implementation of this agreement have not been able to be achieved, and we
have been informed by Concord, who is responsible for obtaining financing for
the Entertainment City Project, that it is highly unlikely that the financing
for the Entertainment City Project will permit a distribution to us of at least
$50 million. In light of these developments, we have been exploring a number of
different modifications and strategic alternatives with Concord, which could
substantially affect the structure and scope of the venture. While exploring
these options, we continued to work together with Concord on the planning design
and other aspects of the proposed project over the past year and Concord
commenced construction work at the site.
  Pursuant
to an amendment entered into on January 30, 2009, the Contribution Agreement
became terminable by either party on February 28, 2009, subject to extensions
under certain conditions, but has not been terminated at the date of this
filing. However, it is not expected that the conditions to the closing of the
transaction will be satisfied without significant modifications, and no
assurances can be given that the parties will be able to find mutually
satisfactory alternatives that would enable the consummation of a new
agreement.
  In its
current form, the Contribution Agreement provides that we, together with our
subsidiary, are to contribute our gaming and racing licenses and operations at
Monticello Gaming and Raceway and Concord will contribute 160 acres of land
located in Kiamesha Lake, New York (the “Concord Property”). We and Concord
would jointly develop the Entertainment City Project on the Concord Property,
which is expected to include a 100,000 square foot gaming area, a harness
horseracing track, convention center, hotel, golf privileges, retail stores,
restaurants and various family entertainment activities. Zoning and final site
plan approvals have been received for a 1.5 million- square foot facility. The
plans provide for a gaming floor to be built within the hotel, adjacent to a new
5/8th mile, state-of-the-art harness track. Upon approval and completion of
construction, the new facility is intended to significantly increase the current
revenues generated for New York State, which goes to fund
education.  Financing for the Entertainment City Project is proposed
to be a combination of bonds issued by the Sullivan County Industrial
Development Agency and financing secured from private sources.
  Under the
existing agreements, Concord is to have overall responsibility for the
development of the Entertainment City Project and Concord’s affiliate, George A.
Fuller Company, is to be the general contractor.  We are to be
responsible for development of the gaming facility and for managing and
operating the hotel, gaming facility and harness horseracing
track.  We and Concord are to 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, but we are to receive a preference on the first $8 million of
distributions.  Construction fees earned by George A. Fuller Company
will not be shared with us.  Notwithstanding the provisions contained
in the existing agreements, we have also been informed by Concord that the
proposed lenders for the Entertainment City Project will not approve the Company
to serve as the manager of the hotel, gaming facility and harness horseracing
track.
  4
 INDEX
  Class
III Casino Development
  We have
identified 29.31 acres of land adjacent to Monticello Gaming and Raceway for the
development of a Class III casino.  A Class III casino resort at
Monticello Gaming and Raceway, as planned, is expected to feature 160,000 square
feet of gaming space with 3,500 slot machines and 125 table games, restaurants,
bars and other amenities consistent with such a facility.
  The
29.31-acre site has already received zoning and site plan approval for the
proposed Class III casino. However, the construction plans are only in a
preliminary stage and are subject to additional approvals by relevant government
authorities. Currently, we are not permitted to operate a Class III casino at
Monticello Gaming and Raceway because Class III casino gaming, other than Indian
gaming, is not allowed in New York. In order for the Company to own and operate
a Class III casino at Monticello Gaming and Raceway , therefore, an amendment to
the New York State Constitution to permit Class III casino gaming would need to
be passed or we would need to enter into an agreement with an Indian tribe for
the development of such a Class III casino. In order to be amended to permit
Class III casino gaming, the New York State Constitution requires the passage of
legislation in two consecutive legislative sessions and then passage of the
majority of the state's voters in a statewide referendum. Previous legislation
to amend the New York State Constitution to permit Class III casino gaming did
not obtain the required approval of two consecutive legislative sessions.
However, new legislation has been introduced in both the Senate and Assembly,
which if passed by two successive legislative sessions, would provide for the
statewide referendum required to amend the Constitution to permit casino gaming
in Sullivan County. If we enter into an agreement with an Indian tribe for the
development of a Class III casino, we would be required to sell the 29.31 acre
site to a federally recognized Indian Tribe and obtain certain federal and state
regulatory approvals, including the approval of any management or related
agreements between the Company and the Tribe.
 We have
been working to develop a Class III casino with various Indian tribes beginning
in 1996.   This process requires certain determinations to be
made by the Department of Interior, a concurrence by the governor of New York
State, and completion of federal environmental reviews.  During this
process, in April 2000, the St. Regis Mohawk Tribe received the required
two-part determination necessary to conduct gaming activities on newly acquired
land.  On February 19, 2007, the Governor of New York issued his
concurrence with regard to this April 2000 Secretarial Determination that found
that 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 Gaming and Raceway, in accordance with the Indian Gaming Regulatory
Act of 1988, as amended (the “Land-to-Trust Transfer”) would be in the St. Regis
Mohawk Tribe’s and its members’ best interest and would not be detrimental to
the surrounding communities.  In addition to the concurrence, the
Governor 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% of slot-machine revenues for the first two years after the St. Regis Mohawk
Tribe’s Class III casino to be located at Monticello Gaming and Raceway opens,
23% for the next two years and 25% thereafter.  On December 21, 2006,
the St. Regis Mohawk Tribe received a letter from James E. Cason of the Bureau
of Indian Affairs (the ”BIA”) stating that the St. Regis Mohawk Tribe’s Final
Environmental Assessment for the project had been deemed sufficient, that an
Environmental Impact Study would not be required and that a formal Finding of No
Significant Impact (“FONSI”) related to the proposed federal action approving
the Land-to-Trust Transfer had been issued.
  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 accordance
with the Indian Gaming Regulatory Act of 1988, as amended.  The
request was apparently denied based upon newly-issued guidance concerning
regulations promulgated under the Indian Gaming Regulatory Act of 1988, as
amended, relating to the need of the St. Regis Mohawk Tribe for additional land,
the purposes for which the land would be used, and the distance of the land from
the St. Regis Mohawk Tribe’s reservation.
  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 between the St. Regis Mohawk Gaming
Authority and Monticello Raceway Management, Inc. (“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,
expired by their terms.  On February 5, 2008, we notified the St.
Regis Mohawk Tribe that as a result of the BIA’s January 4, 2008 action, 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.  On February 14, 2008, three
of our subsidiaries filed for arbitration with the American Arbitration
Association seeking declarations as to the effectiveness of their agreements
with the St. Regis Mohawk Tribe and the St. Regis Mohawk Gaming
Authority.
  5
 INDEX
 
 On July
18, 2008, our subsidiaries, Monticello Raceway Management, Monticello Raceway
Development Company, LLC (“Monticello Raceway Development”) and Monticello
Casino Management, LLC (“Monticello Casino Management”) entered into a
settlement agreement with the St. Regis Mohawk Gaming Authority and the St.
Regis Mohawk Tribe pursuant to which the parties agreed to release all claims
against the other parties. The settlement was amended on October 9, 2008 to
eliminate any remaining unfulfilled conditions and included our agreement to
reimburse the St. Regis Mohawk Tribe approximately $444,000 for expenses
incurred by them in connection with the project.
 
 Recently,
news reports have indicated that the BIA is reevaluating the “guidance” under
which the January 4, 2008 decision was made and might also rescind certain
actions taken under that guidance. We have been advised by the St. Regis Mohawk
Tribe that they have not received sufficient information to warrant formal
consideration on its part concerning the matter. No assurance can be given that
the BIA will rescind its prior actions as a whole or in part, that any such
action will permit the reinstatement of the application of the St. Regis Mohawk
Tribe or that, even if such actions were to be rescinded, St. Regis Mohawk Tribe
or the Company would seek to resume the joint effort to develop a Class III
casino on the 29.31 acre site.
 Competition
 
 Monticello
Gaming and Raceway
  Generally,
Monticello Gaming and Raceway does not compete directly with other harness
racing tracks in New York State for live racing patrons.  However,
Monticello Gaming and 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 Gaming and Raceway has been a significant limitation on its
ability to compete for off-track wagering revenues.
  In New
York, 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 Racetrack.  It is uncertain when the VGM
facility at Aqueduct Racetrack will be constructed and opened.  In
addition, proposals have been made for the implementation of a similar program
at Belmont Park and 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, 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. In
October 2007, the Mt. Airy Casino Resort opened with approximately 2,500 slot
machines and includes a hotel and a golf course.  The Mt. Airy Casino
Resort is located in Mount Pocono, Pennsylvania, approximately 60 miles
southwest of Monticello.
  Competing
Casinos and Proposed Casino Projects
  In
Atlantic City there are currently more than 10 casino hotels, several of which
are either new or have recently undergone substantial improvements.
  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 is known as the “MGM
Grand at Foxwoods” and opened in 2008 and operates under a long term licensing
agreement.
  6
 INDEX
  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 guest room, 34 story tower
hotel with convention facilities and a spa which opened in the summer of
2002.
  In 2001,
the New York State Legislature and the New York State Governor authorized the
building of three Indian casinos in the Catskills region of the State of New
York.  In November of 2004, a number of Indian tribes entered into
agreements with the State of New York with respect to land claims against the
State.  These agreements require state and federal legislation to be
enacted in order to implement their provisions.  Recent court
decisions have adversely affected the likelihood of such legislation being
adopted.
  The
Stockbridge Munsee Band of Mohicans, currently located in Wisconsin and
asserting aboriginal roots in New York State, applied to have lands taken into
trust for a Class III 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 Gaming and Raceway. 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 would 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.  In January 2008, the
Stockbridge Munsee Band of Mohicans’ land-into-trust application to the BIA with
respect to the land in New York was rejected. However, it has been reported that
with the recent election of President Obama and the appointment of a new
Secretary of Interior, the Stockbridge Munsee Band of Mohicans will be seeking
reconsideration of their application under existing regulations.  New
York Senator Schumer has expressed support for such
reconsideration.
  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
unknown at this time whether Congress will be receptive to land claim
settlements that include the development of Class III casinos in the Catskills
region of the State of New York.  In addition to Congressional
support, the New York State Legislature would have to approve and enact
legislation to support tribal land claim settlements that include Class III
gaming. The legislation, which was introduced in 2005 to implement these
proposed settlements, was not enacted by the New York State Legislature.
  In recent
months, 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.  The Oneida Nation of New
York and the Seneca Nation currently operate Class III 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, only the Seneca Nation has acquired land in fee in
Sullivan County.  A press statement issued by the tribe in January
2009 indicates the Seneca Nation will seek to have the land taken in trust or
restricted status to qualify the land as “Indian land”.  The Indian
Gaming Regulatory Act of 1988 requires land acquired after 1988 to be qualified
as Indian land if such land is intended for gaming.
  7
 INDEX
  There are
a number of groups seeking to become federally-recognized Indian tribes in order
to be granted the right to 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, has expressed its interest in building a casino in Southampton,
New York. The Shinnecock 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
Shinnecock broke ground on their casino on June 30, 2003, but the State of New
York brought suit against the Shinnecock, and a federal district court enjoined
the Shinnecock 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 Shinnecock’s 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 Shinnecock, as a state-recognized tribe, are immune from the state’s
lawsuit. In October 2007, the court ruled against the Shinnecock, citing that
the Shinnecock were not immune from zoning laws prohibiting the building of a
casino at the site because it did not have "aboriginal" title to the
land.  The court noted that this decision does not affect the status
of the Shinnecock’s request for federal recognition.  In October 2007,
the Shinnecock also submitted a plan to the State of New York to build a casino
at the Aqueduct Racetrack.
  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 Gaming and 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.
  Employees
  As of
March 10, 2009, we and our subsidiaries employed approximately 351
people.
  Website
Access
  The
Company's website address is www.empireresorts.com. The Company's filings with
the Securities and Exchange Commission ("SEC") are available at no cost on its
website as soon as practicable after the filing of such reports with the
SEC.
  Item
      1A.
              Risk
      Factors.
  Risks
Related To Our Business
  We
will not have the ability to repay our credit facility with Bank of Scotland
when it matures on May 29, 2009 or repurchase our senior secured convertible
notes, which we may be required to do as early as July 31, 2009.
  Our
credit facility with Bank of Scotland matures on May 29, 2009. In addition, the
holders of our senior secured convertible notes are entitled to demand repayment
of the notes on July 31, 2009.  Also, upon the occurrence of a change
in control (as defined in the indenture governing our senior secured convertible
notes), we will be required to repurchase all of our outstanding senior secured
convertible notes if they are tendered to us by the holders of such
notes.  We will not have sufficient financial resources to repay our
credit facility and may be unable to arrange financing when the credit
facility matures or to pay the purchase price for any of such notes if they are
tendered by the holders in connection with any such repurchase.
  8
 INDEX
  If we
fail to repay the Bank of Scotland credit facility when it is due, it will
result in an event of default under such credit agreement.  Any
failure to repurchase the notes when required will result in an event of default
under the indenture and could result in a cross-default under any other credit
agreement to which we may be a party at such time.  In addition, the
events that constitute a change in control under the indenture may also be
events of default under any credit agreement or other agreement governing future
debt.  These events 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
or result in our becoming involved in an insolvency proceeding.
  Going
Concern Consideration
  The
accompanying consolidated financial statements have been prepared on a basis
that contemplates the realization of assets and the satisfaction of liabilities
and commitments in the normal course of business. Our ability to continue as a
going concern is dependent upon our ability to negotiate a renewal or extension
of the maturity dates or to arrange financing to repay our credit facility with
the Bank of Scotland when it matures on May 29, 2009 and the holders of the
Senior Convertible Notes if they demand repayment of the notes on July 31,
2009.  Because of the right of the holders of the Senior Convertible
Notes to demand repayment of the notes on July 31, 2009, it is unlikely that we
will be able to extend or replace our credit facility.  We have
engaged in discussions with many of these holders regarding forbearance or
modifications to the terms of the Notes, but have not been able thus far
to agree to mutually acceptable terms.  We will continue to
pursue these efforts, but there is no assurance that we will be successful in
obtaining a result that will avoid a default on our obligations under our credit
facility or the terms of the Senior Convertible Notes.  These factors,
as well as continuing net losses and negative cash flows from operating
activities, raise substantial doubt about our ability to continue as a going
concern.  These consolidated financial statements do not include any
adjustments to the amounts and classification of assets and liabilities that may
be necessary should we be unable to continue as a going
concern.  These circumstances caused our independent registered public
accounting firm to include an explanatory paragraph in their report dated March
13, 2009 regarding their concerns about our ability to continue as a going
concern.  Substantial doubt about our ability to continue as a going
concern may create negative reactions to the price of the common shares of our
stock and we may have a more difficult time obtaining financing.
  The
LLC will require financing in order to complete the transactions contemplated by
the Contribution Agreement between Concord and us.
  The LLC
will require external financing to complete the transactions currently
contemplated by the agreement between Concord and us.  To the extent
that we continue to work toward the fruition of the project contemplated by that
agreement, we can make no assurance that financing will be available in the
amounts necessary or can be obtained on terms that are financially acceptable,
if at all.  If the LLC cannot raise needed funds on acceptable terms,
we will be required to abandon or delay the proposed transactions with
Concord.
  If
revenues and operating income from our operations at Monticello Gaming and
Raceway do not increase, if we are unable to complete our proposed joint venture
with Concord or if we are unable to develop a Class III 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 performance of our
VGM and racing facilities, and our ability to complete the proposed joint
venture with Concord or to successfully develop and manage a Class III casino at
the location of our current operations.
  9
 INDEX
  There can
be no assurance that our operations will draw sufficiently large
crowds to Monticello Gaming and 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 is not required to make
decisions that we feel are 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.  Our VGM operations have historically been insufficient to
service our debt, as we were 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% of our VGM gross revenue in excess of $150 million. Although new legislation
was passed in 2008 that increased our share of VGM revenue, no assurance can be
given that such increased revenue will be sufficient to support our ability to
service our outstanding debt.  Moreover, the legislation authorizing
the implementation of VGMs at Monticello Gaming and 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 a Class III 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 or interpretation 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 us from pursuing
future development projects, including future Class III casino 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 our current and any future 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 any Indian tribe with which we may seek to develop a Class III
casino, 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.
  10
 INDEX
  During
2002, certain affiliates of Bryanston Group, Inc. (“Bryanston Group”), our
former largest stockholder, and certain of our other stockholders were indicted
for various counts of tax and bank fraud.  On September 5, 2003, one
of these stockholders pleaded guilty to felony tax fraud, and on February 4,
2004, four additional stockholders were convicted of tax and bank
fraud.  None of the acts these individuals were charged with or
convicted of relate to their 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, 2008, was approximately $25.7
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 Gaming and 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 Gaming and 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.  In addition, in October 2007, the Mt. Airy Casino Resort
opened with approximately 2,500 slot machines, a hotel and a golf
course.  The Mt. Airy Casino Resort is located in Mount Pocono,
Pennsylvania, approximately 60 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 addition, we face competition for our VGMs from Yonkers
Raceway and Aqueduct Racetrack, both of which are located closer to New York
City than our facility.  Yonkers Raceway re-opened during the fourth
quarter of 2006.  It is uncertain at this time as to when Aqueduct
Racetrack may open with a new VGM facility.  In addition, proposals
have been made for the implementation of a similar program at Belmont Park and
in New Jersey, which would include a facility at the Meadowlands
Racetrack.  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 New Jersey,
competing VGM facilities at Yonkers Raceway and Aqueduct Racetrack 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.
  The
transactions contemplated by the Contribution Agreement between Concord and us,
will require amendments or waivers under both our senior convertible note
indenture and Bank of Scotland credit facility and will require approval from
the New York State Racing and Wagering Board and the New York
Lottery.
  11
 INDEX
  The
contribution of our gaming and racing licenses and operations at Monticello
Gaming and Raceway to the LLC, as contemplated by the Contribution Agreement
between Concord and us will require an amendment or waiver under the senior
convertible note indenture and Bank of Scotland credit facility, as well as
regulatory approval from the New York State Racing and Wagering Board and the
New York State Lottery.  Specifically, each of the senior secured note
indenture and Bank of Scotland credit facility contains numerous restrictive
covenants that limit, for example, the amount of new indebtedness we may occur,
the amount of capitalized expenditures we may make, the type of investments we
may make and the type of acquisitions we may consummate. The contribution of our
gaming and racing licenses and operations at Monticello Gaming and Raceway to
the LLC, as contemplated in the Contribution Agreement, will require consents
under these restrictive covenants, as well as regulatory approval from the New
York State Racing and Wagering Board and the New York State
Lottery.  No assurance can be given that either the requisite number
of noteholders or Bank of Scotland will agree to these proposals, or that if
they do, they will not force us to pay severe penalties, causing a material
adverse effect on our financial condition, or impose additional conditions
making it harder to remain in compliance with the indenture and credit facility
going forward, or to secure Class III casino development
financing.  In addition, no assurance can be given that either the New
York State Racing and Wagering Board or the New York State Lottery will provide
the necessary regulatory approvals to complete the transfer of our gaming and
racing licenses and operations at Monticello Gaming and Raceway to the
LLC.  If we are unable to secure these necessary waivers, consents
and/or approvals on reasonable terms, or at all, we will be unable to proceed
with the Entertainment City Project, which may have a material adverse effect on
our business, financial condition and operating results.
  The
continuing decline in the popularity of horse racing and increasing competition
in simulcasting could adversely impact the business of Monticello Gaming and
Raceway.
  Since the
mid-1980s, there has been a general decline in the number of people attending
and wagering at live horse races at North American racetracks due to a number of
factors, including increased competition from other forms of gaming,
unwillingness of 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 Gaming and Raceway.  Our business
plan anticipates the possibility of Monticello Gaming and Raceway attracting new
customers to its racetrack wagering operations through VGM operations and
potential Class III casino development in order to offset the general decline in
raceway attendance.  However, even if the numerous arrangements,
approvals and legislative changes necessary for Class III casino development
occur, Monticello Gaming and Raceway may not be able to maintain profitable
operations.  Public tastes are unpredictable and subject to
change.  Any further decline in interest in horse racing or any change
in public tastes may adversely affect Monticello Gaming and 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, none of whom are currently bound by employment
agreements, 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 in the principal amount of
$65 million, 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:
  12
 INDEX
  ·
              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;
  ·
              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
  ·
              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:
  ·
              to
      seek additional financing in the debt or equity
  markets;
  ·
              to
      refinance or restructure all or a portion of our indebtedness, including
      our senior secured convertible notes;
or
  ·
              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.
  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 12, 2009,
we had 34,037,961 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, due to this
dilution, the existence of our senior secured convertible notes may encourage
trading strategies involving our senior secured convertible notes and our common
stock, including short selling by market participants, 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.
  At
December 31, 2008, we had outstanding options to purchase an aggregate of
2,824,426 shares of our common stock at an average exercise price of $5.02 per
share and 250,000 warrants at $7.50 per share.  If the holders of
these options or warrants were to exercise their options and/or warrants and
attempt to sell a substantial amount of the shares issued to them upon such
exercise 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.  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.
  We
will require additional financing in order to develop a Class III casino or
other projects and we may be unable to meet our future capital requirements and
execute our business strategy.
  13
 INDEX
  Because
we are unable to generate sufficient cash from our operations, we will be forced
to rely on external financing to develop a Class III casino or other projects
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 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 Class III
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 an Indian Class III casino may depend upon the
ability of an Indian tribe with which we may seek to develop a Class III casino
resort to obtain financing for the project.  In order to assist such
tribe to obtain any such financing, we, or one of our subsidiaries, may be
required to guarantee the 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 tribe. Our
credit facility and indenture would not currently permit us to guarantee such
financing.
  Currently,
Class III casino gaming, other than Indian gaming, is not allowed in New
York.  There can be no assurance that the required amendment to the
New York State Constitution will be passed in order to allow Class III casino
gaming, other than Indian gaming, in a timely manner, or at all.
  Currently,
we are not permitted to operate a Class III casino at Monticello Gaming and
Raceway because Class III casino gaming, other than Indian gaming, is not
allowed in New York.  In order to operate a Class III casino at
Monticello Gaming and Raceway, an amendment to the New York State Constitution
to permit Class III casino gaming would need to be passed or we would need to
enter into an agreement with an Indian tribe for the development of such a Class
III casino.  In order to be amended to permit Class III casino gaming,
the New York State Constitution requires the passage of legislation in two
consecutive legislative sessions and then passage of the majority of the state's
voters in a statewide referendum.  There can be no assurance given
that an amendment to the New York State Constitution to permit Class III casino
gaming will be passed in a timely manner, or at all.
  We
currently do not have a development and management agreement with the St. Regis
Mohawk Tribe or any other Indian tribe for the development of a Class III casino
resort and we may not be able to enter into such an agreement on terms favorable
to us, or at all.  In addition, such a transaction with an Indian
tribe for the development of a Class III casino resort will be subject to
various federal and state regulatory approvals.
  On
December 31, 2007, the 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, as amended, and the related agreements,
expired by their terms.  On January 4, 2008, the St. Regis Mohawk
Tribe received a letter from the BIA denying its 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 accordance with the Indian Gaming
Regulatory Act of 1988, as amended.  As a result, we no longer have a
development and management agreement with an Indian tribe for the development of
a Class III casino resort.  There can be no assurance that we will be
able to enter into agreements with the St. Regis Mohawk Tribe or any other
Indian tribe for the development of a Class III casino resort on the land that
we own at Monticello Gaming and Raceway on terms favorable to us, or at
all.
  14
 INDEX
  Indian
casinos in New York are regulated extensively by federal, state and tribal
regulatory bodies, including the National Indian Gaming Commission (“NIGC”) and
agencies of the State of New York.  Consequently, a transaction with
an Indian tribe for the development of a Class III casino resort will be subject
to various federal and state regulatory approvals.  For example, any
agreement that we may enter into an Indian tribe will not be effective to allow
us to commence the development or management of a gaming facility until a
management agreement is first approved by the NIGC.  In addition, an
Indian tribe cannot 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.  Such gaming
compacts generally will not be entered into until the appropriate land has been
taken into trust by the United States for the benefit of such
tribe.  No assurance can be given that such land will be taken into
trust or that any required approvals will be obtained on terms acceptable to us
or at all.
  The
FONSI that was issued to the St. Regis Mohawk Tribe in connection with an effort
to develop a casino at our Monticello location was challenged in federal court,
and its validity was called into question.
  The
National Environmental Policy Act requires federal agencies to consider the
environmental impacts of activities they perform, fund, or permit, as well as
alternatives to those activities and ways to mitigate or lessen those
impacts.  Under the National Environmental Policy Act, federal
agencies must prepare an environmental assessment to determine whether the
proposed action will have a significant effect on the quality of the
environment.  If the agency determines that the action will not have a
significant effect on the environment, it issues a FONSI, and the project can
move forward; if the agency finds to the contrary, it must then prepare an
environmental impact statement, detailing the environmental impacts,
alternatives, and mitigation measures.
  We
believe that the fact that a FONSI was issued to the St. Regis Mohawk Tribe with
respect to the 29.31 acres of land at Monticello Gaming and Raceway, stating
that the St. Regis Mohawk Tribe’s Final Environmental Assessment for the project
had been deemed sufficient, that an Environmental Impact Study would not be
required and that the fact that a formal FONSI related to the proposed federal
action approving the Land-to-Trust Transfer was issued to the Tribe could
significantly improve our chances of and expedite the process with respect to
the potential future development of an Indian Class III casino resort on such
land with the St. Regis Mohawk Tribe or with any other Indian tribe with which
we may seek to develop a Class III casino resort.  On February 16,
2007, however, 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 FONSI without requiring an
environmental impact statement under the National Environmental Policy
Act.  The plaintiffs sought 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 Gaming
and Raceway and prior to the Department of the Interior’s causing the transfer
of the subject land into federal trust.   If a full environmental
impact statement were required, this could result in significant delays to
developing an Indian Class III casino.  Moreover, the costs involved
in obtaining a full environmental impact statement are significant.
  Because
of the unique status of Indian tribes, our ability to successfully develop and
manage an Indian Class III casino would be subject to unique risks.
  We have
limited experience in managing or developing Indian Class III 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
Class III casino developed by an Indian 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 us and any such Indian tribe may
arise.  It is possible that we may be required to seek enforcement of
our rights in a court or other dispute resolution forum of the tribe, instead of
state or federal courts or arbitration.  Until a gaming facility
management agreement has been approved by the NIGC and by the relevant Indian
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 any other agreements with such tribe will also be inoperative until
such gaming facility management agreement has been approved by the
NIGC.
  15
 INDEX
  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
Class III casino with an Indian tribe.  Several companies with gaming
experience that have tried to become involved in the management and/or
development of Indian Class III 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.
  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 stockholders from realizing a premium
return on their 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.
  Stockholders’
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 other stockholders’ best interests or the best interest of us
as a whole.
  16
 INDEX
  The
market price of our common stock is volatile, leading to the possibility of its
value being depressed at a time when our stockholders want to sell their
holdings.
  The
market price of our common stock has in the past been, and may in the future
continue to be, volatile.  For instance, between January 1, 2006 and
March 10, 2009, the closing bid price of our common stock has ranged between
$0.88 and $12.63.  A variety of events may cause the market price of
our common stock to fluctuate significantly, including but not necessarily
limited to:
  ·
              quartertoquartervariationsinoperatingresults;
  ·
              adverse
      news announcements; and
  ·
              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 our
stockholders want to sell their interest in us.
  General
Business Risks
  Instability
and volatility in the financial markets could have a negative impact on our
business, financial condition, results of operations and cash
flows.
 
