Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
NYNY > SEC Filings for NYNY > Form 10-K on 21-Mar-2013All Recent SEC Filings

Show all filings for EMPIRE RESORTS INC | Request a Trial to NEW EDGAR Online Pro

Form 10-K for EMPIRE RESORTS INC


21-Mar-2013

Annual Report


Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion of our financial condition and results of operations should be read in conjunction with the consolidated Financial Statements and Notes thereto appearing elsewhere in this document. Overview
We were organized as a Delaware corporation on March 19, 1993, and since that time have served as a holding company for various subsidiaries engaged in the hospitality and gaming industries.
Through our wholly-owned subsidiary, MRMI, we currently own and operate Monticello Casino and Raceway, a 45,000 square foot VGM and harness horseracing facility located in Monticello, New York, 90 miles northwest of New York City. Monticello Casino and Raceway operates 1,110 VGMs which includes 20 ETGs. VGMs are similar to slot machines, but they are connected to a central system and report financial information to the central system. We also generate racing revenues through pari-mutuel wagering on the running of live harness horse races, the import simulcasting of harness and thoroughbred horse races from racetracks across the country and internationally, and the export simulcasting of our races to offsite pari-mutuel wagering facilities. Off-Balance Sheet Arrangements
None.
Critical Accounting Policies
The preparation of financial statements in conformity with generally accepted accounting principles ("GAAP") requires management to make estimates and assumptions that affect the amounts reported in the financial statements and judgments related to the application of certain accounting policies. While we base our estimates on historical experience, current information and other factors deemed relevant, actual results could differ from those estimates. We consider accounting estimates to be critical to our reported financial results if (i) the accounting estimate requires us to make assumptions about matters that are uncertain and (ii) different estimates that we reasonably could have used for the accounting estimate in the current period, or changes in the accounting estimate that are reasonably likely to occur from period to period, would have a material impact on our financial statements.
We consider our policies for revenue recognition to be critical due to the continuously evolving standards and industry practice related to revenue recognition, changes which could materially impact the way we report revenues. Accounting polices related to: accounts receivable, impairment of long-lived assets, stock-based compensation, fair value and income taxes are also considered to be critical as these policies involve considerable subjective judgment and estimation by management. Critical accounting policies, and our procedures related to these policies, are described in detail below. Revenue recognition and Promotional allowances Revenues represent (i) gaming revenue and (ii) food and beverage sales, racing and other miscellaneous revenue.
Gaming revenue is the net difference between gaming wagers and payouts for prizes from VGMs, non-subsidized free play and accruals related to the anticipated payout of progressive jackpots. Progressive jackpots contain base jackpots that increase at a progressive rate based on the credits played and are charged to revenue as the amount of the jackpots increase. We recognize gaming revenues before deductions of such related expenses as NYL's share of VGM revenue and the Monticello Harness Horsemen's Association (the "Horsemen") and Agriculture and New York State Horse Breeding Development Fund's contractually required percentages.
Food, beverage, racing and other revenue, includes food and beverage sales, racing revenue earned from pari-mutuel wagering on live harness racing and simulcast signals to and from other tracks and miscellaneous income. We recognize racing revenues before deductions of such related expenses as purses, stakes and awards. Some elements of the racing revenues from Off-Track Betting Corporations ("OTBs") are recognized as collected, due to uncertainty of receipt of and timing of payments.
Net revenues are recognized net of certain sales incentives in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Certification ("ASC") 605-50, "Revenue Recognition-Customer Payments and Incentives".


