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, 2009





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
            
            13-3714474(State
      or other jurisdiction of
              incorporation
      or organization)
            
            (I.R.S.
      Employer Identification No.)  
 c/o
      Monticello Casino and Raceway, Route 17B,
                  P.O.
      Box 5013, Monticello, NY 12701(Address
      of principal executive
      offices)                                                                           (Zip
      Code)Registrant’s
      telephone number, including area code:(845)
      807-0001





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 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 whether the registrant has submitted
      electronically and posted on its corporate Web site, if any, every
      Interactive Data File required to be submitted and posted pursuant to Rule
      405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12
      months (or for such shorter period that the registrant was required to
      submit and post such files).
              Yes
      o 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  oNon-accelerated
      filer  o
              Smaller
      reporting company  x
 
 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, 2009 was $44,976,397, based on the closing price of the registrant’s
common stock on the Nasdaq Global Market.
 
 As of
March 22, 2010, there were 69,479,340 shares of the registrant’s common stock
outstanding.





DOCUMENTS
INCORPORATED BY REFERENCE





The information required by Item 10 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 I
                1Item 1.
                Business.
                1Item 1A.
                Risk Factors.
                10Item 1B.
                Unresolved Staff Comments.
                22Item 2.
                Properties.
                22Item 3.
                Legal Proceedings.
                23Item 4.
                (Removed and Reserved).
                24PART II
                25Item 5.
                Market for Registrant’s Common Equity, Related Stockholder
      Matters and Issuer Purchases of Equity Securities.
                25Item 6.
                Selected Financial Data.
                27Item 7.
                Management’s Discussion and Analysis of Financial Condition
      and Results of Operations.
                27Item 7A.
                Quantitative and Qualitative Disclosures About Market
      Risk.
                36Item 8.
                Financial Statements and Supplementary
    Data.
                36Item 9.
                Changes In and Disagreements With Accountants on Accounting
      and Financial Disclosure.
                65Item 9A.
                Controls and Procedures.
                65Item 9B.
                Other Information.
                66PART III
                68Item 10.
                Directors, Executive Officers and Corporate
      Governance.
                68Item 11.
                Executive Compensation.
                71Item 12.
                Security Ownership of Certain Beneficial Owners and
      Management and Related Stockholder Matters.
                71Item 13.
                Certain Relationships and Related Transactions, and
      Director Independence.
                75Item 14.
                Principal Accounting Fees and Services.
                77PART IV
                78Item 15.
                Exhibits, Financial Statement
Schedules.
                78
  i
 INDEX
 PART I
  FORWARD-LOOKING
STATEMENTS
  This
Annual Report on Form 10-K contains forward-looking statements, about
management’s current expectations.  Examples of such forward-looking
statements include discussions of the expected results of various
strategies.  Although we believe that our expectations are based upon
reasonable assumptions, there can be no assurance that our financial goals will
be realized.  Our forward-looking statements concern matters that
involve known and unknown risks, uncertainties and other factors that may cause
our actual results, performance or achievements, or industry results, to be
materially different from the future results, performance or achievements
described or implied by such forward-looking statements.  Numerous
factors may affect our actual results and may cause results to differ materially
from those expressed in the forward-looking statements made by us or on our
behalf.  Any statements that are not statements of historical fact may
be forward-looking statements.  Among others, we have used the words,
“believes,” “anticipates,” “plans,” “estimates,” and “expects” to identify
forward-looking statements.  Such statements may be considered forward
looking statements within the meaning of Section 21E of the Securities Exchange
Act of 1934, as amended (the “Exchange Act”), and Section 27A of the Securities
Act of 1933, as amended (the “Securities Act”). Factors that could cause actual
results, performance or achievements to differ materially from those expressed
or implied by these forward looking statements include, but are not limited to,
the risk factors set forth in Item 1A of this Annual Report.  Readers
are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date of this filing.  We assume no
obligation to update the forward-looking information to reflect actual results
or changes in the factors affecting such forward-looking
information.
  Item
      1.
              Business.
  Overview
  Empire
Resorts, Inc. was organized as a Delaware corporation on March 19, 1993, and
since that time has served as a holding company for various subsidiaries engaged
in the hospitality and gaming industries.  As used in this Annual
Report, the words “Empire,” the “Company,” “our,” “us” or “we” refer to Empire
Resorts, Inc.
  We
currently own and operate Monticello Casino and Raceway, a video gaming machine
(“VGM”) and harness horse racing facility located in Monticello, New York, 90
miles Northwest of New York City.  At Monticello Casino and Raceway,
we operate 1,090 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
world and the export simulcasting of our races to offsite pari-mutuel wagering
facilities.
  In the
past, we have also made efforts to develop a 29.31 acre parcel of land adjacent
to Monticello Casino 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.  Currently, either an agreement
with a Native American tribe, together with certain necessary federal and state
regulatory approvals, or an amendment to the New York State Constitution would
be required for us to move forward with our efforts to develop a Class III
casino.
  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,  and 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.
  1
 INDEX
  Recent
Events
  On August
19, 2009, we entered into that certain investment agreement (the “Investment
Agreement”) with Kien Huat Realty III Limited, a corporation organized under the
laws of the Isle of Man (“Kien Huat”), pursuant to which (i) we issued to the
Kien Huat 6,804,188 shares of our Common Stock (the “First Tranche”), or
approximately 19.9% of the outstanding shares of Common Stock on a
pre-transaction basis, for aggregate consideration of $11 million, and (ii)
agreed, following stockholder approval of the transaction, to issue an
additional 27,701,852 shares of Common Stock to Kien Huat (the “Second Tranche”)
for additional consideration of $44 million.  We held a special
meeting of our stockholders on November 10, 2009, at which our stockholders
approved, among other things, the issuance of shares and related proposals to
facilitate the Second Tranche.  The closing of the Second Tranche
occurred on November 12, 2009, at which time we issued an additional 27,701,852
shares of Common Stock to Kien Huat for consideration of $44 million in
accordance with the terms of the Investment Agreement.  We have used
and intend to use the proceeds of the First Tranche and the Second Tranche for
transaction costs, to pay interest on existing indebtedness and for general
working capital.  Such proceeds may also be used as a part of a
restructuring of the Company’s capital base. The shares of Common Stock issued
pursuant to the Investment Agreement have not been registered under the
Securities Act.
  As a
result of the closing of the Second Tranche, as of November 12, 2009, Kien Huat
owned 34,506,040 shares of Common Stock, representing just under 50% of our
voting power.  As of the closing of the Second Tranche we had certain
options and warrants outstanding.  Under the Investment Agreement, if
any of such options or warrants are exercised (or any of the first one million
options or warrants issued after the closing of the First Tranche to our
officers and directors who held either of such positions as of July 31, 2009),
Kien Huat has the right to purchase an equal number of additional shares of
Common Stock as are issued upon such exercise at the exercise price for the
applicable option or warrant, which right we refer to herein as the “Option
Matching Right.”  Following any such purchase by Kien Huat, Kien Huat
may not own more than one share less than 50% of our voting power.
  Under the
terms of the Investment Agreement, Kien Huat is entitled to recommend three
directors whom we are required to cause to be elected or appointed to our Board
of Directors (the “Board”), subject to the satisfaction of all legal and
governance requirements regarding service as a member of our Board and to the
reasonable approval of the Governance Committee of the Board.  Kien
Huat has designated Au Fook Yew and G. Michael Brown as members of the Board
pursuant to its rights under the Investment Agreement.  Kien Huat has
not yet identified to the Board the third director whom it will recommend for
appointment to the Board pursuant to the Investment Agreement.  Kien
Huat will continue to be entitled to recommend three directors for so long as it
owns at least 24% of our voting power outstanding at such time, after which the
number of directors whom Kien Huat will be entitled to designate for election or
appointment to the Board will be reduced proportionally to Kien Huat’s
percentage of ownership.  Under the Investment Agreement, for so long
as Kien Huat is entitled to designate representatives to the Board, among other
things, Kien Huat will have the right to nominate one of its director designees
to serve as the Chairman of the Board, and Mr. Brown has been appointed to serve
as Chairman of the Board pursuant to Kien Huat’s
recommendation.  Until such time as Kien Huat ceases to own capital
stock with at least 30% of our voting power outstanding at such time, the Board
will be prohibited under the terms of the Investment Agreement from taking
certain actions relating to fundamental transactions involving us and our
subsidiaries and certain other matters without the affirmative vote of the
directors designated by Kien Huat.
  We are
seeking a judicial determination in the Supreme Court of New York, Sullivan
County, against the beneficial owners of our $65 million of 5 1⁄2% senior
convertible notes (the “Notes”), as well as The Depository Trust Company and the
Bank of New York Mellon Corporation (the “Trustee”) that (1) no Holder, as
defined under the indenture dated July 26, 2004 (the “Indenture”), delivered an
executed Put Notice, as defined under the Indenture, to the office of the
Trustee within the lawfully mandated time for exercise of a Holder’s put rights
under the Indenture prior to the close of business on July 31, 2009, and that
(2) the three entities that gave the purported notice of default may not and
have not accelerated the Notes or invoked certain other consequences of a
default.  See the section of this annual report entitled “Item 3 — Legal
Proceedings.”  We are unable to predict the length of time the
Supreme Court of New York may take to resolve ultimately the pending dispute, or
the length of time it will take for the Third Judicial Department of the
Appellate Division, or the State of New York Court of Appeals, to issue a final,
non-appealable judgment.  In the event that a final non-appealable
ruling is issued declaring that the right to demand repayment of the Notes had
been validly exercised, we would not have an immediate source of funds from
which to pay our obligations under the Notes, and no assurance can be made that
other sources of financing will be available at such time on commercially
reasonable terms, if at all, to satisfy our obligations under the
Notes.  Our ability to continue as a going concern depends on our
ability to fulfill our obligations with respect to our Notes. A final,
non-appealable determination that we did have the obligation to repurchase the
Notes on July 31, 2009, would result in our being in default under the Indenture
and the holders of the Notes could require us to repurchase the Notes at
par.  The Company does not currently have sufficient cash resources to
make such purchase and does not anticipate generating such cash through
operations in time to meet any such requirement.
  2
 INDEX
  In March
2010, we entered into an agreement with Bank of America/Merrill Lynch
(“BofA/ML”) to serve as our financial advisor to assist us in analyzing and
structuring our efforts to effect a restructuring of our existing debt and
preferred stock and to recommend possible steps to improve our liquidity. Such
steps may include negotiations with the current beneficial holders of the Notes
to resolve the current litigation. BofA/ML will provide advice to us on the
timing, nature and terms of new securities, other consideration or other
inducements to be offered to effect a restructuring.  At this time, we
are unable to make any assurances as to the results of our restructuring
efforts.
  As part
of our efforts to improve our liquidity and free cash flow, we are working to
improve our operating results and cash flow from our core businesses at our
wholly-owned subsidiary Monticello Raceway Management, Inc. (“Monticello Raceway
Management”), which operates Monticello Casino and Raceway.  We are
also exploring means of restructuring our debt, resuming our casino development
efforts and seeking other growth opportunities.
  In
February 2008, we entered into an agreement (the “Contribution Agreement”) with
Concord Associates, L.P. (“Concord”), pursuant to which we and Concord were 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.  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.  Consequently, the Contribution Agreement was terminated in
March 2009 as a result of the execution of a new agreement with
Concord.  On March 23, 2009, we entered into an agreement (the
“Concord Agreement”), with Concord, pursuant to which we (or a wholly-owned
subsidiary reasonably acceptable to Concord) shall be retained by Concord Empire
Raceway Corp. (“Raceway Corp.”), a subsidiary of Concord, to provide advice and
general managerial oversight with respect to the operations at the harness track
to be constructed at that certain parcel of land located in the Town of
Thompson, New York and commonly known as the Concord Hotel and Resort (the
“Concord Property”).  The Concord Agreement has a term of forty
years.  The closing of the transactions contemplated by the Concord
Agreement is to take place on the date that Concord or its subsidiary secures
and closes on (but not necessarily funds under) financing in the minimum
aggregate amount of $500 million (including existing equity) from certain
third-party lenders in connection with the development of the harness track and
certain gaming facilities on the Concord Property.  In the event that
the closing of the Concord Agreement has not occurred on or before July 31,
2010, the Concord Agreement may be terminated by either Concord or us by written
notice.  No assurance can be made that the financing required as a
condition to the consummation of the transactions contemplated by the Concord
Agreement will be obtained by Concord.
  Monticello
Casino and Raceway
  Monticello
Casino and Raceway began racing operations in 1958 and currently
features:
  ·
              1,090
      VGMs;
  ·
              year-round
      live harness horse racing;
  ·
              year-round
      simulcast pari-mutuel wagering on thoroughbred and harness horse racing
      from across the world;
  ·
              a
      3,000-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
      3,800 square foot multi-functional space used for
  events;
  ·
              a
      large central bar and an additional clubhouse bar;
  and
  ·
              an
      entertainment lounge with seating for 75
people.
  3
 INDEX
  VGM Operations.  We
currently operate a 45,000 square foot VGM facility at Monticello Casino 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.  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, which represents an
increase over the prior vendor fee of 32% 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, which represents an
increase over the prior marketing allowance of 8% for the first 100 million
annually, and 5% thereafter.  The legislation authorizing the
implementation of VGMs at Monticello Casino and Raceway expires in
2013.
  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 Casino and Raceway derives its racing
revenue principally from:
  ·
              wagering
      at Monticello Casino and Raceway on live races run at Monticello Casino
      and Raceway;
  ·
              fees
      from wagering at out-of-state locations on races run at Monticello Casino
      and Raceway using export
simulcasting;
  ·
              revenue
      allocations, as prescribed by law, from betting activity at off-track
      betting facilities in the State of New
York;
  ·
              wagering
      at Monticello Casino 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 Casino
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’s tote facility where the final odds
and payouts are determined.  With the exception of a few holidays,
Monticello Casino and Raceway offers year-round simulcast wagering from
racetracks across the country, including Aqueduct, Belmont, Meadowlands
Racetrack, Penn National Race Course, Turfway Park, Santa Anita Racetrack,
Gulfstream 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 Casino and
Raceway also exports live broadcasts of its own races to race tracks, casinos
and off-track betting facilities in the United States, Canada, Germany, Austria,
South Africa, Mexico, South America and the United Kingdom.
  Pari-mutuel
Wagering.  Monticello Casino 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 Casino and
Raceway’s pari-mutuel commission rates are fixed as a percentage of the total
handle or amounts wagered.
  4
 INDEX
  Electronic Table
Games.  The Division of the Lottery of the State of New York
has disclosed in public statements that it is considering permitting the
expansion of gaming options at the state's existing video lottery facilities to
include electronic table games. While the Division of the Lottery of the State
of New York has indicated that it does not require legislation to implement
these games, in January 2010, 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 Casino and Raceway to offer electronic versions of casino
games such as roulette, baccarat and blackjack.   No assurance
can be made, however, that the Division of the Lottery of the State of New York
will implement these games or that such legislation will be approved or that we
will otherwise be permitted to offer electronic table games.
  Competitive
Environment
  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.  The
opening of Empire City at Yonkers Raceway (“Yonkers Raceway”) with its Empire
City Casino in Yonkers New York, approximately 90 miles from our location, has
significantly intensified competition in our primary area. We compete with
Yonkers and two Pennsylvania casinos located in Northeastern Pennsylvania, for
guests from Orange, Duchess and Ulster Counties in New York. Our property offers
fewer slot machines and amenities than our competition.  In August
2009, the New York State Lottery approved a pilot test period for us and one
other New York State racino authorizing the use of tax-free VGM play for our
guests. The pilot program was to last six months and the New York State Lottery
was to evaluate the success of the pilot program by February 4, 2010. The use of
tax-free VGM play provided us the opportunity to reward our guests based on
their level of VGM play and to offer promotions that can compete with the
offerings of our competitors located in Pennsylvania.  On February 4,
2010, we received authorization to continue the use of tax-free VGM play for
another six months.
  Located
approximately 90 miles northwest of New York City, a Class III casino resort at
the current Monticello Casino and Raceway site would be a shorter trip from the
nation’s most populous metropolitan area than either Atlantic City or any
regional Native American casino, including Foxwoods and Mohegan Sun in
Connecticut.  There are approximately 18.4 million adults who live
within 100 miles of the Catskills area, an area where household income averages
approximately $76,000.  Specifically, Monticello Casino 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.
  While we
currently face intense competition within the gaming industry in the
northeastern United States, which is increasingly run by multinational
corporations or Native American tribes that have numerous competitive advantages
over us, we believe that our proximity to the New York City metropolitan area
would strengthen our position within our market if we are able to develop a
Class III casino and/or other commercial and entertainment
projects.  The development of a Class III casino, however, would
require either an amendment to the New York State Constitution to permit Class
III casino gaming or an agreement with a Native American tribe for the
development of a Class III casino, together with certain necessary federal and
state regulatory approvals.  Accordingly, there can be no assurance
that we will be successful in developing such projects in the foreseeable future
or at all.
  Development
  Concord
Management Agreement
  On March
23, 2009, we entered into the Concord Agreement, with Concord, pursuant to which
we (or a wholly-owned subsidiary reasonably acceptable to Concord) shall be
retained by Raceway Corp., a subsidiary of Concord, to provide advice and
general managerial oversight with respect to the operations at a harness horse
racing facility (the “Track”) to be constructed at the Concord
Property.  The Concord Agreement has a term of forty
years.  The closing of the transactions contemplated by the Concord
Agreement is to take place on the date that Concord or its subsidiary secures
and closes on (but not necessarily funds under) financing in the minimum
aggregate amount of $500 million (including existing equity) from certain
third-party lenders in connection with the development of the Track and certain
gaming facilities (the “Concord Gaming Facilities”) on the Concord
Property.
  5
 INDEX
  Under the
terms of the Concord Agreement, if the Track and Concord Gaming Facilities
commence operations, we are to receive an annual management fee in the amount of
$2 million, subject to adjustment, and an annual fee in the amount of two
percent of the total revenue wagered with respect to video gaming machines
and/or other alternative gaming located at the Concord Property, net of certain
fees and payouts (the “Adjusted Gross Gaming Revenue Payment”).  In
the event that the Adjusted Gross Gaming Revenue Payment paid to us is less than
$2 million per annum, Concord is to guaranty and pay to us the difference
between $2 million and the Adjusted Gross Gaming Revenue Payment distributed to
us with respect to such calendar year. In addition, upon a sale or other
voluntary transfer of the Concord Gaming Facilities to any person or entity who
is not an affiliate of Concord (the “Buyer”), Raceway Corp. may terminate the
Concord Agreement upon payment to us of $25 million; provided, that the Buyer
shall enter into an agreement with us whereby the Buyer shall agree to pay the
greater of (i) the Adjusted Gross Gaming Revenue Payment or (ii) $2 million per
annum to us for the duration of the Term of the Concord Agreement.
  In the
event that the closing of the transactions contemplated by the Concord Agreement
has not occurred on or before July 31, 2010, the Concord Agreement may be
terminated by either Concord or us by written notice.  No assurance
can be made that the financing required as a condition to the consummation of
the transactions contemplated by the Concord Agreement will be obtained by
Concord.
  Class
III Casino Development
  We have
identified 29.31 acres of land adjacent to Monticello Casino and Raceway for the
development of a Class III casino.  A Class III casino resort at
Monticello Casino and Raceway, as planned, is expected to feature between 70,000
to 80,000 square feet of gaming space with 2,000 slot machines and 100 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 Casino and Raceway because Class III casino
gaming, other than Native American gaming, is not allowed in New
York.  In order for the Company to own and operate a Class III casino
at Monticello Casino 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 a Native American 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 a Native American
tribe for the development of a Class III casino, we would be required to sell
the 29.31 acre site to a federally recognized Native American 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 Native American 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 Casino 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 Casino 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.
  6
 INDEX
  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 Casino 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, 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.
  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.
  On
January 30, 2010, the St. Regis Mohawk Tribe held a referendum vote to authorize
the Nation to proceed with the development of a Class III casino off its
reservation. The members of the St. Regis Mohawk Tribe indicated, by a vote of
538 - 371, that they support the tribe pursuing off-reservation gaming in the
Catskills region of the State of New York.  News reports during the
past eighteen months have indicated that the BIA is reevaluating the “guidance”
under which the January 4, 2008 decision, with respect to the St. Regis Mohawk’s
Tribe request to take our 29.31 acre site located at Monticello Casino and
Raceway into trust, 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 or the Company would seek to resume the joint effort to develop a Class
III casino on the 29.31 acre site.
  Competition
  Monticello
Casino and Raceway
  Generally,
Monticello Casino and Raceway does not compete directly with other harness
racing tracks in New York State for live racing patrons.  However,
Monticello Casino and Raceway does face intense competition for off-track
wagering at numerous gaming sites within the State of New York and the
surrounding region.  The inability to compete with larger purses for
the races at Monticello Casino and Raceway has been a significant limitation on
its ability to compete for off-track wagering revenues.
  7
 INDEX
  In New
York, the primary competition for Monticello Casino and Raceway is expected to
be from two racetracks located within the New York City metropolitan area,
Yonkers Raceway and Aqueduct Racetrack.  In February 2010, the
Governor of New York announced a preferred developer and operator for the
Aqueduct Raceway, Aqueduct Entertainment Group (“AEG”).  There were
conditions placed on the award of this license that must be satisfied in thirty
days, including the payment of a $300 million upfront fee.  In March
2010, AEG was disqualified and the offer to develop Aqueduct Raceway was
rescinded.  At this time, it is uncertain when the VGM facility at
Aqueduct Racetrack will be constructed and opened, or what steps the
representatives of the New York State Government will take to select a suitable
developer and operator for Aqueduct Raceway.  In addition, proposals
have been made for the implementation of a similar program at Belmont Park. From
time to time, New Jersey has reviewed options to place slot machines in various
locations including the Meadowlands Racetrack. Due to its budget deficit, New
Jersey is again looking at options for both its casinos located in Atlantic City
and possibly at video lottery facilities at racetracks to increase its share of
gaming taxes and to support its distressed horseracing and breeding
industries.
  In
January 2010, the Pennsylvania legislature authorized and its Governor approved
table games in its existing casino facilities. The bill authorizes all table
games, including blackjack, craps, roulette, baccarat, and poker at thoroughbred
and harness racetracks with slot-machine facilities and stand-alone slot-machine
parlors. In addition, the bill authorized the granting of credit to guests of
the Pennsylvania casinos. We currently anticipate that table games will be
operational in Pennsylvania’s casinos in the latter part of the third or
beginning of the fourth quarter of this year. Both Pennsylvania casinos that we
compete against have indicated their commitment to install and offer table games
at their facility. This bill augmented the legislation passed in July 2004,
whereby Pennsylvania legalized the operation of up to 61,000 slot machines at 14
locations throughout the state.  As of March 2010, there were nine
casinos in operation within Pennsylvania, with seven located at racing
tracks.  One such development is the Mohegan Sun at Pocono Downs,
which has approximately 2,500 slot machines.  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
Mount Airy Casino Resort opened with approximately 2,500 slot machines, a hotel,
spa and a golf course.  The Mount 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 11 casino hotels. Several of these casino
hotels are in bankruptcy, and the overall gaming market has been adversely
impacted by the opening of casinos in the Philadelphia and northeastern portion
of Pennsylvania (five in total).
  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.  In addition, 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
  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.
  8
 INDEX
  In 2001,
the New York State Legislature and the New York State Governor authorized the
building of three Native American casinos in the Catskills region of the State
of New York.  In November of 2004, a number of Native American 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 Native American 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 Casino 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 Native American 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.
  There are
a number of groups seeking to become federally-recognized Native American tribes
in order to be granted the right to operate casinos near the New York
metropolitan area.  There have been periodic proposals for locating a
Native American 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
Native American tribe, has expressed its interest in building a casino in
Southampton, New York or at another location in downstate New York. On December
15, 2009, the Shinnecock received preliminary federal
recognition.  Once federally recognized, the Shinnecock would
immediately have the right to build a Class II casino on their 800-acre
reservation in Southampton, New York, but the Shinnecock have expressed a desire
to develop a casino closer to New York City.
  9
 INDEX
  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 Casino 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 Native American 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 22, 2010, our subsidiaries and we employed approximately 319
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
  If a court of
competent jurisdiction determines that the right to demand repayment of the
Notes has been validly
exercised, we may not have an immediate source of repayment for our obligations
under the Notes.
  Our
ability to continue as a going concern is dependent upon our ability to fulfill
our obligations with respect to the Notes.
  On June
30, 2009, pursuant to the Indenture governing the Notes, we furnished the
written notice required to be delivered by us to the Trustee of the Notes under
the Indenture, of the time and manner under which each Holder could elect to
require us to purchase the Notes under the Indenture.  As contemplated
by the Indenture, we included with the notice the written form to be completed,
signed (with signature guaranteed), and delivered by each Holder of the Notes to
the Trustee before close of business on July 31, 2009 to require us to purchase
the Notes.  We requested, but never received, from the Trustee copies
of any forms delivered to it by which any election was made for us to purchase
the Notes or any part thereof.  Neither the Trustee nor any Holder
furnished to us any originals or copies of any such signed forms which had to be
completed, signed and delivered to the Trustee by close of business on July 31,
2009 to require us to purchase the Notes.  Because the forms required
to be completed, signed, and delivered by July 31, 2009 were not completed,
signed and delivered by then, we do not believe that we are obligated to
purchase and pay for any Notes before their maturity on July 31,
2014.  On August 3, 2009, we received a notice from three entities,
asserting that they were beneficial holders of the Notes in an aggregate
principal amount of $48,730,000, and that we were in default under the Indenture
by not purchasing the Notes on July 31, 2009.  On August 5, 2009, we
instituted a declaratory judgment action in the Supreme Court of the State of
New York in Sullivan County (the “Court”), seeking a declaration confirming that
(i) the Holders of the Notes failed to properly exercise the put rights
contained in the Indenture in respect of any of the Notes and (ii) the three
entities that gave the purported notice of default are not, therefore, entitled
to invoke, and have not invoked, the rights and remedies available upon the
occurrence of a default under the Indenture, including accelerating the Notes.
See the section of this annual report entitled “Item 3 — Legal