 During
recent months, there has been substantial volatility and a decline in the
financial markets due at least in part to the deteriorating global economic
environment. In addition, there has been substantial uncertainty in the capital
markets and access to financing is uncertain. Moreover, customer spending habits
may be adversely affected by the current economic crisis. These conditions could
have an adverse effect on our industry and our business, including our
consolidated financial condition, results of operations and cash
flows.
  To the
extent we do not generate sufficient cash flows from operations, we may need to
incur additional indebtedness to finance our plans for growth.  Recent
turmoil in the credit markets and the potential impact on the liquidity of major
financial institutions may have an adverse effect on our ability to fund our
business strategy through borrowings, under either existing or newly created
instruments in the public or private markets on terms we believe to be
reasonable, if at all.
  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 Class III 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:
  17
 INDEX
  ·
              a
      downturn in national, regional or local economic
    conditions;
  ·
              an
      increase in competition in New York State or the northeastern United
      States and Canada, particularly for day-trip patrons residing in New York
      State, including as a result of recent legislation permitting new Indian
      Class III casinos and VGMs at certain racetracks and other locations in
      New York, Connecticut and
Pennsylvania;
  ·
              impeded
      access due to road construction or closures of primary access routes;
      and
  ·
              adverse
      weather and natural and other disasters in the northeastern United States
      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 Class III casino to ensure
adequate cash flow during expected periods of lower revenues, we cannot ensure
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 Class III 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 million) limit
of coverage for the perils of flood and earthquake, we cannot ensure 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.  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.
  The BIA,
through its denial on January 4, 2008 of 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 accordance with the
Indian Gaming Regulatory Act of 1988, as amended, as well as its denial of other
proposed off-reservation casinos, was based, in part, of its opinion that the
casinos were not within a reasonable commuting distance from the
reservations.  The current position of the BIA will likely have an
adverse effect on the ability of companies to develop off-reservation Indian
gaming operations.
  18
 INDEX
  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.
  It is
uncertain whether the local governments have the ability to support the level of
economic development associated with the construction of one or more gaming
facilities.  The demands placed upon the local governments by these
expansion efforts or local economic conditions 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 Gaming and 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
Gaming and 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 have identified a 29.31-acre parcel of land for the
development of a Class III casino if either Class III casino gaming is legalized
in the State of New York or if we enter into an agreement with an Indian tribe
for and obtain the necessary approvals in connection with the development of
such a Class III casino.  If we pursue the development of a Class III
casino with an Indian tribe, the parcel of land is to be conveyed 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 may also be required
to 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 June 20, 2007, the agreement was amended to provide for
a maturity date of January 7, 2009, among other things.  On March 14,
2008, we entered into an additional amendment to our credit facility with Bank
of Scotland that extends the maturity date to May 29, 2009.  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. Also in connection
with this credit facility, the Bank of New York, as trustee under the indenture
for the benefit of the holders of our Senior Convertible Notes, and the Bank of
Scotland, entered into an Intercreditor Agreement which provides, among other
things, that the trustee also has the benefit of a mortgage recorded on the
Monticello property for the benefit of the holders of such notes.
  19
 INDEX
  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.
  Item
      3.
              Legal
      Proceedings.
  On
February 14, 2008, three of our subsidiaries, Monticello Raceway Management,
Monticello Raceway Development and Monticello Casino Management, filed for
arbitration with the American Arbitration Association seeking declarations as to
the effectiveness of their agreements with the St. Regis Mohawk Tribe and the
St. Regis Mohawk Gaming Authority.  On October 9, 2008, our
subsidiaries entered into an amendment to their settlement agreement with the
St. Regis Mohawk Gaming Authority and the St. Regis Mohawk Tribe, dated as of
July 18, 2008, pursuant to which the parties agreed to release all claims
against the other parties and required the payment of additional reimbursements
of approximately $444,000 to the St. Regis Mohawk Tribe.
 In
connection with a new contract with the Horsemen entered into as of July 1,
2008, we have agreed to pay $1.25 million to settle all pending litigation
between us and the Horsemen, including Monticello Harness Horsemen’s
Association, Inc. v. Monticello Raceway Management, Inc. pending in the Supreme
Court of the State of New York, County of Sullivan and Monticello Harness
Horsemen's Association, Inc. v. Monticello Raceway Management, Inc. pending in
the Supreme Court of the State of New York, County of Sullivan. $1 million of
the settlement will be paid in the form of purses and the remaining $250,000 was
paid in cash during the year ended December 31, 2008.
  The new
contract with the Horsemen makes provision for, among other things; 1) the
transfer of racing operations to the Concord site anticipated in connection with
the Entertainment City Project, in the
event that the Entertainment City Project is built prior to the expiration of
the term of the Agreement, 2) an initial two (2) year term that extends
for an additional twenty (20) years if construction financing for the
Entertainment City Project is obtained prior to July 31, 2010, 3) payments from
the date of execution until the opening of the Entertainment City
Project of the greater of 8.75% of VGM revenue or $5,000,000 on an annual
basis, and 4) annual payments beginning with the opening of the Entertainment
City Project of $5,350,000 with an annual addition of $500,000 per year. In
addition, the agreement requires that we reduce our purse liability to $600,000
(on the basis of cash collected) by December 31, 2008 and post a bond issued by
a banking or insurance company with an “A” rating according to Best’s, in the
amount of Seven Hundred Fifty Thousand Dollars ($750,000) securing our
obligation to fund the Horsemen's purse account.
  On
December 17, 2008, the New York State Court of Appeals reversed a November 2007
decision from the Appellate Division – Third Department of the New York State
Supreme Court regarding various racing revenues previously paid by the Off-Track
Betting corporations (“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.  The practical result of the OTB
Appellate Division decision had been that the OTBs were not responsible for
paying dark day monies to Monticello Gaming and Raceway or Yonkers Raceway and
were obligated to pay a lesser amount of out-of-state OTB commissions to the
tracks.
  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.
  On
November 11, 2008, the Company held its annual stockholders’ meeting in
Monticello, New York.
  20
 INDEX
  The
following directors were elected based upon the following tabulations of
votes:
 
 FOR
                      
                      WITHHELDDavid
      P. Hanlon
                      
                      
                      20,482,405
                      
                      
                      
                      2,661,830Richard
      L. Robbins
                      
                      
                      20,465,460
                      
                      
                      
                      2,678,775Kenneth
      Dreifach
                      
                      
                      22,347,774
                      
                      
                      
                      796,461
 
 The
second order of business was to consider and vote upon a proposal to amend the
Company’s 2005 Equity Incentive Plan to allow for the grant of stock
appreciation rights and other equity incentives or stock or stock based awards,
including, but not limited to, restricted stock units, which passed based upon
the following tabulations of votes:
  FOR
              
              AGAINST
              
              ABSTAIN
              
              BROKER
      NON-VOTES3,357,038
              
              811,123
              
              100,809
              
              18,875,265
 
  PART II
  Item
      5.
              Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities.
  Performance
Graph
  
 
 Company/Index
                
                12/31/2003
                
                
                12/31/2004
                
                
                12/31/2005
                
                
                12/31/2006
                
                
                12/30/2007
                
                
                12/31/2008Empire
      Resorts, Inc.
                
                
                100.00
                
                
                
                123.68
                
                
                
                82.09
                
                
                
                96.17
                
                
                
                37.83
                
                
                
                12.09Resorts
      and Casinos
                
                
                100.00
                
                
                
                169.62
                
                
                
                165.71
                
                
                
                259.23
                
                
                
                292.80
                
                
                
                52.62NASDAQ
      Market Index
                
                
                100.00
                
                
                
                108.41
                
                
                
                110.79
                
                
                
                122.16
                
                
                
                134.29
                
                
                
                79.25
  21
 INDEX
  Assumes
$100 invested on December 31, 2003 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.
  The
future market performance of the Company’s common stock may be better or worse
than the 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
                      
                      
                      LowYear
      ended December 31, 2007First
      Quarter
                      
                      $
                      12.70
                      
                      
                      $
                      8.53Second
      Quarter
                      
                      
                      10.67
                      
                      
                      
                      7.10Third
      Quarter
                      
                      
                      7.44
                      
                      
                      
                      3.80Fourth
      Quarter
                      
                      
                      6.69
                      
                      
                      
                      3.03Year
      ended December 31, 2008First
      Quarter
                      
                      $
                      3.43
                      
                      
                      $
                      0.86Second
      Quarter
                      
                      
                      4.66
                      
                      
                      
                      1.36Third
      Quarter
                      
                      
                      4.25
                      
                      
                      
                      2.02Fourth
      Quarter
                      
                      
                      3.00
                      
                      
                      
                      0.88
 
 Holders
  According
to Continental Stock Transfer & Trust Company, there were approximately 246
holders of record of our common stock at March 10, 2009.
  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 accumulated
unpaid Series E preferred dividends of approximately $8.4 million as of December
31, 2008.
  Securities
Authorized for Issuance Under Equity Compensation Plans
  The
following table provides information as of December 31, 2008 with respect to the
shares of our common stock that may be issued under our existing equity
compensation plans.
  22
 INDEX
  Number
      of securities to be issued upon exercise of outstanding options, warrants
      and rights
                      (a)
                  
                  
                  Weighted-average
      exercise price of outstanding options, warrants and rights
                      (b)
                  
                  
                  Number
      of securities remaining available for future issuance under equity
      compensation plans (excluding securities reflected in column
      (a))
                      (c)Equity
      compensation plans approved bysecurity
      holders
                  
                  
                  2,774,426
                  
                  
                  $
                  4.89
                  
                  
                  
                  930,801Equity
      compensation plans not approved bysecurity
      holders
                  
                  
                  300,000
                  
                  
                  
                  7.67
                  
                  
                  
                  --Total
                  
                  
                  3,074,426
                  
                  
                  $
                  5.16
                  
                  
                  
                  930,801
 
 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,
2008, 2007 and 2006 and the selected consolidated balance sheet data as of
December 31, 2008 and 2007 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, 2005 and
2004 and the selected consolidated balance sheet data as of December 31, 2006,
2005 and 2004 are derived from the Company’s audited consolidated financial
statements not included herein.
  STATEMENTS
      OF OPERATIONS DATA
                  
                  (All
      dollar amounts in thousands, except per share data)Years
      ended December 31,2008
                  