Table of Contents

The retail value of complimentary food, beverages and other items provided to our guests is included in gross revenues and then deducted as promotional allowances. The estimated cost of providing such food, beverage and other items as promotional allowances is included in food, beverage, racing and other expense. In addition, promotional allowances include non-subsidized free play offered to our guests based on their relative gaming worth and prizes included in certain promotional marketing programs. Accounts receivable
Accounts receivable, net of allowances, are stated at the amount we expect to collect. When required, an allowance for doubtful accounts is recorded based on information on the collectability of specific accounts. Accounts are considered past due or delinquent based on contractual terms and how recently payments have been received and 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 charged against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. As of December 31, 2012 and December 31, 2011, we recorded an allowance for doubtful accounts of approximately $202,000 and $177,000, respectively. 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. As of December 31, 2012, there was approximately $253,000 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under our equity compensation plans. That cost is expected to be recognized over a period of two years. This expected cost does not include the impact of any future stock-based compensation awards.
Fair value
We follow the provisions of Financial Accounting Standards Board Accounting Standards Certification ("ASC") 820, "Fair Value Measurement," issued by the FASB for financial assets and liabilities. This standard defines fair value, provides guidance for measuring fair value, requires certain disclosures and discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow) and the cost approach (cost to replace the service capacity of an asset or replacement cost). 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, current liabilities and a long-term loan. Current assets and current liabilities approximate fair value due to their short-term nature. As of December 31, 2012, our management was unable to estimate reasonably the fair value of the long-term loan due to the inability to obtain quotes for similar credit facilities.
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.


Table of Contents

Results of Operations
The results of operations for the year ended December 31, 2012 and 2011 are summarized below (dollars in thousands):

                                                                    Variance    Variance
                                            2012         2011          $            %
Revenues:
Gaming                                   $ 63,402     $ 61,388     $  2,014          3  %
Food, beverage, racing and other           12,220       11,634          586          5  %
Gross revenues                             75,622       73,022        2,600          4  %
Less: Promotional allowances               (3,649 )     (2,826 )       (823 )      (29 )%
Net revenues                               71,973       70,196        1,777          3  %
Costs and expenses:
Gaming                                     45,955       44,497       (1,458 )       (3 )%
Food, beverage, racing and other           10,779       10,388         (391 )       (4 )%
Selling, general and administrative        12,820       11,534       (1,286 )      (11 )%
Stock-based compensation                      647        1,215          568         47  %
Depreciation                                1,380        1,325          (55 )       (4 )%
Total costs and expenses                   71,581       68,959       (2,622 )       (4 )%
Income from operations                        392        1,237         (845 )      (68 )%
Amortization of deferred financing costs      (30 )          -          (30 )     (100 )%
Interest expense                           (1,063 )     (1,225 )        162        (13 )%
Interest income                                 4            6           (2 )      (33 )%
Income (loss) before income taxes            (697 )         18         (715 )   (3,972 )%
Income tax provision                           16           42          (26 )      (62 )%
Net loss                                 $   (713 )   $    (24 )   $   (689 )   (2,871 )%

Gaming revenue
Gaming revenue increased by $2.0 million, or 3%, for the year ended December 31, 2012, as compared to the year ended December 31, 2011. Our number of daily visits for 2012 were flat with 2011; however, the average daily win per unit increased 3% from $151.52 for the year ended December 31, 2011 to $156.49 for the year ended December 31, 2012, as we concentrated our marketing efforts on more high valued gaming guests. Our VGM hold percentage was 7.3% and 7.1% for the year ended December 31, 2012 and 2011, respectively. Food, beverage, racing and other revenue Food, beverage, racing and other revenue increased by approximately $586,000 or 5%, for the year ended December 31, 2012 as compared to the year ended December 31, 2011, primarily the result of an increase in racing revenue of approximately $491,000 from higher year over year statutory payments as well as an increase in Other Revenue of approximately $95,000.
Racing revenue increased primarily due to the Off-Track Betting Parlors making their statutory payments on a timely and consistent basis. Food, beverage and other revenue increased due to more marketing offers than last year. Promotional allowances
Promotional allowances increased by approximately $823,000, or 29%, for the year ended December 31, 2012, as compared to the year ended December 31, 2011. The increase was due to increased non-subsidized free play of approximately $426,000, an increase in allowances for food and beverage of approximately $251,000 and an increase in Players Club awards of $146,000.


