Summary of Significant Accounting Policies

Revenue recognition

The Company’s patron transactions primarily consist of gaming wagers, hotel room and food and beverage purchases. The transaction price for gaming wagers is the difference between gaming wins and losses, not the total amount wagered. The transaction price for hotel room and food and beverage purchases is the net amount collected from the patron for such goods and services. Hotel room and food and beverage goods and services have been determined to be separate, stand-alone transactions and the transaction price for such goods or services is recorded as revenue as they are transferred to the patron over the duration of the patron’s stay at the hotel or when the Company provides the food and beverage services. In the case of a hotel stay involving multiple days, the total transaction price of the stay is recognized on a straight-line basis. The Company collects advanced deposits from hotel patrons for future reservations representing obligations of the Company until the room stay is provided to the patron.

Gaming wagers by patrons who are members of our loyalty programs represent two performance obligations of the Company. Patrons who are members of our loyalty programs earn loyalty points for gaming wagers. Points awarded under our loyalty programs are given to members based on their gaming play and the promise to provide points to members is required to be accounted for as a separate performance obligation. The Company applies a practical expedient by accounting for gaming wagers on a portfolio basis, as such wagers have similar characteristics and the Company reasonably expects the effects on the financial statements of applying the revenue recognition guidance to the portfolio to not differ materially from that which would result if applying the guidance to each individual patron. For purposes of allocating the transaction price when loyalty points are earned, the Company allocates an amount to the loyalty point liability based on the stand-alone selling price ("SSP") of the points earned, which is determined by the value of a point that can be redeemed for a hotel room or food and beverage services. An amount is allocated to the gaming wager performance obligation using the residual approach as the stand-alone price for wagers is highly variable and no set established price exists for such wagers. The allocated revenue for gaming wagers is recognized when the wagers occur because all such wagers settle immediately. The loyalty point liability amount is deferred and recognized as revenue when the patron redeems the points for a hotel room stay or for food and beverage services and such goods or services are provided to the patron.

Additionally, outside of our loyalty programs and at our discretion, we offer our patrons complimentary goods and services, primarily food and beverage and hotel room stays. Such complimentaries are provided in conjunction with revenue-generating gaming activity and are largely provided to entice contemporaneous and future revenue-generating gaming activities. We allocate a portion of the transaction price for gaming wagers we receive from such patrons to the complimentary goods and services provided to such patrons using the residual approach. This allocation is based on the estimated SSP of the underlying goods and services provided, which are determined based on observed SSP we receive for selling such goods and services.

Food and beverage revenues and room revenues include (i) revenues generated from transactions with patrons for such goods and/or services, (ii) revenues recognized through the redemption of points from our loyalty programs for such goods and/or services, and (iii) revenues generated as a result of providing such goods and/or services on a complimentary basis in conjunction with gaming activities. Food and beverage revenues and room revenues are recognized when goods are delivered and services are performed. In general, performance obligations associated with these transactions are satisfied at a point-in-time, but may also be satisfied over a period of time, which is typically over the course of a patron’s stay. Advance deposits on rooms are reflected as a performance obligation liability until the goods and/or services are provided to the patron. The Company's performance obligation liabilities are included in “Accrued expenses and other current liabilities” on the condensed consolidated balance sheets.

Racing revenues include revenues earned from pari-mutuel wagering on live harness racing and simulcast signals to and from other tracks. Some elements of racing revenues from Off-Track Betting Corporations (“OTBs”) are recognized as collected, due to uncertainty of receipt and timing of payments.

Other revenues primarily include commissions received on ATM transactions and cash advances, as well as lottery tickets, which are recorded on a net basis as the Company represents the agent in its relationship with the third-party service providers. Other revenues also include the sale of retail goods, which are recognized at the time the goods are delivered to the customer.

Complimentary food and beverage revenues and complimentary room revenues for the three-month periods ended March 31, 2019 and 2018, respectively, were as follows:



	Three Months Ended
	March 31, 2019	March 31, 2018
	(in thousands)
Complimentary food and beverage revenues	$5,152	$1,016
Complimentary room revenues	1,328	164

The Company’s performance obligation related to its loyalty point obligation is generally completed within one year, as a patron’s loyalty point balance is forfeited after six months of inactivity, as defined in the loyalty programs. The Company’s deferred revenue liability for its loyalty point performance obligations was $1.8 million and $2.2 million at March 31, 2019 and December 31, 2018, respectively. Loyalty points are generally earned and redeemed continuously over time.