                  
                  2007
                  
                  
                  2006
                  
                  
                  2005
                  
                  
                  2004NET
      REVENUES
                  
                  $
                  67,256
                  
                  
                  $
                  75,693
                  
                  
                  $
                  97,871
                  
                  
                  $
                  86,708
                  
                  
                  $
                  45,006Operating
      costs and expenses, including depreciation
                  
                  
                  71,971
                  
                  
                  
                  81,930
                  
                  
                  
                  98,487
                  
                  
                  
                  85,647
                  
                  
                  
                  55,514Impairment
      loss – deferred development costs *
                  
                  
                  ---
                  
                  
                  
                  12,822
                  
                  
                  
                  ---
                  
                  
                  
                  14,291
                  
                  
                  
                  ---LOSS
      FROM OPERATIONS
                  
                  
                  (4,715
                  )
                  
                  
                  (19,059
                  )
                  
                  
                  (616
                  )
                  
                  
                  (13,230
                  )
                  
                  
                  (10,508
                  )NET
      LOSS
                  
                  
                  (10,609
                  )
                  
                  
                  (24,649
                  )
                  
                  
                  (7,076
                  )
                  
                  
                  (18,527
                  )
                  
                  
                  (12,745
                  )Dividends
      paid on preferred stock
                  
                  
                  ---
                  
                  
                  
                  ---
                  
                  
                  
                  ---
                  
                  
                  
                  ---
                  
                  
                  
                  (30
                  )Undeclared
      dividends on preferred stock
                  
                  
                  (1,551
                  )
                  
                  
                  (1,551
                  )
                  
                  
                  (1,551
                  )
                  
                  
                  (1,551
                  )
                  
                  
                  (1,510
                  )NET
      LOSS APPLICABLE TO COMMON SHARES
                  
                  $
                  (12,160
                  )
                  
                  $
                  (26,200
                  )
                  
                  $
                  (8,627
                  )
                  
                  $
                  (20,078
                  )
                  
                  $
                  (14,285
                  )Loss
      per common share, basic and diluted
                  
                  $
                  (0.38
                  )
                  
                  $
                  (0.89
                  )
                  
                  $
                  (0.32
                  )
                  
                  $
                  (0.77
                  )
                  
                  $
                  (0.57
                  )OTHER
      FINANCIAL DATA:Capital
      Expenditures
                  
                  $
                  277
                  
                  
                  $
                  339
                  
                  
                  $
                  320
                  
                  
                  $
                  1,967
                  
                  
                  $
                  31,079BALANCE
      SHEET DATA:Cash
      and cash equivalents
                  
                  $
                  9,687
                  
                  
                  $
                  15,008
                  
                  
                  $
                  9,471
                  
                  
                  $
                  6,992
                  
                  
                  $
                  7,164Total
      assets
                  
                  
                  49,096
                  
                  
                  
                  54,199
                  
                  
                  
                  60,564
                  
                  
                  
                  57,245
                  
                  
                  
                  60,753Debt
      payable within one year
                  
                  
                  72,617
                  
                  
                  
                  ---
                  
                  
                  
                  ---
                  
                  
                  
                  ---
                  
                  
                  
                  ---Long-term
      debt
                  
                  
                  ---
                  
                  
                  
                  72,617
                  
                  
                  
                  72,617
                  
                  
                  
                  72,476
                  
                  
                  
                  65,000Proceeds
      from exercise of stock options and sale of common stock
                  
                  
                  5,191
                  
                  
                  
                  18,932
                  
                  
                  
                  1,166
                  
                  
                  
                  283
                  
                  
                  
                  151Total
      stockholders’ deficit
                  
                  
                  (32,371
                  )
                  
                  
                  (28,077
                  )
                  
                  
                  (25,723
                  )
                  
                  
                  (27,215
                  )
                  
                  
                  (14,992
                  )
 
 *           Impairment
loss represents the write-off of costs associated with efforts to develop Indian
casinos in New York State.
  23
 INDEX
 
 Item
      7.
              Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations.
  The
following discussion of our financial condition and results of operations should
be read in conjunction with the consolidated Financial Statements and Notes
thereto appearing elsewhere in this document.
  Liquidity
  Our
credit facility with Bank of Scotland matures on May 29, 2009. In addition, the
holders of our senior secured convertible notes are entitled to demand repayment
of the notes on July 31, 2009.  We will not have sufficient financial
resources to repay our credit facility and may be unable to arrange financing
when the credit facility matures or to pay the purchase price for any of such
notes if they are tendered by the holders in connection with any such
repurchase.
  Going
Concern
  The
accompanying consolidated financial statements have been prepared on a basis
that contemplates the realization of assets and the satisfaction of liabilities
and commitments in the normal course of business. The Company’s ability to
continue as a going concern is dependent upon our ability to negotiate a renewal
or extension of the maturity dates or to arrange financing with other sources to
repay our credit facility with the Bank of Scotland when it matures on May 29,
2009 and the holders of the Senior Convertible Notes if they demand repayment of
the notes on July 31, 2009.  Although we continue to pursue these
plans, there is no assurance that we will be successful in obtaining
financing.  These factors, as well as continuing net losses and
negative cash flows from operating activities as well as an uncertain economic
environment, raise substantial doubt about our ability to continue as a going
concern.  These consolidated financial statements do not include any
adjustments to the amounts and classification of assets and liabilities that may
be necessary should the Company be unable to continue as a going
concern.  These circumstances caused our independent registered public
accounting firm to include an explanatory paragraph in their report dated March
13, 2009 regarding their concerns about our ability to continue as a going
concern.  Substantial doubt about our ability to continue as a going
concern may create negative reactions to the price of the common shares of our
stock and we may have a more difficult time obtaining financing.
  Overview
  We were
organized in 1993 as a holding company for entities engaged primarily in the
hospitality and gaming 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 and the controlling member
of Monticello Casino Management.  Consequently, Empire 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 Gaming and Raceway, to install and operate
VGMs.  Under the program, the New York State Lottery made an initial
allocation of 1,800 VGMs to Monticello Gaming and
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 Gaming and 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 all of the outstanding membership interests
and capital stock of Monticello Raceway Management, Monticello Casino
Management, Monticello Raceway Development and Mohawk Management, LLC (“Mohawk
Management”) in exchange for 80.25% of our common stock, calculated on a
post-consolidation, fully diluted basis. Monticello Raceway Management,
Monticello Casino Management, Monticello Raceway Development and Mohawk
Management own all of the development and management rights with respect to an
Indian Class III 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, collectively,
received a controlling interest in us as part of this acquisition, the
acquisition was accounted for as a reverse merger.
  24
 INDEX
  During
2004, we undertook improvements to Monticello Gaming and Raceway and commenced
the VGM operations under the auspices of the New York State
Lottery.  We also pursued continuing efforts to develop an Indian
Class III casino resort on a parcel of land adjacent to Monticello Gaming and
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
29.31 acres of land adjacent to Monticello Gaming and Raceway.  Under
this agreement, we were 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 Class III casino.  This agreement expired pursuant
to its terms on December 31, 2007.
  On July
18, 2008, our subsidiaries, Monticello Raceway Management, Monticello Raceway
Development and Monticello Casino Management entered into a settlement agreement
with the St. Regis Mohawk Gaming Authority and the St. Regis Mohawk Tribe
pursuant to which the parties agreed to release all claims against the other
parties. The settlement was amended on October 9, 2008 to eliminate any
remaining unfulfilled conditions and included our agreement to reimburse the St.
Regis Mohawk Tribe approximately $444,000 for expenses incurred by them in
connection with the project.
  We have
an agreement, subject to certain conditions, with Concord to form a joint
venture to develop the Entertainment City Project, which will include a hotel,
convention center, gaming facility and harness horseracing track on 160 acres of
land located in Kiamesha Lake, New York.  For a variety of factors,
including recent conditions in the financial markets, certain contingencies for
the implementation of this agreement have not been able to be achieved, and we
have been exploring a number of different modifications and strategic
alternatives with Concord, which could substantially affect the structure and
scope of the venture.  Pursuant to an amendment entered into on
January 30, 2009, the Contribution Agreement became terminable by either party
on February 28, 2009, subject to extensions under certain conditions, but has
not been terminated at the date of this filing.  However,
it is not expected that the conditions to the closing of the transaction will be
satisfied without significant modifications, and no assurances can be given that
the parties will be able to find mutually satisfactory alternatives that would
enable the consummation of a new agreement.
  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 Gaming and Raceway, 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 (the “Litigation 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 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 Litigation Trust with a
$2.5 million line of credit to finance the litigation.
  As of
December 31, 2007, we had provided $2.5 million to the Litigation Trust. We had
also recorded a valuation reserve for the full amount of the credit provided. On
October 21, 2008, we were advised that a decision rendered in the case that
involved the Litigation Trust was adverse to the position of the Litigation
Trust. As a result, it appears very unlikely that we will recover any of the
amounts advanced to the Litigation Trust and have written off the receivable at
December 31, 2008.
  25
 INDEX
 
 Critical
Accounting Policies
  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 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 fair value are also considered to be critical as these policies
involve considerable subjective judgment and estimation by management. Critical
accounting policies, and our procedures related to these policies, are described
in detail below.
  Revenue 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, before deductions of such related expenses as purses, stakes and
awards. Some elements of the racing revenues from Off-track Betting Corporations
(“OTBs”) are recognized as collected. 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. 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 stated at the amount we
expect to collect. If needed, an allowance for doubtful accounts is recorded
based on information on specific accounts. Accounts are considered past due or
delinquent based on contractual terms and how recently payments have been
received. 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.  Account balances are written off against the allowance
after all means of collection have been exhausted and the potential for recovery
is considered remote.
  Deferred Development
Costs.  Deferred development costs are recorded at cost. In
connection with our development activities, we have made advances to tribes for
development assistance and to facilitate the establishment and initial
operations of tribal gaming authorities. We have also incurred costs associated
with development activities, including salaries of employees engaged in those
activities that were capitalized as deferred development costs. We have provided
technical assistance, engaged and paid attorneys and consultants and provided
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 Class III casino developments. We periodically review deferred
development costs for impairment as further described below. As of December 31,
2007, all deferred development costs were impaired and written off. During 2008,
we did not incur any expenses which were treated as deferred development
costs.
  26
 INDEX
  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 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. At December 31, 2008, our impairment review did not
result in a provision for impairment of our long-lived assets.
  Stock-Based
Compensation.  Effective January 1, 2006, we adopted the fair
value recognition provisions of Statement of Financial Accounting Standards
(“SFAS”) No. 123 (revised 2004), "Share Based Payment"("SFAS No. 123(R)") using
the modified-prospective method. We had adopted the fair value approach
contained in SFAS No. 123 effective January 1, 2003 and we have consistently
used the Black-Scholes-Merton formula to estimate the fair value of stock
options granted in the periods since that time. As of December 31, 2008, there
was approximately $358,000 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.
  Fair Value.  In the first quarter of
2008, we adopted SFAS No. 157, “Fair Value Measurements,” for financial assets
and liabilities. We elected the deferral option available for one year for
non-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 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).
  As
permitted, 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. If we
had adopted FASB SFAS No. 159 in 2008 there would be no significant difference
in our consolidated financial statements.
  Our
financial instruments are comprised of current assets and current liabilities,
which include a revolving credit facility and senior convertible notes at
December 31, 2008. Current assets and current liabilities approximate fair value
due to their short term nature.
  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. A hypothetical 10%
decrease in our deferred tax valuation allowance will result in an income tax
benefit of approximately $6.7 million.
  Results
of Operations
  Year
Ended December 31, 2008 Compared to Year Ended December 31, 2007
  Revenues.  Total
net revenues decreased approximately $8.4 million or 11% for the year ended
December 31, 2008. VGM operations accounted for approximately $6.2 million (or a
10% decrease from 2007) of that reduction and racing accounted for approximately
$1.8 million (or a 22% decrease). The remainder of the decrease was attributable
to food, beverage and other revenues decreasing by approximately $618,000 (or
11%) offset by decreased complimentary expenses (“promotional allowances”) of
approximately $184,000 (or 7%).
  27
 INDEX
  We
believe that the decrease in VGM revenues can be attributed primarily to more
competition from VGM facilities at Yonkers Raceway (opened November, 2006) and
new casinos opening in Pennsylvania in 2007. It is likely that the economic
conditions in the fourth quarter of 2008 also had an adverse effect on revenues.
Patron visits decreased by 19.6% and the average daily win per unit was reduced
from $110.68 to $100.04 (or 10%). The average number of machines in operation
was 1,587 in both years.  The decrease in promotional allowances is
primarily a result of reduced revenues.
  The
decrease in racing revenue was primarily a result of reduced revenue allocations
from OTB facilities. Yonkers Raceway was operating for the full year 2008 with a
new VGM facility and other improvements. Because a part of the OTB revenue
sharing arrangements is based upon the revenues of each participant relative to
the total revenues of all participants, our share is adversely affected by
strong competition from other participants.
  Gaming
costs.  Gaming (VGM) costs decreased by approximately $9.6
million (or 17%) to approximately $46.7 million for 2008 compared with
2007.  Of this amount, approximately $3.4 million (or 6%) is
attributable to a change in the law which allows VGM operators to pay a lower
percentage of VGM revenues to the New York State Lottery. The remainder of the
decrease of approximately $6.2 million (or 11%) reflects cost reductions to
adjust to lower levels of customer visits.
  Racing
costs.  Racing costs increased in 2008 by approximately
$510,000 (or 7%) to approximately $7.5 million. The primary reason for this
increase was the cost of a settlement reached with our Horsemen of $1.25
million. Purses and other racing expenses decreased by approximately $740,000
(or 11%). 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.
  Food, beverage and other
costs.  These costs decreased by approximately $357,000 (or
15%) to approximately $2.0 million for 2008 compared with 2007.  The
percentage reduction was greater that the reduction in revenues primarily as a
result of expense reduction initiatives undertaken in 2008.
  Selling, General and Administrative
expenses.  Selling, general and administrative expenses
decreased approximately $556,000 (or 4%) in 2008 to approximately $14.4
million.  The decrease is comprised of a reduction in stock-based
compensation of approximately $2.2 million, a decrease in other compensation of
approximately $176,000, an increase in marketing costs of approximately $216,000
and an increase in professional fees and other expenses related to development
activities of approximately $1,642,000.
  Interest
expense.  Interest expense was approximately $5.7 million and
$5.9 million, respectively, for the years 2008 and 2007.  The interest
rates charged on our credit facility are based upon market rates and were lower
in 2008 than those charged in 2007.
  Year
Ended December 31, 2007 Compared to Year Ended December 31, 2006
  Revenues.  Total
net revenues decreased approximately $22.2 million or 23% for the year ended
December 31, 2007. VGM operations accounted for approximately $12.2 million (or
a 16% decrease from 2006) of that reduction and racing accounted for
approximately $9.7 million (or a 54% decrease). The remainder of the decrease
was attributable to food, beverage and other revenues decreasing by
approximately $773,000 (or 12%) offset by reduced complimentary expenses of
approximately $534,000 (or 17%).
  We
believe that the decrease in VGM revenues can be attributed primarily to more
competition from VGM facilities at Yonkers Raceway (opened November, 2006) and
new casinos opening in Pennsylvania in 2007. Patron visits decreased by 20.6%
and the average daily win per unit was reduced from $132.63 to $110.19 (or 17%).
The average number of machines in operation was 1,587 in 2007 and 1,580 in
2006.  The decrease in complimentary expenses is primarily a result of
reduced volume of play.
  The
decrease in racing revenue was primarily a result of reduced revenue allocations
from OTB facilities. 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. When that facility reopened in November with a new VGM facility
and other improvements, the normal sharing arrangement went back into effect and
our share of revenue allocations dropped significantly. As a result of the
November 2007 OTB Appellate Decision, which determined that OTBs were no longer
responsible to pay us one type of their revenue that had previously been paid,
our revenues for the fourth quarter of 2007 were reduced by approximately
$350,000.
  28
 INDEX
  Gaming
costs.  Gaming (VGM) costs decreased by approximately $8.2
million (or 13%) to approximately $56.3 million for 2007 compared with
2006.  This percentage decrease is less than the percentage decrease
in VGM revenues because not all of our operating expenses vary directly with
revenue changes.
  Racing
costs.  Racing costs decreased in 2007 by approximately $4.9
million (or 41%) to approximately $7.0 million. 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.
  Food, beverage and other
costs.  These costs decreased by approximately $261,000 (or
10%) to approximately $2.4 million for 2007 compared with
2006.  Revenues in this category decreased 12%.
  Selling, General and Administrative
expenses.  Selling, general and administrative expenses
decreased approximately $3.2 million (or 18%) in 2007 to approximately $15.0
million.  The decrease is comprised of a reduction in stock-based
compensation of approximately $4.0 million, an increase in other compensation of
approximately $266,000, a decrease in marketing costs of approximately $484,000
and an increase in other expenses of approximately $1,012,000. The stock-based
compensation in 2006 included approximately $3.5 million for the expense, on
December 28, 2006, of extending the expiration date for one year on options to
purchase 2.5 million shares of our common stock at $7.50 per share. The options
to purchase those shares were exercised and we received $18,750,000 as proceeds
from the exercise in January 2007.
  Impairment loss – Deferred
development costs. On January 4, 2008, the BIA announced the denial of
the land to trust application from the St. Regis Mohawk Tribe for the site on
which our joint efforts had been focused. In light of that decision, we
determined that the carrying value of our deferred development costs was likely
not recoverable and recorded an impairment loss of approximately $12.8 million
as of December 31, 2007.
  Interest
expense.  Interest expense was approximately $5.9 million and
$6.0 million, respectively, for the years 2007 and 2006.
  Liquidity
and Capital Resources
  Our
credit facility with the Bank of Scotland requires repayment of approximately
$7,150,000 (outstanding balance of $7,617,000 less restricted cash on deposit of
$467,000) 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 of repayment for this credit facility or for these notes and our
operations will not provide sufficient cash flow to repay these
obligations.
  If
we fail to repay the Bank of Scotland credit facility when it is due, it will
result in an event of default under such credit agreement.  Any
failure to repurchase the notes when required will result in an event of default
under the indenture and could result in a cross-default under any other credit
agreement to which we may be a party at such time.  In addition, the
events that constitute a change in control under the indenture may also be
events of default under any credit agreement or other agreement governing future
debt.  These events 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
or result in our becoming involved in an insolvency proceeding.
  Net cash
used in operating activities during the year ended December 31, 2008 was
approximately $10.5 million compared to approximately $7.4 million in 2007. The
increase in cash used of approximately $3.1 million is primarily the result of
the following items:
  -
              losses
      from operations, excluding impairment loss, stock-based compensation and
      valuation reserve for advances to Litigation Trust, increased from
      approximately $7.5 million in 2007 to approximately $9.5 million in 2008;
      and
  29
 INDEX
  -
              the
      changes in other net working capital items and other assets account for
      the remaining negative comparative effect on net cash from operations of
      approximately $1.1 million.
  The
relatively large changes in accounts receivable and the purse liability in 2007
were related to the circumstances that created higher than normal 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 December 31, 2007.
  Net cash
used in investing activities was approximately $30,000 for the year ended
December 31, 2008. During the year ended December 31, 2007 net cash used in
investing activities in was approximately $6.0 million, and consisted primarily
of approximately $4.5 million in costs associated with casino development
projects and advances to the Litigation Trust of $985,000.
  Net cash
provided by financing activity for 2008 was approximately $5.2 million
representing primarily proceeds from the sale of our common stock. In 2007, net
cash provided by financing activity was approximately $18.9 million representing
primarily proceeds from the exercise of options to purchase our common
stock.
  On
January 11, 2005, we entered into a credit facility with Bank of Scotland,
pursuant to which Bank of Scotland agreed to provide us with a $10 million
senior secured revolving loan (subject to certain reserves) that was to mature
in two years. To secure the timely repayment of any borrowings by us under this
credit facility, among other things, we agreed to:
  ·
              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;
  ·
              cause
      our subsidiaries to guarantee our obligations under the credit
      facility;
  ·
              pledge
      our equity interests in each of our current and future subsidiaries;
      and
  ·
              grant
      Bank of Scotland a first priority secured interest in all of its assets,
      now owned or later acquired.
  In
connection with this credit facility, the Bank of New York, the noteholders’
trustee under the indenture, and Bank of Scotland, also entered into an
Intercreditor Agreement so that the Bank of Scotland will have a first priority
position, notwithstanding the indenture and security documents we executed on
July 26, 2004 in connection with our issuance of $65 million of senior
convertible notes due 2014.
  On June
21, 2007, we entered into another amendment to our credit facility with Bank of
Scotland. The amendment, dated as of June 20, 2007, among other things, (i)
extends the maturity date of the loan agreement from January 11, 2008 to January
7, 2009, (ii) amends 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)
deletes 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.
  On March
9, 2009, our Board of Directors authorized the issuance of 124,610 shares of our
common stock in payment of dividends due for the year ended December 31, 2008 on
our Series B Preferred Stock. The recorded value of these shares was
approximately $111,000.
  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 the shares issued was
approximately $262,000.
  30
 INDEX
  At
December 31, 2008, we had undeclared dividends on our Series E Preferred Stock
of approximately $8.4 million and undeclared dividends for 2008 on our Series B
Preferred Stock of approximately $167,000.  We paid the dividends on
Series B Preferred Stock by issuing common stock in March 2009.  We
are in compliance with our Certificates of Designations, Preferences and Rights
of the issued and outstanding preferred shares.
  Recent
Accounting Pronouncements
  In
October 2008, the Financial Accounting Standards Board (“FASB”) issued FASB
Staff Position (“FSP”) Financial Accounting Standard (“FAS”) 157-3, “Determining the Fair Value of a
Financial Asset When the Market for That Asset Is Not Active”, which
addresses the application of Statement of Financial Accounting Standards
(“SFAS”) 157, “Fair Value Measurements” (“SFAS 157”) for illiquid financial
instruments. FSP FAS 157-3 clarifies that approaches to determining fair value
other than the market approach may be appropriate when the market for a
financial asset is not active. The adoption of FSP FAS 157-3 did not have a
material effect on our consolidated financial statements.
  In June
2008, the FASB ratified Emerging Issues Task Force (“EITF”) Issue No. 07-5,“Determining Whether an Instrument
(or an Embedded Feature) Is Indexed to an Entity’s Own Stock” (“EITF
07-5”). EITF 07-5 provides that an entity should use a two step approach to
evaluate whether an equity-linked financial instrument (or embedded feature) is
indexed to its own stock, including evaluating the instrument’s contingent
exercise and settlement provisions. It also clarifies on the impact of foreign
currency denominated strike prices and market-based employee stock option
valuation instruments on the evaluation. EITF 07-5 is effective for fiscal years
beginning after December 15, 2008. We do not expect the adoption of EITF 07-5 to
have an effect on our consolidated financial statements.
 