Table of Contents

Gaming costs
Gaming costs increased by $1.5 million, or 3%, for the year ended December 31, 2012, as compared to the year ended December 31, 2011 primarily due to $1.1 million increase in regulatory fees resulting from higher gaming revenue and $400,000 in other Gaming related expenses. Food, beverage, racing and other costs
Food, beverage, racing and other costs increased approximately $391,000, or 4%, for the year ended December 31, 2012, as compared to the year ended December 31, 2011, primarily due to increased racing payroll expense of $150,000 as well as increased benefits expense of $12,000. Food and beverage payroll expense increased $48,000 with benefits expense increasing $107,000 for a total increase of $317,000.An increase in cost of goods sold of approximately $45,000 and cost of purses of approximately $103,000. These increases are partially offset by a decrease in operating supplies of $14,000 as well as a decrease in miscellaneous racing costs of $60,000.
Selling, general and administrative expenses Selling, general and administrative expenses increased $1.3 million , or 11%, for the year ended December 31, 2012, as compared to the year ended December 31, 2011, primarily due to increased legal fees of $1.4 million as a result of additional work associated with pending litigation. Professional and Consulting fees increased approximately $379,000 associated with various projects being conducted by the Company. Payroll increased approximately $222,000 because of increased bonus accrual and increased benefits expense. Marketing expenses increased due to more marketing programs year over year of approximately $402,000. This increase was offset by a decrease in development fees of $1.0 million.

Stock-based compensation expense
Stock-based compensation decreased approximately $568,000 or 47% for the year ended December 31, 2012, as compared to the year ended December 31, 2011, primarily due to fewer options vesting and fewer options granted . Interest expense
Interest expense increased approximately $162,000 or 13% for the year ended December 31, 2012, as compared to the year ended December 31, 2011. The increase was due to an increase in the interest rate, from 5% to 7.5%, of the loan agreement between the Company and Kien Huat that became effective per the Amendment to the Loan Agreement dated August 9, 2012. Income tax provision
Income tax provision decreased by approximately $26,000 or 62% for the year ended December 31, 2012, as compared to the year ended December 31, 2011, primarily due to state minimum and capital based taxes incurred during the year ended December 31, 2012.
Liquidity and Capital Resources
The accompanying consolidated financial statements have been prepared on a basis that contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. We anticipate that our current cash and cash equivalents and cash generated from operations will be sufficient to meet our strategic and working capital requirements for at least the next twelve months. Whether these resources are adequate to meet our liquidity needs beyond that period will depend on our growth and operating results. If we require additional capital resources to grow our business at a future date, we may seek to sell additional debt or equity in public or private transactions, which may include underwritten offerings to the public or rights offerings to current stockholders. The sale of additional equity could result in additional dilution to our existing stockholders and financing arrangements may not be available to us, or may not be available in amounts or on terms acceptable to us.
On December 14, 2012, EPT Concord II, LLC ("EPT"), a wholly owned subsidiary of Entertainment Properties Trust, and MRMI entered into a master development agreement (the "MDA") to develop EPT's 1,500 acres located at the site of the former Concord Resort (the "EPT Property"). The MDA defines and governs the overall relationship between EPT and MRMI with respect to the development, construction, operation, management and disposition of the integrated destination resort and community (the "Project") to be developed by the parties on the EPT Property. In accordance with the terms of the MDA, MRMI has agreed to invest a minimum of $300 million in the development and construction of a casino and a harness racetrack and may also include one or more hotels, food and beverage outlets, a spa facility, retail venues, space for conferences,