Proceedings.”
  10
 INDEX
  If the
Court, or another court of competent jurisdiction, issues a non-appealable final
judgment holding that the right to demand repayment of the Notes has been
validly exercised, we would not have an immediate source of repayment for our
obligations under the Notes.  Neither the remaining proceeds of the
$55 million in new equity capital invested in the Company by Kien Huat nor cash
flow generated by our current operations is anticipated to be sufficient to
repurchase the Notes in full, if we are required to do so.  A failure
to repurchase the Notes when required would 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.  Accordingly, our
ability to continue as a going concern is dependent upon a determination that we
did not have the obligation to repurchase the Notes on July 31, 2009, and/or our
ability to arrange financing to fulfill our obligations under the Notes, and no
assurance can be made that financing necessary to fulfill our obligations under
the Notes will be available on commercially reasonable terms, if it
all.
  Our Independent Registered Public
Accounting Firm has issued a “going concern” opinion raising substantial doubt
about our financial viability
  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 depends on our ability to fulfill our obligations with respect to
our Notes.  In addition, we have continuing net losses and negative
cash flows from operating activities.  These conditions raise
substantial doubt about our ability to continue as a going
concern.  Our 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
24, 2010 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.
  We
may require additional financing in order to develop any projects and we may be
unable to meet our future capital requirements and execute our business
strategy.
  Because
we are unable to generate sufficient cash from our operations, we may be forced
to rely on external financing to develop any future projects and to meet future
capital and operating requirements. Any projections of future cash needs and
cash flows are subject to substantial uncertainty. The 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 the 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 acceptable terms or within the
limitations contained in the Indenture governing the Notes, if at
all.
  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 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.
  If
revenues and operating income from our operations at Monticello Casino and
Raceway do not increase 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 the Notes will depend upon the performance of our VGM and
racing facilities, and our ability to successfully develop and manage a Class
III casino at the location of our current operations.
  There can
be no assurance that our operations will draw sufficiently large crowds to
Monticello Casino 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 Casino and Raceway expires in 2013, prior
to the stated maturity of the 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.
  11
 INDEX
  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 the Notes), 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 the Notes.  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 Native American 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.
  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.
  12
 INDEX
  We
received a letter from the New York State Racing and Wagering Board on January
5, 2010, requesting updated information about our plans to divest Bryanston
Group and its affiliates of their remaining interests in us.  In
response, we have informed the New York State Racing and Wagering Board that we
are in the process of engaging an investment banking firm to explore our options
with respect to the restructuring of our debt and other obligations, including
our Series E Preferred Stock.  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, 2009, was approximately $27.1
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 Native American 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, Rotate Black Inc., a resort and gaming corporation, and the Wisconsin
Oneidas have each previously announced plans to develop Native American casinos
on properties that are near Monticello Casino and
Raceway.  Additionally, on July 4, 2004, the Commonwealth of
Pennsylvania enacted a law allowing for the operation of up to 61,000 slot
machines at 14 locations.  Pursuant to this law, slot machine
facilities could be developed within 30 miles of Monticello Casino 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 Mount Airy Casino Resort opened with approximately 2,500 slot
machines, a hotel and a golf course.  The Mount Airy Casino Resort is
located in Mount Pocono, Pennsylvania, approximately 60 miles southwest of
Monticello. Furthermore, new legislation enacted by the Commonwealth of
Pennsylvania on January 7, 2010 permits tables games such as blackjack, poker
and roulette at existing slot machine casinos in Pennsylvania. Under this new
law, thoroughbred and harness racetracks with slot-machine facilities and
stand-alone slot-machine parlors will be permitted to table games, such as
blackjack, poker and roulette.  The development of new casinos and
slot machine facilities and the introduction of table games at existing harness
racetracks and casinos in Pennsylvania will likely increase the degree of
competition within our market and may have an adverse effect on our business and
future operating performance.  Moreover, a number of well financed
Native American 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 Native
American casinos, slot machine facilities and table games 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., Rotate Black Inc. and the
Wisconsin Oneidas in the Catskills region of the State of New York for gaming
customers.
  13
 INDEX
  The
continuing decline in the popularity of horse racing and increasing competition
in simulcasting could adversely impact the business of Monticello Casino and
Raceway.
  Since the
mid-1980s, there has been a general decline in the number of people attending
and wagering at live horse races at North American racetracks due to a number of
factors, including increased competition from other forms of gaming,
unwillingness of 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 Casino and Raceway.  Our business
plan anticipates the possibility of Monticello Casino 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 Casino 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 Casino and Raceway’s revenues
and, therefore, limit its ability to make a positive contribution to our
results.
  The
filing by the New York City Off-Track Betting Corporation (“NY OTB”) for
protection under Chapter 9 of the United States bankruptcy code could prevent us
from collecting on the receivables owed to us by the NY OTB and cause a
reduction in future revenue to be received from NY OTB, which could have an
adverse effect on our results of operations.
  On
December 3, 2009, the NY OTB filed for protection under Chapter 9 of the United
States bankruptcy code.  The Chapter 9 reorganization may allow the NY
OTB to delay and potentially reduce payment of its existing debts.  As
a result of the NY OTB’s Chapter 9 reorganization filing, an allowance for
doubtful accounts has been recorded for all such receivables deemed
uncollectible by us as of December 31, 2009.  In addition, NY OTB may
seek to reduce or eliminate certain payments that they are currently required to
pay to us, which, if reduced or eliminated, would negatively impact our results
of operations.
  We
depend on our key personnel and the loss of their services would adversely
affect our operations and our failure to replace our Chief Financial Officer
with an individual with the required level of experience and expertise in a
timely manner could have an adverse impact on our operations and business
strategy.
  If we are
unable to maintain our key personnel and attract new employees with high levels
of expertise in those gaming areas in which we propose to engage, without
unreasonably increasing our labor costs, the execution of our business strategy
may be hindered and our growth limited.  We believe that our success
is largely dependent on the continued employment of our senior management and
the hiring of strategic key personnel at reasonable costs.  If any of
our current senior managers were unable or unwilling to continue in his or her
present position, or we were unable to attract a sufficient number of qualified
employees at reasonable rates, our business, results of operations and financial
condition will be materially adversely affected.  On December 31,
2009, the term of our employment agreement, dated June 1, 2009, with Joseph E.
Bernstein expired in accordance with its terms.  As a result of the
expiration of his employment agreement, Mr. Bernstein ceased to serve as our
Chief Executive Officer.  On December 24, 2009, our Board appointed
Joseph A. D’Amato, who also serves as our Chief Financial Officer, to replace
Mr. Bernstein as Chief Executive Officer effective January 1,
2010.  We are seeking to hire a successor to replace Mr. D’Amato as
our Chief Financial Officer and pending such replacement, Mr. D’Amato has agreed
to serve as both Chief Executive Officer and Chief Financial
Officer.  Competition for qualified executives is intense and we can
give no assurance that we will be able to hire a qualified replacement with the
required level of experience and expertise for Mr. D’Amato’s position as Chief
Financial Officer. Additionally, recruiting and hiring a replacement for this
position could divert the attention of other senior management and increase our
operating expenses.  In the event that we are unable to hire a new
Chief Financial Officer to replace Mr. D’Amato in a timely manner, there can be
no assurance that Mr. D’Amato will be able to continue to successfully perform
the duties of both the Chief Executive Officer and Chief Financial Officer
positions.  Therefore, our future performance will depend on our
ability to recruit and retain an individual to serve as our Chief Financial
Officer and our business could suffer if we are not able to attract a qualified
replacement in a timely manner.
  14
 INDEX
  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 the Notes in the principal amount of $65 million, our
debt service obligations increased substantially. We may be unable to repay $65
million if determined judicially that purported beneficial owners of the Notes
have properly ‘put’ their Notes on July 31, 2009.  While we are
actively pursuing additional financing sources, there can be no assurance that
we will be able to obtain financing on acceptable terms, or at all.
  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:
  ·
              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;
  ·
              refinance
      or restructure all or a portion of our indebtedness, including the Notes;
      or
  ·
              sell
      selected assets.
  Such
measures might not be sufficient to enable us to service our indebtedness. In
addition, any such financing, refinancing or sale of assets may not be available
on commercially reasonable terms, or at all.
  We
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.
  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 the Indenture governing the 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.
  15
 INDEX
  In
addition, the construction of a Native American Class III casino may depend upon
the ability of a Native American 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 Indenture would not currently permit us to guarantee
such financing.
  Currently,
Class III casino gaming, other than Native American 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 Native American gaming, in a timely manner, or at
all.
  Currently,
we are not permitted to operate a Class III casino at Monticello Casino and
Raceway because Class III casino gaming, other than Native American gaming, is
not allowed in New York.  In order to operate a Class III casino at
Monticello Casino 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 a Native American 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 Native American 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 a Native American 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,
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
Casino 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 a Native American tribe for the development of a Class
III casino resort.  The St. Regis Mohawk Tribe’s Election Board issued
a press release on January 30, 2010 announcing the results of a referendum of
its members pursuant to which the members of the St. Regis Mohawk Tribe
indicated, by a vote of 538 - 371, that they support the tribe pursuing
off-reservation gaming in the Catskills region of the State of New
York.  Nevertheless, there can be no assurance that we will be able to
enter into agreements with the St. Regis Mohawk Tribe or any other Native
American tribe for the development of a Class III casino resort on the land that
we own at Monticello Casino and Raceway on terms favorable to us, or at
all.
  Native
American 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 a Native American 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 a Native
American 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, a Native American 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.
  16
 INDEX
  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 Casino 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 a Native American Class III casino resort on
such land with the St. Regis Mohawk Tribe or with any other Native American
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 Casino 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 a Native American Class III
casino.  Moreover, the costs involved in obtaining a full
environmental impact statement are significant.
  Because
of the unique status of Native American tribes, our ability to successfully
develop and manage a Native American Class III casino would be subject to unique
risks.
  Native
American 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 a
Native American 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 Native American 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 Native American 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.
  Native
American 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 Native
American tribe, and certain federal Native American law statutes or judicial
principles.  A number of examples exist where Native American 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 a Native American Class III casino with a Native
American tribe.  Several companies with gaming experience that have
tried to become involved in the management and/or development of Native American
Class III casinos have been unsuccessful.  Due to the unique
challenges associated with Native American gaming, 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 Native American gaming
operations.
  17
 INDEX
  The
value of the conversion right associated with the 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 the 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 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.
  Risk
Relating to Our Ownership Structure
  Stockholders’
ability to influence corporate decisions may be limited because our major
stockholders own a large percentage of our Common Stock.
  Kien
Huat is the beneficial holder of 34,800,892 shares of our Common Stock,
representing approximately 50.3% of our presently outstanding shares of our
Common Stock or just less than 50.0% of our voting
power.  Additionally, under the terms of the Investment Agreement, if
any option or warrant outstanding as of November 12, 2009, the date of the final
closing of the Investment Agreement, (or, in limited circumstances, if issued
after such date) is exercised, Kien Huat has the right (following notice of such
exercise) to purchase an equal number of additional shares of our Common Stock
as are issued upon such exercise at the exercise price for the applicable option
or warrant.  Under the terms of the Investment Agreement, Kien Huat is
also entitled to recommend three directors whom we are required to cause to be
elected or appointed to our Board, subject to the satisfaction of all legal and
governance requirements regarding service as a director and to the reasonable
approval of the Governance Committee of the Board.  Kien Huat has
designated Au Fook Yew and G. Michael Brown as members of the Board pursuant to
its rights under the Investment Agreement.  Kien Huat has not yet
identified to the Board the third director whom it is entitled to recommend for
appointment to the Board pursuant to the Investment Agreement.  Kien
Huat will continue to be entitled to recommend three directors for so long as it
owns at least 24% of our voting power outstanding at such time, after which the
number of directors whom Kien Huat will be entitled to designate for election or
appointment to the Board will be reduced proportionally to Kien Huat’s
percentage of ownership.  Under the Investment Agreement, for so long
as Kien Huat is entitled to designate representatives to the Board, among other
things, Kien Huat will have the right to nominate one of its director designees
to serve as the Chairman of the Board, and Mr. Brown has been appointed to serve
as Chairman of the Board pursuant to Kien Huat’s
recommendation.  Until such time as Kien Huat ceases to own capital
stock with at least 30% of our voting power outstanding at such time, the Board
will be prohibited under the terms of the Investment Agreement from taking
certain actions relating to fundamental transactions involving us and our
subsidiaries and certain other matters without the affirmative vote of the
directors designated by Kien Huat.  Consequently, Kien Huat has the
ability to exert significant influence over our policies and affairs, including
the election of our Board and the approval of any action requiring a stockholder
vote, such as approving amendments to our certificate of incorporation and
mergers or sales of substantially all of our assets, as well as other matters
where the interests of Kien Huat may differ from the interests of our other
stockholders in some respects, which may lead to stockholder votes that are
inconsistent with other stockholders’ best interests or the best interest of us
as a whole.  This concentration of voting power could delay or prevent
an acquisition of our company on terms that other stockholders may
desire.
  18
 INDEX
  Factors
Affecting the Market Value of our Common Stock
  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, 2008 and
March 22, 2010, the closing bid price of our Common Stock has ranged between
$4.51 and $0.40 per share.  A variety of events may cause the market
price of our Common Stock to fluctuate significantly, including but not
necessarily limited to:
  ·
              quartertoquarter variations
      in operating results;
  ·
              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.  This volatility has had a substantial effect on
the market prices of companies, at times for reasons unrelated to their
operating performance.  These market fluctuations may adversely affect
the price of our Common Stock and other interests in the Company at a time when
our stockholders want to sell their interest in us.
  In
addition, future sales of significant amounts of shares held by Kien Huat, or
the perception that such sales may occur, could adversely affect the market
price of our Common Stock. Kien Huat’s stock ownership may also discourage a
potential acquirer from making a tender offer or otherwise attempting to obtain
control of us, which in turn could reduce our stock price or prevent our
stockholders from realizing a premium over our stock price.
  Certain
provisions of our certificate of incorporation and bylaws as well as our
stockholder rights plan discourage unsolicited takeover proposals and could
prevent stockholders from realizing a premium return on their investment in our
Common Stock.
  Our Board
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 makes it more
difficult for our stockholders to change the composition of the Board 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 has the
authority, without further action by the stockholders, to issue up to 3,130,045
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 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.  Our stockholder rights
agreement, the triggering of which would cause substantial dilution to any
person or group attempting to acquire our company on terms not approved in
advance by our Board could also discourage or prevent a takeover of us or
changes in our management, even if an acquisition or such changes would be
beneficial to our stockholders. This may have a negative effect on the market
price of our Common Stock.
  Future
sales of shares of our Common Stock in the public market or the conversion of
the Notes could adversely affect the trading price of shares of our Common
Stock, the value of the 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 the 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 the
Notes.  As of March 22, 2010, we had 69,479,340 shares of Common Stock
outstanding.  Because the 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
the Notes to decline.  In addition, due to this dilution, the
existence of the Notes may encourage trading strategies involving the 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.  Furthermore, we may be required to issue additional shares of
our Common Stock to Kien Huat pursuant to the Option Matching Rights under the
Investment Agreement at less than the then-existing market price, which could
reduce the price per share of shares held by existing stockholders.
  19
 INDEX
  At
December 31, 2009, we had outstanding options to purchase an aggregate of
8,080,342 shares of our Common Stock, warrants to purchase an aggregate of
111,111 shares of our Common Stock and Option Matching Rights to purchase an
aggregate of 7,441,453 shares of our Common Stock at weighted average exercise
prices of $3.00 per share, $0.01 per share and $2.91 per share,
respectively.  If the holders of these options, warrants or Option
Matching Rights were to exercise their options, warrants and/or matching rights
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.
  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.
  The
demand for entertainment and leisure activities tends to be highly sensitive to
consumers' disposable incomes, and the recent economic recession that has
affected the U.S. and global economies, the tightened credit markets and eroded
consumer confidence had a negative impact on overall trends in the gaming
industry in 2009.  Discretionary consumer spending habits have been
adversely affected by the recent economic crisis and the actual or perceived
fear of the extent of the recession could lead to further decrease in spending
by our customers.  We cannot predict at what level these negative
trends will continue, worsen or improve and the ultimate impact it will have on
our future results of operations. The continued weakness in our market and the
deterioration of the broader global economy would have a material adverse effect
on our industry and our business, including our revenues, profitability,
operating results and cash flow.
  Moreover,
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 or make
scheduled payments on or to refinance our obligations under the
Notes.  Recent turmoil in the credit markets and the resulting impact
on the liquidity of certain large financial institutions has had, and may
continue to have, an effect through the U.S. economy, including limiting access
to credit markets for certain borrowers at reasonable rates.  Due to
the recent instability and existing uncertainty in the credit markets, we may be
unable to incur additional indebtedness to fund our business strategy or
refinance our Notes, 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 Afghanistan and
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.
  20
 INDEX
  We
are subject to greater risks than a geographically diverse company.
  Our
proposed operations are limited to the Catskills region of the State of New
York, which has been affected by a decades long decline in economic
conditions.  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:
  ·
              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 Native
      American 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.
  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,
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 $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.
  21
 INDEX
  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 Casino 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.  While the basis of the denial, the newly promulgated
“commutability rule,” is reported to be under review by the U.S. Department of
the Interior, no assurance can be made that the BIA will change its
position.  The current position of the BIA will likely have an adverse
effect on the ability of companies to develop off-reservation Native American
gaming operations.
  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, our wholly
owned subsidiary, is a 232 acre parcel of land in Monticello, New
York.  Facilities at the site include Monticello Casino and Raceway,
which includes a 3,000-seat enclosed grandstand, a clubhouse bar, pari-mutuel
wagering facilities (including simulcasting), a paddock, exterior barns and
related facilities for the horses, drivers, and trainers.  In
addition, our VGM operation is conducted in the renovated lower level of the
grandstand portion of Monticello Casino and Raceway, which includes a gaming
floor with a central bar and lounge and a separate high stakes VGM area, a
350-seat buffet and food court with three outlets, employee changing areas,
storage and maintenance facilities, surveillance and security facilities and
systems, cashier’s cage and accounting and marketing areas, as well as 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 a Native American
tribe for and obtain the necessary approvals in connection with the development
of such a Class III casino.  This site was subjected to the New York
State Environmental Quality Review Act (“SEQRA”) with the completion of
extensive reviews in developing an Environmental Impact Statement issued March
10, 1998, with a 2003 SEQRA update of information and confirmation of the
validity of the findings issued by the Village of Monticello Planning Board,
issued on July 22, 2005.  If we pursue the development of a Class III
casino with a Native American tribe, the parcel of land is to be conveyed to the
United States of America to be held in trust for the benefit of a Native
American 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 Native American 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.
  22
 INDEX
  The
Trustee under the Indenture for the benefit of the holders of the Notes has the
benefit of a mortgage recorded with respect to such security interest on the
Monticello property for the benefit of the holders of the Notes.  This
security interest shall terminate upon satisfaction of all of our obligations
under the Notes.
  Item
      3.
              Legal
      Proceedings.
  Empire
Resorts, Inc. v. The Bank of New York Mellon Corporation and The Depository
Trust Company
  On August
5, 2009, we filed a declaratory judgment action against the beneficial owners of
the Notes, as well as The Depository Trust Company and the Trustee, in the
Supreme Court of the State of New York in Sullivan County (the
“Action”).  In the complaint, we seek a judicial determination that
(1) no Holder, as defined under the Indenture, delivered a Put Notice to the
office of the Trustee within the lawfully mandated time for exercise of a
Holder’s put rights under the Indenture prior to the close of business on July
31, 2009, and that (2) Plainfield Special Solutions Master Fund Limited
(“Plainfield”), Highbridge International LLC (“Highbridge”) and Whitebox
Advisors LLC (“Whitebox”) may not and have not accelerated the Notes or invoked
certain other consequences of a default.  In October 2009, we entered
into a stipulation in connection with the Action.  Pursuant to the
stipulation, we agreed to discontinue our claims against all beneficial owners
of the Notes who executed the stipulation (the “Consenting Defendants”), who
represent substantially all of the outstanding principal amount of the Notes,
including Plainfield, Highbridge and Whitebox, without prejudice, and
Plainfield, Highbridge and Whitebox agreed to withdraw the notices of default
and acceleration of the Notes that they sent to us on August 3 and August 11,
2009. The Consenting Defendants have further agreed to (i) be bound by any final
non-appealable judgment with respect to the declaratory judgment sought by us
against The Depository Trust Company and the Trustee, and (ii) not to commence
any action or proceeding concerning the subject matter of the declaratory
judgment until there has been a final non-appealable judgment with respect to
the declaratory judgment sought by us.
  On
October 16, 2009, the Trustee and The Depository Trust Company answered the
complaint, denying that we are entitled to the determination sought in the
Action.  On October 27, 2009, the Trustee and The Depository Trust
Company filed a motion for summary judgment, seeking a determination that the
Notes were properly put to us for repurchase on July 31, 2009. On December 3,
2009, we filed opposition papers and a cross-motion for summary judgment,
requesting that the Court determine that the Holders of the Notes have failed to
properly exercise any option to require that we repurchase the Notes by reason
of a Holder put right exercisable prior to the close of business on July 31,
2009, and, as a consequence, that we are not in default of the
Indenture.
  On
November 5, 2009, the Trustee filed (i) an amended answer, (ii) a counterclaim
against us and (iii) a third party complaint against Alpha Monticello, Inc.,
Alpha Casino Management Inc., Monticello Raceway Development, Monticello Casino
Management, Mohawk Management, LLC, and Monticello Raceway Management, as
guarantors of our obligation under the Notes. The amended answer again denied
that we are entitled to the determinations which we seek in the
Action.  The counterclaim and third party complaint seek (a) a
declaration that we are in default under the Indenture for failure to repurchase
the Notes upon the purported exercise of the Holders’ put right under the
Indenture and that the Trustee has properly accelerated the Notes in accordance
with the terms of the Indenture, and (b) damages, including all unpaid principal
and interest on the Notes, prejudgment interest and costs and expenses in
bringing the action, including attorney’s fees.  On February 1, 2010,
the Company and the Guarantors filed a reply to the counterclaim and answer to
the third party complaint denying liability and asserting certain affirmative
defenses.
  We are
unable to predict the length of time the Supreme Court of New York may take to
resolve the pending motions and cross-motion for summary judgment or to
ultimately resolve the pending dispute, or the length of time it will take for
the Third Judicial Department of the Appellate Division, or the State of New
York Court of Appeals, to issue a final, non-appealable judgment.  In
the event that a final non-appealable ruling is issued declaring that the right
to demand repurchase of the Notes had been validly exercised, we would not have
an immediate source of funds from which to pay our obligations under the Notes,
and no assurance can be made that other sources of financing will be available
at such time on commercially reasonable terms, if at all, to satisfy our
obligations under the Notes.
  23
 INDEX
  Empire
Resorts, Inc. v. Joseph E. Bernstein
  On
January 7, 2010, we filed a complaint against Joseph E. Bernstein, our former
Chief Executive Officer, in the United States District Court for the Southern
District of New York.  In the complaint, we are seeking injunctive
relief, unspecified monetary damages and a judgment declaring that Mr. Bernstein
is bound by the non-competition restrictions in his employment agreement. Prior
to the expiration of his employment agreement, Mr. Bernstein had made numerous
financial demands on us.  After we refused his demands, Mr. Bernstein
issued a 17-page letter to the New York State Racing and Wagering Board making
numerous accusations against us and certain of our directors (the “R&W
Letter”), which we maintain are false and baseless.  In the R&W
Letter, Mr. Bernstein reveals our confidential and proprietary information and
discloses confidential attorney-client privileged communications.  We
are cooperating fully with the New York State Racing and Wagering Board with
respect to their investigation into this matter.  We are seeking
relief from Mr. Bernstein for his alleged: (i) breach of his employment
agreement caused by his dissemination of our confidential information in
contravention of the terms of the employment agreement as a result of his
widespread dissemination of the R&W Letter, (ii) breach of his fiduciary
duties to us caused by his improper use of and dissemination of the R&W
Letter, (iii) violation of his good faith and loyalty obligations to us as a
result of, among other things, disclosing confidential information and
attorney-client privileged information of us as a result of his dissemination of
the R&W Letter, and (iv) tortious interference with prospective business
relations caused by Mr. Bernstein’s attempted interference with our business
relations with the St. Regis Mohawk Tribe.  Prior to issuance of the
R&W Letter, we received a letter from Mr. Bernstein’s counsel alleging that
we breached Mr. Bernstein’s employment agreement and summarizing Mr. Bernstein’s
claims against the Company.  As of the date hereof, Mr. Bernstein has
not asserted any claims against us in court.
  Other
Proceedings
  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.
              (Removed
      and Reserved).
  24
 INDEX
  PART II
  Item
      5.
              Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities.
  Performance
Graph
  