 In
May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles”(“FAS 162”). FAS 162 identifies the sources of
accounting principles and the framework for selecting the principles to be used
in the preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles. FAS 162
directs the hierarchy to the entity, rather than the independent auditors, as
the entity is responsible for selecting accounting principles for financial
statements that are presented in conformity with generally accepted accounting
principles. The Standard is effective 60 days following SEC approval of the
Public Company Accounting Oversight Board (“PCAOB”) amendments to remove the
hierarchy of generally accepted accounting principles from the auditing
standards. We do not expect the adoption of FAS 162 to have a material impact on
our consolidated financial statements.
  In April
2008, the FASB issued FSP FAS 142-3, “Determination of the Useful Life of
Intangible Assets” (“FSP FAS 142-3”). This FSPamends the factors that
should be considered in developing renewal or extension assumptions used to
determine the useful life of a recognized intangible asset under 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 do not expect the adoption of FSP FAS 142-3 to have a material
effect on our 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.  We do not expect the adoption of SFAS 161 to have
a material effect on our consolidated financial statements.
  31
 INDEX
  Contractual
      Obligations
                  
                  Payments
      due by period
                    (in
      thousands)Total
                  
                  
                  Less
      than 1 year
                  
                  
                  1 –
      3 years
                  
                  
                  3 –
      5 years
                  
                  
                  More
      than 5 yearsSenior
      Convertible Notes (a):Principal
                  
                  $
                  65,000
                  
                  
                  $
                  ----
                  
                  
                  $
                  ----
                  
                  
                  $
                  ----
                  
                  
                  $
                  65,000Estimated
      interest (b)
                  
                  
                  28,600
                  
                  
                  
                  5,200
                  
                  
                  
                  10,400
                  
                  
                  
                  10,400
                  
                  
                  
                  2,600Revolving
      credit facility:Principal
                  
                  
                  7,617
                  
                  
                  
                  7,617
                  
                  
                  
                  ---
                  
                  
                  
                  ----
                  
                  
                  
                  ----Estimated
      interest (b)
                  
                  
                  210
                  
                  
                  
                  210
                  
                  
                  
                  ---
                  
                  
                  
                  ----
                  
                  
                  
                  ----Operating
      lease obligations
                  
                  
                  203
                  
                  
                  
                  201
                  
                  
                  
                  2
                  
                  
                  
                  ---
                  
                  
                  
                  ---Total
                  
                  $
                  101,630
                  
                  
                  $
                  13,228
                  
                  
                  $
                  10,402
                  
                  
                  $
                  10,400
                  
                  
                  $
                  67,600
 
 (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 March
9, 2009, our Board of Directors authorized the issuance of 124,610 shares of our
common stock in payment of dividends on our Series B Preferred Stock for
2008.  The value of these shares was approximately
$111,000.
  Effective
with the payroll period beginning March 23, 2009, the Company amended its
sponsored 401(k) Plan to discontinue Company matching contributions for salaried
employees.  Company matching contributions for both union employees
and non-union hourly employees will continue.
  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
point 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.
  32
 INDEX
  Item
      8.
              Financial
      Statements and Supplementary Data.
  PageFinancial Statements as of
      December 31, 2008 and 2007 and for the three years ended December 31,
      2008:Report
      of Independent Registered Public Accounting Firm
              34Consolidated
      Balance Sheets
              36Consolidated
      Statements of Operations
              37Consolidated
      Statements of Stockholders’ Deficit
              38Consolidated
      Statements of Cash Flows
              39Notes
      to Consolidated Financial Statements
              41
  33
 INDEX
 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, 2008 and 2007, 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, 2008.  We also have
audited Empire Resorts, Inc. and subsidiaries’ internal control over financial
reporting as of December 31, 2008, 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 these financial statements, for
maintaining effective internal control over financial reporting, and for its
assessment of the effectiveness of internal control over financial reporting,
included in the accompanying Management’s Report on Internal Control over
Financial Reporting. Our responsibility is to express an opinion on these
consolidated financial statements and an opinion on the company’s internal
control over financial reporting 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 audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement and whether effective
internal control over financial reporting was maintained in all material
respects. Our audits of the financial statements included examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principals used and significant estimates
made by management, and evaluating the overall financial statement presentation.
Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk. Our
audits also included performing such other procedures as we considered necessary
in the circumstances.  We believe that our audits provide 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, 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, 2008 and 2007, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2008 in conformity with accounting principles generally
accepted in the United States of America.  Also in our opinion, Empire
Resorts, Inc. and subsidiaries maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2008, based on
criteria established in Internal Control - Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO).
  34
 INDEX
 
 The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern.  As discussed in Note A
to the consolidated financial statements, the Company does not have a source of
funds to repay either its credit facility with the Bank of Scotland when it
matures on May 29, 2009 or the holders of the Senior Convertible Notes if they
demand repayment on July 31, 2009. These conditions, as well as continuing net
losses and negative cash flows from operating activities, raise substantial
doubt about the Company’s ability to continue as a going
concern.  Management's plans concerning these matters are also
described in Note A.  The consolidated financial statements do not
include any adjustments that might result from the outcome of these
uncertainties.
  /s/
Friedman LLP
  New York,
New York
 March 13,
2009
  35
 INDEX
 EMPIRE
RESORTS, INC. AND SUBSIDIARIES
 CONSOLIDATED
BALANCE SHEETS
 DECEMBER
31
 (In
thousands, except for per share data)
  2008
                    
                    
                    2007ASSETSCurrent
      assets:Cash
      and cash equivalents
                    
                    $
                    9,687
                    
                    
                    $
                    15,008Restricted
      cash
                    
                    
                    969
                    
                    
                    
                    1,266Accounts
      receivable
                    
                    
                    1,570
                    
                    
                    
                    1,401Prepaid
      expenses and other current assets
                    
                    
                    3,500
                    
                    
                    
                    1,244Total
      current assets
                    
                    
                    15,726
                    
                    
                    
                    18,919Property
      and equipment, net
                    
                    
                    29,908
                    
                    
                    
                    30,860Deferred
      financing costs, net of accumulated amortization
                      of
      $ 2,193  in 2008 and $ 1,783 in 2007
                    
                    
                    2,287
                    
                    
                    
                    2,697Other
      assets
                    
                    
                    1,175
                    
                    
                    
                    1,723TOTAL
      ASSETS
                    
                    $
                    49,096
                    
                    
                    $
                    54,199LIABILITIES AND STOCKHOLDERS’
      DEFICITCurrent
      liabilities:Revolving
      credit facility
                    
                    $
                    7,617
                    
                    
                    $
                    ---Senior
      convertible notes
                    
                    
                    65,000
                    
                    
                    
                    ---Accounts
      payable
                    
                    
                    2,969
                    
                    
                    
                    3,530Accrued
      expenses and other current liabilities
                    
                    
                    5,881
                    
                    
                    
                    6,129Total
      current liabilities
                    
                    
                    81,467
                    
                    
                    
                    9,659Revolving
      credit facility
                    
                    
                    ---
                    
                    
                    
                    7,617Senior
      convertible notes
                    
                    
                    ---
                    
                    
                    
                    65,000Total
      liabilities
                    
                    
                    81,467
                    
                    
                    
                    82,276Commitments
      and contingenciesStockholders’
      deficit:Preferred
      stock, 5,000 shares authorized; $0.01 par value -Series
      A, $1,000 per share liquidation value, none issued and
      outstanding
                    
                    
                    ---
                    
                    
                    
                    ----Series
      B, $29 per share liquidation value, 44 shares issued and
      outstanding
                    
                    
                    ---
                    
                    
                    
                    ----Series
      E, $10 per share redemption value, 1,731 shares issued and
      outstanding
                    
                    
                    6,855
                    
                    
                    
                    6,855Common
      stock, $0.01 par value, 75,000 shares authorized,
                      33,913
      and 29,582 shares issued and outstanding in 2008
                      and
      2007, respectively
                    
                    
                    339
                    
                    
                    
                    296Additional
      paid-in capital
                    
                    
                    59,379
                    
                    
                    
                    52,845Accumulated
      deficit
                    
                    
                    (98,944
                    )
                    
                    
                    (88,073
                    )Total
      stockholders’ deficit
                    
                    
                    (32,371
                    )
                    
                    
                    (28,077
                    )TOTAL
      LIABILITIES AND STOCKHOLDERS’ DEFICIT
                    
                    $
                    49,096
                    
                    
                    $
                    54,199
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
  36
 INDEX
  EMPIRE
RESORTS, INC. AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF OPERATIONS
 YEARS
ENDED DECEMBER 31
 (In
thousands, except for per share data)
  2008
                    
                    
                    2007
                    
                    
                    2006REVENUES:Racing
                    
                    $
                    6,458
                    
                    
                    $
                    8,280
                    
                    
                    $
                    17,997Gaming
                    
                    
                    58,109
                    
                    
                    
                    64,290
                    
                    
                    
                    76,510Food,
      beverage and other
                    
                    
                    5,037
                    
                    
                    
                    5,655
                    
                    
                    
                    6,428GROSS
      REVENUES
                    
                    
                    69,604
                    
                    
                    
                    78,225
                    
                    
                    
                    100,935Less:
      Promotional allowances
                    
                    
                    (2,348
                    )
                    
                    
                    (2,532
                    )
                    
                    
                    (3,064
                    )NET
      REVENUES
                    
                    
                    67,256
                    
                    
                    
                    75,693
                    
                    
                    
                    97,871COSTS
      AND EXPENSES:Racing
                    
                    
                    6,286
                    
                    
                    
                    7,026
                    
                    
                    
                    11,914Racing
      – settlement of Horsemen litigation
                    
                    
                    1,250
                    
                    
                    
                    ---
                    
                    
                    
                    ---Gaming
                    
                    
                    46,729
                    
                    
                    
                    56,334
                    
                    
                    
                    64,533Food,
      beverage and other
                    
                    
                    2,043
                    
                    
                    
                    2,400
                    
                    
                    
                    2,661Selling,
      general and administrative expense
                    
                    
                    14,434
                    
                    
                    
                    14,990
                    
                    
                    
                    18,235Depreciation
                    
                    
                    1,229
                    
                    
                    
                    1,180
                    
                    
                    
                    1,144Impairment
      loss - deferred development costs
                    
                    
                    ---
                    
                    
                    
                    12,822
                    
                    
                    
                    ---TOTAL
      COSTS AND EXPENSES
                    
                    
                    71,971
                    
                    
                    
                    94,752
                    
                    
                    
                    98,487LOSS
      FROM OPERATIONS
                    
                    
                    (4,715
                    )
                    
                    
                    (19,059
                    )
                    
                    
                    (616
                    )Amortization
      of deferred financing costs
                    
                    
                    (410
                    )
                    
                    
                    (419
                    )
                    
                    
                    (655
                    )Interest
      expense
                    
                    
                    (5,736
                    )
                    
                    
                    (5,932
                    )
                    
                    
                    (5,989
                    )Interest
      income
                    
                    
                    252
                    
                    
                    
                    761
                    
                    
                    
                    184NET
      LOSS
                    
                    
                    (10,609
                    )
                    
                    
                    (24,649
                    )
                    
                    
                    (7,076
                    )Undeclared
      dividends on preferred stock
                    
                    
                    (1,551
                    )
                    
                    
                    (1,551
                    )
                    
                    
                    (1,551
                    )NET
      LOSS APPLICABLE TO COMMON SHARES
                    
                    $
                    (12,160
                    )
                    
                    $
                    (26,200
                    )
                    
                    $
                    (8,627
                    )Weighted
      average common shares outstanding,
                      basic
      and diluted
                    
                    
                    31,874
                    
                    
                    
                    29,523
                    
                    
                    
                    26,703Loss
      per common share, basic and diluted
                    
                    $
                    (0.38
                    )
                    
                    $
                    (0.89
                    )
                    
                    $
                    (0.32
                    )
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
  37
 INDEX
  EMPIRE
RESORTS, INC. AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ DEFICIT
 YEARS
ENDED DECEMBER 31, 2008, 2007 AND 2006
 (In
thousands)
 Preferred
      Stock*Series
      B
                            
                            
                            Series
      E
                            
                            
                            Common
      StockShares
                            
                            
                            Amount
                            
                            
                            Shares
                            
                            
                            Amount
                            
                            
                            Shares
                            
                            
                            Amount
                            
                            
                            Amount
      due from exercise
                                of
      option
                            
                            
                            Additional
                                paid-in
      capital
                            
                            
                            Accumu­lated
      DeficitBalances,
      January 1, 2006
                            
                            
                            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
                            
                            
                            
                            (62,235
                            )Declared
      and paid dividends on preferred stock
                            
                            
                            ---
                            
                            
                            
                            ---
                            
                            
                            
                            ---
                            
                            
                            
                            ---
                            
                            
                            
                            19
                            
                            
                            
                            ---
                            
                            
                            
                            ---
                            
                            
                            
                            189
                            
                            
                            
                            (189
                            )Collection
      of amounts due from 2006 exercise
                            
                            
                            ---
                            
                            
                            
                            ---
                            
                            
                            
                            ---
                            
                            
                            
                            ---
                            
                            
                            
                            ---
                            
                            
                            
                            ---
                            
                            
                            
                            18,750
                            
                            
                            
                            ---
                            
                            
                            
                            ---Common
      stock issued from exercise of stock options
                            
                            
                            ---
                            
                            
                            
                            ---
                            
                            
                            
                            ---
                            
                            
                            
                            ---
                            
                            
                            
                            46
                            
                            
                            
                            1
                            
                            
                            
                            ---
                            
                            
                            
                            181
                            
                            
                            
                            ---Stock-based
      compensation
                            
                            
                            ---
                            
                            
                            
                            ---
                            
                            
                            
                            ---
                            
                            
                            
                            ---
                            
                            
                            
                            89
                            
                            
                            
                            1
                            
                            
                            
                            ---
                            
                            
                            
                            3,362
                            
                            
                            
                            ---Net
      loss
                            
                            
                            ---
                            
                            
                            
                            ---
                            
                            
                            
                            ---
                            
                            
                            
                            ---
                            
                            
                            
                            ---
                            
                            
                            
                            ---
                            
                            
                            
                            ---
                            
                            
                            
                            ---
                            
                            
                            
                            (24,649
                            )Balances,
      December 31, 2007
                            
                            
                            44
                            
                            
                            
                            ---
                            
                            
                            
                            1,731
                            
                            
                            
                            6,855
                            
                            
                            
                            29,582
                            
                            
                            
                            296
                            
                            
                            
                            ---
                            
                            
                            
                            52,845
                            
                            
                            
                            (88,073
                            )Declared
      and paid dividends on preferred stock
                            
                            
                            ---
                            
                            
                            
                            ---
                            
                            
                            
                            ---
                            
                            
                            
                            ---
                            
                            
                            
                            117
                            
                            
                            
                            1
                            
                            
                            
                            ---
                            
                            
                            
                            261
                            
                            
                            
                            (262
                            )Issuance
      of common stock
                            
                            
                            ---
                            
                            
                            
                            ---
                            
                            
                            
                            ---
                            
                            
                            
                            ---
                            
                            
                            
                            4,200
                            
                            
                            
                            42
                            
                            
                            
                            ---
                            
                            
                            