Table of Contents

meetings, entertainment and special events in a multi-purpose conference space supported by separate meeting rooms and parking facilities (the "Casino Project"), which is a portion of the larger Project being developed by EPT and us. This amount will likely be needed over the next eighteen months as development continues. To date, our project development costs have included the $750,000 Option Payment to EPT and the additional prorated Option Payment of $472,603 by us to EPT. In addition to the Option Payments to EPT upon extension of the Option, project development costs included other direct costs incurred by the Company in consummating the Option Agreement and related lease, as well as other project development costs for the EPT Property. At December 31, 2012, project development costs totaled approximately $11.5 million. Additional capital resources will be required to meet the Company's obligations with respect to the Project and, particularly, the Casino Project, for which additional capital in the form of debt or equity will be required.. The sale of additional equity could result in significant dilution of the Company's existing stockholders and financing arrangements may not be available to the Company, or may not be available in the amounts or on terms acceptable to the Company. If required funds are unavailable, or not available on acceptable terms, we may be required to delay, scale back or eliminate some of our obligations with respect to the Project and Casino Project.
On November 17, 2010, we entered into a loan agreement (the "Loan Agreement") with Kien Huat Realty III Limited ("Kien Huat"), our largest stockholder,to provide us a short-term bridge loan to a rights offering (the "Bridge Loan"), subject to the terms and conditions set forth in the Loan Agreement and represented by a convertible promissory note (the "Note"), dated November 17, 2010. Proceeds of the Bridge Loan were used to effectuate the repurchase of our then outstanding 5 1/2% Convertible Senior Notes due 2014 (the "Senior Notes") in accordance with the terms of a settlement agreement between the Company and certain beneficial owners of the Senior Notes, dated as of September 23, 2010. The Note provided that the Bridge Loan bears interest at a rate of 5% per annum, payable in cash in arrears monthly, during its initial term. The maturity date of the Bridge Loan was the earlier of the consummation of our rights offering and June 30, 2011 (the "Outside Date"). As of May 20, 2011, the date of the consummation of the rights offering described below, certain conditions including (1) five business days have passed after the date on which the rights issued in the rights offering expire and the offering of our common stock pursuant thereto is terminated, (2) we prepaid the indebtedness in an amount equal to 100% of the aggregate amount of gross proceeds received by us for exercised rights pursuant to the rights offering, (3) the proceeds from the rights offering are insufficient to repay the Bridge Loan in full and we have not otherwise prepaid the Bridge Loan in full, and (4) no monetary or other material default as defined in the Loan Agreement is continuing, were satisfied, the maturity date of the remaining unpaid principal amount of the Bridge Loan was extended for a term of two years at an interest rate of 5% per annum convertible at a price equal to the exercise price of the rights issued in the rights offering (period of such extension is referred to as the "Extension Term").
Subject to and upon compliance with the provisions of the Loan Agreement, during the Extension Term, Kien Huat has the right to convert all or any portion of the principal sum evidenced by the Note such that the unconverted portion is $1,000 or a multiple of $1.00 in excess thereof into fully paid and non-assessable shares of our common stock at a conversion rate of initially 377 shares of common stock per $1,000 in principal amount, which represents a conversion price of approximately $2.65 per share, subject to adjustment in accordance with the Loan Agreement, by surrender of the Note, in whole or in part in the manner provided in the Loan Agreement.
If, as of any date during the Extension Term (the "Measuring Date"), the average of the last reported bid prices of common stock for the twenty consecutive trading days as defined in the Loan Agreement, ending on the trading day prior to the Measuring Date exceeds 200% of the conversion price in effect on the Measuring Date, then we are entitled to elect that Kien Huat convert all of the principal sum evidenced by the Note into shares of our common stock in accordance with the terms and provisions of the Loan Agreement. If we do not elect to force conversion of the Note and there have been no events of default as defined in the Loan Agreement, we may voluntarily prepay the Bridge Loan in whole or in part, with all interest accrued through the applicable period, absent notice from Kien Huat of its election to convert the Note. On March 28, 2011, we commenced a rights offering. All holders of our common stock and holders of our Series B Preferred Stock were granted the non-transferrable right to purchase 0.18917 shares of our common stock at a price of $2.65 per share for each share they hold. Pursuant to a letter agreement, dated November 5, 2010, Kien Huat, our largest stockholder, agreed to exercise its entire allocation of basic subscription rights. The proceeds of the rights offering were used to repay amounts outstanding under the Bridge Loan. Since the proceeds were insufficient to repay in full all amounts outstanding under the Bridge Loan, including principal and accrued interest thereon, Kien Huat has converted the remaining unpaid into a convertible term loan with a term of two years, which bears interest at a rate of 5% per annum and will be convertible at a price equal to the exercise price of the rights issued in the rights offering. The expiration date of this rights offering was extended until May 20, 2011.
On May 20, 2011 the rights offering was consummated and our stockholders validly subscribed for 6,628,925 shares of our common stock, par value $0.01 per share, in the rights offering. The rights were exercised at $2.65 per share, resulting in


