NYNY Empire Resorts Inc

Item 4.02. Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review.

On March 12, 2019, the audit committee of the board of directors (the “Audit Committee”) and management of Empire Resorts, Inc. (“Empire” and, together with its subsidiaries, the “Company”), after discussions with Ernst & Young LLP (“E&Y”), the Company’s independent registered public accounting firm, concluded that the unaudited consolidated financial statements for the quarterly periods ended March 31, 2018, June 30, 2018, and September 30, 2018 (the “Restated Quarters”), which were issued in the Company’s previously filed Quarterly Reports on Forms 10-Q for such periods, should no longer be relied upon and have been restated in Note P to the audited financial statements contained in the Company’s Annual Report on Form 10-K (the “Form 10-K”) filed with the Securities and Exchange Commission today, March 15, 2019.

On November 1, 2014, Monticello Raceway Management, Inc. (“MRMI”), a wholly-owned subsidiary of Empire, and the Monticello Harness Horsemen’s Association (“MHHA”) entered into an agreement that governs the conduct of MRMI and MHHA relating to horseracing purse payments, the simulcasting of horse races and certain other payments (the “2014 MHHA Agreement”). Pursuant to the 2014 MHHA Agreement and that certain Securities Acquisition Agreement, dated March 3, 2014, between Empire and MHHA (the “MHHA SAA”), on March 16, 2018, Empire issued to MHHA 200,000 shares of common stock (the “MHHA Shares”), and on March 15, 2018, Empire issued to MHHA a warrant to purchase 60,000 shares of common stock at $81.50 per share (the “MHHA Warrants”). The funds generated from the sale of the MHHA Shares or the sale of any shares acquired by MHHA upon the exercise of the MHHA Warrants will be deposited into a purse account for the benefit of MHHA and its members. If, on February 8, 2025, the value of any MHHA Shares previously sold by MHHA and the fair market value of any MHHA Shares not sold by MHHA by February 8, 2025 is less than $5.5 million, then the Company agreed to deposit into the special purse account an amount equal to the difference between $5.5 million and the value of the shares of common stock sold by MHHA and not sold by MHHA.

Upon satisfaction of the conditions contained in the 2014 MHHA Agreement and the MHHA SAA, the Company issued the MHHA Shares and the MHHA Warrants on March 16, 2018 and March 15, 2018, respectively. On the date of issuance, the Company determined that the MHHA Shares had a fair value of $4.7 million, which had been recorded as a long-term asset, net of $1.4 million which was previously expensed through March 2018. In preparing its audited financial statements for the year ended December 31, 2018, the Audit Committee and management of the Company determined that based on further review of applicable technical accounting literature, the value of the MHHA Shares should be recognized as an expense upon issuance and the associated fair value of the guarantee liability of $5.5 million should be recognized as a liability classified guarantee.

The restatement of the Company’s consolidated financial statements for the Restated Quarters is set forth below in the tabular presentation.

The effect of the restatement to relevant financial line items included on the previously issued unaudited interim consolidated financial statements for the quarterly period ended March 31, 2018 was as follows:

The effect of the restatement to relevant financial line items included on the previously issued unaudited interim consolidated financial statements for the quarterly period ended June 30, 2018 was as follows:

The effect of the restatement to relevant financial line items on the previously issued unaudited interim consolidated financial statements for the quarterly period ended September 30, 2018 was as follows:

Our principal executive officer and principal financial officer reevaluated the effectiveness of our disclosure controls and procedures and our internal controls over financial reporting as of March 31, 2018, June 30, 2018 and September 30, 2018. In connection with the restatement, our principal executive officer and principal financial officer have determined that a material weakness existed in the Company’s internal control over financial reporting solely with respect to the recognition of expenses associated with the Company’s issuance of the MHHA Shares on its unaudited consolidated interim financial statements. The Company’s principal executive officer and principal financial officer have also concluded that, as a result, the Company’s disclosure controls and procedures were not effective at the reasonable assurance level as of March 31, 2018, June 30, 2018 and September 30, 2018.

In 2018, in connection with the opening of Resorts World Catskills, the internal control policies and procedures of the Company were expanded to address the increased scope of the Company’s operations. To remediate the material weakness surrounding the presentation of the recognition of expenses associated with the issuance of the MHHA Shares, the Company has reviewed these internal controls and enhanced the supervisory review of accounting processes in this financial reporting area.

The Audit Committee has discussed the matters disclosed in this Item 4.02 with E&Y and the management of the Company and has authorized and directed the Company to restate the financial information for the Restated Quarters. All such corrections were properly accounted for in the Form 10-K.

This Current Report on Form 8-K may contain “forward-looking statements” within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Statements preceded by, followed by, or that include the words “may,” “could,” “should,” “pro forma,” “looking forward,” “would,” “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” or similar expressions generally indicate a forward-looking statement. These forward-looking statements involve risks and uncertainties that are subject to change based on various important factors (some of which, in whole or in part, are beyond the Company’s control). These risks and uncertainties include, but are not limited to, the risk that additional information may arise during the course of the Company’s ongoing accounting review that would require the Company to make additional adjustments or revisions or to restate further the financial statements and other financial data for the Restated Quarters and/or additional historical periods. All forward-looking statements and information set forth herein are based on management’s current beliefs and assumptions as of the date hereof and speak only as of the date they are made. For a more complete discussion of the assumptions, risks and uncertainties related to our business, you are encouraged to review the Company’s filings with the Securities and Exchange Commission. The Company does not undertake to update any forward-looking statement whether written or oral, that may be made from time to time by the Company.