                            5,136
                            
                            
                            
                            ---Common
      stock issued from exercise of stock options
                            
                            
                            ---
                            
                            
                            
                            ---
                            
                            
                            
                            ---
                            
                            
                            
                            ---
                            
                            
                            
                            14
                            
                            
                            
                            ---
                            
                            
                            
                            ---
                            
                            
                            
                            13
                            
                            
                            
                            ---Stock-based
      compensation
                            
                            
                            ---
                            
                            
                            
                            ---
                            
                            
                            
                            ---
                            
                            
                            
                            ---
                            
                            
                            
                            ---
                            
                            
                            
                            ---
                            
                            
                            
                            ---
                            
                            
                            
                            1,124
                            
                            
                            
                            ---Net
      loss
                            
                            
                            ---
                            
                            
                            
                            ---
                            
                            
                            
                            ---
                            
                            
                            
                            ---
                            
                            
                            
                            ---
                            
                            
                            
                            ---
                            
                            
                            
                            ---
                            
                            
                            
                            ---
                            
                            
                            
                            (10,609
                            )Balances,
      December 31, 2008
                            
                            
                            44
                            
                            
                            $
                            ---
                            
                            
                            
                            1,731
                            
                            
                            $
                            6,855
                            
                            
                            
                            33,913
                            
                            
                            $
                            339
                            
                            
                            $
                            ---
                            
                            
                            $
                            59,379
                            
                            
                            $
                            (98,944
                            )
 * Series
A preferred stock, none issued and outstanding.
  The
accompanying notes are an integral part of these consolidated financial
statements.
  38
 INDEX
  EMPIRE
RESORTS, INC. AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 YEARS
ENDED DECEMBER 31
 (In
thousands)
  2008
                    
                    
                    2007
                    
                    
                    2006CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      loss
                    
                    $
                    (10,609
                    )
                    
                    $
                    (24,649
                    )
                    
                    $
                    (7,076
                    )Adjustments
      to reconcile net loss to net cash provided by
                      (used
      in) operating activities:Depreciation
                    
                    
                    1,229
                    
                    
                    
                    1,180
                    
                    
                    
                    1,144Amortization
      of deferred financing costs
                    
                    
                    410
                    
                    
                    
                    419
                    
                    
                    
                    655Allowance
      for doubtful accounts – Advances
                      to
      Litigation Trust
                    
                    
                    ---
                    
                    
                    
                    985
                    
                    
                    
                    505Impairment
      loss - deferred development costs
                    
                    
                    ---
                    
                    
                    
                    12,822
                    
                    
                    
                    ---Stock
      – based compensation
                    
                    
                    1,124
                    
                    
                    
                    3,363
                    
                    
                    
                    7,401Loss
      on disposal of property and equipment
                    
                    
                    ---
                    
                    
                    
                    1
                    
                    
                    
                    11Changes
      in operating assets and liabilities:Restricted
      cash (VGM Marketing and Purse Accounts)
                    
                    
                    61
                    
                    
                    
                    609
                    
                    
                    
                    3,076Accounts
      receivable
                    
                    
                    (169
                    )
                    
                    
                    2,401
                    
                    
                    
                    (1,286
                    )Prepaid
      expenses and other current assets
                    
                    
                    (2,256
                    )
                    
                    
                    1,078
                    
                    
                    
                    (1,209
                    )Other
      assets
                    
                    
                    548
                    
                    
                    
                    (1,049
                    )
                    
                    
                    168Accounts
      payable
                    
                    
                    (561
                    )
                    
                    
                    (766
                    )
                    
                    
                    396Accrued
      expenses and other current liabilities
                    
                    
                    (248
                    )
                    
                    
                    (3,806
                    )
                    
                    
                    1,480NET
      CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
                    
                    
                    (10,471
                    )
                    
                    
                    (7,412
                    )
                    
                    
                    5,265CASH
      FLOWS FROM INVESTING ACTIVITIESPurchase
      of property and equipment
                    
                    
                    (277
                    )
                    
                    
                    (339
                    )
                    
                    
                    (320
                    )Restricted
      cash (Racing capital improvement)
                    
                    
                    247
                    
                    
                    
                    (106
                    )
                    
                    
                    (86
                    )Advances
      to Litigation Trust
                    
                    
                    ---
                    
                    
                    
                    (985
                    )
                    
                    
                    (505
                    )Deferred
      development costs
                    
                    
                    ---
                    
                    
                    
                    (4,531
                    )
                    
                    
                    (2,363
                    )NET
      CASH USED IN INVESTING ACTIVITIES
                    
                    
                    (30
                    )
                    
                    
                    (5,961
                    )
                    
                    
                    (3,274
                    )CASH
      FLOWS FROM FINANCING ACTIVITIESProceeds
      from revolving credit facility
                    
                    
                    ---
                    
                    
                    
                    ---
                    
                    
                    
                    141Proceeds
      from issuance of common stock
                    
                    
                    5,178
                    
                    
                    
                    ---
                    
                    
                    
                    ---Proceeds
      from exercise of stock options
                    
                    
                    13
                    
                    
                    
                    18,932
                    
                    
                    
                    1,166Deferred
      financing costs
                    
                    
                    ---
                    
                    
                    
                    ---
                    
                    
                    
                    (798
                    )Restricted
      cash (Revolving credit facility)
                    
                    
                    (11
                    )
                    
                    
                    (22
                    )
                    
                    
                    (21
                    )NET
      CASH PROVIDED BY FINANCING ACTIVITIES
                    
                    
                    5,180
                    
                    
                    
                    18,910
                    
                    
                    
                    488Net
      increase (decrease) in cash and cash equivalents
                    
                    
                    (5,321
                    )
                    
                    
                    5,537
                    
                    
                    
                    2,479Cash
      and cash equivalents, beginning of year
                    
                    
                    15,008
                    
                    
                    
                    9,471
                    
                    
                    
                    6,992Cash
      and cash equivalents, end of year
                    
                    $
                    9,687
                    
                    
                    $
                    15,008
                    
                    
                    $
                    9,471
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
    39
 INDEX
   EMPIRE
RESORTS, INC. AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 YEARS
ENDED DECEMBER 31
 (In
thousands)
  2008
                  
                  
                  2007
                  
                  
                  2006SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATIONCash
      paid for interest during the year
                  
                  $
                  5,736
                  
                  
                  $
                  5,932
                  
                  
                  $
                  5,989SUPPLEMENTAL
      DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIESCommon
      stock issued in settlement of preferred stock dividends
                  
                  $
                  262
                  
                  
                  $
                  190
                  
                  
                  $
                  98Amount
      due from exercise of option
                  
                  
                  ---
                  
                  
                  
                  ---
                  
                  
                  
                  18,750Noncash
      additions to deferred development costs
                  
                  
                  ---
                  
                  
                  
                  562
                  
                  
                  
                  192
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
  40
 INDEX
  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, 2008 and 2007, and the
consolidated statements of operations, stockholders’ deficit and cash flows for
the years ended December 31, 2008, 2007 and 2006 include the accounts of Empire
Resorts, Inc. and subsidiaries (“Empire”, the “Company”, “us” or
“we”).
  Going
Concern
  Our
credit facility with the Bank of Scotland requires repayment of approximately
$7,150,000 (outstanding balance of $7,617,000 less restricted cash on deposit of
$467,000) 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 of repayment for this credit facility or for these notes and our
operations will not provide sufficient cash flow to repay these
obligations.
  A failure
to repurchase the notes when required will result in an event of default under
the indenture and could result in a cross-default under any other credit
agreement to which we may be a party at such time.  In addition, the
events that constitute a change in control under the indenture may also be
events of default under any credit agreement or other agreement governing future
debt.  These events 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
or result in our becoming involved in an insolvency proceeding.
  The
accompanying consolidated financial statements have been prepared on a basis
which contemplates the realization of assets and the satisfaction of liabilities
and commitments in the normal course of business. The Company’s ability to
continue as a going concern is dependent upon our ability to negotiate a renewal
or extension of the maturity dates or to arrange financing with other sources to
repay our credit facility with the Bank of Scotland on maturity and the holders
of the Senior Convertible Notes if they demand repayment of the notes on July
31, 2009. Although we continue to pursue these plans, there is no assurance that
we will be successful in obtaining financing. These factors, as well as
continuing net losses and negative cash flows from operating activities, raise
substantial doubt about our ability to continue as a going concern. These
consolidated financial statements do not include any adjustments to the amounts
and classification of assets and liabilities that may be necessary should the
Company be unable to continue as a going concern.
  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 video gaming 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 with Concord Associates, L.P. (“Concord”) (the
“Contribution Agreement”), pursuant to which we and Concord will form a limited
liability company (the “LLC”) to develop, finance and construct 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”).  For a variety of factors, including recent conditions in
the financial markets, certain contingencies for the implementation of this
agreement have not been able to be achieved, and we have been exploring a number
of different modifications and strategic alternatives with Concord, which could
substantially affect the structure and scope of the venture.
  41
 INDEX
  In its
current form, the Contribution Agreement provides that we, together with our
subsidiary, are to contribute our gaming and racing licenses and operations at
Monticello Gaming and Raceway and Concord will contribute 160 acres of land
located in Kiamesha Lake, New York (the “Concord Property”).  We and
Concord would jointly develop the Entertainment City Project on the Concord
Property, which is expected to include a 100,000 square foot gaming area, a
harness horseracing track, convention center, hotel, golf privileges, retail
stores, restaurants and various family entertainment activities. Zoning and
final site plan approvals have been received for a 1.5 million-square foot
facility. A gaming floor is planned to be built within the hotel, adjacent to a
new 5/8th mile, state-of-the-art harness track.  Upon approval and
completion of construction, the new facility is intended to significantly
increase the current revenues generated for New York State, which goes to fund
education.  Financing for the Entertainment City Project is proposed
to be a combination of bonds issued by the Sullivan County Industrial
Development Agency and financing secured from private sources.
  Under the
existing agreements, Concord is to have overall responsibility for the
development of the Entertainment City Project and Concord’s affiliate, George A.
Fuller Company, is to be the general contractor.  We are to be
responsible for development of the gaming facility and for managing and
operating the hotel, gaming facility and harness horseracing
track.  We and Concord are to 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, but we are to receive a preference on the first $8 million of
distributions.  Construction fees earned by George A. Fuller Company
will not be shared with us.  Notwithstanding the provisions contained
in the existing agreements, we have also been informed by Concord that the
proposed lenders for the Entertainment City Project will not approve the Company
to serve as the manager of the hotel, gaming facility and harness horseracing
track.
  The
closing of the transaction is conditioned on, among other things, (i)
distribution to us of at least $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.  We have been informed by Concord, who is
responsible for obtaining financing for the Entertainment City Project, that it
is highly unlikely that the financing for the Entertainment City Project will
permit a distribution to us of at least $50 million. In light of these
developments, we have been exploring a number of different modifications and
strategic alternatives with Concord, which could substantially affect the
structure and scope of the venture. While exploring these options, we continued
to work together with Concord on the planning design and other aspects of the
proposed project over the past year and Concord commenced construction work at
the site.
  Pursuant
to an amendment entered into on January 30, 2009, the Contribution Agreement
became terminable by either party on February 28, 2009, subject to extensions
under certain conditions, but has not been terminated at the date of this
filing.  However,
it is not expected that the conditions to the closing of the transaction will be
satisfied without significant modifications, and no assurances can be given that
the parties will be able to find mutually satisfactory alternatives that would
enable the consummation of a new agreement.
  In the
past, we have also made efforts to develop a 29.31 acre parcel of land adjacent
to Monticello Gaming and Raceway as the site for the development of a Class III
casino and may pursue additional commercial and entertainment projects on the
remaining 200 acres of land owned by the Company that encompass the site of our
current gaming and racing facility.
  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. During 2008, for
administrative purposes, we merged eight of our inactive subsidiaries into one
entity.
  42
 INDEX
  Raceway
and VGM Operations
  Monticello
Raceway Management, a wholly owned subsidiary, is a New York corporation that
operates Monticello Gaming and 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.
  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, before deductions of such related expenses as purses, stakes and
awards. Some elements of the racing revenue from Off-track Betting Corporations
(“OTBs”) are recognized as collected. 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.  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.
  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.  The
liability recorded for unredeemed points was approximately $190,000 and $191,000
at December 31, 2008 and 2007, respectively.  These amounts are
reflected in accrued expenses and other current liabilities.
  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 in
accordance with New York State Lottery regulations.  We granted the
New York State Lottery a security interest in the segregated cash account used
to deposit New York State Lottery’s share of net win in accordance with the New
York State Lottery Rules and Regulations.
  43
 INDEX
  Restricted
Cash.  We have four 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 $99,000 and
$346,000 at December 31, 2008 and 2007, respectively.
  Pursuant
to our contract with the Monticello Harness Horsemen’s Association (the
“Horsemen”) we established an account to segregate amounts collected and payable
to the Horsemen as defined in that contract (see Note M). The balance in this
account was approximately $17,000 at December 31, 2008.
  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 VGM
operator upon the approval by the Lottery officials of the reimbursement
requests submitted by the VGM operator. The balances in this account were
approximately $386,000 and $466,000 at December 31, 2008 and 2007,
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, including interest were approximately $467,000 and $455,000 at
December 31, 2008 and 2007, respectively.
  Accounts
Receivable.  Accounts receivable are stated at the amount we
expect to collect. If needed, an allowance for doubtful accounts is recorded
based on information on specific accounts. Accounts are considered past due or
delinquent based on contractual terms and how recently payments have been
received.  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.  Account balances are written off against the allowance
after all means of collection have been exhausted and the potential for recovery
is considered remote.
  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:
  Assets
                              
                              Estimated
                                Useful
                                LivesVehicles
                              
                              5-10
      yearsFurniture,
      fixtures and equipment
                              
                              5-10
      yearsLand
      improvements
                              
                              20
      yearsBuilding
      improvements
                              
                              40
      yearsBuildings
                              
                              40
      years
 
 Deferred Financing
Costs.  Deferred financing costs are amortized on the
straight-line method over the term of the related debt.
  44
 INDEX
  Deferred Development
Costs.  Deferred development costs are recorded at cost. In
connection with our development activities, we have made advances to tribes for
development assistance and to facilitate the establishment and initial
operations of tribal gaming authorities. We have also incurred costs associated
with development activities, including salaries of employees engaged in those
activities that were capitalized as deferred development costs. We have provided
technical assistance, engaged and paid attorneys and consultants and provided
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 Class III casino developments. We periodically review deferred
development costs for impairment as further described below. As of December 31,
2007, all deferred development costs were impaired and written off. During 2008,
we did not incur any expenses which were treated as deferred development
costs.
  Impairmentof 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 Statement
of Financial Accounting Standards (“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 and other claims 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.
  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, 2008, 2007 and 2006 are the same amount.
  The
following table shows the securities outstanding at December 31, 2008, 2007 and
2006 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 31,2008
                  
                  
                  2007
                  
                  
                  2006Options
                  
                  
                  2,824,000
                  
                  
                  
                  2,403,000
                  
                  
                  
                  3,284,000Warrants
                  
                  
                  250,000
                  
                  
                  
                  250,000
                  
                  
                  
                  250,000Shares
      issuable upon conversion of convertible debt
                  
                  
                  5,175,000
                  
                  
                  
                  5,175,000
                  
                  
                  
                  5,175,000Unvested
      restricted stock
                  
                  
                  ---
                  
                  
                  
                  ---
                  
                  
                  
                  89,000Total
                  
                  
                  8,249,000
                  
                  
                  
                  7,828,000
                  
                  
                  
                  8,798,000
 
 Fair Value.In the
first quarter of 2008, we adopted SFAS No. 157, “Fair Value Measurements,” for
financial assets and liabilities. We elected the deferral option available for
one year for non-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
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).
 
 As
permitted, 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.
  45
 INDEX
  Our
financial instruments are comprised of current assets and current liabilities,
which include our revolving credit facility and senior convertible notes at
December 31, 2008. Current assets and current liabilities approximate fair value
due to their short term nature.
  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 $767,000, $949,000 and $1,740,000 for the years ended December
31, 2008, 2007 and 2006, 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-BasedCompensation. Effective
January 1, 2006, we adopted the fair value recognition provisions of SFAS No.
123 (revised 2004), "Share Based Payment"("SFAS No. 123(R)") using the
modified-prospective method. We had adopted the fair value approach contained in
SFAS No. 123 effective January 1, 2003 and we have consistently used the
Black-Scholes-Merton formula to estimate the fair value of stock options granted
in the periods since that time. As of December 31, 2008, there was approximately
$358,000 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.
  Reclassifications:
Certain prior year amounts have been reclassified to conform to the current year
presentation.
  Recent Accounting
Pronouncements.
  In
October 2008, the Financial Accounting Standards Board (“FASB”) issued FASB
Staff Position (“FSP”) Financial Accounting Standard (“FAS”) 157-3, “Determining the Fair Value of a
Financial Asset When the Market for That Asset Is Not Active”, which
addresses the application of SFAS 157 for illiquid financial instruments. FSP
FAS 157-3 clarifies that approaches to determining fair value other than the
market approach may be appropriate when the market for a financial asset is not
active. The adoption of FSP FAS 157-3 did not have a material effect on our
consolidated financial statements.
  In June
2008, the FASB ratified Emerging Issues Task Force (“EITF”) Issue No. 07-5,“Determining Whether an Instrument
(or an Embedded Feature) Is Indexed to an Entity’s Own Stock” (“EITF
07-5”). EITF 07-5 provides that an entity should use a two step approach to
evaluate whether an equity-linked financial instrument (or embedded feature) is
indexed to its own stock, including evaluating the instrument’s contingent
exercise and settlement provisions. It also clarifies on the impact of foreign
currency denominated strike prices and market-based employee stock option
valuation instruments on the evaluation. EITF 07-5 is effective for fiscal years
beginning after December 15, 2008. We do not expect the adoption of EITF 07-5 to
have an effect on our consolidated financial statements.
 
 In
May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles”(“FAS 162”). FAS 162 identifies the sources of
accounting principles and the framework for selecting the principles to be used
in the preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles. FAS 162
directs the hierarchy to the entity, rather than the independent auditors, as
the entity is responsible for selecting accounting principles for financial
statements that are presented in conformity with generally accepted accounting
principles. The Standard is effective 60 days following Securities and
Exchange Commission (“SEC”) approval of the Public Company Accounting Oversight
Board (“PCAOB”) amendments to remove the hierarchy of generally accepted
accounting principles from the auditing standards. We do not expect the adoption
of FAS 162 to have a material impact on our consolidated financial
statements.
  46
 INDEX
  In April
2008, the FASB issued FSP FAS 142-3, “Determination of the Useful Life of
Intangible Assets” (“FSP FAS 142-3”). This FSPamends the factors that
should be considered in developing renewal or extension assumptions used to
determine the useful life of a recognized intangible asset under 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 do not expect the adoption of FSP FAS 142-3 to have a material
effect on our 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.  We do not expect the adoption of SFAS 161 to have
a material effect on our consolidated financial statements.
 