  Company/Index
              
              12/31/2004
              
              
              12/31/2005
              
              
              12/31/2006
              
              
              12/31/2007
              
              
              12/31/2008
              
              
              12/31/2009Empire
      Resorts, Inc.
              
              $
              100.00
              
              
              $
              66.37
              
              
              $
              77.76
              
              
              $
              30.58
              
              
              $
              9.78
              
              
              $
              18.92NASDAQ
      Market Index
              
              $
              100.00
              
              
              $
              102.20
              
              
              $
              112.68
              
              
              $
              124.57
              
              
              $
              74.71
              
              
              $
              108.56Hemscott
      Group Index
              
              $
              100.00
              
              
              $
              97.69
              
              
              $
              152.83
              
              
              $
              172.62
              
              
              $
              31.02
              
              
              $
              24.10Morningstar
      Industry Index
              
              $
              100.00
              
              
              $
              92.03
              
              
              $
              135.18
              
              
              $
              149.76
              
              
              $
              29.23
              
              
              $
              20.91
 
 Assumes
$100 invested on December 31, 2004 in the Company’s Common Stock, the NASDAQ
Market Index, the Hemscott Group Index and the Morningstar Industry
Index.
  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.
  25
 INDEX
  High
              
              
              LowYear
      ended December 31, 2008First
      Quarter
              
              $
              3.43
              
              
              $
              0.86Second
      Quarter
              
              
              4.66
              
              
              
              1.36Third
      Quarter
              
              
              4.25
              
              
              
              2.02Fourth
      Quarter
              
              
              3.00
              
              
              
              0.88Year
      ended December 31, 2009First
      Quarter
              
              $
              1.85
              
              
              $
              0.40Second
      Quarter
              
              
              2.79
              
              
              
              0.75Third
      Quarter
              
              
              3.97
              
              
              
              1.50Fourth
      Quarter
              
              
              3.59
              
              
              
              1.80
 
 Holders
  According
to Continental Stock Transfer & Trust Company, there were approximately 219
holders of record of our Common Stock at March 22, 2010.
  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 to the holders
of our Common Stock is restricted by undeclared dividends on our Series E
preferred stock.  We have accumulated unpaid Series E preferred
dividends of approximately $9.8 million as of December 31, 2009.
  Securities
Authorized for Issuance Under Equity Compensation Plans
  The
following table provides information as of December 31, 2009 with respect to the
shares of our Common Stock that may be issued under our existing equity
compensation plans.
  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 by
                security
      holders
              
              
              8,030,342
              
              
              $
              2.96
              
              
              
              2,058,466Equity
      compensation plans not approved by
                security
      holders
              
              
              50,000
              
              
              
              8.53
              
              
              
              --Total
              
              
              8,080,342
              
              
              $
              3.00
              
              
              
              2,058,466




26
 INDEX




Item
      6.
              Selected
      Financial Data.
  The
following selected financial information is qualified by reference to, and
should be read in conjunction with, our 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, 2009, 2008
and 2007 and the selected consolidated balance sheet data as of December 31,
2009 and 2008 are derived from our audited consolidated financial statements
which are included elsewhere herein. The selected consolidated income statement
data for the years ended December 31, 2006 and 2005 and the selected
consolidated balance sheet data as of December 31, 2007, 2006 and 2005 are
derived from our audited consolidated financial statements not included
herein.
  STATEMENTS
      OF OPERATIONS DATA
              
              (All
      dollar amounts in thousands, except per share data)Years
      ended December 31,2009
              
              
              2008
              
              
              2007
              
              
              2006
              
              
              2005NET
      REVENUES
              
              $
              67,634
              
              
              $
              68,551
              
              
              $
              77,300
              
              
              $
              100,873
              
              
              $
              89,124Operating
      costs and expenses, including depreciation
              
              
              71,805
              
              
              
              73,266
              
              
              
              83,537
              
              
              
              101,489
              
              
              
              88,063Impairment
      loss – deferred development costs *
              
              
              ---
              
              
              
              ---
              
              
              
              12,822
              
              
              
              ---
              
              
              
              14,291LOSS
      FROM OPERATIONS
              
              
              (4,171
              )
              
              
              (4,715
              )
              
              
              (19,059
              )
              
              
              (616
              )
              
              
              (13,230
              )NET
      LOSS
              
              
              (10,575
              )
              
              
              (10,609
              )
              
              
              (24,649
              )
              
              
              (7,076
              )
              
              
              (18,527
              )Undeclared
      dividends on preferred stock
              
              
              (1,551
              )
              
              
              (1,551
              )
              
              
              (1,551
              )
              
              
              (1,551
              )
              
              
              (1,551
              )NET
      LOSS APPLICABLE TO COMMON SHARES
              
              $
              (12,126
              )
              
              $
              (12,160
              )
              
              $
              (26,200
              )
              
              $
              (8,627
              )
              
              $
              (20,078
              )Loss
      per common share, basic and diluted
              
              $
              (0.30
              )
              
              $
              (0.38
              )
              
              $
              (0.89
              )
              
              $
              (0.32
              )
              
              $
              (0.77
              )OTHER
      FINANCIAL DATA:Capital
      Expenditures
              
              $
              187
              
              
              $
              277
              
              
              $
              339
              
              
              $
              320
              
              
              $
              1,967BALANCE
      SHEET DATA:Cash
      and cash equivalents
              
              $
              50,080
              
              
              $
              9,687
              
              
              $
              15,008
              
              
              $
              9,471
              
              
              $
              6,992Total
      assets
              
              
              89,421
              
              
              
              49,096
              
              
              
              54,199
              
              
              
              60,564
              
              
              
              57,245Debt
      payable within one year
              
              
              65,000
              
              
              
              72,617
              
              
              
              ---
              
              
              
              ---
              
              
              
              ---Long-term
      debt
              
              
              ---
              
              
              
              ---
              
              
              
              72,617
              
              
              
              72,617
              
              
              
              72,476Proceeds
      from exercise of stock options, Option Matching Rights and sale of common
      stock
              
              
              55,277
              
              
              
              5,191
              
              
              
              18,932
              
              
              
              1,166
              
              
              
              283Total
      stockholders’ equity (deficit)
              
              
              15,548
              
              
              
              (32,371
              )
              
              
              (28,077
              )
              
              
              (25,723
              )
              
              
              (27,215
              )
 
 *           Impairment
loss represents the write-off of costs associated with efforts to develop Native
American casinos in New York State.
  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
and 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.  Our ability to
continue as a going concern depends on our ability to fulfill our obligations
with respect to our $65 million of Notes.  In addition, we have
continuing net losses and negative cash flows from operating
activities.  These conditions raise substantial doubt about our
ability to continue as a going concern.  Our 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 24, 2010 regarding their concerns about our ability to
continue as a going concern.
  27
 INDEX
  We are
seeking a judicial determination in the Supreme Court of New York, Sullivan
County, against the beneficial owners of the Notes, as well as the Trustee that
(1) no Holder, as defined under the Indenture governing the Notes delivered an
executed Put Notice to the office of the Trustee within the lawfully mandated
time for exercise of a Holder’s put rights under the Indenture prior to the
close of business on July 31, 2009, and that (2) the three entities that gave
the purported notice of default may not and have not accelerated the Notes or
invoked certain other consequences of a default.  See the section of
this annual report entitled “Item 3 — Legal
Proceedings.”  We are unable to predict the length of time the
Supreme Court of New York may take to ultimately resolve the pending dispute, or
the length of time it will take for the Third Judicial Department of the
Appellate Division, or the State of New York Court of Appeals, to issue a final,
non-appealable judgment.  In the event that a final non-appealable
ruling is issued declaring that the right to demand repayment of the Notes had
been validly exercised, we would not have an immediate source of funds from
which to pay our obligations under the Notes, and no assurance can be made that
other sources of financing will be available at such time on commercially
reasonable terms, if at all, to satisfy our obligations under the
Notes.
  In March
2010, we entered into an agreement with BofA/ML to serve as our financial
advisor to assist us in analyzing and structuring our efforts to effect a
restructuring of our existing debt and preferred stock and to recommend possible
steps to improve our liquidity. Such steps may include negotiations with the
current beneficial holders of the Notes to resolve the current litigation.
BofA/ML will provide advice to us on the timing, nature and terms of new
securities, other consideration or other inducements to be offered to effect a
restructuring.  At this time, we are unable to make any assurances as
to the results of our restructuring efforts.
  As part
of our strategic plan to improve our liquidity and free cash flow, we are
committed to improving our operating results and cash flow from our core
businesses at our wholly-owned subsidiary Monticello Raceway Management, which
operates Monticello Casino and Raceway, restructuring our debt, and seeking
other growth opportunities.
  On August
19, 2009, we entered into the Investment Agreement with Kien Huat pursuant to
which (i) we issued to the Kien Huat 6,804,188 shares of our Common Stock in the
First Tranche, or approximately 19.9% of the outstanding shares of Common Stock
on a pre-transaction basis, for aggregate consideration of $11 million, and (ii)
agreed, following stockholder approval of the transaction, to issue an
additional 27,701,852 shares of Common Stock to Kien Huat in the Second Tranche
for additional consideration of $44 million.  We held a special
meeting of our stockholders on November 10, 2009, at which our stockholders
approved, among other things, the issuance of shares and related proposals to
facilitate the Second Tranche.  The closing of the Second Tranche
occurred on November 12, 2009, at which time we issued an additional 27,701,852
shares of Common Stock to Kien Huat for consideration of $44 million in
accordance with the terms of the Investment Agreement.  We have used
and intend to use the proceeds of the First Tranche and the Second Tranche for
transaction costs, to pay interest on existing indebtedness and for general
working capital.  Such proceeds may also be used as a part of a
restructuring of the Company’s capital base.  The shares of Common
Stock issued pursuant to the Investment Agreement have not been registered under
the Securities Act.
  As a
result of the closing of the Second Tranche, as of November 12, 2009, Kien Huat
owned 34,506,040 shares of Common Stock, representing just under 50% of our
voting power.  As of the closing of the Second Tranche we had certain
options and warrants outstanding.  Under the Investment Agreement, if
any  of such options or warrants are exercised (or any of the first
one million options or warrants issued after the closing of the First Tranche to
our officers and directors who held either of such positions as of July 31,
2009), Kien Huat has the right to purchase an equal number of additional shares
of Common Stock as are issued upon such exercise at the exercise price for the
applicable option or warrant.  Following any such purchase by Kien
Huat, Kien Huat may not own more than one share less than 50% of our voting
power.
  28
 INDEX
  Overview
  We were
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, we currently own and
operate Monticello Casino and Raceway, a VGM and harness horseracing facility
located in Monticello, New York, 90 miles Northwest of New York
City.  At Monticello Casino and Raceway, we currently operate 1,090
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.
  We are
concentrating on improving our cash flow at our current operation at Monticello
Raceway Management and restructuring our balance sheet with the infusion of new
capital from Kien Huat.  We have an agreement, subject to certain
conditions, with Raceway Corp., a subsidiary of Concord, to provide advice and
general managerial oversight with respect to the operations at a harness to be
constructed at that certain parcel of land located in the Town of Thompson, New
York and commonly known as the Concord Hotel and Resort, which agreement may be
terminated by either party in the event that the closing of the transaction
contemplated by such agreement has not occurred on or before July 31,
2010.  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 working since 1996 to develop a Class III casino on a site 29.31 acre owned
by us adjacent to our Monticello, New York facility.  As used herein,
Class III gaming means a full casino including slot machines, on which the
outcome of play is based upon randomness, and various table games including, but
not limited to, poker, blackjack and craps.  Initially, this effort
was pursued through agreements with various Native American
tribes.  Our most recent efforts were with the St. Regis Mohawk
Tribe.  We were advised, however, that on January 4, 2008, the St.
Regis Mohawk Tribe received a letter from 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 Casino and
Raceway.  The basis for the denial, a newly promulgated “commutability
rule,” is reported to be under review by the U.S. Department of the
Interior.
  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 10, 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.
  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 Casino 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.
  29
 INDEX
  Critical
Accounting Policies
  The
preparation of financial statements in conformity with generally accepted
accounting principles (“GAAP”) 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,
impairment of long-lived assets, stock-based compensation, fair value and income
taxes are also considered to be critical as these policies involve considerable
subjective judgment and estimation by management. Critical accounting policies,
and our procedures related to these policies, are described in detail
below.
  Revenue recognition. Revenues
represent (i) the net win from VGMs, (ii) revenues from pari-mutuel wagering
earned from live harness racing and simulcast signals from other tracks and
(iii) food and beverage sales and other miscellaneous income. 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. 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, due to uncertainty and timing of
payments.
  We
currently have a point loyalty program 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 and judgment of collectability. In the normal course of business, we
settle wagers for other racetracks and are exposed to credit
risk.  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.
  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.
  Stock-Based
Compensation.  The cost of all share-based awards to employees,
including grants of employee stock options and restricted stock, is recognized
in the financial statements based on the fair value of the awards at grant
date.  The fair value of stock option awards is determined using the
Black-Scholes valuation model on the date of grant.  The fair value of
restricted stock awards is equal to the market price of our Common Stock on the
date of grant.  The fair value of share-based awards is recognized as
stock-based compensation expense on a straight-line basis over the requisite
service period from the date of grant.  All unrecognized compensation
cost related to non-vested share-based compensation arrangements granted under
our plans is expected to be recognized over a period of three years. This
expected cost does not include the impact of any future stock-based compensation
awards.
  30
 INDEX
  Fair value.  In the
first quarter of 2008, we adopted the Fair Value Measurements and Disclosure
standard issued by Financial Accounting Standards Board (“FASB”) for financial
assets and liabilities and 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).  On January 1, 2009, we adopted the
remaining provisions as it relates to nonfinancial assets and liabilities that
are not recognized or disclosed at fair value on a recurring
basis.  The adoption of the remaining provisions did not materially
impact our consolidated financial statements.  As permitted in 2008,
we chose not to elect the fair value option as prescribed by FASB, for our
financial assets and liabilities that had not been previously carried at fair
value.  Our financial instruments are comprised of current assets and
current liabilities, which include the Notes at December 31,
2009.  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 $7.2 million.
  Results
of Operations
  Year
Ended December 31, 2009 Compared to Year Ended December 31, 2008
  Revenues.  Net
revenues decreased approximately $917,000 (1%) for 2009.  Revenue from
VGM operations decreased by approximately $4.4 million (7%); revenue from racing
operations increased by approximately $4.5 million (58%) and food, beverage and
other revenue remained constant.  We believe that our VGM operations
continue to be adversely affected by the competing VGM facility at Yonkers
Raceway and, at a lesser extent, slot machine facilities in
Pennsylvania.  Our number of daily visits decreased approximately 3%
and the average daily win per unit increased from $100.32 for the year ended
December 31, 2008 to $105.05 for the year ended December 31, 2009
(5%).  This increase in average daily win per unit was due to a
reduction in our average number of machines during the 2009.  The
average number of machines in service was 1,402 for 2009 and 1,587 for
2008.  If the average number of machines remained constant to the same
period in 2008, our average daily win per unit would have decreased to $92.79
(7%) for the year ended December 31, 2009. Our VGM hold percentage was 7.9% and
7.7% for the years ended 2009 and 2008, respectively.  VGM revenues
were recorded net of tax-free VGM play of approximately $2.5 million in the year
ended 2009 and $0 for 2008 and 2007. The increase in tax-free VGM play was
associated with a New York State Lottery pilot program that commenced in August
2009. The pilot program was evaluated by the New York State Lottery at the end
of six month period and was extended another six months until August 4, 2010.
During the period from the inception of the pilot program, our rate of reduction
of VGM net win has declined. We will continue to use this program in conjunction
with our marketing promotional programs and increased television advertising in
2010 to increase our awareness in our primary markets and to regain market
share.
  Racing
revenue primarily increased as we received approximately $3.7 million from
various OTBs in payment of amounts previously contested by the
OTBs.
  31
 INDEX
  Promotional
Allowances increased by approximately $1.0 million (45%), mostly due to an
increase in taxable free play.
  Gaming
costs.  Gaming (VGM) costs decreased by approximately $4.7
million (10%) to approximately $42.1 million for the year ended December 31,
2009 compared with 2008.  Of this amount, approximately $1.2 million
(3%) is attributable to a change in the tax rate permitting VGM operators to pay
a lower percentage of VGM revenues to the New York State Lottery.  The
decrease is the result of the reduction in gaming revenue for the current period
decreasing commissions paid by approximately $4.2 million, and payroll saving of
approximately $838,000, due to a reduction in the number of employees required
for our current business volume.   These savings were offset by
costs incurred of approximately $794,000 in regards to the Sportsystems Gaming
Management at Monticello, LLC (“Sportsystems”) contract costs, which includes a
settlement payment of $650,000.  Sportsystems provided management
services and marketing assistance to us from June 11, 2009 through December 31,
2009.
  Racing
costs.  Racing costs excluding a $1,250,000 settlement with our
horsemen in 2008 increased by approximately $2.2 million (29%) to approximately
$9.8 million for the year ended December 31, 2009.  This increase is a
result of the horsemen’s share of approximately $1.8 million from increased
revenues and various other costs of approximately $565,000 offset by cost
savings of approximately $169,000 in payroll due to a reduction in the number of
employees required for our current business volume.
  Food beverage and other
costs.  Food, beverage and other costs decreased approximately
$223,000 (11%) to approximately $1.8 million primarily as a result of continuing
cost control initiatives and lower patron visits in 2009.  Food costs
as a percentage of revenue were 49% in 2009 compared to 55% in 2008 and beverage
costs as a percentage of revenue were 21% in 2009 compared to 23% in
2008.
  Selling, general and administrative
expenses.  Selling, general and administrative expenses
decreased approximately $2.0 million (15%) for the year ended December 31, 2009
as compared to the year ended December 31, 2008.  This decrease was a
result of a reduction in direct marketing expenses of approximately $1.2 million
(43%), primarily consisting of savings in: promotional prize expenses of
$775,000 and the remainder in lower music and band, newspaper advertising,
television advertising, special events, and marketing agency expenses. This
decrease was partially offset by an increase in direct mail expense of
approximately $259,000.  In addition, we had a decrease in development
fees of approximately $1.3 million, primarily due to a settlement, in 2008, with
the St. Regis Mohawk Tribe of approximately $444,000 and other development costs
of approximately $818,000, as well as payroll savings of approximately $302,000,
due to a headcount reduction, and various other cost reductions of approximately
$430,000. These decreases were offset by increases in directors’ fees of
approximately $984,000 and costs associated with the assignment of our revolving
credit agreement of approximately $460,000.
  Stock-based compensation
expense.  The increase in stock-based compensation of
approximately $4.4 million was primarily a result of options granted to
directors, officers, key operating executives and the modifications of option
terms of certain former officers and directors.  During the period
from April 15, 2009 to June 8, 2009 we granted approximately 3.2 million options
to directors and officers at exercise prices that varied from $1.11 to $1.78
(exercise price was determined by using the closing stock price on the day of
grant), but the grants were subject to stockholder approval of an amendment to
increase the number of our shares in the 2005 Equity Incentive
Plan.  Stockholders’ approval was obtained on June 16, 2009 on which
date the stock price was $1.57.  On September 11, 2009 we granted
750,000 options to a director at an exercise price of $3.38 (exercise price was
determined by using the closing stock price on the day of grant), but the grant
was subject to stockholder approval, which was obtained on November 10, 2009 on
which date the stock price was $3.11.
  Interest expense and
income.  Interest expense increased approximately $407,000 (7%)
as a result of warrants granted with a value of approximately
$564,000.  The increase was offset by a decrease in interest paid on
The Park Avenue Bank of New York (“PAB”) line of credit due to principal
repayments and an interest rate reduction during 2009.  The PAB line
of credit was fully paid in 2009.  Interest income decreased by
approximately $103,000 (41%) as a result of lesser amounts invested at lower
rates in 2009 offset by interest received on OTB settlements.
  32
 INDEX
  Year
Ended December 31, 2008 Compared to Year Ended December 31, 2007
  Revenues.  Total
net revenues decreased approximately $8.7 million (11%) for the year ended
December 31, 2008. VGM operations accounted for approximately $6.2 million (10%)
of that reduction and racing accounted for approximately $2.1 million (22%). The
remainder of the decrease was attributable to food, beverage and other revenues
decreasing by approximately $618,000 (11%) offset by decreased complimentary
expenses (“promotional allowances”) of approximately $184,000 (7%).
  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 (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 (17%) to approximately $46.7 million for 2008 compared with
2007.  Of this amount, approximately $3.4 million (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 (11%) reflects cost reductions to adjust to lower
levels of customer visits.
  Racing
costs.  Racing costs increased in 2008 by approximately
$200,000 (2%) to approximately $8.8 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 $1.0
million (12%). 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 (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 (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 were based upon market rates and were lower
in 2008 than those charged in 2007.
  Liquidity
and Capital Resources
  On August
19, 2009, we entered into the Investment Agreement with Kien Huat, pursuant to
which (i) we issued to the Kien Huat 6,804,188 shares of our Common Stock in the
First Tranche, or approximately 19.9% of the outstanding shares of Common Stock
on a pre-transaction basis, for aggregate consideration of $11 million, and (ii)
following stockholder approval of the transaction, as required under applicable
NASDAQ Marketplace Rules, and the satisfaction of other customary closing
conditions, we issued to Kien Huat an additional 27,701,852 shares of Common
Stock in the Second Tranche for additional consideration of $44 million on
November 12, 2009.  We have used and intend to use the proceeds of the
First Tranche and the Second Tranche for transaction costs, to pay interest on
existing indebtedness and for future working capital.  Such proceeds
may also be used as a part of a restructuring of the Company’s capital
base.  The shares of Common Stock issued to Kien Huat pursuant to the
Investment Agreement have not been registered under the Securities
Act.
  33
 INDEX
  As a
result of the closing of the Second Tranche, as of November 12, 2009, Kien Huat
owned 34,506,040 shares of Common Stock, representing just under 50% of our
voting power.  As of the closing of the Second Tranche we had certain
options and warrants outstanding.  Under the Investment Agreement, if
any of such options or warrants are exercised (or any of the first one million
options or warrants issued after the closing of the First Tranche to our
officers and directors who held either of such positions as of July 31, 2009),
Kien Huat has the right to purchase an equal number of additional shares of
Common Stock as are issued upon such exercise at the exercise price for the
applicable option or warrant.  Following any such purchase by Kien
Huat, Kien Huat may not own more than one share less than 50% of our voting
power.  The Option Matching Rights were valued using the Black-Scholes
valuation model and treated as part of the transactions contemplated by the
Investment Agreement pursuant to the terms of such agreement.
  Net cash
used in operating activities during the year ended December 31, 2009 was
approximately $4.6 million and approximately $10.5 million for the year ended
December 31, 2008.  The decrease of approximately $5.9 million was
primarily a result of an increase in stock-based compensation of approximately
$4.4 million, an increase in accrued expenses and other current liabilities of
approximately $839,000 and an increase in interest expense related to the
warrants issued of approximately $564,000.  The remaining decrease was
primarily attributable to the changes in restricted cash and prepaid expenses
and other current assets.  Restricted cash increased by approximately
$2.3 million due to an increase in the purse escrow account of approximately
$1.9 million as a result of increased racing revenues and a restricted cash
account addition of $400,000, as required by the New York State Lottery, in
2009.  Prepaid expenses and other current assets decreased by
approximately $904,000 in 2009 compared to an increase of approximately $2.3
million in 2008, primarily due to a reduction of the current portion of the
Empire Zone real estate tax credit receivable of approximately $616,000 in 2009
compared to an increase of the receivable of approximately $1.7 million in
2008.  The 2009 Empire Zone real estate tax credit receivable
consisted of the Empire Zone real estate tax credits for 2008 compared to the
2008 receivable, which consisted of the Empire Zone real estate tax credits for
2006 and 2007.  The 2008 receivable was collected in
2009.
  Net cash
used by investing activities was approximately $251,000 for the year ended
December 31, 2009 compared to approximately $30,000 in 2008.  In 2008,
we benefited from collections of restricted cash from the Racing Capital
Improvement account of approximately $247,000.
  Net cash
provided by financing activities was approximately $45.2 million for the year
ended December 31, 2009 compared to $5.2 million in 2008.  In 2009, we
benefited from the proceeds of approximately $55.0 million from the issuance of
27,701,852 shares of our Common Stock to Kien Huat, the redemption of our
restricted cash account under our credit facility of approximately $467,000,
which were offset by stock issuance costs of approximately $2.9 million and
repayment of our $7.6 million credit facility. In 2008, we benefited from the
proceeds of from the issuance of our Common Stock of approximately $5.2
million.
  At
December 31, 2009, we had undeclared dividends on our Series E Preferred Stock
of approximately $9.8 million and undeclared dividends for 2009 on our Series B
Preferred Stock of approximately $167,000.  We are in compliance with
our Certificates of Designations, Preferences and Rights of the issued and
outstanding preferred shares.
  On
February 23, 2010, our Board authorized issuance of 74,705 shares of Common
Stock in payment of dividends due for the year ended December 31, 2009 on our
Series B Preferred Stock.  The value of these shares when issued was
approximately $137,000.
  On March
9, 2009, our Board 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.
  34
 INDEX
  Recent
Accounting Pronouncements
  In
January 2010, the FASB issued Accounting Standards Update No. 
2010-0, “Improving
Disclosures about Fair Value Measurements” (the
“Update”).  The Update provides amendments to FASB Accounting
Standards Codification (“ASC”) 820-10 that require entities to
disclose separately the amounts of significant transfers in
and out of Level 1 and Level 2 fair value measurements and describe the reasons
for the transfers.  In addition the Update requires entities to
present separately information about purchases, sales,
issuances, and settlements in the reconciliation for fair
value measurements using significant unobservable inputs (Level
3).  The disclosures related to Level 1 and Level 2 fair
value measurements are effective for us in 2010 and
the disclosures related to Level 3 fair value
measurements are effective for us in 2011.   The Update requires
new disclosures only, and will have no impact on our consolidated financial
position, results of operations, or cash flow.
 
 In June
2009, the FASB issued The FASB ASC and the Hierarchy of GAAP (the
“Codification”).  This standard replaces The Hierarchy of GAAP, and
establishes only two levels of U.S. GAAP, authoritative and
non-authoritative.  The FASB ASC became the source of authoritative,
nongovernmental GAAP, except for rules and interpretive releases of the SEC,
which are sources of authoritative GAAP for SEC registrants.  All
other non-grandfathered, non-SEC accounting literature not included in the ASC
will become non-authoritative.  This standard was effective for
financial statements for interim or annual reporting periods ending after
September 15, 2009.  We began to use the new guidelines and numbering
system prescribed by the ASC when referring to GAAP in the third quarter of
2009.  As the Codification did not change or alter existing GAAP, it
did not have any impact on our consolidated financial statements.
  In
April 2009, the FASB issued ASC 825-10-50-10, (formerly FAS 107-1 and
APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments”). This
FASB staff position amends FASB Statement No. 107 to require disclosures
about fair values of financial instruments for interim reporting periods as well
as in annual financial statements. The staff position also amends APB Opinion
No. 28 to require those disclosures in summarized financial information at
interim reporting periods. This FASB staff position becomes effective for
interim reporting periods ending after June 15, 2009, with early adoption
permitted for periods ending after March 15, 2009. We adopted this FSP for
the interim reporting period ending March 31, 2009.
 
 In
April 2009, the FASB issued ASC 320, (formerly SFAS No. FAS 115-2 and
FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments”)
which amends the other-than-temporary impairment guidance in GAAP for debt
securities. If an entity determines that it has an other-than-temporary
impairment on a security, it must recognize the credit loss on the security in
the income statement. The credit loss is defined as the difference between the
present value of the cash flows expected to be collected and the amortized cost
basis. The staff position expands disclosures about other-than-temporary
impairment and requires that the annual disclosures in FASB Statement
No. 115 and FSP FAS 115-1 and FAS 124-1 be made for interim reporting
periods. This statement becomes effective for interim reporting periods ending
after June 15, 2009, with early adoption permitted for periods ending after
March 15, 2009. We adopted this FSP for the interim reporting period ending
March 31, 2009. There was no material impact on our consolidated financial
position or results of operations upon adoption.
 
