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
Companys 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 Companys 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 Companys 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 Horsemens 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 Companys consolidated financial statements for the Restated Quarters is set forth below in the tabular
presentation.