 Note
C. Property and Equipment
  Property
and equipment at December 31 consists of:
  (in
      thousands)2008
                  
                  
                  2007Land
                  
                  $
                  770
                  
                  
                  $
                  770Land
      improvements
                  
                  
                  1,539
                  
                  
                  
                  1,539Buildings
                  
                  
                  4,583
                  
                  
                  
                  4,583Building
      improvements
                  
                  
                  24,666
                  
                  
                  
                  24,621Vehicles
                  
                  
                  157
                  
                  
                  
                  137Furniture,
      fixtures and equipment
                  
                  
                  3,362
                  
                  
                  
                  3,15035,077
                  
                  
                  
                  34,800Less
      – Accumulated depreciation
                  
                  
                  (5,169
                  )
                  
                  
                  (3,940
                  )$
                  29,908
                  
                  
                  $
                  30,860
 
 Depreciation
expense was approximately $1,229,000, $1,180,000 and $1,144,000 for the years
ended December 31, 2008, 2007 and 2006, respectively.
  The
VGMs in our facility are owned by the New York State Lottery and, accordingly,
our consolidated financial statements include neither the cost of those devices
nor the depreciation for them.
  Note
D.  Deferred Development Costs
  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 have recorded costs associated with these activities as
deferred development costs while the projects were being actively pursued. As a
result of actions by the Bureau of Indian Affairs and other factors, these
efforts have not been successful.
  47
 INDEX
 
 On July
18, 2008, our subsidiaries, Monticello Raceway Management, Monticello Raceway
Development and Monticello Casino Management entered into a settlement agreement
with the St. Regis Mohawk Gaming Authority and the St. Regis Mohawk Tribe
pursuant to which the parties agreed to release all claims against the other
parties. The settlement was amended on October 9, 2008 to eliminate any
remaining unfulfilled conditions and included our agreement to reimburse the St.
Regis Mohawk Tribe approximately $444,000 for expenses incurred by them in
connection with the project. We have recorded that amount as an expense in the
year ended December 31, 2008.
 
 We do not
have any current agreements relating to future developments with any Indian
tribes.
  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 2008, we did not incur any expenses which were
treated as deferred development costs.
  The
following table reflects activity in the deferred development cost accounts for
the year ended December 31, 2007.
  Activity
      for the Year Ended December 31, 2007Balance
                    January
      1, 2007
                
                
                Additions
                
                
                Impairment
                
                
                Balance
                    December
      31, 2007(in
      thousands)Advances
      to and payments on behalf of the St. Regis Mohawk Tribe:Advances
      for operations of Tribal Gaming Authority
                
                $
                381
                
                
                $
                759
                
                
                $
                (1,140
                )
                
                $
                ---Legal
      fees and other professional fees relating to casino resort
      development
                
                
                1,895
                
                
                
                4,205
                
                
                
                (6,100
                )
                
                
                ---Costs
      specifically associated with site at Raceway
                
                
                5,453
                
                
                
                129
                
                
                
                (5,582
                )
                
                
                ---Total
      development costs
                
                $
                7,729
                
                
                $
                5,093
                
                
                $
                (12,822
                )
                
                $
                ---
 
 
 Note
E.  Accrued Expenses and Other Current Liabilities
  Accrued
expenses and other current liabilities is comprised of the following at December
31, 2008 and 2007:
  2008
                  
                  
                  2007(in
      thousands)Liability
      for horseracing purses
                  
                  $
                  1,297
                  
                  
                  $
                  1,113Accrued
      interest
                  
                  
                  2,167
                  
                  
                  
                  2,167Accrued
      payroll
                  
                  
                  895
                  
                  
                  
                  716Accrued
      other
                  
                  
                  1,522
                  
                  
                  
                  2,133Total
      accrued expenses and other current liabilities
                  
                  $
                  5,881
                  
                  
                  $
                  6,129
 
 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.
  48
 INDEX
  The notes
are our senior obligations and those of our subsidiaries, 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 secured by our tangible and intangible
assets and by a pledge of the equity interests of each of our subsidiaries and a
mortgage on our property in Monticello, New York.
  The notes
initially accrued interest at an annual rate of 5.5%, which would be maintained
with the occurrence of the “Trigger Event”, as defined. 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. The holders of the
notes have the option to convert the notes 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. 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
  The
holders of our senior secured convertible notes are entitled to demand repayment
of the notes on July 31, 2009.  We will not have sufficient financial
resources and may be unable to arrange financing to pay the purchase price for
all of such notes tendered by the holders in connection with any such
repurchase.
 A
failure to repurchase the notes when required will result in an event of default
under the indenture and could result in a cross-default under any other credit
agreement to which we may be a party at such time.  In addition, the
events that constitute a change in control under the indenture may also be
events of default under any credit agreement or other agreement governing future
debt.  These events 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 or result in our becoming involved in an insolvency
proceeding.
  We
recognized approximately $5.2 million in interest expense for the senior
convertible notes for the years ended December 31, 2008, 2007 and 2006,
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 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 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.
  On June
21, 2007, we entered into an amendment to our credit facility with Bank of
Scotland. The amendment, 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.  We have
the right to elect the method of determining the interest rate to be applied. 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.
  49
 INDEX
  We cannot
provide any assurance that we will have sufficient financial resources, or will
be able to arrange financing, to repay our credit facility when it matures on
May 29, 2009. If we fail to repay the Bank of Scotland credit facility when it
is due, it will result in an event of default under our credit
agreement.   In addition, the events that constitute a change in
control under the indenture may also be events of default under any credit
agreement or other agreement governing future debt.  These events
permit the lenders under our 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 or result in our
becoming involved in an insolvency proceeding.
  We
recognized approximately $536,000, $732,000 and $789,000 in interest expense
associated with the facility for the years ended December 31, 2008, 2007 and
2006, respectively. At December 31, 2008, we were in compliance with the
financial covenants contained in our agreement with the Bank of
Scotland.
  Note
H. Stockholders’ Equity
  Common
Stock
  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. This agreement was amended on April 28, 2008 and
June 26, 2008 to provide for the sale of 811,030 shares (for $1 million) on
April 28, 2008, the sale of 811,030 shares (for $1 million) on May 30, 2008, the
sale of 811,030 shares (for $1 million) on June 30, 2008, the sale of 811,030
shares (for $1 million) on July 31, 2008 and the sale of 955,880 shares
($1,178,600) on August 29, 2008, unless those terms are modified by mutual
agreement. During the year ended December 31, 2008, we issued 4.2 million shares
for $5,178,600 pursuant to this agreement.
 
 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 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 vested on May 23, 2006 and 88,747 vested on
May 23, 2007. The expense associated with these issues was approximately
$109,000 and $387,000 for the years ended December 31, 2007 and 2006,
respectively.
  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 dividends are due. At December 31, 2008 and 2007,
there were 44,258 shares of Series B Preferred Shares outstanding.
  At
December 31, 2008, we had undeclared dividends on the Series B Preferred Stock
of approximately $167,000. On March 9, 2009 our Board of Directors authorized
issuance of 124,610 shares of common stock in payment of the amount
due.  The value of these shares when issued was approximately
$111,000.
  50
 INDEX
  At
December 31, 2007, we had undeclared dividends on the Series B Preferred Stock
of approximately $167,000. On February 25, 2008 our Board of Directors
authorized the issuance of 117,419 shares of our common stock in payment of the
amount due. The value of these shares when issued was approximately
$262,000.
  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.
  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, 2008, we had cumulative undeclared dividends on our Series E
Preferred Stock of approximately $8.4 million.
  Note
I.  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
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 an agreement with those
entities to terminate the merger and contribution agreement. The options expired
on December 29, 2006 and we recorded the value of those options at the effective
date (approximately $1.7 million) as stock based compensation, which was
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.
  Stock-based
compensation expense totaled approximately $1,124,000, $3,363,000 and $7,401,000
for the years ended December 31, 2008, 2007 and 2006, respectively.
  During
the years ended December 31, 2008, 2007 and 2006 we received approximately
$13,000, $18,932,000 and $1,166,000, respectively, of proceeds from shares of
common stock issued as a result of the exercise of stock options.  We
issued approximately 14,000, 2,546,000 and 507,000 shares of common stock as a
result of these exercises during the years ended December 31, 2008, 2007 and
2006, respectively.
  The
following table sets forth the weighted average assumptions used in applying the
Black Sholes option pricing model to the option grants in 2008, 2007 and
2006.
  2008
                          
                          2007
                          
                          2006Weighted
      average fair value of options granted
                          $2.19
                          
                          $7.35
                          
                          $5.19Expected
      dividend yield
                          0
      %
                          
                          0
      %
                          
                          0
      %Expected
      volatility
                          97.4%
      - 105.6%
                          
                          82.4%
      - 85.1%
                          
                          89.5%
      - 96.2%Risk
      – free interest rate
                          2.5%
      - 4.0%
                          
                          4.1%
      - 4.9%
                          
                          4.7%
      - 4.9%Expected
      life of options
                          5 -
      10 years
                          
                          9 -
      10 years
                          
                          10
      years
  51
 INDEX
  The
following table reflects stock option activity in 2008, 2007 and
2006.
  Approximate
                                    number
                                    of
      shares
                                  
                                  Range
      of exercise prices per
      share
                                  
                                  Weighted
      average exercise
                                    price per shareOptions
      outstanding at January 1, 2006
                                  
                                  
                                  7,786,000
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  $
                                  6.63Granted
      in 2006
                                  
                                  
                                  245,000
                                  
                                  
                                  
                                  $
                                  4.26
      - $5.53
                                  
                                  
                                  
                                  $
                                  5.19Exercised
      in 2006
                                  
                                  
                                  (3,007,000
                                  )
                                  
                                  
                                  $
                                  2.12
      - $7.50
                                  
                                  
                                  
                                  $
                                  6.62Cancelled
      in 2006
                                  
                                  
                                  (1,740,000
                                  )
                                  
                                  
                                  $
                                  2.12
      - $11.97
                                  
                                  
                                  
                                  $
                                  7.51Options
      outstanding at December 31, 2006
                                  
                                  
                                  3,284,000
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  $
                                  6.06Granted
      in 2007
                                  
                                  
                                  385,000
                                  
                                  
                                  
                                  $
                                  4.53
      - $8.74
                                  
                                  
                                  
                                  $
                                  7.35Exercised
      in 2007
                                  
                                  
                                  (47,000
                                  )
                                  
                                  
                                  $
                                  2.12
      - $ 6.75
                                  
                                  
                                  
                                  $
                                  3.90Cancelled
      in 2007
                                  
                                  
                                  (1,219,000
                                  )
                                  
                                  
                                  $
                                  2.12
      - $ 14.25
                                  
                                  
                                  
                                  $
                                  7.57Options
      outstanding at December 31, 2007
                                  
                                  
                                  2,403,000
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  $
                                  5.54Granted
      in 2008
                                  
                                  
                                  456,000
                                  
                                  
                                  
                                  $
                                  1.00
      - $2.98
                                  
                                  
                                  
                                  $
                                  2.19Exercised
      in 2008
                                  
                                  
                                  (14,000
                                  )
                                  
                                  
                                  $
                                  1.00
                                  
                                  
                                  
                                  $
                                  1.00Cancelled
      in 2008
                                  
                                  
                                  (21,000
                                  )
                                  
                                  
                                  $
                                  2.12
      - $ 6.75
                                  
                                  
                                  
                                  $
                                  5.78Options
      outstanding at December 31, 2008
                                  
                                  
                                  2,824,000
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  $
                                  5.02
  52
 INDEX
  The
following table reflects information on stock options outstanding at December
31, 2008.
  Options Outstanding
                                                          
                                                          Options ExercisableExercise
      Price
                                                          
                                                          Number
      of Shares
                                                          
                                                          Average
      Contractual Life
                                                          
                                                          Weighted
      Average
                                                            Exercise
      Price
                                                          
                                                          Number
      of Shares
                                                          
                                                          Weighted
      Average Exercise Price$
                                                          2.12
                                                          
                                                          
                                                          
                                                          29,400
                                                          
                                                          
                                                          
                                                          2.0
                                                          
                                                          
                                                          
                                                          $
                                                          2.12
                                                          
                                                          
                                                          
                                                          29,400
                                                          
                                                          
                                                          
                                                          $
                                                          2.12$
                                                          4.40
                                                          
                                                          
                                                          
                                                          5,500
                                                          
                                                          
                                                          
                                                          0.5
                                                          
                                                          
                                                          
                                                          $
                                                          4.40
                                                          
                                                          
                                                          
                                                          5,500
                                                          
                                                          
                                                          
                                                          $
                                                          4.40$
                                                          7.00
                                                          
                                                          
                                                          
                                                          45,000
                                                          
                                                          
                                                          
                                                          3.6
                                                          
                                                          
                                                          
                                                          $
                                                          7.00
                                                          
                                                          
                                                          
                                                          45,000
                                                          
                                                          
                                                          
                                                          $
                                                          7.00$
                                                          11.97
                                                          
                                                          
                                                          
                                                          40,000
                                                          
                                                          
                                                          
                                                          5.2
                                                          
                                                          
                                                          
                                                          $
                                                          11.97
                                                          
                                                          
                                                          
                                                          40,000
                                                          
                                                          
                                                          
                                                          $
                                                          11.97$
                                                          14.25
                                                          
                                                          
                                                          
                                                          71,500
                                                          
                                                          
                                                          
                                                          5.4
                                                          
                                                          
                                                          
                                                          $
                                                          14.25
                                                          
                                                          
                                                          
                                                          71,500
                                                          
                                                          
                                                          
                                                          $
                                                          14.25$
                                                          8.63
                                                          
                                                          
                                                          
                                                          10,000
                                                          
                                                          
                                                          
                                                          5.6
                                                          
                                                          
                                                          
                                                          $
                                                          8.63
                                                          
                                                          
                                                          
                                                          10,000
                                                          
                                                          
                                                          
                                                          $
                                                          8.63$
                                                          8.51
                                                          
                                                          
                                                          
                                                          40,000
                                                          
                                                          
                                                          
                                                          1.0
                                                          
                                                          
                                                          
                                                          $
                                                          8.51
                                                          
                                                          
                                                          
                                                          40,000
                                                          
                                                          
                                                          
                                                          $
                                                          8.51$
                                                          8.26
                                                          
                                                          
                                                          
                                                          30,000
                                                          
                                                          
                                                          
                                                          6.2
                                                          
                                                          
                                                          
                                                          $
                                                          8.26
                                                          
                                                          
                                                          
                                                          30,000
                                                          
                                                          
                                                          
                                                          $
                                                          8.26$
                                                          3.99
                                                          
                                                          
                                                          
                                                          1,214,092
                                                          
                                                          
                                                          
                                                          6.4
                                                          
                                                          
                                                          
                                                          $
                                                          3.99
                                                          
                                                          
                                                          
                                                          1,214,092
                                                          
                                                          
                                                          
                                                          $
                                                          3.99$
                                                          4.02
                                                          
                                                          
                                                          
                                                          15,000
                                                          
                                                          
                                                          
                                                          6.6
                                                          
                                                          
                                                          
                                                          $
                                                          4.02
                                                          
                                                          
                                                          
                                                          15,000
                                                          
                                                          
                                                          
                                                          $
                                                          4.02$
                                                          3.93
                                                          
                                                          
                                                          
                                                          35,000
                                                          
                                                          
                                                          
                                                          6.6
                                                          
                                                          
                                                          
                                                          $
                                                          3.93
                                                          
                                                          
                                                          
                                                          35,000
                                                          
                                                          
                                                          
                                                          $
                                                          3.93$
                                                          5.10
                                                          
                                                          
                                                          
                                                          15,000
                                                          
                                                          
                                                          
                                                          6.9
                                                          
                                                          
                                                          
                                                          $
                                                          5.10
                                                          
                                                          
                                                          
                                                          15,000
                                                          
                                                          
                                                          
                                                          $
                                                          5.10$
                                                          6.75
                                                          
                                                          
                                                          
                                                          243,100
                                                          
                                                          
                                                          
                                                          7.0
                                                          
                                                          
                                                          
                                                          $
                                                          6.75
                                                          
                                                          
                                                          
                                                          243,100
                                                          
                                                          
                                                          
                                                          $
                                                          6.75$
                                                          4.26
                                                          
                                                          
                                                          
                                                          55,000
                                                          
                                                          
                                                          
                                                          7.2
                                                          
                                                          
                                                          
                                                          $
                                                          4.26
                                                          
                                                          
                                                          
                                                          55,000
                                                          
                                                          
                                                          
                                                          $
                                                          4.26$
                                                          5.53
                                                          
                                                          
                                                          
                                                          163,334
                                                          
                                                          
                                                          
                                                          7.6
                                                          
                                                          
                                                          
                                                          $
                                                          5.53
                                                          
                                                          
                                                          
                                                          153,334
                                                          
                                                          
                                                          
                                                          $
                                                          5.53$
                                                          8.74
                                                          
                                                          
                                                          
                                                          65,000
                                                          
                                                          
                                                          
                                                          8.1
                                                          
                                                          
                                                          
                                                          $
                                                          8.74
                                                          
                                                          
                                                          
                                                          55,000
                                                          
                                                          
                                                          
                                                          $
                                                          8.74$
                                                          7.40
                                                          
                                                          
                                                          
                                                          240,000
                                                          
                                                          
                                                          
                                                          8.4
                                                          
                                                          
                                                          
                                                          $
                                                          7.40
                                                          
                                                          
                                                          
                                                          193,333
                                                          
                                                          
                                                          
                                                          $
                                                          7.40$
                                                          5.25
                                                          
                                                          
                                                          
                                                          25,000
                                                          
                                                          
                                                          
                                                          8.6
                                                          
                                                          
                                                          
                                                          $
                                                          5.25
                                                          
                                                          
                                                          
                                                          25,000
                                                          
                                                          
                                                          
                                                          $
                                                          5.25$
                                                          4.53
                                                          
                                                          
                                                          
                                                          30,000
                                                          
                                                          
                                                          
                                                          8.6
                                                          
                                                          
                                                          
                                                          $
                                                          4.53
                                                          
                                                          
                                                          
                                                          30,000
                                                          
                                                          
                                                          
                                                          $
                                                          4.53$
                                                          8.74
                                                          
                                                          
                                                          
                                                          15,000
                                                          
                                                          
                                                          
                                                          8.1
                                                          
                                                          
                                                          
                                                          $
                                                          8.74
                                                          
                                                          
                                                          
                                                          15,000
                                                          
                                                          
                                                          
                                                          $
                                                          8.74$
                                                          1.00
                                                          
                                                          
                                                          
                                                          151,250
                                                          
                                                          
                                                          
                                                          9.0
                                                          
                                                          
                                                          
                                                          $
                                                          1.00
                                                          
                                                          
                                                          
                                                          151,250
                                                          
                                                          
                                                          
                                                          $
                                                          1.00$
                                                          2.22
                                                          
                                                          
                                                          
                                                          10,000
                                                          
                                                          
                                                          