 In
April 2009, the FASB issued FSP No. FAS 157-4, “Determining Fair Value
When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not Orderly” (now
ASC 820-10-35-51A). This FSP provides additional guidance on determining fair
value when the volume and level of activity for the asset or liability have
significantly decreased when compared with normal market activity for the asset
or liability. A significant decrease in the volume or level of activity for the
asset of liability is an indication that transactions or quoted prices may not
be determinative of fair value because transactions may not be orderly. In that
circumstance, further analysis of transactions or quoted prices is needed, and
an adjustment to the transactions or quoted prices may be necessary to estimate
fair value. This FSP becomes effective for interim reporting periods ending
after June 15, 2009, with early adoption permitted for periods ending after
March 15, 2009. We adopted this FSP for the interim reporting period ending
March 31, 2009 and it did not have a material impact on our consolidated
financial position or results of operations.
  35
 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
              
              
              $
              ----
              
              
              $
              ----
              
              
              $
              65,000
              
              
              $
              ----Estimated
      interest (b)
              
              
              26,000
              
              
              
              5,200
              
              
              
              10,400
              
              
              
              10,400
              
              
              
              ----Total
              
              $
              91,000
              
              
              $
              5,200
              
              
              $
              10,400
              
              
              $
              75,400
              
              
              $
              ----
 
 (a)
              The
      holders of the Notes had the right to require us to repurchase the Notes
      at 100% of the principal amount outstanding on July 31,
      2009.  See the section of this annual report entitled “Item 8 — Financial Statements
      and Supplementary Data - Note F. Senior Convertible
      Notes.”
  (b)
              Interest
      is payable at 8% semi-annually on the
Notes.
  Subsequent
Events
  On
February 23, 2010, our Board authorized the issuance of 74,705 shares of our
Common Stock in payment of dividends on our Series B Preferred Stock for
2009.  The value of these shares was approximately
$137,000.
  Item
      7A.
              Quantitative
      and Qualitative Disclosures About Market
Risk.
  Market
risk is the risk of loss arising from adverse changes in market rates and
prices, such as interest rates, foreign currency exchange rates and commodity
prices.  As of December 31, 2009, the Notes bear interest at a fixed
interest rate.  As of December 31, 2008, borrowings under our then
existing $10 million credit facility with the Bank of Scotland  which
was assigned to The Park Avenue Bank on July 27, 2009, constituted variable rate
debt.  However, we repaid in full the amounts outstanding under this
credit facility on December 18, 2009.  We do not have any financial
instruments held for trading or other speculative purposes and do not invest in
derivative financial instruments, interest rate swaps or other investments that
alter interest rate exposure.  We invest our excess cash primarily in
short term U.S. Treasury Fund. Due to the short-term nature of these
investments, a 1% change in market interest rates would not have a significant
impact on the total value of our portfolio as of December 31, 2009. Accordingly,
while changes in interest rates could decrease interest income, we do not
believe that an interest rate change would not have a significant impact on our
operations.
  We do not
have exposure to foreign currency exchange rate fluctuations, as we do not
transact business in international markets and are not a party to any material
non-U.S. dollar-denominated contracts.
  We do not
use derivative financial instruments nor do we enter into any futures or forward
commodity contracts since we do not have significant market risk exposure with
respect to commodity prices.
  Item
      8.
              Financial
      Statements and Supplementary Data.
  PageFinancial Statements as of
      December 31, 2009 and 2008 and for the three years ended December 31,
      2009:Report
      of Independent Registered Public Accounting Firm
              37Consolidated
      Balance Sheets
              39Consolidated
      Statements of Operations
              40Consolidated
      Statements of Stockholders’ Equity (Deficit)
              41Consolidated
      Statements of Cash Flows
              42Notes
      to Consolidated Financial Statements
              44
  36
 INDEX
 REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 
 To the
Board of Directors and Stockholders
 Empire
Resorts, Inc.
 
 
 We have
audited the accompanying consolidated balance sheets of Empire Resorts, Inc. and
subsidiaries (the “Company”) as of December 31, 2009 and 2008, and the related
consolidated statements of operations, stockholders’ equity (deficit), and cash
flows for each of the years in the three-year period ended December 31,
2009.  We also have audited Company’s internal control over financial
reporting as of December 31, 2009, based on criteria established in Internal
Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The Company’s 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 the Company as of December
31, 2009 and 2008, and the results of its operations and its cash flows for each
of the years in the three-year period ended December 31, 2009 in conformity with
accounting principles generally accepted in the United States of
America.  Also in our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of December 31,
2009, based on criteria established in Internal Control - Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO).
 
 37
 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’s ability to continue as a
going concern depends on its ability to fulfill its obligations with respect to
its $65 million of 5 1⁄2% senior convertible notes.  In addition, the
Company has continuing net losses and negative cash flows from operating
activities.  These conditions 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.
   
 New York,
New York
 March 24,
2010
 
 38
 INDEX
  EMPIRE
RESORTS, INC. AND SUBSIDIARIES
 CONSOLIDATED
BALANCE SHEETS
 DECEMBER
31
 (In
thousands, except for per share data)
  2009
              
              
              2008ASSETSCurrent
      assets:Cash
      and cash equivalents
              
              $
              50,080
              
              
              $
              9,687Restricted
      cash
              
              
              2,890
              
              
              
              969Accounts
      receivable, net of allowance for doubtful accounts of
      $763in
      2009 and $0 in 2008
              
              
              1,759
              
              
              
              1,570Prepaid
      expenses and other current assets
              
              
              2,595
              
              
              
              3,500Total
      current assets
              
              
              57,324
              
              
              
              15,726Property
      and equipment, net
              
              
              28,877
              
              
              
              29,908Deferred
      financing costs, net of accumulated amortizationof
      $2,063 in 2009 and $2,193 in 2008
              
              
              1,878
              
              
              
              2,287Other
      assets
              
              
              1,342
              
              
              
              1,175TOTAL
      ASSETS
              
              $
              89,421
              
              
              $
              49,096LIABILITIES AND STOCKHOLDERS’
      EQUITY (DEFICIT)Current
      liabilities:Revolving
      credit facility
              
              $
              ---
              
              
              $
              7,617Senior
      convertible notes
              
              
              65,000
              
              
              
              65,000Accounts
      payable
              
              
              2,401
              
              
              
              2,969Accrued
      expenses and other current liabilities
              
              
              6,472
              
              
              
              5,881Total
      current liabilities
              
              
              73,873
              
              
              
              81,467Commitments
      and contingenciesStockholders’
      equity (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
      andoutstanding
              
              
              6,855
              
              
              
              6,855Common
      stock, $0.01 par value, 95,000 shares authorized in 2009 and 75,000 shares
      authorized in 2008, 69,134 shares issued and outstanding in 2009
      and  33,913 shares issued and outstanding in
2008
              
              
              691
              
              
              
              339Additional
      paid-in capital
              
              
              117,632
              
              
              
              59,379Accumulated
      deficit
              
              
              (109,630
              )
              
              
              (98,944
              )Total
      stockholders’ equity (deficit)
              
              
              15,548
              
              
              
              (32,371
              )TOTAL
      LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
              
              $
              89,421
              
              
              $
              49,096
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
  39
 INDEX
  EMPIRE
RESORTS, INC. AND SUBSIDIARIES
  CONSOLIDATED
STATEMENTS OF OPERATIONS
  YEARS
ENDED DECEMBER 31
  (In
thousands, except for per share data)
  2009
              
              
              2008
              
              
              2007REVENUES:Gaming
              
              $
              53,751
              
              
              $
              58,109
              
              
              $
              64,290Racing
              
              
              12,228
              
              
              
              7,753
              
              
              
              9,887Food,
      beverage and other
              
              
              5,051
              
              
              
              5,037
              
              
              
              5,655GROSS
      REVENUES
              
              
              71,030
              
              
              
              70,899
              
              
              
              79,832Less:
      Promotional allowances
              
              
              (3,396
              )
              
              
              (2,348
              )
              
              
              (2,532
              )NET
      REVENUES
              
              
              67,634
              
              
              
              68,551
              
              
              
              77,300COSTS
      AND EXPENSES:Gaming
              
              
              42,079
              
              
              
              46,729
              
              
              
              56,334Racing
              
              
              9,794
              
              
              
              7,581
              
              
              
              8,633Racing
      – settlement of Horsemen litigation
              
              
              ---
              
              
              
              1,250
              
              
              
              ---Food,
      beverage and other
              
              
              1,820
              
              
              
              2,043
              
              
              
              2,400Selling,
      general and administrative expense
              
              
              11,351
              
              
              
              13,310
              
              
              
              11,627Stock-based
      compensation
              
              
              5,544
              
              
              
              1,124
              
              
              
              3,363Depreciation
              
              
              1,217
              
              
              
              1,229
              
              
              
              1,180Impairment
      loss - deferred development costs
              
              
              ---
              
              
              
              ---
              
              
              
              12,822TOTAL
      COSTS AND EXPENSES
              
              
              71,805
              
              
              
              73,266
              
              
              
              96,359LOSS
      FROM OPERATIONS
              
              
              (4,171
              )
              
              
              (4,715
              )
              
              
              (19,059
              )Amortization
      of deferred financing costs
              
              
              (410
              )
              
              
              (410
              )
              
              
              (419
              )Interest
      expense
              
              
              (6,142
              )
              
              
              (5,736
              )
              
              
              (5,932
              )Interest
      income
              
              
              148
              
              
              
              252
              
              
              
              761NET
      LOSS
              
              
              (10,575
              )
              
              
              (10,609
              )
              
              
              (24,649
              )Undeclared
      dividends on preferred stock
              
              
              (1,551
              )
              
              
              (1,551
              )
              
              
              (1,551
              )NET
      LOSS APPLICABLE TO COMMON SHARES
              
              $
              (12,126
              )
              
              $
              (12,160
              )
              
              $
              (26,200
              )Weighted
      average common shares outstanding,
                basic
      and diluted
              
              
              40,433
              
              
              
              31,874
              
              
              
              29,523Loss
      per common share, basic and diluted
              
              $
              (0.30
              )
              
              $
              (0.38
              )
              
              $
              (0.89
              )
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
  40
 INDEX
  EMPIRE
RESORTS, INC. AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
 YEARS
ENDED DECEMBER 31, 2009, 2008 AND 2007
 (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
      Deficit
                
                
                Total
      Stockholders’ Equity (Deficit)Balances,
      January 1, 2007
                
                
                44
                
                
                $
                ---
                
                
                
                1,731
                
                
                $
                6,855
                
                
                
                29,428
                
                
                $
                294
                
                
                $
                (18,750
                )
                
                $
                49,113
                
                
                $
                (63,235
                )
                
                $
                (25,723
                )Declared
      and paid dividends on preferred stock
                
                
                ---
                
                
                
                ---
                
                
                
                ---
                
                
                
                ---
                
                
                
                19
                
                
                
                ---
                
                
                
                ---
                
                
                
                189
                
                
                
                (189
                )
                
                
                ---Collection
      of amounts due from 2006 exercise
                
                
                ---
                
                
                
                ---
                
                
                
                ---
                
                
                
                ---
                
                
                
                ---
                
                
                
                ---
                
                
                
                18,750
                
                
                
                ---
                
                
                
                ---
                
                
                
                18,750Common
      stock issued from exercise of stock options
                
                
                ---
                
                
                
                ---
                
                
                
                ---
                
                
                
                ---
                
                
                
                46
                
                
                
                1
                
                
                
                ---
                
                
                
                181
                
                
                
                ---
                
                
                
                182Stock-based
      compensation
                
                
                ---
                
                
                
                ---
                
                
                
                ---
                
                
                
                ---
                
                
                
                89
                
                
                
                1
                
                
                
                ---
                
                
                
                3,362
                
                
                
                ---
                
                
                
                3,363Net
      loss
                
                
                ---
                
                
                
                ---
                
                
                
                ---
                
                
                
                ---
                
                
                
                ---
                
                
                
                ---
                
                
                
                ---
                
                
                
                ---
                
                
                
                (24,649
                )
                
                
                (24,649
                )Balances,
      December 31, 2007
                
                
                44
                
                
                
                ---
                
                
                
                1,731
                
                
                
                6,855
                
                
                
                29,582
                
                
                
                296
                
                
                
                ---
                
                
                
                52,845
                
                
                
                (88,073
                )
                
                
                (28,077
                )Declared
      and paid dividends on preferred stock
                
                
                ---
                
                
                
                ---
                
                
                
                ---
                
                
                
                ---
                
                
                
                117
                
                
                
                1
                
                
                
                ---
                
                
                
                261
                
                
                
                (262
                )
                
                
                ---Issuance
      of Common Stock
                
                
                ---
                
                
                
                ---
                
                
                
                ---
                
                
                
                ---
                
                
                
                4,200
                
                
                
                42
                
                
                
                ---
                
                
                
                5,136
                
                
                
                ---
                
                
                
                5,178Common
      stock issued from exercise of stock options
                
                
                ---
                
                
                
                ---
                
                
                
                ---
                
                
                
                ---
                
                
                
                14
                
                
                
                ---
                
                
                
                ---
                
                
                
                13
                
                
                
                ---
                
                
                
                13Stock-based
      compensation
                
                
                ---
                
                
                
                ---
                
                
                
                ---
                
                
                
                ---
                
                
                
                ---
                
                
                
                ---
                
                
                
                ---
                
                
                
                1,124
                
                
                
                ---
                
                
                
                1,124Net
      loss
                
                
                ---
                
                
                
                ---
                
                
                
                ---
                
                
                
                ---
                
                
                
                ---
                
                
                
                ---
                
                
                
                ---
                
                
                
                ---
                
                
                
                (10,609
                )
                
                
                (10,609
                )Balances,
      December 31, 2008
                
                
                44
                
                
                
                ---
                
                
                
                1,731
                
                
                
                6,855
                
                
                
                33,913
                
                
                
                339
                
                
                
                ---
                
                
                
                59,379
                
                
                
                (98,944
                )
                
                
                (32,371
                )Declared
      and paid dividends on preferred stock
                
                
                ---
                
                
                
                ---
                
                
                
                ---
                
                
                
                ---
                
                
                
                125
                
                
                
                ---
                
                
                
                ---
                
                
                
                111
                
                
                
                (111
                )
                
                
                ---Issuance
      of Common Stock
                
                
                ---
                
                
                
                ---
                
                
                
                ---
                
                
                
                ---
                
                
                
                34,506
                
                
                
                345
                
                
                
                ---
                
                
                
                36,254
                
                
                
                ---
                
                
                
                36,599Issuance
      of Option Matching Rights
                
                
                ---
                
                
                
                ---
                
                
                
                ---
                
                
                
                ---
                
                
                
                ---
                
                
                
                ---
                
                
                
                ---
                
                
                
                18,401
                
                
                
                ---
                
                
                
                18,401Stock
      issuance expense
                
                
                ---
                
                
                
                ---
                
                
                
                ---
                
                
                
                ---
                
                
                
                ---
                
                
                
                ---
                
                
                
                ---
                
                
                
                (2,891
                )
                
                
                ---
                
                
                
                (2,891
                )Common
      stock issued from exercise of stock options
                
                
                ---
                
                
                
                ---
                
                
                
                ---
                
                
                
                ---
                
                
                
                129
                
                
                
                2
                
                
                
                ---
                
                
                
                136
                
                
                
                ---
                
                
                
                138Common
      stock issued from exercise of warrants
                
                
                ---
                
                
                
                ---
                
                
                
                ---
                
                
                
                ---
                
                
                
                166
                
                
                
                2
                
                
                
                ---
                
                
                
                (2
                )
                
                
                ---
                
                
                
                ---Common
      stock issued from exercise of Option Matching Rights
                
                
                ---
                
                
                
                ---
                
                
                
                ---
                
                
                
                ---
                
                
                
                295
                
                
                
                3
                
                
                
                ---
                
                
                
                136
                
                
                
                ---
                
                
                
                139Issuance
      of  warrants
                
                
                ---
                
                
                
                ---
                
                
                
                ---
                
                
                
                ---
                
                
                
                ---
                
                
                
                ---
                
                
                
                ---
                
                
                
                564
                
                
                
                ---
                
                
                
                564Stock-based
      compensation
                
                
                ---
                
                
                
                ---
                
                
                
                ---
                
                
                
                ---
                
                
                
                ---
                
                
                
                ---
                
                
                
                ---
                
                
                
                5,544
                
                
                
                ---
                
                
                
                5,544Net
      loss
                
                
                ---
                
                
                
                ---
                
                
                
                ---
                
                
                
                ---
                
                
                
                ---
                
                
                
                ---
                
                
                
                ---
                
                
                
                ---
                
                
                
                (10,575
                )
                
                
                (10,575
                )Balances,
      December 31, 2009
                
                
                44
                
                
                $
                ---
                
                
                
                1,731
                
                
                $
                6,855
                
                
                
                69,134
                
                
                $
                691
                
                
                $
                ---
                
                
                $
                117,632
                
                
                $
                (109,630
                )
                
                $
                15,548
 * Series
A preferred stock, none issued and outstanding.
  The
accompanying notes are an integral part of these consolidated financial
statements.
  41
 INDEX
  EMPIRE
RESORTS, INC. AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 YEARS
ENDED DECEMBER 31
 (In
thousands)
  2009
              
              
              2008
              
              
              2007CASH FLOWS FROM
      OPERATING ACTIVITIESNet
      loss
              
              $
              (10,575
              )
              
              $
              (10,609
              )
              
              $
              (24,649
              )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
              
              
              1,217
              
              
              
              1,229
              
              
              
              1,180Amortization
      of deferred financing costs
              
              
              410
              
              
              
              410
              
              
              
              419Provision
      for doubtful accounts
              
              
              763
              
              
              
              ---
              
              
              
              985Impairment
      loss - deferred development costs
              
              
              ---
              
              
              
              ---
              
              
              
              12,822Stock
      – based compensation
              
              
              5,544
              
              
              
              1,124
              
              
              
              3,363Interest
      expense - warrants
              
              
              564
              
              
              
              ---
              
              
              
              ---Loss
      on disposal of property and equipment
              
              
              ---
              
              
              
              ---
              
              
              
              1Changes
      in operating assets and liabilities:Restricted
      cash –NYS Lottery and Purse Accounts
              
              
              (2,323
              )
              
              
              61
              
              
              
              609Accounts
      receivable
              
              
              (952
              )
              
              
              (169
              )
              
              
              2,401Prepaid
      expenses and other current assets
              
              
              904
              
              
              
              (2,256
              )
              
              
              1,078Other
      assets
              
              
              (167
              )
              
              
              548
              
              
              
              (1,049
              )Accounts
      payable
              
              
              (568
              )
              
              
              (561
              )
              
              
              (766
              )Accrued
      expenses and other current liabilities
              
              
              591
              
              
              
              (248
              )
              
              
              (3,806
              )NET
      CASH USED IN OPERATING ACTIVITIES
              
              
              (4,592
              )
              
              
              (10,471
              )
              
              
              (7,412
              )CASH FLOWS FROM
      INVESTING ACTIVITIESPurchase
      of property and equipment
              
              
              (187
              )
              
              
              (277
              )
              
              
              (339
              )Restricted
      cash - Racing capital improvement
              
              
              (64
              )
              
              
              247
              
              
              
              (106
              )Advances
      to Litigation Trust
              
              
              ---
              
              
              
              ---
              
              
              
              (985
              )Deferred
      development costs
              
              
              ---
              
              
              
              ---
              
              
              
              (4,531
              )NET
      CASH USED IN INVESTING ACTIVITIES
              
              
              (251
              )
              
              
              (30
              )
              
              
              (5,961
              )CASH FLOWS FROM
      FINANCING ACTIVITIESRepayment
      on revolving credit facility
              
              
              (7,617
              )
              
              
              ---
              
              
              
              ---Proceeds
      from issuance of Common Stock
              
              
              55,000
              
              
              
              5,178
              
              
              
              ---Proceeds
      from exercise of stock options
              
              
              138
              
              
              
              13
              
              
              
              18,932Proceeds
      from exercise of Option Matching Rights
              
              
              139
              
              
              
              ---
              
              
              
              ---Stock
      issuance costs
              
              
              (2,891
              )
              
              
              ---
              
              
              
              ---Restricted
      cash - Revolving credit facility
              
              
              467
              
              
              
              (11
              )
              
              
              (22
              )NET
      CASH PROVIDED BY FINANCING ACTIVITIES
              
              
              45,236
              
              
              
              5,180
              
              
              
              18,910Net
      increase (decrease) in cash and cash equivalents
              
              
              40,393
              
              
              
              (5,321
              )
              
              
              5,537Cash
      and cash equivalents, beginning of year
              
              
              9,687
              
              
              
              15,008
              
              
              
              9,471Cash
      and cash equivalents, end of year
              
              $
              50,080
              
              
              $
              9,687
              
              
              $
              15,008
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
  42
 INDEX
  EMPIRE
RESORTS, INC. AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF CASH FLOWS (Continued)
 YEARS
ENDED DECEMBER 31
 (In
thousands)
  2009
              
              
              2008
              
              
              2007SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATIONCash
      paid for interest during the year
              
              $
              5,579
              
              
              $
              5,736
              
              
              $
              5,932SUPPLEMENTAL
      DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIESCommon
      stock issued in settlement of preferred stock dividends
              
              $
              111
              
              
              $
              262
              
              
              $
              190Noncash
      additions to deferred development costs
              
              
              ---
              
              
              
              ---
              
              
              
              562
  
 The
accompanying notes are an integral part of these consolidated financial
statements
  43
 INDEX
  EMPIRE
RESORTS, INC. AND SUBSIDIARIES
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  Note
A. Organization and Nature of Business
  The
consolidated balance sheets as of December 31, 2009 and 2008, and the
consolidated statements of operations, stockholders’ equity (deficit) and cash
flows for the years ended December 31, 2009, 2008 and 2007 include the accounts
of Empire Resorts, Inc. and subsidiaries (“Empire,” the “Company,” “our,” “us”
or “we”).
  On August
19, 2009, we entered into that certain investment agreement (the “Investment
Agreement”) with Kien Huat Realty III Limited, a corporation organized under the
laws of the Isle of Man (“Kien Huat”), pursuant to which (i) we issued to the
Kien Huat 6,804,188 shares of our Common Stock (the “First Tranche”), or
approximately 19.9% of the outstanding shares of Common Stock on a
pre-transaction basis, for aggregate consideration of $11 million, and (ii)
agreed, following stockholder approval of the transaction, to issue an
additional 27,701,852 shares of Common Stock to Kien Huat (the “Second Tranche”)
for additional consideration of $44 million.  We held a special
meeting of our stockholders on November 10, 2009, at which our stockholders
approved, among other things, the issuance of shares and related proposals to
facilitate the Second Tranche.  The closing of the Second Tranche
occurred on November 12, 2009, at which time we issued an additional 27,701,852
shares of Common Stock to Kien Huat for consideration of $44 million in
accordance with the terms of the Investment Agreement.  We have used
and intend to use the proceeds of the First Tranche and the Second Tranche for
transaction costs, to pay interest on existing indebtedness and for general
working capital.  Such proceeds may also be used as a part of a
restructuring of the Company’s capital base. The shares of Common Stock issued
pursuant to the Investment Agreement have not been registered under the
Securities Act.
  As a
result of the closing of the Second Tranche, as of November 12, 2009, Kien Huat
owned 34,506,040 shares of Common Stock, representing just under 50% of our
voting power.  As of the closing of the Second Tranche we had certain
options and warrants outstanding.  Under the Investment Agreement, if
any of such options or warrants are exercised (or any of the first one million
options or warrants issued after the closing of the First Tranche to our
officers and directors who held either of such positions as of July 31, 2009),
Kien Huat has the right to purchase an equal number of additional shares of
Common Stock as are issued upon such exercise at the exercise price for the
applicable option or warrant, which right we refer to herein as the “Option
Matching Right.”  Following any such purchase by Kien Huat, Kien Huat
may not own more than one share less than 50% of our voting power.
  Under the
terms of the Investment Agreement, Kien Huat is entitled to recommend three
directors whom we are required to cause to be elected or appointed to our Board
of Directors (the “Board”), subject to the satisfaction of all legal and
governance requirements regarding service as a member of our Board and to the
reasonable approval of the Governance Committee of the Board.  Kien
Huat has designated Au Fook Yew and G. Michael Brown as members of the Board
pursuant to its rights under the Investment Agreement.  Kien Huat has
not yet identified to the Board the third director whom it will recommend for
appointment to the Board pursuant to the Investment Agreement.  Kien
Huat will continue to be entitled to recommend three directors for so long as it
owns at least 24% of our voting power outstanding at such time, after which the
number of directors whom Kien Huat will be entitled to designate for election or
appointment to the Board will be reduced proportionally to Kien Huat’s
percentage of ownership.  Under the Investment Agreement, for so long
as Kien Huat is entitled to designate representatives to the Board, among other
things, Kien Huat will have the right to nominate one of its director designees
to serve as the Chairman of the Board, and Mr. Brown has been appointed to serve
as Chairman of the Board pursuant to Kien Huat’s
recommendation.  Until such time as Kien Huat ceases to own capital
stock with at least 30% of our voting power outstanding at such time, the Board
will be prohibited under the terms of the Investment Agreement from taking
certain actions relating to fundamental transactions involving us and our
subsidiaries and certain other matters without the affirmative vote of the
directors designated by Kien Huat.
  In March
2010, we entered into an agreement with Bank of America/Merrill Lynch
(“BofA/ML”) to serve as our financial advisor to assist us in analyzing and
structuring our efforts to effect a restructuring of our existing debt and
preferred stock and to recommend possible steps to improve our liquidity. Such
steps may include negotiations with the current beneficial holders of our $65
million of 5 1⁄2% senior convertible notes (the “Notes”) to resolve the current
litigation. BofA/ML will provide advice to us on the timing, nature and terms of
new securities, other consideration or other inducements to be offered to effect
a restructuring.
  44
 INDEX
  Going
Concern
  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.  Our ability to
continue as a going concern depends on our ability to fulfill our obligations
with respect to the Notes.  Under terms of the Notes, we had an
obligation to repurchase any of the Notes at a price equal to 100% of their
principal amount on July 31, 2009, to the extent that the Holder as defined
under the indenture dated July 26, 2004 (the “Indenture”) delivered a properly
executed Put Notice, as defined under the Indenture.  We are seeking a
judicial determination in the Supreme Court of New York, Sullivan County,
against the beneficial owners of the Notes, as well as The Depository Trust
Company and the Bank of New York Mellon Corporation (the “Trustee”) that (1) no
Holder, delivered an executed Put Notice to the office of the Trustee within the
lawfully mandated time for exercise of a Holder’s put rights under the Indenture
prior to the close of business on July 31, 2009, and that (2) the three entities
that gave the purported notice of default may not and have not accelerated the
Notes or invoked certain other consequences of a default.  We are
unable to predict the length of time the Supreme Court of New York may take to
ultimately resolve the pending dispute, or the length of time it will take for
the Third Judicial Department of the Appellate Division, or the State of New
York Court of Appeals, to issue a final, non-appealable judgment.  In
the event that a final non-appealable ruling is issued declaring that the right
to demand repayment of the Notes had been validly exercised, we would not have
an immediate source of funds from which to pay our obligations under the Notes,
and no assurance can be made that other sources of financing will be available
at such time on commercially reasonable terms, if at all, to satisfy our
obligations under the Notes.
  In
addition, we have continuing net losses and negative cash flows from operating
activities.  These conditions 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.
  Nature
of Business
  We
currently own and operate Monticello Casino and Raceway, a video gaming machine
(“VGM”) and harness horse racing facility located in Monticello, New York, 90
miles Northwest of New York City.  At Monticello Casino and Raceway,
we operate approximately 1,090 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 world and the export simulcasting of our races to offsite
pari-mutuel wagering facilities.
  In
February 2008, we entered into an agreement (the “Contribution Agreement”) with
Concord Associates, L.P. (“Concord”), pursuant to which we and Concord were 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.  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.  Consequently, the Contribution Agreement was terminated in
March 2009 as a result of the execution of a new agreement with
Concord.  On March 23, 2009, we entered into an agreement (the
“Concord Agreement”), with Concord, pursuant to which we (or a wholly-owned
subsidiary reasonably acceptable to Concord) shall be retained by Concord Empire
Raceway Corp. (“Raceway Corp.”), a subsidiary of Concord, to provide advice and
general managerial oversight with respect to the operations at the harness track
to be constructed at that certain parcel of land located in the Town of
Thompson, New York and commonly known as the Concord Hotel and Resort (the
“Concord Property”).  The Concord Agreement has a term of forty
years.  The closing of the transactions contemplated by the Concord
Agreement is to take place on the date that Concord or its subsidiary secures
and closes on (but not necessarily funds under) financing in the minimum
aggregate amount of $500 million (including existing equity) from certain
third-party lenders in connection with the development of the harness track and
certain gaming facilities on the Concord Property.  In the event that
the closing of the Concord Agreement has not occurred on or before July 31,
2010, the Concord Agreement may be terminated by either Concord or us by written
notice.  No assurance can be made that the financing required as a
condition to the consummation of the transactions contemplated by the Concord
Agreement will be obtained by Concord.
  45
 INDEX
  In the
past, we have also made efforts to develop a 29.31 acre parcel of land adjacent
to Monticello Casino 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.  Currently, either an agreement
with a Native American tribe, together with certain necessary federal and state
regulatory approvals, or an amendment to the New York State Constitution would
be required for us to move forward with our efforts to develop a Class III
casino.
  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.
  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.
 