Table of Contents

total gross proceeds of approximately $17.6 million, which were used to repay the Bridge Loan. Pursuant to the Loan Agreement, we have satisfied the conditions to extend the maturity date of the remaining unpaid principal amount of the Bridge Loan to May 17, 2013. On August 9, 2012, the Company and Kien Huat entered into Amendment No. 1 (the "Amendment") to the Loan Agreement. Pursuant to the Amendment, the maturity date of the loan made pursuant to the Loan Agreement (the "Loan") was extended from May 17, 2013 to December 31, 2014. In consideration of the extension of the maturity date of the Loan, effective as of the Amendment Date, the rate of interest was amended to be 7.5% per annum in place of 5% per annum. In addition, the Company agreed to pay Kien Huat upon execution a one-time fee of $174,261, or 1% of the outstanding principal amount of the Loan as of the date of the Amendment. Except for these amendments, the Loan Agreement remains unchanged and in full force and effect. On September 30, 2011, the Company's board of directors (the "Board") unanimously voted to adopt and recommended stockholders approve an amendment to Empire's amended and restated certificate of incorporation affecting a one-for-three reverse stock split of its common stock (the "Reverse Split"). The Reverse Split was approved by the Company's stockholders at the annual meeting on December 13, 2011. The Reverse Split is reflected in share data and earnings per share data contained herein for all periods presented. The par value of the common stock was not affected by the reverse stock split and remains at $0.01 per share. Consequently, on the Company's consolidated balance sheets and consolidated statements of stockholders' equity, the aggregate par value of the issued common stock was reduced by reclassifying the par value amount of the eliminated shares of common stock to additional paid-in capital. As of December 31, 2012, we had total current assets of approximately $14.1 million and current liabilities of approximately $10.2 million. We expect that we will be able to fund our operations in the ordinary course of business over at least the next twelve months.
Net cash provided by operating activities was approximately $3.0 million and $3.3 million during the years ended December 31, 2012 and 2011, respectively, which was primarily the result of the net change in operating assets and liabilities.
Net cash used in investing activities was approximately $8.6 million and $1.5 million for the years ended December 31, 2012 and 2011, respectively. The increase of approximately $7.1 million was primarily a result of increased project development costs $7.4 million in 2012 compared to payments of $750,000 in 2011 related to the Sullivan County development project partially offset by the decrease in purchase of property and equipment of approximately $163,000 and the change in restricted cash of $169,000.
Net cash used in financing activities was approximately $1,000 and $177,000 for the years ended December 31, 2012 and 2011, respectively. The decrease was due to lower stock issuance costs during the year ended December 31, 2012. At December 31, 2012, we had undeclared dividends on our Series E Preferred Stock of approximately $13.9 million and undeclared dividends for 2012 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 12, 2013, our Board authorized the issuance of 75,530 shares of our common stock in payment of dividends due for the year ended December 31, 2012 on our Series B Preferred Stock. The recorded value of these shares was approximately $167,000.
On March 13, 2012, our Board authorized the issuance of 92,414 shares of our common stock in payment of dividends due for the year ended December 31, 2011 on our Series B Preferred Stock. The recorded value of these shares was approximately $234,000.
On March 14, 2011, our Board authorized issuance of 59,548 shares of our common stock in payment of dividends due for the year ended December 31, 2010 on our Series B Preferred Stock. The value of these shares when issued was approximately $114,000.
Our common stock is transferable only subject to the provisions of Section 303 of the Racing, Pari-Mutuel Wagering and Breeding Law, so long as we hold directly or indirectly, a license issued by the RWB, and may be subject to compliance with the requirements of other laws pertaining to licenses held . . .

  Add NYNY to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for NYNY - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial      Sign Up Now


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.