Leases

As described below and under "Recent accounting pronouncements," the Company adopted the provisions of new accounting standards and updates as codified in ASC Topic 842 regarding lease liabilities with corresponding right-of-use ("ROU") assets. The Company adopted this guidance as of January 1, 2019 using the modified retrospective approach. The modified retrospective approach provides a method for recording existing leases at adoption and in comparative periods that approximates the results of a full retrospective approach. In addition, the Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed us to carry forward the historical lease classification.

The adoption of the new standard resulted in recording of operating lease ROU assets and lease liabilities of approximately $65.0 million and $74.7 million, respectively, as of January 1, 2019, with the difference largely due to deferred rents that were reclassified to the operating lease ROU assets. The adoption of the standard did not materially impact our consolidated net earnings and had no impact on cash flows. Leases are described further in Note L.

Cash and cash equivalents

Cash and cash equivalents include cash on hand, demand deposits and certificates of deposit with original maturities of three months or less at acquisition. The Company maintains significant cash balances with financial institutions, which are not covered by the Federal Deposit Insurance Corporation. The Company has not incurred any losses in such accounts and believes it is not exposed to any significant credit risk on cash.

Restricted cash and equivalents

The Company has several types of restricted cash accounts. The restricted cash balances of $143,000 and $373,000 at March 31, 2019 and December 31, 2018, respectively, are in accordance with the New York State Gaming Commission (the "NYSGC") regulations. In addition, at March 31, 2019 and December 31, 2018, the Company had restricted cash of $15.9 million and $21.0 million, respectively, remaining from the proceeds of the Term Loan Facility (as defined below) held in the lender-controlled accounts pursuant to the Term Loan Facility. A portion of these funds were used during the three-month period ended March 31, 2019 to make final payments for the construction of the Casino and The Alder.

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same amounts shown in the statement of cash flows:



	March 31, 2019	December 31, 2018	March 31, 2018
	(in thousands)
Cash and cash equivalents	$13,958	$28,338	$29,632
Restricted cash	143	373	1,212
Restricted cash for Development Projects	15,889	21,039	33,799
Total cash, cash equivalents and restricted cash shown in the statement of cash flows	$29,990	$49,750	$64,643

Restricted cash and cash equivalents for Development Projects

Restricted cash and cash equivalents for Development Projects represent the remaining funds from the Term Loan Facility to be utilized for the Development Projects. At March 31, 2019 and December 31, 2018, restricted cash for Development Projects of $15.9 million and $21.0 million, respectively, was comprised entirely of cash and cash equivalent balances.

Accounts receivable

Accounts receivable, net of allowances, are stated at the amount the Company expects to collect. When required, an allowance for doubtful accounts is recorded based on information on the collectibility of specific accounts. Accounts are considered past due or delinquent based on contractual terms, how recently payments have been received and the Company’s judgment of collectibility. The Company extends credit to certain gaming patrons upon completion of a credit application process. Gaming patrons are expected to repay gaming markers within a predetermined period of time, the Company also settles wagers for other racetracks and is exposed to credit risk. These amounts 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. The Company recorded an allowance for doubtful accounts of approximately $147,000 and $150,000 at March 31, 2019 and December 31, 2018, respectively.

Capitalized Interest

Interest costs for the Term Loan Facility incurred in connection with the construction of the Development Projects have been capitalized in the cost of the projects. Capitalization ceased for the Casino and The Alder on March 31, 2018 and January 1, 2019, respectively, when the projects were substantially completed. Capitalization will cease for the Golf Course Project when substantially complete or if development activity is suspended for an extended period of time.

The Company capitalized $0.1 million and $10.1 million of interest charges during the three-month periods ending March 31, 2019 and March 31, 2018, respectively.

Debt issuance costs

Debt issuance costs are amortized using the effective interest method over the term of the related debt. The amortization is included within interest expense and is included as a component of the capitalized interest costs.

Long-lived assets and other financial assets

The Company periodically reviews the carrying value of its 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, the Company 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. In connection with the closure of the VGM operations and food and beverage service at MRMI, the approvals to close having been obtained on April 19, 2019, we are in the process of assessing the MRMI asset group for impairment.

The Company also reviews its financial assets (i.e., non-derivative financial assets) for impairment, if it becomes probable that the commitment will not result in the receipt of proceeds from the issuance of securities.

Other long-term liabilities

The difference between our cash payments and straight-line rent on our land leases and operating leases was $8.1 million at December 31, 2018 and was included in "Other long-term liabilities". In addition, the Company has accrued a liability-classified guaranty of approximately $2.3 million at both March 31, 2019 and December 31, 2018, related to the guaranty liability due under the MHHA Agreement (as defined below). The Company has also recorded a derivative liability in the form of a put option of approximately $1.0 million and $0.9 million at March 31, 2019 and December 31, 2018, respectively, relating to the bet365 Common Stock Purchase Agreement (as described below).