 VGM Operations.  We
currently operate a 45,000 square foot VGM facility at Monticello Casino 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 Casino and Raceway began on June 30, 2004.  At December 31,
2009, the number of VGMs in operation was 1,090.
  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 Casino and Raceway expires in 2013.
  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 Casino and Raceway offers pari-mutuel
wagering, live harness racing and simulcasting from various harness and
thoroughbred racetracks across the country.  Monticello Casino and
Raceway derives its revenue principally from (i) wagering on live races run at
our facility; (ii) fees from wagering at out-of-state locations on races
simulcast from our facility using export simulcasting; (iii) revenue
allocations, as prescribed by law, from betting activity at Off Track Betting
facilities located in New York State; (iv) wagering at our facility 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.
  Note
B.  Summary of Significant Accounting Policies
  Revenue recognition.Revenues
represent (i) the net win from VGMs, (ii) revenues from pari-mutuel wagering
earned from live harness racing and simulcast signals from other tracks and
(iii) food and beverage sales and other miscellaneous income. 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. 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, due to uncertainty and timing of
payments.
  46
 INDEX
  Principles of
Consolidation.  The consolidated financial statements include
our accounts and our 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.  We maintain significant cash
balances with financial institutions, which are not covered by the Federal
Deposit Insurance Corporation. We have not incurred any losses in such accounts
and believe we are not exposed to any significant credit risk on cash.
Approximately $1.0 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.
  Restricted
cash.  We have four types of restricted cash
accounts.
  Under New
York State Racing, Pari-Mutual 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 $163,000 and
$99,000 at December 31, 2009 and 2008, 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. The balance in this account was
approximately $2 million and $17,000 at December 31, 2009 and 2008,
respectively.
  In April
2005, the New York law governing VGM operations was modified to provide an
increase in the revenues retained by the VGM operator. A portion of that
increase was designated as a reimbursement of marketing expenses incurred by the
VGM operator. The amount of revenues directed toward this reimbursement is
deposited in a bank account under the control of the New York State Lottery and
the VGM operator. The funds are transferred from this account to the 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 $334,000 and $386,000 at December 31, 2009 and 2008,
respectively.
  In
connection with our VGM operations, we agreed to maintain a restricted bank
account with a balance of $400,000.  The New York State Lottery can
make withdrawals directly from this account if they have not received their
share of net win when due.  As of December 31, 2009, there were no
withdrawals made from this account.
  Accounts
receivable.  Accounts receivable are stated at the amount we
expect to collect.  When needed, an allowance for doubtful accounts is
recorded based on information on the collectability of specific
accounts.  Accounts are considered past due or delinquent based on
contractual terms, how recently payments have been received and our judgment of
collectability.  In the normal course of business, we settle wagers
for other racetracks and are exposed to credit risk.  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.  As of December 31, 2009,
we recorded an allowance for doubtful accounts of approximately $763,000 and $0
for 2008 and 2007, respectively.
  47
 INDEX
  Property and
Equipment.  Property and equipment is stated at cost less
accumulated depreciation. We 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.
  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 periodically review
deferred development costs for impairment as further described
below.  Effective in 2008, all development costs are expensed until
management deems that, based on the facts and circumstances, capitalization of a
project is appropriate.
  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 may
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 generally accepted accounting principles in the United States of America
(“GAAP”), 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. We incurred no loss contingencies for 2009, 2008 or
2007.
  Loss per common
share.  We compute basic loss per share by dividing loss
applicable to common shares by the weighted-average common shares outstanding
for the year.  Diluted loss per share reflects the potential dilution
of earnings that could occur if securities or contracts to issue Common Stock
were exercised or converted into Common Stock or resulted in the issuance of
Common Stock that then shared in the loss of the entity.  Since the
effect of outstanding options, warrants and Option Matching Rights 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 year ended December 31, 2009, 2008 and 2007 were
the same.
  The
following table shows the approximate number of common stock equivalents
outstanding at December 30, 2009, 2008 and 2007 that could potentially dilute
basic income per share in the future, but were not included in the calculation
of diluted loss per share because their inclusion would have been
anti-dilutive.
  Outstanding
      at December 31,2009
              
              2008
              
              2007Options
              
              
              8,080,000
              
              
              
              2,824,000
              
              
              
              2,403,000Warrants
              
              
              111,000
              
              
              
              250,000
              
              
              
              250,000Option
      Matching Rights
              
              
              7,441,000
              
              
              
              ---
              
              
              
              ---Shares
      to be issued upon conversion of convertible debt
              
              
              5,175,000
              
              
              
              5,175,000
              
              
              
              5,175,000Total
              
              
              20,807,000
              
              
              
              8,249,000
              
              
              
              7,828,000
  48
 INDEX
 
 Fair value.  In the
first quarter of 2008, we adopted the Fair Value Measurements and Disclosures
standard issued by the Financial Accounting Standards Board (“FASB”) for
financial assets and liabilities and 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).  On January 1, 2009, we
adopted the remaining provisions as it relates to nonfinancial assets and
liabilities that are not recognized or disclosed at fair value on a recurring
basis.  The adoption of the remaining provisions did not materially
impact our condensed consolidated financial statements.  As permitted
in 2008, we chose not to elect the fair value option as prescribed by FASB for
our financial assets and liabilities that had not been previously carried at
fair value.  Our financial instruments are comprised of current assets
and current liabilities, which included the Notes at December 31,
2009.  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 $646,000, $767,000 and $949,000 for the years ended December
31, 2009, 2008 and 2007, respectively.
  Stock-based
compensation.  The cost of all share-based awards to employees,
including grants of employee stock options and restricted stock, is recognized
in the financial statements based on the fair value of the awards at grant
date.  The fair value of stock option awards is determined using the
Black-Scholes valuation model on the date of grant.  The fair value of
restricted stock awards is equal to the market price of our Common Stock on the
date of grant.  The fair value of share-based awards is recognized as
stock-based compensation expense on a straight-line basis over the requisite
service period from the date of grant.  As of December 31, 2009, there
was approximately $3.3 million of total unrecognized compensation cost related
to non-vested share-based compensation arrangements granted under our
plans.  That cost is expected to be recognized over a period of 3
years.  This expected cost does not include the impact of any future
stock-based compensation awards.
 
 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.
  Estimates and
assumptions.  The preparation of financial statements in
conformity with GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting
period.    Actual results may differ from
estimates.
  Reclassifications.  Certain
prior year amounts have been reclassified to conform to the current year
presentation.
  Recent
accounting pronouncements.
  In
January 2010, the FASB issued Accounting Standards Update No. 
2010-0, “Improving
Disclosures about Fair Value Measurements” (the
“Update”).  The Update provides amendments to FASB Accounting
Standards Codification (“ASC”) 820-10 that require entities to
disclose separately the amounts of significant transfers in
and out of Level 1 and Level 2 fair value measurements and describe the reasons
for the transfers.  In addition the Update requires entities to
present separately information about purchases, sales,
issuances, and settlements in the reconciliation for fair
value measurements using significant unobservable inputs (Level
3).  The disclosures related to Level 1 and Level 2 fair
value measurements are effective for us in 2010 and
the disclosures related to Level 3 fair value
measurements are effective for us in 2011.   The Update requires
new disclosures only, and will have no impact on our consolidated financial
position, results of operations, or cash flow.
 49
 INDEX
  In June
2009, the FASB issued The FASB ASC and the Hierarchy of GAAP (the
“Codification”).  This standard replaces The Hierarchy of GAAP, and
establishes only two levels of U.S. GAAP, authoritative and
non-authoritative.  The FASB ASC became the source of authoritative,
nongovernmental GAAP, except for rules and interpretive releases of the
Securities and Exchange Commission (“SEC”), which are sources of authoritative
GAAP for SEC registrants.  All other non-grandfathered, non-SEC
accounting literature not included in the ASC will become
non-authoritative.  This standard was effective for financial
statements for interim or annual reporting periods ending after September 15,
2009.  We began to use the new guidelines and numbering system
prescribed by the ASC when referring to GAAP in the third quarter of
2009.  As the Codification did not change or alter existing GAAP, it
did not have any impact on our consolidated financial statements.
  In
April 2009, the FASB issued ASC 825-10-50-10, (formerly FAS 107-1 and
APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments”). This
FASB staff position amends FASB Statement No. 107 to require disclosures
about fair values of financial instruments for interim reporting periods as well
as in annual financial statements. The staff position also amends APB Opinion
No. 28 to require those disclosures in summarized financial information at
interim reporting periods. This FASB staff position becomes effective for
interim reporting periods ending after June 15, 2009, with early adoption
permitted for periods ending after March 15, 2009. We adopted this FSP for
the interim reporting period ending March 31, 2009.
 
 In
April 2009, the FASB issued ASC 320, (formerly SFAS No. FAS 115-2 and
FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments”)
which amends the other-than-temporary impairment guidance in GAAP for debt
securities. If an entity determines that it has an other-than-temporary
impairment on a security, it must recognize the credit loss on the security in
the income statement. The credit loss is defined as the difference between the
present value of the cash flows expected to be collected and the amortized cost
basis. The staff position expands disclosures about other-than-temporary
impairment and requires that the annual disclosures in FASB Statement
No. 115 and FSP FAS 115-1 and FAS 124-1 be made for interim reporting
periods. This statement becomes effective for interim reporting periods ending
after June 15, 2009, with early adoption permitted for periods ending after
March 15, 2009. We adopted this FSP for the interim reporting period ending
March 31, 2009. There was no material impact on our consolidated financial
position or results of operations upon adoption.
 
 In
April 2009, the FASB issued FSP No. FAS 157-4, “Determining Fair Value
When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not Orderly” (now
ASC 820-10-35-51A). This FSP provides additional guidance on determining fair
value when the volume and level of activity for the asset or liability have
significantly decreased when compared with normal market activity for the asset
or liability. A significant decrease in the volume or level of activity for the
asset of liability is an indication that transactions or quoted prices may not
be determinative of fair value because transactions may not be orderly. In that
circumstance, further analysis of transactions or quoted prices is needed, and
an adjustment to the transactions or quoted prices may be necessary to estimate
fair value. This FSP becomes effective for interim reporting periods ending
after June 15, 2009, with early adoption permitted for periods ending after
March 15, 2009. We adopted this FSP for the interim reporting period ending
March 31, 2009 and it did not have a material impact on our consolidated
financial position or results of operations.
  50
 INDEX
  Note
C. Property and Equipment
  Property
and equipment at December 31 consists of:
  (in
      thousands)2009
              
              
              2008Land
              
              $
              770
              
              
              $
              770Land
      improvements
              
              
              1,545
              
              
              
              1,539Buildings
              
              
              4,583
              
              
              
              4,583Building
      improvements
              
              
              24,778
              
              
              
              24,666Vehicles
              
              
              164
              
              
              
              157Furniture,
      fixtures and equipment
              
              
              3,423
              
              
              
              3,36235,263
              
              
              
              35,077Less
      – Accumulated depreciation
              
              
              (6,386
              )
              
              
              (5,169
              )$
              28,877
              
              
              $
              29,908
 
 Depreciation
expense was approximately $1,217,000, $1,229,000 and $1,180,000 for the years
ended December 31, 2009, 2008 and 2007, respectively.
  The
VGMs in our facility are owned by the New York State Lottery and, accordingly,
our consolidated financial statements include neither the cost nor the
depreciation of those devices.
  Note
D.  Deferred Development Costs
  We have
been working to develop a Class III casino with various Native American 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.
  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 Native
American 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 2009 and 2008, we did not incur any expenses
which were treated as deferred development costs.
  51
 INDEX
  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, 2009 and 2008:
  2009
              
              
              2008(in
      thousands)Liability
      for horseracing purses
              
              $
              1,984
              
              
              $
              1,297Accrued
      interest
              
              
              2,167
              
              
              
              2,167Accrued
      payroll
              
              
              466
              
              
              
              895Accrued
      other
              
              
              1,855
              
              
              
              1,522Total
      accrued expenses and other current liabilities
              
              $
              6,472
              
              
              $
              5,881
 
 Note
F.  Senior Convertible Notes
  On July
26, 2004, we issued $65 million of 5 1⁄2% Notes, which are currently convertible
into approximately 5.2 million shares of Common Stock, subject to adjustment
upon the occurrence or non-occurrence of certain events.  The Notes
were issued with a maturity date of July 31, 2014 and each Holder, as defined
under the Indenture, had the right to demand that we repurchase the Notes at par
plus accrued interest on July 31, 2009.  Interest is payable
semi-annually on January 31 and July 31.
  The Notes
were subordinated to our revolving credit facility, yet rank senior in right of
payment to all of our existing and future subordinated
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 1⁄2%, which would be
maintained with the occurrence of the “Trigger Event”, as defined under the
Indenture.  Since the events that constitute the “Trigger Event” had
not occurred within the time period allotted under the Indenture, the Notes have
accrued interest from and after July 31, 2005 at an annual rate of
8%.  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 the 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 the Notes was reset to
$12.56 per share.  This rate would result in the issuance of 5,175,159
shares upon conversion.
  52
 INDEX
  In
October 2009, we entered into the Stipulation in connection with the declaratory
judgment action against the beneficial owners of the Notes, as well as The
Depository Trust Company and the Trustee, in the Supreme Court of the State of
New York in Sullivan County, pursuant to which we are seeking a judicial
determination that (1) no Holder, as defined under the Indenture, delivered a
Put Notice to the office of the Trustee within the lawfully mandated time for
exercise of a Holder’s put rights under the Indenture prior to the close of
business on July 31, 2009, and that (2) Plainfield Special Solutions Master Fund
Limited (“Plainfield”), Highbridge International LLC (“Highbridge”) and Whitebox
Advisors LLC (“Whitebox”) may not and have not accelerated the Notes or invoked
certain other consequences of a default. In October 2009, we entered into a
stipulation in connection with the Action.  Pursuant to the
stipulation, we agreed to discontinue our claims against all beneficial owners
of the Notes who executed the stipulation (the “Consenting Defendants”), who
represent substantially all of the outstanding principal amount of the Notes,
including Plainfield, Highbridge and Whitebox, without prejudice, and
Plainfield, Highbridge and Whitebox agreed to withdraw the notices of default
and acceleration of the Notes that they sent to us on August 3 and August 11,
2009. The Consenting Defendants have further agreed to (i) be bound by any final
non-appealable judgment with respect to the declaratory judgment sought by us
against The Depository Trust Company and the Trustee, and (ii) not to commence
any action or proceeding concerning the subject matter of the declaratory
judgment until there has been a final non-appealable judgment with respect to
the declaratory judgment sought by us.  We are unable to predict the
length of time the Supreme Court of New York may take to ultimately resolve the
pending dispute, or the length of time it will take for the Third Judicial
Department of the Appellate Division, or the State of New York Court of Appeals,
to issue a final, non-appealable judgment.
  On
October 16, 2009, the Trustee and The Depository Trust Company answered the
complaint, denying that we are entitled to the determination sought in the
Action.  On October 27, 2009, the Trustee and The Depository Trust
Company filed a motion for summary judgment, seeking a determination that the
Notes were properly put to us for repurchase on July 31, 2009. On December 3,
2009, we filed opposition papers and a cross-motion for summary judgment,
requesting that the Court determine that the Holders of the Notes have failed to
properly exercise any option to require that we repurchase the Notes by reason
of a Holder put right exercisable prior to the close of business on July 31,
2009, and, as a consequence, that we are not in default of the
Indenture.
  On
November 5, 2009, the Trustee filed (i) an amended answer, (ii) a counterclaim
against us and (iii) a third party complaint against Alpha Monticello, Inc.,
Alpha Casino Management Inc., Mohawk Management, LLC, and Monticello Raceway
Management, as guarantors of our obligation under the Notes. The amended answer
again denied that we are entitled to the determinations which we seek in the
Action.  The counterclaim and third party complaint seek (a) a
declaration that we are in default under the Indenture for failure to repurchase
the Notes upon the purported exercise of the Holders’ put right under the
Indenture and that the Trustee has properly accelerated the Notes in accordance
with the terms of the Indenture, and (b) damages, including all unpaid principal
and interest on the Notes, prejudgment interest and costs and expenses in
bringing the action, including attorney’s fees.  On February 1, 2010,
the Company and the Guarantors filed a reply to the counterclaim and answer to
the third party complaint denying liability and asserting certain affirmative
defenses.
  A failure
to have repurchased the Notes when required would 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.  In addition, an event
that may constitute a “Change of Control” under the Indenture may also be an
“Event 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 interest expense associated with the Notes of approximately $5.2
million in each of the years ended December 31, 2009, 2008 and
2007.
  53
 INDEX
  Note
G.  Revolving Credit Facility
  On
January 11, 2005, we entered into a credit facility with Bank of
Scotland.  The credit facility provided for a $10 million senior
secured revolving loan (subject to certain reserves) that matured on July 24,
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 our obligations
under the credit facility.  We also agreed to pledge our equity
interests in all of our current and future subsidiaries, maintain certain
reserves, and grant a first priority secured interest in all of our assets, now
owned or later acquired.  This arrangement contains financial
covenants.  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 us.
  In
connection with this credit facility, the Bank of Scotland also entered into an
Intercreditor Agreement with The Bank of New York, as Trustee under the
Indenture, so that the lender under this credit facility 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 the
Notes.
  On July
27, 2009, we entered into a loan agreement with The Park Avenue Bank of New York
(“PAB”) reflecting the assignment of the credit facility to it from the Bank of
Scotland (the “Loan Agreement”).  In connection with that transaction,
we made a cash payment of approximately $2.5 million to reduce the principal
amount outstanding to approximately $4.4 million.  One of the
provisions of the Loan Agreement was a short-term maturity date of July 28,
2009.  On July 29, 2009, we received a notice of the occurrence of an
“Event of Default” under the Loan Agreement as a result of our failure to pay
the principal due on July 28, 2009.
  On
October 9, 2009, we entered into an amendment to the Loan Agreement (the
“Amendment”).  The Amendment is intended to cure the default by us of
our prior failure to pay the approximately $4.4 million outstanding principal of
the loan on its initial maturity on July 28, 2009.  The Amendment
reinstates the loan by extending the maturity date of the Loan Agreement to
December 31, 2009, and reduced the interest rate on the loan from 15% to 8% per
annum.  In connection with the Amendment, we reduced the outstanding
principal amount of the loan by $1 million.  On December 18, 2009 we
fully satisfied the remaining outstanding balance and the Loan Agreement
terminated.
  As a
condition to the closing of the Loan Agreement, we issued warrants (the
“Warrants”) to purchase an aggregate of 277,778 shares of our Common Stock, at
an exercise price of $0.01 per share, to PAB and a designee of a participant in
the loan.  The Warrants expire on July 26, 2014.  The
Warrants were valued at approximately $564,000, using the Black-Scholes
valuation model.
  We
recognized approximately $943,000, $536,000 and $732,000 in interest expense
associated with the credit facility for the years ended December 31, 2009, 2008
and 2007, respectively. The interest expense for the year ended December 31,
2009, included an amount of approximately $564,000, which was recognized in
regards to the Warrants mentioned above.
  Note
H.  Stockholders’ Equity
  On
November 10, 2009, we held a special stockholders’ meeting, at which our
stockholders approved, among other things, to amend our Certificate of
Incorporation, as amended, to increase our authorized capital stock from
80,000,000 shares, consisting of 75,000,000 shares of our Common Stock and
5,000,000 shares of preferred stock, par value $0.01 per share, to a total of
100,000,000 shares, consisting of 95,000,000 shares of Common Stock and
5,000,000 shares of preferred stock.
 
 Common
Stock
  On August
19, 2009, we entered into the Investment Agreement with Kien Huat pursuant to
which (i) we issued to the Kien Huat 6,804,188 shares of our Common Stock in the
First Tranche, or approximately 19.9% of the outstanding shares of Common Stock
on a pre-transaction basis, for aggregate consideration of $11 million, and (ii)
agreed, following stockholder approval of the transaction, to issue an
additional 27,701,852 shares of Common Stock to Kien Huat in the Second Tranche
for additional consideration of $44 million.  We held a special
meeting of our stockholders on November 10, 2009, at which our stockholders
approved, among other things, the issuance of shares and related proposals to
facilitate the Second Tranche.  The closing of the Second Tranche
occurred on November 12, 2009, at which time we issued an additional 27,701,852
shares of Common Stock to Kien Huat for consideration of $44 million in
accordance with the terms of the Investment Agreement.  We have used
and intend to use the proceeds of the First Tranche and the Second Tranche for
transaction costs, to pay interest on existing indebtedness and for general
working capital.  Such proceeds may also be used as a part of a
restructuring of the Company’s capital base. The shares of Common Stock issued
pursuant to the Investment Agreement have not been registered under the
Securities Act.
  54
 INDEX
  As a
result of the closing of the Second Tranche, as of November 12, 2009, Kien Huat
owned 34,506,040 shares of Common Stock, representing just under 50% of our
voting power.  As of the closing of the Second Tranche we had certain
options and warrants outstanding.  Under the Investment Agreement, if
any of such options or warrants are exercised (or any of the first one million
options or warrants issued after the closing of the First Tranche to our
officers and directors who held either of such positions as of July 31, 2009),
Kien Huat has the right to purchase an equal number of additional shares of
Common Stock as are issued upon such exercise at the exercise price for the
applicable option or warrant, which right we refer to herein as the “Option
Matching Right.”  Following any such purchase by Kien Huat, Kien Huat
may not own more than one share less than 50% of our voting power.
  Of the
$55.0 million invested by Kien Huat, $36.6 million was allocated to common stock
and additional paid-in capital and approximately $18.4 million was attributed to
the fair value of the Option Matching Rights using the Black-Scholes valuation
model.
  During
the year ended December 31, 2009, Kien Huat exercised approximately 295,000 of
its Option Matching Rights for total proceeds of $139,000 and approximately
45,000 Option Matching Rights expired.  As of December 31, 2009, there
were approximately 7,191,000 Option Matching Rights issued to Kien Huat at a
weighted average exercise price of $2.97 outstanding.
  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, 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 regarding that acquisition.
 
 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, 2009 and 2008,
there were 44,258 shares of Series B Preferred Shares outstanding.
  55
 INDEX
  At
December 31, 2009, we had undeclared dividends on the Series B Preferred Stock
of approximately $167,000. On February 23, 2010 our Board authorized issuance of
74,705 shares of Common Stock in payment of the amount due.  The value
of these shares when issued was approximately $137,000.
  On March
9, 2009, we authorized issuance of 124,610 shares of our Common Stock as payment
of dividends due for the year ended December 31, 2008 on our Series B preferred
stock.  The approximate value of these shares when issued was
$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 approximate value of these shares when issued
was $262,000.
  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, 2009, we had cumulative undeclared dividends on our Series E
Preferred Stock of approximately $9.8 million.
  Note
I.  Stock Options and Warrants
  On
November 10, 2009 our shareholders approved the Second Amended and Restated 2005
Equity Incentive Plan. We have reserved an additional 2.0 million shares of
Common Stock for issuance in connection with this plan.  On June 16,
2009 our shareholders approved the Amended and Restated 2005 Equity Incentive
Plan. We have reserved an additional 5.0 million shares of Common Stock for
issuance in connection with this plan.  As of December 31, 2009, there
were $10.5 million shares reserved for issuance in connection with this
plan.
  During
the period from April 15, 2009 to June 8, 2009, we granted approximately 3.2
million options to directors and officers at exercise prices that varied from
$1.11 to $1.78 (exercise price was determined by using the closing stock price
on the day of grant), but the grants were subject to our stockholders’ approval
of an amendment to increase the number of shares in our 2005 Equity Incentive
Plan.  Stockholders’ approval was obtained on June 16, 2009 on which
date the stock price was $1.57.  The stock-based compensation expense
related to these grants was approximately $2.2 million for the year ended
December 31, 2009.
  On
September 11, 2009 we granted 750,000 options to a director at an exercise price
of $3.38 (exercise price was determined by using the closing stock price on the
day of grant), but the grant was subject to stockholder approval, which was
obtained on November 10, 2009 on which date the stock price was
$3.11.  The stock-based compensation expense related to this grant was
approximately $185,000 for the year ended December 31, 2009.
  Options
that were granted to three officers and an employee, who resigned during the
second quarter, would have otherwise expired in thirty or ninety days subsequent
to the resignation date, based on the equity incentive plan under which the
options were issued, but were extended to dates mutually agreed upon in the
respective separation agreements, as permitted under the respective
plan.  The modifications resulted in additional stock-based
compensation expense of approximately $843,000 in the year ended December 31,
2009.
  Options
that were granted to four directors, who resigned in March 2009, would have
otherwise expired on the date of resignation or in thirty days based on the
equity incentive plan under which the options were issued, but were extended to
the original expiration dates set forth for the respective options, as permitted
under the respective plan.  The modifications resulted in additional
stock-based compensation expense of approximately $123,000 in the year ended
December 31, 2009.
  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. 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.
  56
 INDEX
 
 As a
condition to the closing of the Loan Agreement, we issued Warrants to purchase
an aggregate of 277,778 shares of our Common Stock, at an exercise price of
$0.01 per share, to PAB and a designee of a participant in the
loan.  The Warrants expire on July 26, 2014.  The Warrants
were valued at approximately $564,000, using the Black-Scholes valuation model.
PAB exercised their portion of the warrants and were granted 166,102 shares of
our Common Stock.
  On
November 12, 2009, Kien Huat has, with our consent, assigned its Option Matching
Rights to a director with respect to an existing option to purchase 250,000
shares of our Common Stock at an exercise price of $1.14 per
share.  The Option Matching rights expire on April 26, 2014 and were
valued at approximately $673,000 using the Black-Scholes valuation
model.  As of December 31, 2009, all 250,000 Option Matching Rights
granted to the director were outstanding.
  Stock-based
compensation expense is approximately $5.5 million, $1.1 million and $3.4
million for the years ended December 31, 2009, 2008 and 2007,
respectively.  As of December 31, 2009, there was approximately $3.3
million of total unrecognized compensation cost related to non-vested
share-based compensation awards granted under our plans.  That cost is
expected to be recognized over the remaining vesting period of three
years.  This expected cost does not include the impact of any future
stock-based compensation awards.
  During
the years ended December 31, 2009, 2008 and 2007 we received approximately
$138,000, $13,000 and $18.9 million, respectively, of proceeds from shares of
Common Stock issued as a result of the exercise of stock options.  We
issued approximately 129,000, 14,000 and 2,546,000 shares of Common Stock as a
result of these exercises during the years ended December 31, 2009, 2008 and
2007, respectively.
  The
following table sets forth the weighted average assumptions used in applying the
Black Sholes option pricing model to the option grants in 2009, 2008 and
2007.
  2009
              