                                                          4.2
                                                          
                                                          
                                                          
                                                          $
                                                          2.22
                                                          
                                                          
                                                          
                                                          10,000
                                                          
                                                          
                                                          
                                                          $
                                                          2.22$
                                                          2.67
                                                          
                                                          
                                                          
                                                          15,000
                                                          
                                                          
                                                          
                                                          9.5
                                                          
                                                          
                                                          
                                                          $
                                                          2.67
                                                          
                                                          
                                                          
                                                          15,000
                                                          
                                                          
                                                          
                                                          $
                                                          2.67$
                                                          2.67
                                                          
                                                          
                                                          
                                                          7,500
                                                          
                                                          
                                                          
                                                          4.5
                                                          
                                                          
                                                          
                                                          $
                                                          2.67
                                                          
                                                          
                                                          
                                                          7,500
                                                          
                                                          
                                                          
                                                          $
                                                          2.67$
                                                          2.98
                                                          
                                                          
                                                          
                                                          235,000
                                                          
                                                          
                                                          
                                                          4.6
                                                          
                                                          
                                                          
                                                          $
                                                          2.98
                                                          
                                                          
                                                          
                                                          78,333
                                                          
                                                          
                                                          
                                                          $
                                                          2.98$
                                                          1.88
                                                          
                                                          
                                                          
                                                          18,750
                                                          
                                                          
                                                          
                                                          9.9
                                                          
                                                          
                                                          
                                                          $
                                                          1.88
                                                          
                                                          
                                                          
                                                          18,750
                                                          
                                                          
                                                          
                                                          $
                                                          1.882,824,426
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          $
                                                          5.02
                                                          
                                                          
                                                          
                                                          2,601,092
                                                          
                                                          
                                                          
                                                          $
                                                          5.09
 
 Note
J.  Income Taxes
  The
Company and all of its subsidiaries file a consolidated income tax return. At
December 31, 2008 and 2007, the estimated Company’s deferred income tax assets
and liability were comprised of the following:
  2008
                    
                    
                    2007(in thousands)Deferred
      tax assets:Net
      operating loss carry forwards
                    
                    $
                    65,180
                    
                    
                    $
                    59,903Stock
      – based compensation
                    
                    
                    1,884
                    
                    
                    
                    1,384Allowance
      for doubtful accounts – Litigation Trust
                    
                    
                    ---
                    
                    
                    
                    1,100Contributions
                    
                    
                    132
                    
                    
                    
                    113Depreciation
                    
                    
                    6
                    
                    
                    
                    2Net
      deferred tax assets
                    
                    
                    67,202
                    
                    
                    
                    62,502Valuation
      allowance
                    
                    
                    (67,202
                    )
                    
                    
                    (62,502
                    )Deferred
      tax assets, net
                    
                    $
                    ----
                    
                    
                    $
                    ----
 
 
 53
 INDEX
  The
following is a reconciliation of the federal statutory tax rate to our effective
tax rate:
  Year ended December 31,2008
                                  
                                  2007
                                  
                                  2006Tax
      provision at federal statutory tax rate
                                  35.0%
                                  
                                  35.0%
                                  
                                  35.0%State
      income taxes, net
                                  9.0%
                                  
                                  9.0%
                                  
                                  9.0%Permanent
      items
                                  0.3%
                                  
                                  1.5%
                                  
                                  29.9%Change
      in valuation allowance
                                  (44.3)%
                                  
                                  (45.5)%
                                  
                                  (73.9)%Effective
      tax rate
                                  0.0%
                                  
                                  0.0%
                                  
                                  0.0%
  There are
limits on our ability to use our current net operating loss carry forwards,
potentially increasing future tax liability.  As of December 31, 2008,
we had net operating loss carry forwards of approximately $148 million that
expire between 2009 and 2028.   The 2004 merger of our operations
with Catskills Development LLC, however, will not permit us 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.
  As of
December 31, 2008, we do not have any uncertain tax positions under the FASB
issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes,
an interpretation of FASB Statement No. 109” (“FIN 48”). As a result, there
are no unrecognized tax benefits as of December 31, 2008. If we were to incur
any interest and penalties in connection with income tax deficiencies, we would
classify interest in the "interest expense" category and classify penalties in
the "non-interest expense" category within the consolidated statements of
operations.
 
 We
file tax returns in the U.S. federal jurisdiction and in various states. All of
our federal and state tax filings as of December 31, 2007 have been timely
filed.  We are subject to U.S. federal or state income tax
examinations by tax authorities for years after 2004.  During the
periods open to examination, we have net operating loss and tax credit
carry forwards that have attributes from closed periods. Since these net
operating loss and tax credit carry forwards may be utilized
in future periods, they remain subject to examination.
  Note
K. Concentration
  Two
debtors, New York OTB and Nassau OTB, represented approximately 41% and 18%,
respectively of the total outstanding accounts receivable as of December 31,
2008 and one debtor, New York OTB, represented approximately 39% of the total
outstanding accounts receivable as of December 31, 2007.
  Note
L. 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 salary deferrals that do not exceed 3% of
compensation plus 50% of salary deferrals between 3% and 5% of compensation. Our
matching contributions for the years ended December 31, 2008 and 2007,
respectively, were approximately $215,000 and $213,000. The plan became
effective on August 1, 2006 and the matching contributions for the year ended
December 31, 2006 were approximately $136,000. As of December 31, 2008, 131
employees participated in the plan.
  54
 INDEX
  Note
M.  Commitments and Contingencies
  Legal
Proceedings
  In
connection with a new contract with the Horsemen entered into as of July 1,
2008, we have agreed to pay $1.25 million to settle all pending litigation
between us and the Horsemen, including Monticello Harness Horsemen’s
Association, Inc. v. Monticello Raceway Management, Inc. pending in the Supreme
Court of the State of New York, County of Sullivan and Monticello Harness
Horsemen's Association, Inc. v. Monticello Raceway Management, Inc. pending in
the Supreme Court of the State of New York, County of Sullivan. $1 million of
the settlement will be paid in the form of purses and the remaining $250,000 was
paid in cash during the year ended December 31, 2008.
 
 The new
contract with the Horsemen makes provision for, among other things; 1) the
transfer of racing operations to the Concord site anticipated in connection with
the Entertainment City Project, in the event that the Entertainment City Project
is built prior to the expiration of the term of the agreement, 2) an initial two
year term that extends for an additional 20 years if construction financing for
the Entertainment City Project is obtained prior to July 31, 2010, 3) payments
from the date of execution until the opening of the Entertainment City Project
of the greater of 8.75% of VGM revenue or $5,000,000 on an annual basis, and 4)
annual payments beginning with the opening of the Entertainment City Project of
$5,350,000 with an annual addition of $500,000 per year. In addition, the
agreement requires that we reduce our purse liability to $600,000 (on the basis
of cash collected) by December 31, 2008 and post a bond issued by a banking or
insurance company with an “A” rating according to Best’s, in the amount of Seven
Hundred Fifty Thousand Dollars ($750,000) securing our obligation to fund the
Horsemen's purse account.
 
 On
December 17, 2008, the New York State Court of Appeals reversed a November 2007
decision from the Appellate Division – Third Department of the New York State
Supreme Court regarding 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.  The
practical result of the OTB Appellate Division decision had been that the OTBs
were not responsible for paying dark day monies to Monticello Gaming and Raceway
or Yonkers Raceway and were obligated to pay a lesser amount of out-of-state OTB
commissions to the tracks.
 
 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.
  Letter of Credit
  In
connection with a $600,000 bond required by the New York State Lottery we placed
a $150,000 certificate of deposit as collateral for a $150,000 Letter of Credit
issued on our behalf to the bonding company as of June 11, 2008.
 
 Litigation Trust
 
 On
January 12, 2004, in order to better focus on the development of a VGM facility
at the Raceway and current business, 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.
 
 We
agreed to provide the Litigation Trust with a $2.5 million line of
credit.  For the year ended December 31, 2007, we made advances to the
Trust of $985,000 under the line of credit. In the years ended December 31, 2006
and 2005, we made advances to the Trust of $505,000 under the line of
credit.  Due to the unpredictable nature of the litigation, in each of
those years, we provided for a valuation allowance against the receivable from
the Litigation Trust equal to the total amount of the advances. If the
Litigation Trust receives a settlement, we are entitled to recover our advances
of $2.5 million plus $7.5 million.
 
 On
October 21, 2008, we were advised that a decision rendered in the case which
involved the Litigation Trust was adverse to the position of the
Trust.  As a result, it appears very unlikely that we will recover any
of the amounts advanced to the Trust.  This has no affect on our
consolidated financial statements as we have provided for a full valuation
reserve against those advances as they were made.  We have written off
the receivable against the previously recorded valuation allowance at December
31, 2008.
 55
 INDEX
 
  Note
N.  Subsequent Events
  On March
9, 2009, our Board of Directors authorized the issuance of 124,610 shares of our
common stock in payment of dividends on our Series B Preferred Stock for 2008.
The value of these shares when issued was approximately $111,000.
  Effective
with the payroll period beginning March 23, 2009, the Company amended its
sponsored 401(k) Plan to discontinue Company matching contributions for salaried
employees.  Company matching contributions for both union employees
and non-union hourly employees will continue.
  Note
O.  Unaudited Quarterly Data (in thousands)
  First
                        Quarter
                      
                      Second
                        Quarter
                      
                      Third
                        Quarter
                      
                      Fourth
                        Quarter2008Net
      revenue
                      
                      $15,652
                      
                      $17,645
                      
                      $20,343
                      
                      $13,616Net
      loss
                      
                      (3,840)
                      
                      (1,995)
                      
                      (2,094)
                      
                      (2,680)Net
      loss applicable to common shares
                      
                      (4,228)
                      
                      (2,383)
                      
                      (2,482)
                      
                      (3,067)Net
      loss per common share, basic and diluted
                      
                      (0.14)
                      
                      (0.08)
                      
                      (0.07)
                      
                      (0.09)2007Net
      revenue
                      
                      $18,229
                      
                      $19,609
                      
                      $22,463
                      
                      $15,392Net
      loss
                      
                      (4,251)
                      
                      (3,274)
                      
                      (2,153)
                      
                      (14,971)Net
      loss applicable to common shares
                      
                      (4,639)
                      
                      (3,662)
                      
                      (2,541)
                      
                      (15,358)Net
      loss per common share, basic and diluted
                      
                      (0.16)
                      
                      (0.12)
                      
                      (0.09)
                      
                      (0.52)2006Total
      revenue
                      
                      $22,639
                      
                      $25,846
                      
                      $28,660
                      
                      $20,726Net
      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)
 
 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.
  56
 INDEX
  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 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 SEC 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 the 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,
2008.
  Additionally,
Friedman LLP, an independent registered public accounting firm has issued an
attestation report on the Company’s internal control over financial reporting as
of December 31, 2008.  This report is included in Item 8 of this
Annual Report on Form 10-K.
  57
 INDEX
  Item 9B.
              Other
      Information.
  None.
  PART III
  Item 10.
              Directors,
      Executive Officers and Corporate
Governance.
  Directors
and Executive Officers
  Our
directors and executive officers are as follows:
  Name
                  Age
                  PositionJohn
      Sharpe
                  67
                  Chairman
      of the Board(1)David
      P. Hanlon
                  64
                  Chief
      Executive Officer, President and Director(2)Paul
      A. deBary
                  62
                  Director(1)Ralph
      J. Bernstein
                  51
                  Director(1)Frank
      Catania
                  67
                  Director(3)Richard
      Robbins
                  68
                  Director(2)James
      Simon
                  62
                  Director(3)Bruce
      M. Berg
                  49
                  Director(3)Kenneth
      Dreifach
                  43
                  Director(2)Ronald
      J. Radcliffe
                  65
                  Chief
      Financial OfficerHilda
      Manuel
                  58
                  Senior
      V.P. for Native American Affairs and Chief Compliance
    OfficerClifford
      A. Ehrlich
                  49
                  Executive
      Vice President and General ManagerCharles
      Degliomini
                  50
                  Senior
      V.P. – Government Relations and Corporate
  Communications
  _____________
  (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, 67,
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.
  58
 INDEX
  David P.
Hanlon.  David P. Hanlon, 64, 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. Since October 2006, Mr. Hanlon has also served as a
director for RemoteMDx, Inc., a company that markets and sells patented wireless
location technologies and related monitoring services.  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.
  Paul A. deBary. Paul A.
deBary, 62, 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,
and the Association of the Bar of the City of New York.  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 also serves as Chairman of the Board of Ethics
of the Town of Greenwich, Connecticut.  Mr. deBary has served as a
director since March 2002.
  Ralph J. Bernstein. Ralph J.
Bernstein, 51, is a co-founder and general partner of Americas Partners, an
investment firm.  Mr. Bernstein also serves as a director for Air
Methods Corporation.  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.
  Frank Catania. Frank Catania,
67, 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. Mr. Catania has served as a director of Nevada Gold & Casinos, Inc., a
company based in Houston, Texas that is a developer, owner and operator of
gaming facilities, since February 2009.  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.
  Richard
Robbins.  Richard L. Robbins, 68, served from October 2003
through January 2004 as Senior Vice President, Financial Reporting of Footstar,
Inc., a nationwide retailer of footwear.  He was Senior Vice President
Financial Reporting and Control and Principal Financial Officer of Footstar,
Inc. from January 2004 until March 2006. Footstar, Inc. filed for bankruptcy
protection in March 2004 and emerged from bankruptcy in February 2006. From July
2002 to October 2003, Mr. Robbins was a partner in Robbins Consulting LLP, a
financial, strategic and management consulting firm. From 1978 to 2002, Mr.
Robbins was a partner of Arthur Andersen LLP. Mr. Robbins is currently a member
of the board of directors of BioScrip, Inc., a community pharmacy and specialty
drug company.  Mr. Robbins became a director in August
2007.
  59
 INDEX
  James Simon.  James
Simon, 62, has served as President and Chief Executive Officer of J. Simon &
Associates Inc., a management and marketing consulting firm, since
1992.  He has also served as President and Chief Executive Officer of
Strategic Marketing Consultants, Inc., a management and marketing consulting
firm that he co-founded in 1994.  Mr. Simon has a BGS undergraduate
degree from University of Nebraska and an MS graduate degree from University of
Kansas.  Mr. Simon became a director in August 2007.
  Bruce M.
Berg.  Bruce M. Berg, 49, has served as Chief Executive Officer
of Fuller Development Company, the real estate development subsidiary of
Cappelli Enterprises, Inc., since 2000.  Prior to joining Cappelli
Enterprises, Inc., he served as Director of Development for Disney Development
Company, the corporate real estate arm of The Walt Disney
Company.  Prior to that, Mr. Berg was a Project Manager for Xerox
Realty Corporation.  Mr. Berg has an M.B.A. from Columbia Business
School and an undergraduate degree from Trinity College.  Mr. Berg
became a director in June 2008.
  Kenneth
Dreifach.  Kenneth Dreifach, 43, has served as Deputy General
Counsel of Linden Lab, operators of the Second Life (secondlife.com) virtual
world platform since July 2007, where he heads the company’s regulatory,
compliance, privacy, safety and litigation efforts.  He also serves as
Linden Lab’s primary contact with law enforcement and advocacy organizations.
From May 2006 until June 2007, Mr. Dreifach was a partner at the law firm of
Sonnenschein Nath & Rosenthal LLP.  From 2000 to 2006, Mr.
Dreifach served as Chief of the Internet Bureau of the New York Attorney
General’s office, where he directed the office’s technology-related litigation,
enforcement and policy efforts. Mr. Dreifach has a J.D. from New York University
School of Law and a B.A. from Wesleyan University.
  Ronald J. Radcliffe. Ronald J.
Radcliffe, 65, 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 Class III 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.
  Hilda Manuel. Hilda A. Manuel,
58, 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.
  Clifford A.
Ehrlich.  Clifford A. Ehrlich, 49, has been an employee of the
Company since 1995.  In February 2008, he was promoted to Executive
Vice President and General Manager.  Prior to his promotion, he most
recently served as Senior Vice President of our subsidiary, Monticello Raceway
Management, Inc.  From 1981 to 1994, Mr. Ehrlich served as Vice
President and an owner of the Pines Resort Hotel & Conference Center in the
Catskills.  Mr. Ehrlich has also held the position of executive
committee member of the Sullivan County Tourism Advisory Board and served as
President of the Catskill Resort Association. Mr. Ehrlich received a bachelor’s
degree in business administration with an emphasis in management and marketing
from the University of Colorado Business School in 1981.
  60
 INDEX
  Charles
Degliomini.  Charles Degliomini, 50, has been an employee and
consultant of the Company since 2004.  In February 2008, he was
promoted to Senior Vice President - Government Relations and Corporate
Communications. Previously, he was Senior Vice President of Sales and Marketing
of eLottery, Inc., the first firm to advance the technology to facilitate the
sales and marketing of governmental lottery tickets on the Internet. Before
taking the position at eLottery, Mr. Degliomini was President and founder of
Atlantic Communications, a New York-based corporate and government affairs
management company. Mr. Degliomini served in the General Services Administration
(GSA) as Chief of Staff to the Regional Administrator from 1985 to 1998, and was
the New York State Communications Director for Reagan-Bush in 1984. Mr.
Degliomini has a B.A. in political science from Queens College and is an M.A.
candidate at the New York University School of Public
Administration.
  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, Richard
Robbins and Kenneth Dreifach.  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.
  Section
16(a) Beneficial Ownership Reporting Compliance
  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 SEC. Executive officers, directors and greater than ten
percent beneficial owners are required by SEC 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, 2007
there were no delinquent filers except Concord Associates, L.P. filed a late
Form 4 for a transaction that occurred on December 27, 2007.
  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 SEC and is incorporated in this Annual Report on
Form 10-K by this reference.
  61
 INDEX
 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 1, 2009 by (i) each director as of March 1,
2009; (ii) each executive officer of the Company as of March 1, 2009, (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 SEC. 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.
 