              2008
              
              2007Weighted
      average fair value of options granted
              $1.59
              
              $2.19
              
              $7.35Expected
      dividend yield
              0
      %
              
              0
      %
              
              0
      %Expected
      volatility
              104.4%-108.5%
              
              97.4%
      - 105.6%
              
              82.4%
      - 85.1%Risk
      – free interest rate
              1.4%
      – 3.7%
              
              2.5%
      - 4.0%
              
              4.1%
      - 4.9%Expected
      life of options
              5 -
      10 years
              
              5 -
      10 years
              
              9 -
      10 years
 
 57
 INDEX
 
 The
following table reflects stock option activity in 2009, 2008 and
2007.
  Approximate
      number of shares
              
              Range
      of exerciseprices per
      share
              
              Weighted
      averageexercise
                price per shareOptions
      outstanding at January 1, 2007
              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
              
              
              
              $
      5.02Granted
      in 2009
              5,471,000
              
              $
      1.11 - $ 3.38
              
              $
      1.92Exercised
      in 2009
              (129,000)
              
              $
      1.00 – $ 1.40
              
              $
      1.07Cancelled
      in 2009
              (86,000)
              
              $
      1.57 - $14.25
              
              $
      4.27Options
      outstanding at December 31, 2009
              8,080,000
              
              
              
              $ 3.00
  58
 INDEX
 The
following table reflects information on stock options outstanding at December
31, 2009.
  Options Outstanding
              
              
              Options ExercisableExercise
      Price
              
              
              Number
      of Shares
              
              
              Average
      Contractual Life
              
              Weighted
      Average Exercise Price
              
              
              Number
      of Shares
              
              
              Weighted
      Average Exercise Price$
              1.00
              
              
              
              51,250
              
              
              
              5.4
              
              
              $
              1.00
              
              
              
              51,250
              
              
              $
              1.00$
              1.11
              
              
              
              790,000
              
              
              
              4.3
              
              
              $
              1.11
              
              
              
              390,000
              
              
              $
              1.11$
              1.14
              
              
              
              500,000
              
              
              
              4.3
              
              
              $
              1.14
              
              
              
              500,000
              
              
              $
              1.14$
              1.23
              
              
              
              444,000
              
              
              
              4.3
              
              
              $
              1.23
              
              
              
              444,000
              
              
              $
              1.23$
              1.40
              
              
              
              221,250
              
              
              
              4.0
              
              
              $
              1.40
              
              
              
              221,250
              
              
              $
              1.40$
              1.57
              
              
              
              252,000
              
              
              
              4.5
              
              
              $
              1.57
              
              
              
              15,000
              
              
              $
              1.57$
              1.69
              
              
              
              59,166
              
              
              
              4.4
              
              
              $
              1.69
              
              
              
              59,166
              
              
              $
              1.69$
              1.78
              
              
              
              1,500,000
              
              
              
              7.7
              
              
              $
              1.78
              
              
              
              500,000
              
              
              $
              1.78$
              1.88
              
              
              
              18,750
              
              
              
              7.9
              
              
              $
              1.88
              
              
              
              18,750
              
              
              $
              1.88$
              2.01
              
              
              
              100,000
              
              
              
              4.6
              
              
              $
              2.01
              
              
              
              100,000
              
              
              $
              2.01$
              2.12
              
              
              
              28,900
              
              
              
              3.0
              
              
              $
              2.12
              
              
              
              28,900
              
              
              $
              2.12$
              2.22
              
              
              
              10,000
              
              
              
              3.2
              
              
              $
              2.22
              
              
              
              10,000
              
              
              $
              2.22$
              2.61
              
              
              
              300,000
              
              
              
              4.7
              
              
              $
              2.61
              
              
              
              ---
              
              
              $
              2.61$
              2.67
              
              
              
              22,500
              
              
              
              6.8
              
              
              $
              2.67
              
              
              
              22,500
              
              
              $
              2.67$
              2.93
              
              
              
              500,000
              
              
              
              4.6
              
              
              $
              2.93
              
              
              
              ---
              
              
              $
              2.93$
              2.98
              
              
              
              202,500
              
              
              
              3.0
              
              
              $
              2.98
              
              
              
              168,333
              
              
              $
              2.98$
              3.38
              
              
              
              750,000
              
              
              
              4.7
              
              
              $
              3.38
              
              
              
              ---
              
              
              $
              3.38$
              3.93
              
              
              
              35,000
              
              
              
              2.5
              
              
              $
              3.93
              
              
              
              35,000
              
              
              $
              3.93$
              3.99
              
              
              
              1,214,092
              
              
              
              2.4
              
              
              $
              3.99
              
              
              
              1,214,092
              
              
              $
              3.99$
              4.02
              
              
              
              15,000
              
              
              
              5.6
              
              
              $
              4.02
              
              
              
              15,000
              
              
              $
              4.02$
              4.26
              
              
              
              55,000
              
              
              
              6.2
              
              
              $
              4.26
              
              
              
              55,000
              
              
              $
              4.26$
              4.53
              
              
              
              30,000
              
              
              
              7.6
              
              
              $
              4.53
              
              
              
              30,000
              
              
              $
              4.53$
              5.10
              
              
              
              15,000
              
              
              
              5.9
              
              
              $
              5.10
              
              
              
              15,000
              
              
              $
              5.10$
              5.25
              
              
              
              25,000
              
              
              
              7.6
              
              
              $
              5.25
              
              
              
              25,000
              
              
              $
              5.25$
              5.53
              
              
              
              163,334
              
              
              
              3.5
              
              
              $
              5.53
              
              
              
              163,334
              
              
              $
              5.53$
              6.75
              
              
              
              228,600
              
              
              
              5.9
              
              
              $
              6.75
              
              
              
              228,600
              
              
              $
              6.75$
              7.00
              
              
              
              45,000
              
              
              
              3.6
              
              
              $
              7.00
              
              
              
              45,000
              
              
              $
              7.00$
              7.40
              
              
              
              240,000
              
              
              
              6.1
              
              
              $
              7.40
              
              
              
              240,000
              
              
              $
              7.40$
              8.26
              
              
              
              30,000
              
              
              
              2.3
              
              
              $
              8.26
              
              
              
              30,000
              
              
              $
              8.26$
              8.51
              
              
              
              40,000
              
              
              
              5.0
              
              
              $
              8.51
              
              
              
              40,000
              
              
              $
              8.51$
              8.63
              
              
              
              10,000
              
              
              
              4.6
              
              
              $
              8.63
              
              
              
              10,000
              
              
              $
              8.63$
              8.74
              
              
              
              80,000
              
              
              
              6.5
              
              
              $
              8.74
              
              
              
              75,000
              
              
              $
              8.74$
              11.97
              
              
              
              40,000
              
              
              
              4.2
              
              
              $
              11.97
              
              
              
              40,000
              
              
              $
              11.97$
              14.25
              
              
              
              64,000
              
              
              
              4.4
              
              
              $
              14.25
              
              
              
              64,000
              
              
              $
              14.258,080,342
              
              
              
              
              
              
              $
              3.00
              
              
              
              4,854,175
              
              
              $
              3.44
 
 59
 INDEX
  Note
J.  Income Taxes
  We and
all of our subsidiaries file a consolidated income tax return. At December 31,
2009 and 2008, the estimated deferred income tax assets and liability were
comprised of the following:
  2009
              
              
              2008(in thousands)Deferred
      tax assets:Net
      operating loss carry forwards
              
              $
              67,472
              
              
              $
              65,180Stock
      – based compensation
              
              
              4,158
              
              
              
              1,884Allowance
      for doubtful accounts
              
              
              336
              
              
              
              ---Charitable
      contributions
              
              
              136
              
              
              
              132Depreciation
              
              
              (7
              )
              
              
              6Net
      deferred tax assets
              
              
              72,095
              
              
              
              67,202Valuation
      allowance
              
              
              (72,095
              )
              
              
              (67,202
              )Deferred
      tax assets, net
              
              $
              ---
              
              
              $
              ----
 
 The
following is a reconciliation of the federal statutory tax rate to our effective
tax rate:
  Year ended December 31,2009
              
              
              2008
              
              
              2007Tax
      provision at federal statutory tax rate
              
              
              35.0
              %
              
              
              35.0
              %
              
              
              35.0
              %State
      income taxes, net
              
              
              9.0
              %
              
              
              9.0
              %
              
              
              9.0
              %Permanent
      items
              
              
              2.3
              %
              
              
              0.3
              %
              
              
              1.5
              %Change
      in valuation allowance
              
              
              (46.3
              )%
              
              
              (44.3
              )%
              
              
              (45.5
              )%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, 2009,
we had net operating loss carry forwards of approximately $153 million that
expire between 2010 and 2029.   The 2004 merger of our operations
with Catskills Development LLC and the investment by Kien Huat in 2009 may not
permit us to use the entire amount of our net operating losses due to the change
in control of the Company within the meaning of the tax laws.
  As of
December 31, 2009, we do not have any uncertain tax positions. As a result,
there are no unrecognized tax benefits as of December 31, 2009. 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, 2008 have been timely
filed.  We are subject to U.S. federal or state income tax
examinations by tax authorities for years after 2005.  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 New Jersey Sports and Exposition Authority,
represented approximately 12% and 11%, respectively of the total outstanding
accounts receivable as of December 31, 2009 and two debtors, New York OTB and
Nassau OTB, represented approximately 41% and 18% of the total outstanding
accounts receivable as of December 31, 2008.
  60
 INDEX
  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.
Effective with the payroll period beginning March 23, 2009 and May 4, 2009, we
amended our plan to discontinue Company matching contributions for salaried and
hourly employees, respectively.  Matching contributions for the years
ended December 31, 2009, 2008 and 2007 were approximately $63,000, $215,000 and
$213,000, respectively. As of December 31, 2009, 86 employees participated in
the plan.
  Note
M.  Commitments and Contingencies
  Legal
Proceedings
  Empire
Resorts, Inc. v. The Bank of New York Mellon Corporation and The Depository
Trust Company
  On August
5, 2009, we filed a declaratory judgment action against the beneficial owners of
the Notes, as well as The Depository Trust Company and the Trustee, in the
Supreme Court of the State of New York in Sullivan County, which we refer to as
the “Action.”  In the complaint, we seek a judicial determination that
(1) no Holder, as defined under the Indenture, delivered a Put Notice to the
office of the Trustee within the lawfully mandated time for exercise of a
Holder’s put rights under the Indenture prior to the close of business on July
31, 2009, and that (2) Plainfield, Highbridge and Whitebox may not and have not
accelerated the Notes or invoked certain other consequences of a
default.  In October 2009, we entered into a stipulation in connection
with the Action.  Pursuant to the stipulation, we agreed to
discontinue our claims against the Consenting Defendants, who represent
substantially all of the outstanding principal amount of the Notes, including
Plainfield, Highbridge and Whitebox, without prejudice, and Plainfield,
Highbridge and Whitebox agreed to withdraw the notices of default and
acceleration of the Notes that they sent to us on August 3 and August 11, 2009.
The Consenting Defendants have further agreed to (i) be bound by any final
non-appealable judgment with respect to the declaratory judgment sought by us
against The Depository Trust Company and the Trustee, and (ii) not to commence
any action or proceeding concerning the subject matter of the declaratory
judgment until there has been a final non-appealable judgment with respect to
the declaratory judgment sought by us.
  On
October 16, 2009, the Trustee and The Depository Trust Company answered the
complaint, denying that we are entitled to the determination sought in the
Action.  On October 27, 2009, the Trustee and The Depository Trust
Company filed a motion for summary judgment, seeking a determination that the
Notes were properly put to us for repurchase on July 31, 2009. On December 3,
2009, we filed opposition papers and a cross-motion for summary judgment,
requesting that the Court determine that the Holders of the Notes have failed to
properly exercise any option to require that we repurchase the Notes by reason
of a Holder put right exercisable prior to the close of business on July 31,
2009, and, as a consequence, that we are not in default of the
Indenture.
  On
November 5, 2009, the Trustee filed (i) an amended answer, (ii) a counterclaim
against us and (iii) a third party complaint against Alpha Monticello, Inc.,
Alpha Casino Management Inc., Monticello Raceway Development, Monticello Casino
Management, Mohawk Management, LLC, and Monticello Raceway Management, as
guarantors of our obligation under the Notes. The amended answer again denied
that we are entitled to the determinations which we seek in the
Action.  The counterclaim and third party complaint seek (a) a
declaration that we are in default under the Indenture for failure to repurchase
the Notes upon the purported exercise of the Holders’ put right under the
Indenture and that the Trustee has properly accelerated the Notes in accordance
with the terms of the Indenture, and (b) damages, including all unpaid principal
and interest on the Notes, prejudgment interest and costs and expenses in
bringing the action, including attorney’s fees.  On February 1, 2010,
the Company and the Guarantors filed a reply to the counterclaim and answer to
the third party complaint denying liability and asserting certain affirmative
defenses.
  61
 INDEX
  We are
unable to predict the length of time the Supreme Court of New York may take to
resolve the pending motions and cross-motion for summary judgment or to
ultimately resolve the pending dispute, or the length of time it will take for
the Third Judicial Department of the Appellate Division, or the State of New
York Court of Appeals, to issue a final, non-appealable judgment.  In
the event that a final non-appealable ruling is issued declaring that the right
to demand repurchase of the Notes had been validly exercised, we would not have
an immediate source of funds from which to pay our obligations under the Notes,
and no assurance can be made that other sources of financing will be available
at such time on commercially reasonable terms, if at all, to satisfy our
obligations under the Notes.
  Empire
Resorts, Inc. v. Joseph E. Bernstein
  On
January 7, 2010, we filed a complaint against Joseph E. Bernstein, our former
Chief Executive Officer, in the United States District Court for the Southern
District of New York.  In the complaint, we are seeking injunctive
relief, unspecified monetary damages and a judgment declaring that Mr. Bernstein
is bound by the non-competition restrictions in his employment agreement. Prior
to the expiration of his employment agreement, Mr. Bernstein had made numerous
financial demands on us.  After we refused his demands, Mr. Bernstein
issued a 17-page letter to the New York State Racing and Wagering Board making
numerous accusations against us and certain of our directors (the “R&W
Letter”), which we maintain are false and baseless.  In the R&W
Letter, Mr. Bernstein reveals our confidential and proprietary information and
discloses confidential attorney-client privileged communications.  We
are cooperating fully with the New York State Racing and Wagering Board with
respect to their investigation into this matter.  We are seeking
relief from Mr. Bernstein for his alleged: (i) breach of his employment
agreement caused by his dissemination of our confidential information in
contravention of the terms of the employment agreement as a result of his
widespread dissemination of the R&W Letter, (ii) breach of his fiduciary
duties to us caused by his improper use of and dissemination of the R&W
Letter, (iii) violation of his good faith and loyalty obligations to us as a
result of, among other things, disclosing confidential information and
attorney-client privileged information of us as a result of his dissemination of
the R&W Letter, and (iv) tortious interference with prospective business
relations caused by Mr. Bernstein’s attempted interference with our business
relations with the St. Regis Mohawk Tribe.  Prior to issuance of the
R&W Letter, we received a letter from Mr. Bernstein’s counsel alleging that
we breached Mr. Bernstein’s employment agreement and summarizing Mr. Bernstein’s
claims against the Company.  As of the date hereof, Mr. Bernstein has
not asserted any claims against us in court.
  Other
Proceedings
  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.
  Employment
and Consulting Agreements
  We have
entered into consulting agreements with three members of our
Board.  Kien Huat as part of the Investment Agreement appointed two of
the Board members, and the other owns in excess of 3% of our Common Stock. The
consulting agreement with our Chairman of the Board, appointed by Kien Huat, is
with his consulting and legal firm (“Consultant”) and requires the Consultant to
provide guidance with the development of casinos and Native American and
government relations. The term is for one year, expires August 31, 2010, and
provides for annual consideration to the Consultant of $120,000 payable in equal
monthly installments. We recorded $40,000 for services rendered by the
Consultant during the year ended December 31, 2009. The other director appointed
by Kien Huat provides consulting services to us for the expansion of our gaming
presence and the development of casinos (“Consulting Agreement”).  The
Consulting Agreement provides for an annual consideration of $300,000, paid in
equal monthly installments.  The Consulting Agreement is for a term of
three years and expires in August 2012.  We recorded approximately
$110,000 for services rendered pursuant to this agreement during the year ended
December 31, 2009.  The director was paid in January 2010 for the
services provided in 2009.  The third consulting agreement requires
the director to provide certain consulting services to us.  In
consideration for these services, we have agreed to pay the director $12,500 per
month, or $150,000 annually, and granted the director an option to purchase
500,000 shares of our Common Stock pursuant to our 2005 Equity Incentive Plan,
which are vesting on August 31, 2010.  This consulting agreement
expires on August 31, 2010.  The director waived all consideration
payable under this agreement in 2009.
  62
 INDEX
  Future
minimum payments applicable to employment contracts with our chief executive
officer and other executive officers and consulting agreements with members of
our Board are as follows (Dollars in thousands):
 
 Employment
      Contracts
              
              
              Consulting
      Agreements
              
              
              Total2010
              
              $
              819
              
              
              $
              480
              
              
              $
              1,2992011
              
              
              844
              
              
              
              300
              
              
              
              1,1442012
              
              
              600
              
              
              
              190
              
              
              
              790$
              2,263
              
              
              $
              970
              
              
              $
              3,233
 
  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 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 had no affect on our
consolidated financial statements as we have provided for a full valuation
reserve against those advances as they were made.  We wrote off the
receivable against the previously recorded valuation allowance at December 31,
2008.
  Note
N.  Subsequent Events
  On
February 23, 2010, our Board authorized the issuance of 74,705 shares of our
Common Stock in payment of dividends on our Series B Preferred Stock for 2009.
The value of these shares when issued was approximately $137,000.
  63
 INDEX
  Note
O.  Unaudited Quarterly Data (in thousands)
  First
                Quarter
              
              
              Second
                Quarter
              
              
              Third
                Quarter
              
              
              Fourth
                Quarter2009Net
      revenue
              
              $
              14,715
              
              
              $
              16,777
              
              
              $
              20,926
              
              
              $
              15,216Net
      loss
              
              
              (2,095
              )
              
              
              (4,226
              )
              
              
              (1,580
              )
              
              
              (2,674
              )Net
      loss applicable to common shares
              
              
              (2,483
              )
              
              
              (4,614
              )
              
              
              (1,968
              )
              
              
              (3,061
              )Net
      loss per common share, basic and diluted
              
              
              (0.07
              )
              
              
              (0.14
              )
              
              
              (0.05
              )
              
              
              (0.04
              )2008Net
      revenue
              
              $
              16,034
              
              
              $
              17,948
              
              
              $
              20,648
              
              
              $
              13,921Net
      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
              
              $
              18,715
              
              
              $
              20,063
              
              
              $
              22,911
              
              
              $
              15,611Net
      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
              )
  64
 INDEX
  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 Exchange Act under the
supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of Empire Resorts, Inc.’s “disclosure controls and
procedures” and “internal control over financial reporting” as of the end of the
period covered by this Annual Report.
  The
evaluation of Empire Resorts, Inc.’s disclosure controls and procedures and
internal control over financial reporting included a review of our objectives
and processes, implementation by us and the effect on the information generated
for use in this Annual Report.  In the course of this evaluation and
in accordance with Section 302 of the Sarbanes Oxley Act of 2002, we sought to
identify material weaknesses in our controls, to determine whether we had
identified any acts of fraud involving personnel who have a significant role in
our internal control over financial reporting that would have a material effect
on our consolidated financial statements, and to confirm that any necessary
corrective action, including process improvements, were being
undertaken.  Our evaluation of our disclosure controls and procedures
is done quarterly and management reports the effectiveness of our controls and
procedures in our periodic reports filed with the SEC. Our internal control over
financial reporting is also evaluated on an ongoing basis by our internal
auditors and by other individuals in our 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 Exchange Act
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,
2009.
  65
 INDEX
  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, 2009.  This report is included in Item 8 of this
Annual Report on Form 10-K.
  Item 9B.
              Other
      Information.
  On
November 10, 2009, the Company held a special stockholders’ meeting in New York,
New York.
  The first
order of business was to consider and vote upon a proposal to approve the
issuance of 27,701,852 shares of the Company’s Common Stock to Kien Huat for
consideration of $44 million, pursuant to the Investment Agreement, as well as
the issuance of any additional shares of our Common Stock to the Kien Huat as
may be necessary pursuant to certain matching rights provided for under the
Investment Agreement (the “KHRL III Share Issuance”) for the purposes of NASDAQ
Marketplace Rule 5635(b), which passed based upon the following tabulations of
votes:
  FOR
              AGAINST
              ABSTAIN17,340,725
              380,172
              6,920,785
 
  The
second order of business was to consider and vote upon a proposal to approve the
KHRL III Share Issuance for the purposes of NASDAQ Marketplace Rule 5635(d),
which passed based upon the following tabulations of votes:
  FOR
              AGAINST
              ABSTAIN17,339,192
              382,730
              6,919,760
 
  The third
order of business was to consider and vote upon a proposal to amend our
Certificate of Incorporation, as amended, to increase our authorized capital
stock from 80,000,000 shares, consisting of 75,000,000 shares of our Common
Stock and 5,000,000 shares of preferred stock, par value $0.01 per share, to a
total of 100,000,000 shares, consisting of 95,000,000 shares of Common Stock and
5,000,000 shares of preferred stock, which passed based upon the following
tabulations of votes:
  FOR
              AGAINST
              ABSTAIN24,131,278
              398,677
              111,727
 
  The
fourth order of business was to consider and vote upon a proposal to amend our
Amended and Restated 2005 Equity Incentive Plan (the “2005 Equity Incentive
Plan”) to increase the number of shares of our Common Stock subject to the 2005
Equity Incentive Plan by 2,000,000 shares to 10,500,000 shares, which passed
based upon the following tabulations of votes:
  FOR
              AGAINST
              ABSTAIN15,081,316
              2,633,856
              6,926,510
  66
 INDEX
  The fifth
order of business was to consider and vote upon a proposal to grant to Au Fook
Yew of an option to purchase 750,000 shares of our Common Stock and the issuance
of up to 250,000 shares of our Common Stock to Mr. Au pursuant to certain
matching rights provided for under the Investment Agreement in accordance with
the applicable NASDAQ Marketplace Rules (the “Au Issuance”) for the purposes of
NASDAQ Marketplace Rules 5635(b), which passed based upon the following
tabulations of votes:
  FOR
              AGAINST
              ABSTAIN17,313,247
              452,062
              6,876,373
 
  The sixth
order of business was to consider and vote upon a proposal to approve the Au
Issuance for the purposes of NASDAQ Marketplace Rules 5635(d), which passed
based upon the following tabulations of votes:
  FOR
              AGAINST
              ABSTAIN17,298,904
              462,250
              6,880,528
 
  The
seventh order of business was to consider and vote upon a proposal to approve
the Au Issuance for the purposes of NASDAQ Marketplace Rules 5635(c), which
passed based upon the following tabulations of votes:
  FOR
              AGAINST
              ABSTAIN17,302,965
              459,544
              6,879,173
 
 
 Pursuant
to applicable Nasdaq Marketplace Rules and the terms of a custodial arrangement
for its shares of our Common Stock, Kien Huat was only permitted to vote its
6,804,188 shares held as of the record date for the special stockholders’
meeting with respect to the proposal to amend our Certificate of Incorporation
and was required to abstain on all other matters.
  67
 INDEX
  PART III
  Item 10.
              Directors,
      Executive Officers and Corporate
Governance.
  Directors
and Executive Officers
  Our
directors and executive officers are as follows:
  Name
              
              Age
              
              PositionJoseph
      A. D’Amato
              
              62
              
              Chief
      Executive Officer and Chief Financial OfficerG.
      Michael Brown
              
              67
              
              Chairman
      of the Board(1)Au
      Fook Yew
              
              59
              
              Director(2)Ralph
      J. Bernstein
              
              52
              
              Director(1)Louis
      R. Cappelli
              
              58
              
              Director(2)Paul
      A. deBary
              
              63
              
              Director(1)Nancy
      A. Palumbo
              
              49
              
              Director(2)James
      Simon
              
              63
              
              Director(3)Clifford
      A. Ehrlich
              
              50
              
              President
      and General Manager of Monticello Raceway ManagementCharles
      Degliomini
              
              51
              
              Executive
      Vice President
 _____________
  (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.  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, our stockholders elect only one
class of directors each year, beginning with Class I directors in 2004, with
each director so elected holding office for a term of three years.
  The
business experience of each or our directors and executive officers is as
follows:
  Joseph A.
D’Amato.  Joseph A. D’Amato, age 62, has served as our Chief
Executive Officer since January 2010 and as our Chief Financial Officer since
September 2009.  Prior to his employment with the Company, Mr. D’Amato
most recently served as the Chief Executive Officer of Mount Airy Casino Resort
in Pennsylvania, from 2007 to 2009, and as Chief Financial Officer of the Seneca
Gaming Corporation in Western New York from 2002 to 2005 and as its Chief
Operating Officer from 2005 to 2007. During his earlier career in the gaming
industry, Mr. D’Amato served in various executive capacities with the Trump
Entertainment, Park Place and Golden Nugget organizations. From 1970-1975, Mr.
D’Amato was a Senior Auditor at Ernst & Young. Mr. D’Amato has participated
in raising over $2 billion in the public and bank finance markets, and has
extensive experience with Sarbanes Oxley and the filing requirements and
regulations of the SEC. He has been a CPA in New Jersey and Pennsylvania and
received an MS in Taxation from Widener University in 1985, an MBA (Finance)
from LaSalle University in 1978, and a BS in Business Administration from
LaSalle University in 1970.
  G. Michael
Brown.  G. Michael Brown, age 67, has served as non-executive
Chairman of the Board of the Company since August 2009. He is currently a
partner in the law firm of G. Michael Brown & Associates, a general practice
concentrating on casino gaming law. Mr. Brown is admitted to practice law in New
York and New Jersey. Previously, Mr. Brown served as Director of the Division of
Gaming Enforcement in the Office of the Attorney General of the State of New
Jersey, as counsel to the Board of Inquiry into Casinos in Melbourne, Australia,
and as a consultant to the Treasurer of Queensland, Australia. He has also
served as US counsel for Genting Berhad and as counsel and consultant to
American casino interests in New Jersey, Nevada, Connecticut, Australia, the
Bahamas, Canada, Jamaica, the U.K., and other foreign jurisdictions. Mr. Brown
previously served as President and Chief Executive Officer of Foxwoods Resort
Casino, President and Chief Executive Officer of Seneca Gaming Corp., and as a
strategic advisor to other casinos.  Mr. Brown attended college at the
Franciscan University, Steubenville, Ohio (1964), and received an LL.B. (1967)
and J.D. (1969) from Seton Hall University School of Law in Newark, New Jersey.
He is a Past President of the International Association of Gaming
Attorneys.
  68
 INDEX
  Au Fook Yew.  Au
Fook Yew, age 59, was appointed as a Director of the Company in August
2009.  Mr. Au is a director and advisor to a number of companies in
Asia, Europe and United States which are involved in resorts, casinos, cruises,
marine engineering and investment holding.  In addition Mr. Au is and
has been a director of a number of affiliates of Kien Huat for about the past 30
years. After stepping down in 2000 from all companies affiliated with Kien Huat,
Mr. Au recently rejoined in May 2009 the Board of Star Cruises Ltd, a Hong Kong
publicly listed affiliate of Kien Huat as an independent
director.  Mr. Au received an MBA from the Harvard Business School in
1974 and a B.Sc. (Hons.) in Chemical Engineering from the University of
Birmingham, UK, in 1972.
  Ralph J. Bernstein. Ralph J.
Bernstein, age 52, is the managing director of Bernstein Capital, LLC, an
investment firm. Mr. Bernstein is the co-founder of Americas Partners and the
New York Land Company, both real estate and investment firms.  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.
  Louis R.
Cappelli.  Louis R. Cappelli, 58, is the managing member of
Convention Hotels, LLC. Mr. Cappelli has been active in the real estate
development and construction business for over 30 years. Between 1995 and 2000,
Mr. Cappelli developed the Stamford Ridgeway Mall, Stamford Greyrock Towers, New
Roc City, 1166 Avenue of the Americas, Talleyrand Apartments, The Landing @
Dobbs Ferry, Ridgeview Apartments, 140 Grand Street and 360 Hamilton Avenue.
Between 2001 and 2009, Mr. Cappelli developed, and is currently developing,
White Plains City Center, Trump Plaza New Rochelle, The Ritz-Carlton Hotel, The
Residences at The Ritz-Carlton, Westchester, and The Lofts at New
Roc.  Mr. Cappelli received a Bachelor of Science in Civil Engineering
from The University of Notre Dame in 1973 and is a Professional Engineer in the
State of New York. Mr. Cappelli has served as a director since March
2009.
  Paul A. deBary. Paul A.
deBary, 63, 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.
  Nancy A.
Palumbo.  Nancy A. Palumbo, age 49, serves as president of
Green Planet Group, which advises firms on renewable energy strategies. She
previously served as a top-level executive in New York State government for many
years. Ms. Palumbo is a former Director of the New York State Lottery and former
senior executive at the New York State Department of Parks and Recreation. Prior
to joining Green Planet, Palumbo served as the General Manager of Walker Digital
Lottery. She has also served as the Senior Vice President for Strategic
Marketing and Corporate Communications for the New York Daily News. As Director
of the New York State Lottery from 2004 to 2006, she managed and operated a $6
billion a year business and oversaw the opening of six Video Gaming facilities
throughout New York. Prior to joining the New York State Lottery, she was
Executive Deputy Commissioner of the New York State Office of Parks, Recreation
and Historic Preservation for nine years and was an innovator of public-private
partnerships to expand service in the parks. She is a graduate of St.
Bonaventure University.  Ms. Palumbo has served as a director since
June 2009.
  69
 INDEX
  James Simon.  James
Simon, age 63, has served as a director of the Company since August
2007.  Mr. Simon 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 is a former
executive of the Direct Response Group, Capital Holding Corp., a financial
services conglomerate, and American Airlines where he held senior marketing
management positions.  He also was a career US Army officer, and
during his last six years as a US Army officer he led marketing efforts to
reposition the recruiting efforts from a draft environment to an all-recruited
force.  Mr. Simon has a B.G.S. undergraduate degree from University of
Nebraska and an M.S. graduate degree from University of Kansas.
  Clifford A.
Ehrlich.  Clifford A. Ehrlich, age 50, has been an employee of
the Company since 1995.  In April 2009, he was promoted to President
and General Manager of Monticello Raceway Management.  Prior to his
promotion, he most recently served as Executive Vice President and General
Manager of Monticello Raceway Management since February 2008.  From
1994 through February 2008, he served as Senior Vice President of our
subsidiary, Monticello Raceway Management.  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.
  Charles
Degliomini.  Charles Degliomini, 51, has been an employee or
consultant of the Company since 2004.  In February 2008, he was
promoted to Executive Vice President of Governmental 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.
  Board
Qualifications
  We
believe that the collective skills, experiences and qualifications of our
directors provides our Board with the expertise and experience necessary to
advance the interests of our stockholders.  While the Corporate
Governance and Nominating Committee of our Board does not have any specific,
minimum qualifications that must be met by each of our directors, it uses a
variety of criteria to evaluate the qualifications and skills necessary for each
member of the Board.  In addition to the individual attributes of each
of our current directors described below, we believe that our directors should
have the highest professional and personal ethics and values, consistent with
our longstanding values and standards.  They should have broad
experience at the policy-making level in business, exhibit commitment to
enhancing stockholder value and have sufficient time to carry out their duties
and to provide insight and practical wisdom based on their past
experience.
  Each of
Messrs. Brown and Au has extensive experience in the gaming
industry.  Mr. Brown’s experience as an executive officer of tribal
casinos and Mr. Au’s experience as a director of and advisor to resort and
casino companies enables each to provide guidance with respect to our gaming
operations.
  Each of
Messrs. Bernstein and Cappelli has a wealth of experience in real estate
development, which provides them with insight regarding our efforts to develop a
resort and casino.  In addition, Mr. Bernstein also serves as a member
of the board of directors of another public company, which experience aids his
service to the Board.
  Mr.
deBary’s years of experience as a financial advisor through his positions as a
managing director or partner of financial services firms since 1975 and his
post-graduate education provide him with financial and accounting expertise. Mr.
deBary qualifies as an audit committee financial expert under SEC
guidelines.
  70
 INDEX
  Through
her experience as a top-level executive in New York State government for many
years, Ms. Palumbo has a comprehensive understanding of the extensive laws,
regulations and ordinances applicable to our gaming business.
  Mr. Simon
brings marketing and business leadership skills to the Board from his experience
as an executive officer of management and marketing consulting
firms.
  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 Exchange Act. The members of our audit committee are
Paul A. deBary, Nancy A. Palumbo, G. Michael Brown and James
Simon.  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
Exchange Act.
  Our Board
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, c/o Monticello Casino and Raceway, 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.
  Section
16(a) Beneficial Ownership Reporting Compliance
  Section
16(a) of the Exchange Act 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, 2009 there were no delinquent
filers.
  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.
  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 22, 2010 by (i) each director of the Company;
(ii) each of the Company’s named executive officers, as such term is defined in
Item 402(a)(3) of Regulation S-K promulgated under the Exchange Act, (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 of March 22,
2010 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 of March 22, 2010 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 March 22, 2010. 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.
  71
 INDEX
 
 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
                
                
                PercentageCurrent OfficersJoseph
      A. D’Amato
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                --Charles
      Degliomini
                
                
                372,769
                (2)
                
                
                *
                
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                --Clifford
      A. Ehrlich
                
                
                255,000
                (3)
                
                
                *
                
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                --Current DirectorsAu
      Fook Yew
                
                
                5,000
                (4)
                
                
                *
                
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                --Ralph
      J. Bernstein
                
                
                2,553,243
                (5)
                
                
                3.7
                %
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                --G.
      Michael Brown
                
                
                5,000
                (6)
                
                
                *
                
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                --Louis
      R. Cappelli
                  c/o
      Cappelli Enterprises, Inc.
                  115
      Stevens Avenue
                  Valhalla,
      NY 10595
                
                
                5,464,512
                (7)
                
                
                7.9
                %
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                --Paul
      A. deBary
                
                
                322,508
                (8)
                
                
                *
                
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                --Nancy
      Palumbo
                
                
                34,583
                (9)
                
                
                *James
      Simon
                
                
                172,020
                (10)
                
                
                *
                
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                --Current Directors and Officers as a
      Group
                
                
                9,184,635
                
                
                
                13.0
                %
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                --Former OfficersJoseph
      E. Bernstein
                
                
                2,076,229
                (11)
                
                
                3.0
                %
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                --David
      P. Hanlon
                
                
                1,066,592
                (12)
                
                
                1.5
                %
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                --
 
 72
 INDEX
 
 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
                
                
                PercentageRonald
      J. Radcliffe.
                
                
                270,000
                (13)
                
                
                *
                
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                --Eric
      Reehl
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                --Hilda
      Manuel
                
                
                90,167
                (14)
                
                
                *
                
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                --StockholdersKien
      Huat Realty III Limited
                  c/o
      Kien Huat Realty Sdn Bhd.
                  22nd
      Floor Wisma Genting
                  Jalan
      Sultan Ismail
                  50250
      Kuala Lumpur
                  Malaysia
                
                
                34,936,357
                
                
                
                50.3
                %
                
                
                --
                
                
                
                --
                
                
                
                --
                
                
                
                --Patricia
      Cohen
                  6138
      S. Hampshire Ct.
                  Windermere,
      FL 34786
                
                
                --
                
                
                
                --
                
                
                
                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%
  (1)
              Unless
      otherwise indicated, the address of each stockholder, director, and
      executive officer listed above is Empire Resorts, Inc., c/o Monticello
      Casino and Raceway, Route 17B, P.O. Box 5013, Monticello, New York
      12701.
  (2)
              Includes
      47,769 shares of Common Stock owned by Fox-Hollow Lane LLC, of which
      Charles Degliomini is the managing member, and options that are currently
      exercisable or exercisable within 60 days of March 22, 2010 into 325,000
      shares of Common Stock.
  73
 INDEX
  (3)
              Consists
      of 10,000 shares of our Common Stock owned directly by Clifford A. Ehrlich
      and options that are currently exercisable or exercisable within 60 days
      of March 22, 2010 into 245,000 shares of our Common
  Stock.
  (4)
              Consists
      of options that are currently exercisable by Mr. Au or exercisable within
      sixty days of March 22, 2010 into 5,000 shares of our Common
      Stock.
  (5)
              Consists
      of 2,221,243 shares of our Common Stock owned directly by Ralph J.
      Bernstein and options that are currently exercisable or exercisable within
      sixty days of March 22, 2010 into 332,000 shares of our Common
      Stock.
  (6)
              Consists
      of options that are currently exercisable by Mr. Brown or exercisable
      within sixty days of the date of March 22, 2010 into 5,000 shares of our
      Common Stock.
  (7)
              According
      to a Form 4 filed by Louis R. Cappelli, LRC Acquisition LLC (“LRC”) and
      Cappelli Resorts LLC on January 6, 2010, Mr. Cappelli has a direct
      ownership interest of 10,000 shares and an indirect ownership interest in
      an aggregate of 5,374,512 shares consisting of: (i) 4,200,000 shares owned
      directly by LRC; and (ii) 1,174,512 shares owned directly by Cappelli
      Resorts LLC.  Mr. Cappelli has the shared power to dispose of or
      direct the disposition of 5,374,512 shares of our Common Stock held of
      record by Cappelli Resorts LLC and by LRC.  Mr. Cappelli also
      holds options that are currently exercisable or exercisable within 60 days
      of March 22, 2010 into 80,000 shares of our Common
  Stock.
  (8)
              Consists
      of 82,913 shares of our Common Stock owned directly by Paul deBary, 12,595
      shares of our Common Stock held in an individual retirement account for
      Mr. deBary’s benefit and options that are currently exercisable or
      exercisable within sixty days of March 22, 2010 into 227,000 shares of our
      Common Stock.
  (9)
              Consists
      of options that are currently exercisable by Ms. Palumbo or exercisable
      within sixty days of March 22, 2010 into 34,583 shares of our Common
      Stock.
  (10)
              Consists
      of 18,270 shares of our Common Stock owned directly by James Simon and
      options that are currently exercisable or exercisable within sixty days of
      the date of March 22, 2010 into 153,750 shares of our Common
      Stock.
  (11)
              Consists
      of (i) 1,272,229 shares of our Common Stock owned directly by Mr.
      Bernstein (ii) 52,500 shares of our Common Stock held by Mr. Bernstein's
      wife, Nora Bernstein, as custodian for Mr. Bernstein's children, (iii)
      1,500 shares of our Common Stock held by Bernstarz LLC (Mr. Bernstein is
      the sole member of and holds 100% of the membership interests of Bernstarz
      LLC) and (iv) 750,000 shares of our Common Stock that are issuable upon
      the exercise of options that are currently exercisable or exercisable
      within sixty days of March 22,
2010.
  (12)
              Consists
      of options that are currently exercisable into 1,066,592 shares of our
      Common Stock.  On April 13, 2009, Mr. Hanlon entered into a
      separation agreement with the Company pursuant to which Mr. Hanlon’s
      employment with the Company terminated as of April 13,
    2009.
  (13)
              Consists
      of options that are currently exercisable into 270,000 shares of our
      Common Stock.  On April 14, 2009, Mr. Radcliffe tendered his
      resignation, effective June 30, 2009.  Mr. Radcliffe and the
      Company entered into a separation agreement with respect to Mr.
      Radcliffe’s resignation.
  (14)
              Consists
      of options that are currently exercisable into 90,167 shares of our Common
      Stock.  On April 30, 2009 Ms. Manuel entered into a separation
      agreement with the Company pursuant to which Ms. Manuel’s employment with
      the Company terminated as of April 30,
2009.
  74
 INDEX
  Item 13.
              Certain Relationships and Related Transactions,
      and Director Independence.
  Louis R.
Cappelli, a member of our Board and the beneficial owner of more than 5% of our
Common Stock, is the managing member of Convention Hotels, LLC, Concord’s
general partner.  Mr. Cappelli is also the managing member of Cappelli
Resorts LLC and Cappelli Resorts II, 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.  Thus, through
his ownership interest in Cappelli Resorts LLC and Cappelli Resorts II, LLC, Mr.
Cappelli owns a controlling interest in Concord.  Bruce M. Berg, a
former member of our Board, is also a member of Cappelli Resorts
LLC.
  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 a limited liability company (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.  On December 30, 2008, we
entered into an amendment the Contribution Agreement to, among other things,
extend the termination date of the Contribution Agreement from December 31, 2008
to January 30, 2009, which was further extended to February 28, 2009 pursuant to
an amendment dated January 30, 2009, and to delete all other termination
provisions.  The Contribution Agreement was terminated as a result of
the execution of the Concord Agreement, described below on March 23,
2009.
  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.
  On March
23, 2009, we entered into the Concord Agreement, with Concord, pursuant to which
we (or a wholly-owned subsidiary reasonably acceptable to Concord) shall be
retained by Raceway Corp., a subsidiary of Concord, to provide advice and
general managerial oversight with respect to the operations at a harness horse
racing facility to be constructed at the Concord Property.  Under the
terms of the Concord Agreement, if the Concord Gaming Facilities commence
operations, we are to receive an annual management fee in the amount of $2
million, subject to adjustment, and an annual fee in the amount of two percent
of the total revenue wagered with respect to VGMs and/or other alternative
gaming located at the Concord Property, net of certain fees and payouts, which
we refer to as the “Adjusted Gross Gaming Revenue Payment.”  In the
event that the Adjusted Gross Gaming Revenue Payment paid to us is less than $2
million per annum, Concord is to guaranty and pay to us the difference between
$2 million and the Adjusted Gross Gaming Revenue Payment distributed to us with
respect to such calendar year. In addition, upon a sale or other voluntary
transfer of the Concord Gaming Facilities to any person or entity who is not an
affiliate of Concord, or the “Buyer,” Raceway Corp. may terminate the Concord
Agreement upon payment to us of $25 million; provided, that the Buyer shall
enter into an agreement with us whereby the Buyer shall agree to pay the greater
of (i) the Adjusted Gross Gaming Revenue Payment or (ii) $2 million per annum to
us for the duration of the Term of the Concord Agreement.
  On August
19, 2009, we entered into the Investment Agreement with Kien Huat under which
Kien Huat agreed to invest up to $55 million in new equity capital in the
Company in two tranches in exchange for 34,506,040 shares of our Common Stock,
representing, in the aggregate, just under 50% of the voting power of the
Company.   Upon the initial closing of the transactions
contemplated by the Investment Agreement on August 19, 2009, we issued to Kien
Huat 6,804,188 shares of our Common Stock, representing approximately 19.9% of
the outstanding shares of our Common Stock on a pre-transaction basis, for
aggregate consideration of $11 million.  On November 12, 2009, we
issued an additional 27,701,852 shares of our Common Stock to Kien Huat for
consideration of $44 million in accordance with the terms of the Investment
Agreement.  As a result of the November 12, 2009 closing, Kien Huat
owned 34,506,040 shares of our Common Stock, representing just under 50% of the
then outstanding voting power of the Company.
  75
 INDEX
  Under the
Investment Agreement entered into between the Company and Kien Huat in August
2009, if any option or warrant outstanding as of August 19, 2009 or November 12,
2009 (or, in limited circumstances, if issued after the such date) is exercised
after August 19, 2009, the Kien Huat has the right (following notice of such
exercise) to purchase an equal number of additional shares of our Common Stock
as are issued upon such exercise at the exercise price for the applicable option
or warrant, which right we refer to herein as the “Option Matching
Right.”  Kien Huat has, with the Company’s consent, assigned its
Option Matching Rights to Mr. Au with respect to an existing option to purchase
250,000 shares of our Common Stock at an exercise price of $1.14 per
share.
  On
September 3, 2009, the Company entered into a consulting agreement with G.
Michael Brown & Associates, PC, dated as of September 1, 2009, to provide
consulting services to the Company with respect to, among other things, Native
American and government relations and the planning and development of a casino
on a 29.31 acre site owned by the Company’s subsidiary, Monticello Raceway
Management, adjacent to the Company’s Monticello, New York
facility.  G. Michael Brown, a member of the Company’s Board, is the
President of G. Michael Brown & Associates, PC.  The consulting
agreement G. Michael Brown & Associates, PC with provides for a term ending
on August 31, 2010.  In consideration of performing the consulting
services, the Company will pay to G. Michael Brown & Associates, PC $120,000
annually, payable in equal monthly installments.
  On
September 11, 2009, the Company entered into a consulting agreement, effective
September 1, 2009, with Ralph J. Bernstein, a member of our
Board.  Pursuant to this agreement, Mr. Bernstein has agreed to make
himself available at all times to provide the Company with certain consulting
services.  In consideration of the services to be performed under Mr.
Bernstein’s consulting agreement, the Company has agreed to (i) pay to Mr.
Bernstein $12,500 per month and (ii) grant to Mr. Bernstein an option to
purchase 500,000 shares of the Company's Common Stock pursuant to the Company’s
2005 Equity Incentive Plan, vesting September 1, 2010.  The term of
Mr. Bernstein’s consulting agreement expires on August 31, 2010.
  Au Fook
Yew, a member of our Board, is also a party to a consulting agreement with the
Company, dated as of August 19, 2009, pursuant to which Mr. Au has agreed to
provide the Company with certain consulting services, including assisting the
Company in expanding its presence in the gaming industry and advising the
Company on matters related to casino development.  In consideration of
the services to be performed under Mr. Au’s consulting agreement, the Company
has agreed to pay to Mr. Au $300,000 annually, paid in equal monthly
installments.  The term of Mr. Au’s consulting agreement expires on
the third anniversary of the date of its execution, unless extended by mutual
agreement of the parties.
  On July
27, 2009, we entered into an amended and restated loan agreement (the “PAB
Loan”), among the Company, the subsidiary guarantors party thereto, The Park
Avenue Bank, in its capacity as assignee of Bank of Scotland, and The Park
Avenue Bank, as assignee of Bank of Scotland, as agent, which amended and
restated our $10.0 million secured credit facility with the Bank of
Scotland.  As a condition to the closing of the PAB Loan, we issued
warrants to purchase an aggregate of 277,778 shares of our Common Stock, at an
exercise price of $0.01 per share, to The Park Avenue Bank and Alan Lee, a
designee of Stamford (Victoria) LP, the participant under the PAB
Loan.  The Park Avenue Bank and Mr. Lee received warrants to purchase
166,667 shares and 111,111 shares, respectively.  Mr. Lee is the
brother-in-law of both Ralph Bernstein, a member of our Board, and Joseph
Bernstein, our former Chief Executive Officer.  Eric Reehl, who served
as the Company’s Chief Restructuring Officer and Chief Financial Officer at the
time we negotiated and entered into the PAB Loan, served as the Acting Chief
Financial Officer for Park Avenue Bancorp, Inc., a New York domiciled commercial
bank and an affiliate of The Park Avenue Bank.
  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
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 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.
  76
 INDEX
  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 has made a
subjective determination as to each independent director that no relationships
exist which, in the opinion of the Board, 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 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 has affirmatively determined that none of our directors has a
material relationship with the Company other than (a) Ralph J. Bernstein, who
the Board determined is not independent by virtue of his family relationship
with Joseph E. Bernstein, the Company’s former Chief Executive Officer; (b) Au
Fook Yew, who the Board determined is not independent by virtue of compensation
paid to him pursuant to a consulting agreement, dated as of August 19, 2009; and
(c) Louis R. Cappelli, who the Board determined is not independent by virtue of
his position as the managing member of Convention Hotels, LLC, which is the
general partner of Concord.  The Board has also affirmatively
determined that all members of our Audit Committee, Compensation Committee and
Corporate Governance and Nominating Committee are independent
directors.
  Item 14.
              Principal Accounting Fees and Services.
  Our
principal accountant for the audit and review of our annual and quarterly
financial statements, respectively, during each of the past two fiscal years was
Friedman LLP.  Moreover, the following table shows the fees paid or
accrued by us to Friedman LLP during this period.
  Type of Service
              
              2009
              
              
              2008Audit
      Fees (1)
              
              $
              459,000
              
              
              $
              534,000Audit-Related
      Fees (2)
              
              
              66,000
              
              
              
              58,000Tax
      Fees (3)
              
              
              29,000
              
              
              
              54,000All
      Other Fees (4)
              
              
              --
              
              
              
              --Total
              
              $
              554,000
              
              
              $
              646,000
 
 (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.
  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.
  77
 INDEX
  PART IV
  Item 15.
              Exhibits, Financial Statement
      Schedules.
  Financial
Statements
  Schedule
II – Valuation and Qualifying Accounts
 
 
 
 Empire
Resorts, Inc. and Subsidiaries
 
 Valuation
and Qualifying Accounts
 
 December
31, 2009, 2008 and 2007
 
 (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,
2009Allowance
      for doubtful accounts
              