 Name
      and Address of Beneficial Owner(1)
                  
                  Common
      Stock Beneficially Owned
                  
                  
                  Series
      B Preferred Stock Beneficially Owned
                  
                  
                  Series
      E Preferred Stock Beneficially OwnedShares
                  
                  
                  Percentage
                  
                  
                  Shares
                  
                  
                  Percentage
                  
                  
                  Shares
                  
                  
                  PercentagePaul
      A. deBary
                  
                  
                  225,508
                  (2)
                  
                  
                  *
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --John
      Sharpe
                  
                  
                  269,500
                  (3)
                  
                  
                  *
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --David
      P. Hanlon
                  
                  
                  1,327,614
                  (4)
                  
                  
                  3.80
                  %
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --Ralph
      J. Bernstein
                  
                  
                  2,288,743
                  (5)
                  
                  
                  6.74
                  %
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --Frank
      Catania
                  
                  
                  72,500
                  (6)
                  
                  
                  *
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --Richard
      L. Robbins
                  
                  
                  52,500
                  (7)
                  
                  
                  *
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --James
      Simon
                  
                  
                  57,020
                  (8)
                  
                  
                  *
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --Ronald
      J. Radcliffe
                  
                  
                  223,333
                  (9)
                  
                  
                  *
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --Hilda
      Manuel
                  
                  
                  82,666
                  (10)
                  
                  
                  *
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --Clifford
      A. Ehrlich
                  
                  
                  125,592
                  (11)
                  
                  
                  *
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --Charles
      Degliomini
                  
                  
                  162,769
                  (12)
                  
                  
                  *
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --Kenneth
      Dreifach
                  
                  
                  31,250
                  (13)
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --Bruce
      M. Berg
                  
                  
                  35,000
                  (14)
                  
                  
                  *
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --Louis
      R. Cappelli
                    c/o
      Cappelli Enterprises, Inc.
                    115
      Stevens Avenue
                    Valhalla,
      NY 10595
                  
                  
                  5,374,512
                  (15)
                  
                  
                  15.85
                  %
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --Directors
      and Officers as a Group
                  
                  
                  4,953,995
                  
                  
                  
                  13.72
                  %
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --Patricia
      Cohen
                    8306
      Tibet Butler Drive
                    Windmere,
      FL 34786
                  
                  
                  124,610
                  
                  
                  
                  --
                  
                  
                  
                  44,258
                  
                  
                  
                  100
                  %
                  
                  
                  --
                  
                  
                  
                  --Bryanston
      Group, Inc.
                    2424
      Route 52
                    Hopewell
      Junction, NY 12533
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  1,551,213
                  
                  
                  
                  89.6
                  %Stanley
      Tollman
                    c/o
      Bryanston Group, Inc.
                    2424
      Route 52
                    Hopewell
      Junction, NY 12533
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  152,817
                  
                  
                  
                  8.8
                  %
 _______________
 * less
than 1%
 62
 INDEX
  (1)
              Unless
      otherwise indicated, the address of each stockholder, director, and
      executive officer listed above is Empire Resorts, Inc., c/o Monticello
      Gaming and Raceway, Route 17B, P.O. Box 5013, Monticello, New York,
      12701.
  (2)
              Includes
      82,913 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, options that are currently exercisable into 130,000 shares of
      Common Stock.
  (3)
              Includes
      2,000 shares of Common Stock owned directly by John Sharpe, options that
      are currently exercisable into 267,500 shares of Common
    Stock.
  (4)
              Consists
      of 261,023 shares of restricted stock andoptions that are currently exercisable into 1,066,591 shares of
      Common Stock.
  (5)
              Includes
      2,221,243 shares of Common Stock owned directly by Ralph J. Bernstein and
      options that are currently exercisable into 67,500 shares of Common
      Stock.
  (6)
              Consists
      of options that are currently exercisable into 72,500 shares of Common
      Stock.
  (7)
              Consists
      of options that are currently exercisable into 52,500 shares of Common
      Stock.
  (8)
              Includes
      18,270 shares of Common Stock owned directly by James Simon, options that
      are currently exercisable into 38,750 shares of Common
    Stock.
  (9)
              Consists
      of options that are currently exercisable into 223,333 shares of Common
      Stock.
  (10)
              Consists
      of options that are currently exercisable into 82,666 shares of Common
      Stock.
  (11)
              Includes
      80,592 shares of Common Stock owned directly by Clifford A. Ehrlich and
      options that are currently exercisable into 45,000 shares of Common
      Stock.
  (12)
              Includes
      62,769 shares of Common Stock owned by Fox-Hollow Lane LLC, of which
      Charles Degliomini is the managing member, and options that are currently
      exercisable into 100,000 shares of Common
Stock.
  (13)
              Consists
      of options that are currently exercisable into 31,250 shares of Common
      Stock.
  (14)
              Consists
      of options that are currently exercisable into 35,000 shares of Common
      Stock.
  (15)
              According
      to a Schedule 13D/A filed by Louis R. Cappelli, LRC Acquisition LLC
      (“LRC”) and Cappelli Resorts LLC on February 6, 2009, Mr. Cappelli has an
      indirect ownership interest in an aggregate of 5,374,512 shares consisting
      of (i) 811,030 shares of Common Stock purchased by LRC on April 29, 2008,
      (ii) 1,174,512 shares of Common Stock distributed to Cappelli Resorts LLC
      by Concord, effective as of May 1, 2008, (iii) 811,030 shares of Common
      Stock purchased by LRC on June 2, 2008, (iv) 811,030 shares of Common
      Stock purchased by LRC on June 30, 2008, and (v) 1,766,910 shares of
      Common Stock purchased by LRC on July 31, 2008. Mr. Cappelli has the
      shared power to dispose of or direct the disposition of 5,374,512 shares
      of Common Stock held of record by Cappelli Resorts LLC and by
      LRC.
  63
 INDEX
  Item 13.
              Certain Relationships and Related Transactions,
      and Director Independence.
  On
February 8, 2008, we entered into the Contribution Agreement, pursuant to which
we and Concord, a stockholder that owns more than 5% of our common stock, will
form the LLC and enter into an Operating Agreement.  It is estimated
that our initial capital contribution and Concord’s initial capital contribution
are each valued at not less than $50 million, subject to an appraisal process.
Also, see Item 1. Business–Development –
Entertainment City Project.
  Bruce M.
Berg, a member of our Board of Directors, is a member of Cappelli Resorts
LLC.  Cappelli Resorts LLC is the managing member of Catskill Resort
Group LLC, which is the sole member of Convention Hotels LLC, which is the
general partner of Concord.  Louis R. Cappelli, an individual that
beneficially owns more than 10% of our Common Stock, is the managing member of
Cappelli Resorts LLC.
  On March
31, 2008, we entered into a Stock Purchase Agreement with LRC, which was amended
on April 28, 2008 and June 26, 2008 (as amended, the “Stock Purchase
Agreement”).  The managing member of LRC is Louis R. Cappelli, who is
also the managing member of Convention Hotels, LLC, Concord’s general
partner.  Pursuant to the Stock Purchase Agreement, we agreed, subject
to certain conditions, to issue and sell to LRC, 4,200,000 shares of our Common
Stock for an aggregate purchase price of $5,178,600.  In accordance
with the Stock Purchase Agreement, LRC purchased 811,030 shares of our Common
Stock on each of April 29, 2008, June 2, 2008 and June 30, 2008 and an
additional 1,766,910 shares of our Common Stock on July 31, 2008.
  Olshan
Grundman Frome Rosenzweig & Wolosky, LLP received fees for legal services of
$992,684 in 2008 and $248,745 in 2009.  Robert H. Friedman, our
Secretary and a former member of our Board of Directors is a member of such law
firm.
  The
Company's audit committee charter provides that the audit committee will review
and approve all transactions between the Company and its officers, directors,
director nominees, principal stockholders and their immediate family
members.  The Company intends that any such transactions will be on
terms no less favorable to it than it could obtain from unaffiliated third
parties.
  The Board
of Directors evaluates the independence of each nominee for election as a
director of our Company in accordance with the Marketplace Rules of the NASDAQ
Stock Market LLC (“Nasdaq”).  Pursuant to these rules, a majority of
our Board of Directors must be “independent directors” within the meaning of the
Nasdaq listing standards, and all directors who sit on our Corporate Governance
and Nominating Committee, Audit Committee and Compensation Committee must also
be independent directors.
  The
Nasdaq definition of independent director includes a series of objective tests,
such as the director is not, and was not during the last three years, an
employee of the Company and has not received certain payments from, or engaged
in various types of business dealings with, the Company.  In addition,
as further required by the Nasdaq Marketplace Rules, the Board of Directors has
made a subjective determination as to each independent director that no
relationships exist which, in the opinion of the Board of Directors, would
interfere with such individual’s exercise of independent judgment in carrying
out his or her responsibilities as a director.  In making these
determinations, the Board of Directors reviewed and discussed information
provided by the directors with regard to each director’s business and personal
activities as they may relate to Company and its management.
  As a
result, the Board of Directors has affirmatively determined that none of our
directors has a material relationship with the Company other than Mr. Hanlon,
our President and Chief Executive Officer, who is a full time employee of the
Company, John Sharpe, who the Board of Directors determined is not independent
by virtue of compensation paid to him by the Company for his services as a
director, and Bruce M. Berg, who is a member of Cappelli Resorts LLC, which
is the managing member of Catskill Resort Group LLC, which is the sole
member of Convention Hotels LLC, which is the general partner of
Concord.  The Board of Directors has also affirmatively determined
that all members of our Audit Committee, Compensation Committee and Corporate
Governance and Nominating Committee are independent directors.
  64
 INDEX
  Item 14.
              Principal
      Accountant 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
                          
                          2008
                          
                          
                          2007Audit
      Fees (1)
                          
                          $
                          534,000
                          
                          
                          $
                          682,000Audit-Related
      Fees (2)
                          
                          
                          58,000
                          
                          
                          
                          21,000Tax
      Fees (3)
                          
                          
                          54,000
                          
                          
                          
                          45,000All
      Other Fees (4)
                          
                          
                          --
                          
                          
                          
                          --Total
                          
                          $
                          646,000
                          
                          
                          $
                          748,000
 
 (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, consultations regarding financial accounting and
      reporting, audit of the Company’s employee benefit plan and statutory
      audits.
  (3)
              Comprised
      of services for tax compliance and tax return
  preparation.
  (4)
              Fees
      related to other filings with the SEC, 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.
  65
 INDEX
  PART IV
  Item 15.
              Exhibits and Financial Statement
      Schedules.
  Financial
Statements
  Schedule
II – Valuation and Qualifying Accounts
  
  Empire
Resorts, Inc and Subsidiaries
  Valuation
and Qualifying Accounts
  December
31, 2008, 2007 and 2006
  (in
thousands)
  Description
                              
                              Balance
      at
                                beginning
      of year
                              
                              
                              Addition
                                charged
      to costs
                                and
      expenses
                              
                              
                              Other
      additions (deductions)
                              
                              
                              Less
      deductions
                              
                              
                              Balance
      at
                                end of yearYear ended December 31,
2008Allowance
      for advances to Litigation Trust
                              
                              $
                              2,500
                              
                              
                              $
                              ---
                              
                              
                              $
                              (2,500
                              )
                              
                              $
                              ---
                              
                              
                              $
                              ---Deferred
      tax asset valuation allowance
                              
                              $
                              62,502
                              
                              
                              $
                              ---
                              
                              
                              $
                              4,700
                              
                              
                              $
                              ---
                              
                              
                              $
                              67,202Year ended December 31,
2007Allowance
      for advances to Litigation Trust
                              
                              $
                              1,515
                              
                              
                              $
                              985
                              
                              
                              $
                              ---
                              
                              
                              $
                              ---
                              
                              
                              $
                              2,500Deferred
      tax asset valuation allowance
                              
                              $
                              51,284
                              
                              
                              $
                              ---
                              
                              
                              $
                              11,218
                              
                              
                              $
                              ---
                              
                              
                              $
                              62,502Year ended December 31,
2006Allowance
      for advances to Litigation Trust
                              
                              $
                              1,010
                              
                              
                              $
                              505
                              
                              
                              $
                              ---
                              
                              
                              $
                              ---
                              
                              
                              $
                              1,515Deferred
      tax asset valuation allowance
                              
                              $
                              46,056
                              
                              
                              $
                              ---
                              
                              
                              $
                              5,228
                              
                              
                              $
                              ---
                              
                              
                              $
                              51,284
 
  Exhibits




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 most recently amended on February 25,
      2008. (1)4.1
              Form
      of Common Stock Certificate. (2)
  66
 INDEX
  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. (9)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
              Certificate
      of Designations of Series A Junior Participating Preferred Stock, as filed
      with the Secretary of State of Delaware on March 24, 2008.
      (15)4.9
              Rights
      Agreement, dated as of March 24, 2008, between Empire Resorts, Inc. and
      Continental Stock Transfer & Trust Company, as Rights Agent.
      (16)4.10
              Indenture
      dated as of July 26, 2004 among Empire Resorts, Inc., The Bank of New York
      and the Guarantors named therein. (6)10.1
              1998
      Stock Option Plan. (3)10.2
              2004
      Stock Option Plan. (5)10.3
              Amended
      and Restated 2005 Equity Incentive Plan. (20)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. (9)10.5
              Line
      of credit dated January 12, 2004 between Empire Resorts, Inc and Catskill
      Litigation Trust. (7)10.6
              Promissory
      Note issued by Catskill Litigation Trust on January 12, 2004 to Empire
      Resorts, Inc. for the Principal Sum of $2,500,000. (7)10.7
              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)10.8
              Registration
      Rights Agreement, dated as of January 30, 2004, by and among Empire
      Resorts, Inc. and Jefferies & Company, Inc. (4)10.9
              Security
      Agreement dated as of July 26, 2004 between Empire Resorts, Inc., The Bank
      of New York and the Guarantors named therein. (6)10.10
              Pledge
      Agreement dated as of July 26, 2004 Empire Resorts, Inc., The Bank of New
      York and the Guarantors named therein. (6)10.11
              Registration
      Rights Agreement dated as of July 26, 2004 Empire Resorts, Inc., the
      Guarantors named therein and Jefferies & Company, Inc.
    (6)
  67
 INDEX
  10.12
              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. (8)10.13
              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. (8)10.14
              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. (8)10.15
              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. (8)10.16
              Promissory
      Note issued by Empire Resorts, Inc. on January 11, 2005 to Bank of
      Scotland for the Principal Sum of $10,000,000. (8)10.17
              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. (8)10.18
              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). (10)10.19
              Employment
      Agreement dated as of May 23, 2005 between Empire Resorts, Inc. and Ronald
      J. Radcliffe. (10)10.20
              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. (11)10.21
              Amendment
      No. 1 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 June 13, 2005. (14)10.22
              Amendment
      No. 3 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 June 20, 2007. (12)10.23
              Agreement
      to Form Limited Liability Company and Contribution Agreement, among
      Concord Associates, L.P. and Empire Resorts, Inc., dated as of February 8,
      2008. (13)10.24
              Amendment
      No. 4 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 March 14, 2008. (14)10.25
              Stock
      Purchase Agreement, dated as of March 31, 2008, by and between Empire
      Resorts, Inc. and LRC Acquisition LLC (17)10.26
              Amendment
      No. 1 to Stock Purchase Agreement, dated as of March 31, 2008, by and
      between Empire Resorts, Inc. and LRC Acquisition LLC, dated as of April
      28, 2008. (18)10.27
              Amendment
      No. 2 to Stock Purchase Agreement, dated as of March 31, 2008, by and
      between Empire Resorts, Inc. and LRC Acquisition LLC, dated as of June 26,
      2008. (19)
  68
 INDEX
  10.28
              Amendment
      to Agreement to Form Limited Liability Company and Contribution Agreement,
      among Concord Associates, L.P. and Empire Resorts, Inc., dated as of
      December 30, 2008. (21)10.29
              Second
      Amendment to Agreement to Form Limited Liability Company and Contribution
      Agreement, among Concord Associates, L.P. and Empire Resorts, Inc., dated
      as of January 30, 2009. (22)14.1
              Code
      of Ethics. (4)21.1
              List
      of Subsidiaries. (1)23.1
              Consent
      of Independent Registered 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)
 _____________


(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 SEC 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 SEC 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 SEC 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 SEC on January 14, 2005.
  (9)
              Incorporated
      by reference to Empire Resorts, Inc.’s Form 10-KSB for the year ended
      December 31, 2004.
  (10)
              Incorporated
      by reference to Empire Resorts, Inc.’s Current Report on Form 8-K, filed
      with the SEC on May 27, 2005.
  (11)
              Incorporated
      by reference to Empire Resorts, Inc.’s Current Report on Form 8-K/A, filed
      with the SEC on December 15, 2005.
  69
 INDEX
  (12)
              Incorporated
      by reference to Empire Resorts, Inc.’s Current Report on Form 8-K, filed
      with SEC on June 25, 2007.
  (13)
              Incorporated
      by reference to Empire Resorts, Inc.’s Current Report on Form 8-K, filed
      with the SEC on February 11, 2008.
  (14)
              Incorporated
      by reference to Empire Resorts, Inc.’s Form 10-K for the year ended
      December 31, 2007, filed with the SEC on March 17,
  2008.
  (15)
              Incorporated
      by reference to Empire Resorts, Inc.’s Registration Statement on Form 8-A,
      filed on March 24, 2008
  (16)
              Incorporated
      by reference to Empire Resorts, Inc.’s Current Report on Form 8-K, filed
      with the SEC on March 24, 2008.
  (17)
              Incorporated
      by reference to Empire Resorts, Inc.’s Current Report on Form 8-K, filed
      with the SEC on April 2, 2008.
  (18)
              Incorporated
      by reference to Empire Resorts, Inc.’s Current Report on Form 8-K, filed
      with the SEC on April 29, 2008.
  (19)
              Incorporated
      by reference to Empire Resorts, Inc.’s Current Report on Form 8-K, filed
      with the SEC on July 2, 2008.
  (20)
              Incorporated
      by reference to Empire Resorts, Inc.’s Definitive Proxy Statement on
      Schedule 14A, filed with the SEC on September 17,
  2008.
  (21)
              Incorporated
      by reference to Empire Resorts, Inc.’s Current Report on Form 8-K, filed
      with the SEC on December 30, 2008.
  (22)
              Incorporated
      by reference to Empire Resorts, Inc.’s Current Report on Form 8-K, filed
      with the SEC on February 5, 2009.
  
 70
 INDEX
  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.
  EMPIRE
      RESORTS, INC.By:
              /s/
      David P. HanlonName:
              David
      P. HanlonTitle:
              Chief
      Executive OfficerDate:
              March
      13, 2009
  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.
 Exhibit
31.1
  Signature
                              
                              Title
                              Date/s/
      David
      P. Hanlon
                              
                              Chief
      Executive Officer, President and Director (Principal Executive
      Officer)
                              March
      13, 2009David
      P. Hanlon/s/
      Ronald J. Radcliffe
                              
                              Chief
      Financial Officer (Principal Accounting and Financial
    Officer)
                              March
      13, 2009Ronald
      J. Radcliffe/s/
      John
      Sharpe
                              
                              Chairman
      of the Board and Director
                              March
      13, 2009John
      Sharpe/s/
      Bruce
      Berg
                              
                              Director
                              March
      13, 2009Bruce
      Berg/s/
      Ralph
      J. Bernstein
                              
                              Director
                              March
      13, 2009Ralph
      J. Bernstein/s/
      Paul
      A. deBary
                              
                              Director
                              March
      13, 2009Paul
      A. deBary/s/
      Frank
      Catania
                              
                              Director
                              March
      13, 2009Frank
      Catania/s/
      Kenneth
      Dreifach
                              
                              Director
                              March
      13 2009Kenneth
      Dreifach/s/
      Richard
      Robbins
                              
                              Director
                              March
      13, 2009Richard
      Robbins/s/
      James
      Simon
                              
                              Director
                              March
      13, 2009James
      Simon
   71