              $
              ---
              
              
              $
              763
              
              
              $
              ---
              
              
              $
              ---
              
              
              $
              763Deferred
      tax asset valuation allowance
              
              $
              67,202
              
              
              $
              ---
              
              
              $
              4,893
              
              
              $
              ---
              
              
              $
              72,095Year 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
              
              
              $
              ---
              
              
              $
              62,502
 
 Exhibits
  3.1
              Amended
      and Restated Certificate of Incorporation, as most recently amended on
      November 12, 2009. (1)3.2
              Certificate
      of Amendment of the Certificate of Incorporation, dated June 13, 2001.
      (5)3.3
              Second
      Amended and Restated By-Laws, as most recently amended on August 19, 2009.
      (1)4.1
              Form
      of Common Stock Certificate. (2)4.2
              Certificate
      of Designations, Preferences and Rights of Series B Preferred Stock dated
      July 31, 1996. (5)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.
      (5)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. (5)4.5
              Certificate
      of Designations setting forth the Preferences, Rights and Limitations of
      Series D Preferred Stock, dated February 7, 2000.
  (10)
  78
 INDEX
  4.6
              Certificate
      of the Designations, Powers, Preferences and Rights of the Series E
      Preferred Stock, dated December 10, 2002. (5)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. (5)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.
      (16)4.9
              Certificate
      of Amendment to the Certificate of Designations of Series A Junior
      Participating Preferred Stock, dated August 19, 2009.
  (33)4.10
              Rights
      Agreement, dated as of March 24, 2008, between Empire Resorts, Inc. and
      Continental Stock Transfer & Trust Company, as Rights Agent.
      (17)4.11
              First
      Amendment To Rights Agreement, dated August 19, 2009, by and between
      Empire Resorts, Inc. and Continental Stock Transfer & Trust Company,
      as rights agent. (33)4.12
              1998
      Stock Option Plan. (3)4.13
              2004
      Stock Option Plan. (6)4.14
              Second
      Amended and Restated 2005 Equity Incentive Plan .(21)4.15
              Indenture
      dated as of July 26, 2004 among Empire Resorts, Inc., The Bank of New York
      and the Guarantors named therein. (7)4.16
              Security
      Agreement dated as of July 26, 2004 between Empire Resorts, Inc., The Bank
      of New York and the Guarantors named therein. (7)4.17
              Pledge
      Agreement dated as of July 26, 2004 Empire Resorts, Inc., The Bank of New
      York and the Guarantors named therein. (7)4.18
              Registration
      Rights Agreement dated as of July 26, 2004 Empire Resorts, Inc., the
      Guarantors named therein and Jefferies & Company, Inc.
    (7)4.19
              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. (9)4.20
              Amended
      and Restated Loan Agreement, dated as of July 27, 2009, among Empire
      Resorts, Inc., the subsidiary guarantors party thereto, The Park Avenue
      Bank, in its capacity as assignee of Bank of Scotland, the other lenders
      party thereto and The Park Avenue Bank, as assignee of Bank of Scotland,
      as agent for the Banks. (31)4.21
              Amendment
      No. 1, dated October 9, 2009, to Amended and Restated Loan Agreement,
      dated as of July 27, 2009, among Empire Resorts, Inc., the subsidiary
      guarantors party thereto, The Park Avenue Bank, in its capacity as
      assignee of Bank of Scotland, the other lenders party thereto and The Park
      Avenue Bank, as assignee of Bank of Scotland, as agent for the Banks.
      (37)4.22
              Amended
      and Restated Promissory Note issued on July 27, 2009 by Empire Resorts,
      Inc. in favor of The Park Avenue Bank, as Bank.
  (31)  79
 INDEX
  4.23
              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. (9)4.24
              First
      Amendment to Security Agreement, dated as of July 27, 2009, by and among
      Empire Resorts, Inc., and each of its subsidiaries party thereto in favor
      of The Park Avenue Bank, as Agent. (31)4.25
              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. (9)4.26
              First
      Amendment to Pledge Agreement, dated as of July 27, 2009, by and among
      Empire Resorts, Inc., and each of its subsidiaries party thereto in favor
      of The Park Avenue Bank, as Agent. (31)4.27
              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. (9)4.28
              Assignment
      of Mortgage, dated as of July 27, 2009, by Bank of Scotland PLC in favor
      of The Park Avenue Bank. (31)4.29
              Side
      Letter Agreement, dated July 27, 2009, by and between Empire Resorts, Inc.
      and The Park Avenue Bank. (31)4.30
              Common
      Stock Purchase Warrant, issued July 27, 2009, by Empire Resorts, Inc. in
      favor of The Park Avenue Bank. (31)4.31
              Common
      Stock Purchase Warrant, issued July 27, 2009, by Empire Resorts, Inc. in
      favor of Alan Lee. (31)4.32
              Investor
      Rights Agreement, dated as of July 27, 2009, by and among Empire Resorts,
      Inc., Alan Lee, and The Park Avenue Bank. (31)4.33
              Recapitalization
      Agreement, dated as of December 10, 2002, by and between Alpha Hospitality
      Corporation, Alpha Monticello, Inc., Bryanston Group, Inc., Stanley
      Tollman, Beatrice Tollman and Monty Hundley. (4)10.1
              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. (10)10.2
              Line
      of credit dated January 12, 2004 between Empire Resorts, Inc and Catskill
      Litigation Trust. (8)10.3
              Promissory
      Note issued by Catskill Litigation Trust on January 12, 2004 to Empire
      Resorts, Inc. for the Principal Sum of $2,500,000. (8)10.4
              Agreement
      to Form Limited Liability Company and Contribution Agreement, among
      Concord Associates, L.P. and Empire Resorts, Inc., dated as of February 8,
      2008. (14)10.5
              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. (22)10.6
              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. (23)10.7
              Stock
      Purchase Agreement, dated as of March 31, 2008, by and between Empire
      Resorts, Inc. and LRC Acquisition LLC
(18)  80
 INDEX
  10.8
              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. (19)10.9
              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. (20)10.10
              Agreement,
      dated as of March 23, 2009, among Concord Associates, L.P. and Empire
      Resorts, Inc. (25)10.11
              Management
      Services Agreement by and between Sportsystems Gaming Management at
      Monticello, LLC and Monticello Raceway Management, Inc. dated as of June
      10, 2009. (32)10.12
              Restated
      Management Services Agreement by and between Monticello Raceway
      Management, Inc. and Sportsystems Gaming Management at Monticello, LLC
      dated as of September 30, 2009. (36)10.13
              Letter
      Agreement by and among Empire Resorts, Inc., Monticello Raceway
      Management, Inc. and KPMG Corporate Finance LLC dated as of June 3, 2009.
      (29)10.14
              Investment
      Agreement, dated as of August 19, 2009, by and between Empire Resorts,
      Inc. and Kien Huat Realty III Limited. (33)10.15
              First
      Amendment and Clarification to the Investment Agreement dated as of
      September 30, 2009, between Empire Resorts, Inc. and Kien Huat Realty III
      Limited. (36)10.16
              Registration
      Rights Agreement, dated as of August 19, 2009, by and between Empire
      Resorts, Inc. and Kien Huat Realty III Limited. (33)10.17
              Stockholder
      Voting Agreement, dated as of August 19, 2009, by and among the
      stockholders listed on the signature page(s) thereto, Empire Resorts, Inc.
      and Kien Huat Realty III Limited. (33)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). (11)10.19
              Separation
      Agreement, dated as of April 13, 2009, between Empire Resorts, Inc. and
      David P. Hanlon. (26)10.20
              Consulting
      Agreement, dated as of April 13, 2009, between Empire Resorts, Inc. and
      David P. Hanlon. (26)10.21
              Employment
      Agreement dated as of May 23, 2005 between Empire Resorts, Inc. and Ronald
      J. Radcliffe. (11)10.22
              Separation
      and Release Agreement, dated as of April 14, 2009, between Empire Resorts,
      Inc. and Ronald J. Radcliffe. (27)10.23
              Amendment
      No. 1, dated as of August 12, 2009, to the Separation and Release
      Agreement, dated as of April 14, 2009, by and between Empire Resorts, Inc.
      and Ronald J. Radcliffe. (32)10.24
              Agreement
      and Release, dated as of April 29, 2009, between Empire Resorts, Inc. and
      Hilda A. Manuel. (28)10.25
              Consulting
      Agreement, dated as of April 29, 2009, between Empire Resorts, Inc. and
      Hilda A. Manuel. (28)  81
 INDEX
  10.26
              Letter
      Agreement, dated as of April 8, 2009, between Empire Resorts, Inc. and
      Eric Reehl. (26)10.27
              Amended
      and Restated Letter Agreement, dated as of April 8, 2009, between Empire
      Resorts, Inc. and Nima Asset Management LLC. (30)10.28
              Employment
      Agreement, dated as of June 1, 2009, between Empire Resorts, Inc. and
      Joseph E. Bernstein. (29)10.29
              Employment
      Agreement, dated as of June 29, 2009, by and between Empire Resorts, Inc.
      and Charles Degliomini. (32)10.30
              Employment
      Agreement, dated as of June 29, 2009, by and between Empire Resorts, Inc.
      and Clifford Ehrlich. (32)10.31
              Consulting
      Agreement, dated as of August 19, 2009, by and between Empire Resorts,
      Inc. and Colin Au. (33)10.32
              Consulting
      Agreement, dated as of September 1, 2009, by and between Empire Resorts,
      Inc. and G. Michael Brown & Associates, PC. (34)10.33
              Amended
      and Restated Employment Agreement, dated as of December 24, 2009, by and
      between Joseph A. D’Amato and Empire Resorts, Inc. (38)10.34
              Consulting
      Agreement, dated as of September 1, 2009, by and between Empire Resorts,
      Inc. and Ralph J. Bernstein. (35)21.1
              List
      of Subsidiaries. (1)23.1
              Consent
      of Independent Registered Accounting Firm. (1)31.1
              Section
      302 Certification of Principal Executive Officer and Principal Financial
      Officer. (1)32.1
              Section
      906 Certification of Principal Executive Officer and 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 Current Report on Form 8-K, filed
      with the SEC on January 16, 2003.
  (5)
              Incorporated
      by reference to Empire Resorts, Inc.’s Form 10-KSB for the year ended
      December 31, 2003, filed with the SEC on March 30,
  2004.
  (6)
              Incorporated
      by reference to Empire Resorts, Inc.’s Definitive Proxy Statement on
      Schedule 14A, filed with the SEC on April 28,
  2004.
  82
 INDEX
  (7)
              Incorporated
      by reference to Empire Resorts, Inc.’s Quarterly Report on Form 10-QSB for
      the quarter ended June 30, 2004.
  (8)
              Incorporated
      by reference to Empire Resorts, Inc.’s Quarterly Report on Form 10-QSB for
      the quarter ended September 30,
2004.
  (9)
              Incorporated
      by reference to Empire Resorts, Inc.’s Current Report on Form 8-K, filed
      with the SEC on January 14, 2005.
  (10)
              Incorporated
      by reference to Empire Resorts, Inc.’s Form 10-KSB for the year ended
      December 31, 2004, filed with the SEC on March 3,
  2005.
  (11)
              Incorporated
      by reference to Empire Resorts, Inc.’s Current Report on Form 8-K, filed
      with the SEC on May 27, 2005.
  (12)
              Incorporated
      by reference to Empire Resorts, Inc.’s Current Report on Form 8-K/A, filed
      with the SEC on December 15, 2005.
  (13)
              Incorporated
      by reference to Empire Resorts, Inc.’s Current Report on Form 8-K, filed
      with SEC on June 25, 2007.
  (14)
              Incorporated
      by reference to Empire Resorts, Inc.’s Current Report on Form 8-K, filed
      with the SEC on February 11, 2008.
  (15)
              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.
  (16)
              Incorporated
      by reference to Empire Resorts, Inc.’s Registration Statement on Form 8-A,
      filed on March 24, 2008
  (17)
              Incorporated
      by reference to Empire Resorts, Inc.’s Current Report on Form 8-K, filed
      with the SEC on March 24, 2008.
  (18)
              Incorporated
      by reference to Empire Resorts, Inc.’s Current Report on Form 8-K, filed
      with the SEC on April 2, 2008.
  (19)
              Incorporated
      by reference to Empire Resorts, Inc.’s Current Report on Form 8-K, filed
      with the SEC on April 29, 2008.
  (20)
              Incorporated
      by reference to Empire Resorts, Inc.’s Current Report on Form 8-K, filed
      with the SEC on July 2, 2008.
  (21)
              Incorporated
      by reference to Appendix B to Empire Resorts, Inc.’s Definitive Proxy
      Statement on Schedule 14A, filed with the SEC on October 8,
      2009.
  (22)
              Incorporated
      by reference to Empire Resorts, Inc.’s Current Report on Form 8-K, filed
      with the SEC on December 30, 2008.
  (23)
              Incorporated
      by reference to Empire Resorts, Inc.’s Current Report on Form 8-K, filed
      with the SEC on February 5, 2009.
  (24)
              Incorporated
      by reference to Empire Resorts, Inc.’s Annual Report on Form 10-K for the
      fiscal year ended December 31, 2008, filed with the SEC on March 13,
      2009.
  (25)
              Incorporated
      by reference to Empire Resorts, Inc.’s Current Report on Form 8-K, filed
      with the SEC on March 24, 2009.
  83
 INDEX
  (26)
              Incorporated
      by reference to Empire Resorts, Inc.’s Current Report on Form 8-K, filed
      with the SEC on April 14, 2009.
  (27)
              Incorporated
      by reference to Empire Resorts, Inc.’s Current Report on Form 8-K, filed
      with the SEC on April 17, 2009.
  (28)
              Incorporated
      by reference to Empire Resorts, Inc.’s Current Report on Form 8-K, filed
      with the SEC on May 1, 2009.
  (29)
              Incorporated
      by reference to Empire Resorts, Inc.’s Current Report on Form 8-K, filed
      with the SEC on June 9, 2009.
  (30)
              Incorporated
      by reference to Empire Resorts, Inc.’s Current Report on Form 8-K, filed
      with the SEC on July 10, 2009.
  (31)
              Incorporated
      by reference to Empire Resorts, Inc.’s Current Report on Form 8-K, filed
      with the SEC on July 30, 2009.
  (32)
              Incorporated
      by reference to Empire Resorts, Inc.’s Quarterly Report on Form 10-Q,
      filed with the SEC on August 17,
2009.
  (33)
              Incorporated
      by reference to Empire Resorts, Inc.’s Current Report on Form 8-K, filed
      with the SEC on August 19, 2009.
  (34)
              Incorporated
      by reference to Empire Resorts, Inc.’s Current Report on Form 8-K, filed
      with the SEC on September 4, 2009.
  (35)
              Incorporated
      by reference to Empire Resorts, Inc.’s Current Report on Form 8-K, filed
      with the SEC on September 16, 2009.
  (36)
              Incorporated
      by reference to Empire Resorts, Inc.’s Current Report on Form 8-K, filed
      with the SEC on October 5, 2009.
  (37)
              Incorporated
      by reference to Empire Resorts, Inc.’s Current Report on Form 8-K, filed
      with the SEC on October 14, 2009.
  (38)
              Incorporated
      by reference to Empire Resorts, Inc.’s Current Report on Form 8-K, filed
      with the SEC on December 24, 2009.
  84
 INDEX
  SIGNATURES
  Pursuant
to the requirements of Section 13 or 15(d) of the Exchange Act, the registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
  EMPIRE
      RESORTS, INC.By:
              /s/
      Joseph
      A. D’AmatoName:
              Joseph
      A. D’AmatoTitle:
              Chief
      Executive Officer and Chief Financial OfficerDate:
              March
      24, 2010
 
 Pursuant
to the requirements of the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
  Signature
                  
                  Title
                  Date/s/
      Joseph
      A. D’Amato
                  
                  Chief
      Executive Officer and Chief Financial Officer  (Principal
      Executive and Financial Officer)
                  March
      24, 2010Joseph
      A. D’Amato
  /s/
      G.
      Michael Brown
                  
                  Chairman
                  March
      24, 2010G.
      Michael Brown
  /s/
      Au
      Fook Yew
                
                Director
                March
      24, 2010Au
      Fook Yew/s/
      Ralph
      J. Bernstein
                
                Director
                March
      24, 2010Ralph
      J. Bernstein/s/
      Louis
      R. Cappelli
                
                Director
                March
      24, 2010Louis
      R. Cappelli/s/
      Paul A. deBary
                
                Director
                March
      24, 2010Paul
      A. deBary/s/
      Nancy
      A. Palumbo
                
                Director
                March
      24, 2010Nancy
      A. Palumbo/s/
      James
      Simon
                
                Director
                March
      24, 2010James
      Simon
  85
 INDEX
 Index
to Exhibits
  3.1
              Amended
      and Restated Certificate of Incorporation, as most recently amended on
      November 12, 2009. (1)3.2
              Certificate
      of Amendment of the Certificate of Incorporation, dated June 13, 2001.
      (5)3.3
              Second
      Amended and Restated By-Laws, as most recently amended on August 19, 2009.
      (1)4.1
              Form
      of Common Stock Certificate. (2)4.2
              Certificate
      of Designations, Preferences and Rights of Series B Preferred Stock dated
      July 31, 1996. (5)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.
      (5)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. (5)4.5
              Certificate
      of Designations setting forth the Preferences, Rights and Limitations of
      Series D Preferred Stock, dated February 7, 2000. (10)4.6
              Certificate
      of the Designations, Powers, Preferences and Rights of the Series E
      Preferred Stock, dated December 10, 2002. (5)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. (5)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.
      (16)4.9
              Certificate
      of Amendment to the Certificate of Designations of Series A Junior
      Participating Preferred Stock, dated August 19, 2009.
  (33)4.10
              Rights
      Agreement, dated as of March 24, 2008, between Empire Resorts, Inc. and
      Continental Stock Transfer & Trust Company, as Rights Agent.
      (17)4.11
              First
      Amendment To Rights Agreement, dated August 19, 2009, by and between
      Empire Resorts, Inc. and Continental Stock Transfer & Trust Company,
      as rights agent. (33)4.12
              1998
      Stock Option Plan. (3)4.13
              2004
      Stock Option Plan. (6)4.14
              Second
      Amended and Restated 2005 Equity Incentive Plan .(21)4.15
              Indenture
      dated as of July 26, 2004 among Empire Resorts, Inc., The Bank of New York
      and the Guarantors named therein. (7)4.16
              Security
      Agreement dated as of July 26, 2004 between Empire Resorts, Inc., The Bank
      of New York and the Guarantors named therein. (7)4.17
              Pledge
      Agreement dated as of July 26, 2004 Empire Resorts, Inc., The Bank of New
      York and the Guarantors named therein.
(7)  INDEX
  4.18
              Registration
      Rights Agreement dated as of July 26, 2004 Empire Resorts, Inc., the
      Guarantors named therein and Jefferies & Company, Inc.
    (7)4.19
              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. (9)4.20
              Amended
      and Restated Loan Agreement, dated as of July 27, 2009, among Empire
      Resorts, Inc., the subsidiary guarantors party thereto, The Park Avenue
      Bank, in its capacity as assignee of Bank of Scotland, the other lenders
      party thereto and The Park Avenue Bank, as assignee of Bank of Scotland,
      as agent for the Banks. (31)4.21
              Amendment
      No. 1, dated October 9, 2009, to Amended and Restated Loan Agreement,
      dated as of July 27, 2009, among Empire Resorts, Inc., the subsidiary
      guarantors party thereto, The Park Avenue Bank, in its capacity as
      assignee of Bank of Scotland, the other lenders party thereto and The Park
      Avenue Bank, as assignee of Bank of Scotland, as agent for the Banks.
      (37)4.22
              Amended
      and Restated Promissory Note issued on July 27, 2009 by Empire Resorts,
      Inc. in favor of The Park Avenue Bank, as Bank. (31)4.23
              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. (9)4.24
              First
      Amendment to Security Agreement, dated as of July 27, 2009, by and among
      Empire Resorts, Inc., and each of its subsidiaries party thereto in favor
      of The Park Avenue Bank, as Agent. (31)4.25
              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. (9)4.26
              First
      Amendment to Pledge Agreement, dated as of July 27, 2009, by and among
      Empire Resorts, Inc., and each of its subsidiaries party thereto in favor
      of The Park Avenue Bank, as Agent. (31)4.27
              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. (9)4.28
              Assignment
      of Mortgage, dated as of July 27, 2009, by Bank of Scotland PLC in favor
      of The Park Avenue Bank. (31)4.29
              Side
      Letter Agreement, dated July 27, 2009, by and between Empire Resorts, Inc.
      and The Park Avenue Bank. (31)4.30
              Common
      Stock Purchase Warrant, issued July 27, 2009, by Empire Resorts, Inc. in
      favor of The Park Avenue Bank. (31)4.31
              Common
      Stock Purchase Warrant, issued July 27, 2009, by Empire Resorts, Inc. in
      favor of Alan Lee. (31)4.32
              Investor
      Rights Agreement, dated as of July 27, 2009, by and among Empire Resorts,
      Inc., Alan Lee, and The Park Avenue Bank. (31)4.33
              Recapitalization
      Agreement, dated as of December 10, 2002, by and between Alpha Hospitality
      Corporation, Alpha Monticello, Inc., Bryanston Group, Inc., Stanley
      Tollman, Beatrice Tollman and Monty Hundley.
(4)  INDEX
  10.1
              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. (10)10.2
              Line
      of credit dated January 12, 2004 between Empire Resorts, Inc and Catskill
      Litigation Trust. (8)10.3
              Promissory
      Note issued by Catskill Litigation Trust on January 12, 2004 to Empire
      Resorts, Inc. for the Principal Sum of $2,500,000. (8)10.4
              Agreement
      to Form Limited Liability Company and Contribution Agreement, among
      Concord Associates, L.P. and Empire Resorts, Inc., dated as of February 8,
      2008. (14)10.5
              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. (22)10.6
              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. (23)10.7
              Stock
      Purchase Agreement, dated as of March 31, 2008, by and between Empire
      Resorts, Inc. and LRC Acquisition LLC (18)10.8
              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. (19)10.9
              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. (20)10.10
              Agreement,
      dated as of March 23, 2009, among Concord Associates, L.P. and Empire
      Resorts, Inc. (25)10.11
              Management
      Services Agreement by and between Sportsystems Gaming Management at
      Monticello, LLC and Monticello Raceway Management, Inc. dated as of June
      10, 2009. (32)10.12
              Restated
      Management Services Agreement by and between Monticello Raceway
      Management, Inc. and Sportsystems Gaming Management at Monticello, LLC
      dated as of September 30, 2009. (36)10.13
              Letter
      Agreement by and among Empire Resorts, Inc., Monticello Raceway
      Management, Inc. and KPMG Corporate Finance LLC dated as of June 3, 2009.
      (29)10.14
              Investment
      Agreement, dated as of August 19, 2009, by and between Empire Resorts,
      Inc. and Kien Huat Realty III Limited. (33)10.15
              First
      Amendment and Clarification to the Investment Agreement dated as of
      September 30, 2009, between Empire Resorts, Inc. and Kien Huat Realty III
      Limited. (36)10.16
              Registration
      Rights Agreement, dated as of August 19, 2009, by and between Empire
      Resorts, Inc. and Kien Huat Realty III Limited. (33)10.17
              Stockholder
      Voting Agreement, dated as of August 19, 2009, by and among the
      stockholders listed on the signature page(s) thereto, Empire Resorts, Inc.
      and Kien Huat Realty III Limited. (33)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). (11)  INDEX
  10.19
              Separation
      Agreement, dated as of April 13, 2009, between Empire Resorts, Inc. and
      David P. Hanlon. (26)10.20
              Consulting
      Agreement, dated as of April 13, 2009, between Empire Resorts, Inc. and
      David P. Hanlon. (26)10.21
              Employment
      Agreement dated as of May 23, 2005 between Empire Resorts, Inc. and Ronald
      J. Radcliffe. (11)10.22
              Separation
      and Release Agreement, dated as of April 14, 2009, between Empire Resorts,
      Inc. and Ronald J. Radcliffe. (27)10.23
              Amendment
      No. 1, dated as of August 12, 2009, to the Separation and Release
      Agreement, dated as of April 14, 2009, by and between Empire Resorts, Inc.
      and Ronald J. Radcliffe. (32)10.24
              Agreement
      and Release, dated as of April 29, 2009, between Empire Resorts, Inc. and
      Hilda A. Manuel. (28)10.25
              Consulting
      Agreement, dated as of April 29, 2009, between Empire Resorts, Inc. and
      Hilda A. Manuel. (28)10.26
              Letter
      Agreement, dated as of April 8, 2009, between Empire Resorts, Inc. and
      Eric Reehl. (26)10.27
              Amended
      and Restated Letter Agreement, dated as of April 8, 2009, between Empire
      Resorts, Inc. and Nima Asset Management LLC. (30)10.28
              Employment
      Agreement, dated as of June 1, 2009, between Empire Resorts, Inc. and
      Joseph E. Bernstein. (29)10.29
              Employment
      Agreement, dated as of June 29, 2009, by and between Empire Resorts, Inc.
      and Charles Degliomini. (32)10.30
              Employment
      Agreement, dated as of June 29, 2009, by and between Empire Resorts, Inc.
      and Clifford Ehrlich. (32)10.31
              Consulting
      Agreement, dated as of August 19, 2009, by and between Empire Resorts,
      Inc. and Colin Au. (33)10.32
              Consulting
      Agreement, dated as of September 1, 2009, by and between Empire Resorts,
      Inc. and G. Michael Brown & Associates, PC. (34)10.33
              Amended
      and Restated Employment Agreement, dated as of December 24, 2009, by and
      between Joseph A. D’Amato and Empire Resorts, Inc. (38)10.34
              Consulting
      Agreement, dated as of September 1, 2009, by and between Empire Resorts,
      Inc. and Ralph J. Bernstein. (35)21.1
              List
      of Subsidiaries. (1)23.1
              Consent
      of Independent Registered Accounting Firm. (1)31.1
              Section
      302 Certification of Principal Executive Officer and Principal Financial
      Officer. (1)32.1
              Section
      906 Certification of Principal Executive Officer and Principal Financial
      Officer. (1)
  _____________
  (1)
              Filed
      herewith.
  INDEX
  (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 Current Report on Form 8-K, filed
      with the SEC on January 16, 2003.
  (5)
              Incorporated
      by reference to Empire Resorts, Inc.’s Form 10-KSB for the year ended
      December 31, 2003, filed with the SEC on March 30,
  2004.
  (6)
              Incorporated
      by reference to Empire Resorts, Inc.’s Definitive Proxy Statement on
      Schedule 14A, filed with the SEC on April 28,
  2004.
  (7)
              Incorporated
      by reference to Empire Resorts, Inc.’s Quarterly Report on Form 10-QSB for
      the quarter ended June 30, 2004.
  (8)
              Incorporated
      by reference to Empire Resorts, Inc.’s Quarterly Report on Form 10-QSB for
      the quarter ended September 30,
2004.
  (9)
              Incorporated
      by reference to Empire Resorts, Inc.’s Current Report on Form 8-K, filed
      with the SEC on January 14, 2005.
  (10)
              Incorporated
      by reference to Empire Resorts, Inc.’s Form 10-KSB for the year ended
      December 31, 2004, filed with the SEC on March 3,
  2005.
  (11)
              Incorporated
      by reference to Empire Resorts, Inc.’s Current Report on Form 8-K, filed
      with the SEC on May 27, 2005.
  (12)
              Incorporated
      by reference to Empire Resorts, Inc.’s Current Report on Form 8-K/A, filed
      with the SEC on December 15, 2005.
  (13)
              Incorporated
      by reference to Empire Resorts, Inc.’s Current Report on Form 8-K, filed
      with SEC on June 25, 2007.
  (14)
              Incorporated
      by reference to Empire Resorts, Inc.’s Current Report on Form 8-K, filed
      with the SEC on February 11, 2008.
  (15)
              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.
  (16)
              Incorporated
      by reference to Empire Resorts, Inc.’s Registration Statement on Form 8-A,
      filed on March 24, 2008
  (17)
              Incorporated
      by reference to Empire Resorts, Inc.’s Current Report on Form 8-K, filed
      with the SEC on March 24, 2008.
  (18)
              Incorporated
      by reference to Empire Resorts, Inc.’s Current Report on Form 8-K, filed
      with the SEC on April 2, 2008.
  INDEX
  (19)
              Incorporated
      by reference to Empire Resorts, Inc.’s Current Report on Form 8-K, filed
      with the SEC on April 29, 2008.
  (20)
              Incorporated
      by reference to Empire Resorts, Inc.’s Current Report on Form 8-K, filed
      with the SEC on July 2, 2008.
  (21)
              Incorporated
      by reference to Appendix B to Empire Resorts, Inc.’s Definitive Proxy
      Statement on Schedule 14A, filed with the SEC on October 8,
      2009.
  (22)
              Incorporated
      by reference to Empire Resorts, Inc.’s Current Report on Form 8-K, filed
      with the SEC on December 30, 2008.
  (23)
              Incorporated
      by reference to Empire Resorts, Inc.’s Current Report on Form 8-K, filed
      with the SEC on February 5, 2009.
  (24)
              Incorporated
      by reference to Empire Resorts, Inc.’s Annual Report on Form 10-K for the
      fiscal year ended December 31, 2008, filed with the SEC on March 13,
      2009.
  (25)
              Incorporated
      by reference to Empire Resorts, Inc.’s Current Report on Form 8-K, filed
      with the SEC on March 24, 2009.
  (26)
              Incorporated
      by reference to Empire Resorts, Inc.’s Current Report on Form 8-K, filed
      with the SEC on April 14, 2009.
  (27)
              Incorporated
      by reference to Empire Resorts, Inc.’s Current Report on Form 8-K, filed
      with the SEC on April 17, 2009.
  (28)
              Incorporated
      by reference to Empire Resorts, Inc.’s Current Report on Form 8-K, filed
      with the SEC on May 1, 2009.
  (29)
              Incorporated
      by reference to Empire Resorts, Inc.’s Current Report on Form 8-K, filed
      with the SEC on June 9, 2009.
  (30)
              Incorporated
      by reference to Empire Resorts, Inc.’s Current Report on Form 8-K, filed
      with the SEC on July 10, 2009.
  (31)
              Incorporated
      by reference to Empire Resorts, Inc.’s Current Report on Form 8-K, filed
      with the SEC on July 30, 2009.
  (32)
              Incorporated
      by reference to Empire Resorts, Inc.’s Quarterly Report on Form 10-Q,
      filed with the SEC on August 17,
2009.
  (33)
              Incorporated
      by reference to Empire Resorts, Inc.’s Current Report on Form 8-K, filed
      with the SEC on August 19, 2009.
  (34)
              Incorporated
      by reference to Empire Resorts, Inc.’s Current Report on Form 8-K, filed
      with the SEC on September 4, 2009.
  (35)
              Incorporated
      by reference to Empire Resorts, Inc.’s Current Report on Form 8-K, filed
      with the SEC on September 16, 2009.
  (36)
              Incorporated
      by reference to Empire Resorts, Inc.’s Current Report on Form 8-K, filed
      with the SEC on October 5, 2009.
  (37)
              Incorporated
      by reference to Empire Resorts, Inc.’s Current Report on Form 8-K, filed
      with the SEC on October 14, 2009.
  (38)
              Incorporated
      by reference to Empire Resorts, Inc.’s Current Report on Form 8-K, filed
      with the SEC on December 24, 2009.