Common stock - loss per share

The Company computes basic loss per share by dividing net loss applicable to common shares by the weighted-average common shares outstanding for the period. 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 common stock equivalents is anti-dilutive with respect to losses, these common stock equivalents have been excluded from the Company’s computation of loss per common share. Therefore, basic and diluted loss per common share for the three-month periods ended March 31, 2019 and 2018 were the same.

The following table shows the approximate number of common stock equivalents outstanding at March 31, 2019 and 2018 that could potentially dilute basic loss per share in the future, but were not included in the calculation of diluted loss per share for the three-month periods ended March 31, 2019 and 2018, because their inclusion would have been anti-dilutive to the loss per common share:



	Outstanding at
	March 31, 2019	March 31, 2018
Unvested Restricted stock	19,000	151,000
Warrants	193,000	193,000
Restricted stock units ("RSUs")	443,000	73,000
Option matching rights	—	1,000
Options	—	12,000
Total	655,000	430,000

On August 19, 2009, the Company entered into an investment agreement (the "Investment Agreement") with Kien Huat Realty Limited ("Kien Huat"), pursuant to which Kien Huat purchased shares of common stock of the Company during the year ended December 31, 2009. Under the Investment Agreement, if any options or warrants outstanding at the time of the final closing under the Investment Agreement, or the first 200,000 options or warrants granted to directors or officers as of the final closing date under the Investment Agreement, are exercised, 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. The Company refers to these rights as the “Option Matching Rights.” The last remaining option matching rights expired in July 2018.

Interest Rate Cap Agreement

In February 2017, the Company entered into an interest rate cap agreement with Credit Suisse AG, International to limit its exposure to increases in interest rates on its Term B Loan (as defined below) from May 1, 2017 through February 28, 2018 and then for a portion of the balance of its Term B Loan through July 31, 2019 (the "Interest Rate Cap"). The Company paid $675,000 for the Interest Rate Cap. The cost of the Interest Rate Cap is amortized over its term as interest expense. The fair value of the Interest Rate Cap was $19,000 at March 31, 2019 and $143,000 at December 31, 2018, and is presented at fair value as "Other assets" on the condensed consolidated balance sheets. The difference between the fair value and amortized cost is recorded as an adjustment to "Accumulated other comprehensive loss".

Accumulated Other Comprehensive Loss

As of March 31, 2019 and December 31, 2018, accumulated other comprehensive loss was $0.2 million for each period and consisted solely of the fair value adjustment relating to the Interest Rate Cap.

Derivative Liability and Asset

The Company’s Collaboration Agreement with bet365 along with the related bet365 Common Stock Purchase Agreement (as both agreements are defined and discussed in Note I below) contained an initial put option that met the definition of a derivative instrument and a freestanding contingent forward instrument. The Company classified the initial put option as a long-term liability on its condensed consolidated balance sheet. Also, because, bet365 has or will be obligated to purchase shares of the Company’s common stock at a strike price less than the expected equity value once bet365’s Online Sportsbook Services (as defined in Note I below) are approved in New York State, we have classified the freestanding contingent forward instrument as a long-term asset on the condensed consolidated balance sheet. The derivative liability and the contingent forward asset were initially recorded at fair value upon the effective date of the Collaboration Agreement and are remeasured to fair value at each subsequent reporting date. Changes in the fair value of the derivative liability and long-term asset are recognized as a component of "Other income (expense)" on the condensed consolidated statement of operations and comprehensive loss.

Fair value

The Company follows the provisions of 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). The Company chose not to elect the fair value option as prescribed by the FASB for its financial assets and liabilities that had not been previously carried at fair value. The Company’s financial instruments are primarily comprised of current assets, restricted cash and investments, Interest Rate Cap, current liabilities, long-term debt, contingent forward contract, derivative instruments and a guaranty liability. Current assets, investments and current liabilities approximate fair value due to their short-term nature.

In determining fair value, the Company uses quoted prices and observable inputs. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company.

The fair value hierarchy of observable inputs used by the Company is broken down into three levels based on the source of inputs as follows:

- Level 1 - Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities.

- Level 2 - Valuations based on inputs that are observable inputs and quoted prices in active markets for similar assets and liabilities.

- Level 3 - Valuations based on inputs that are unobservable and models that are significant to the overall fair value measurement.

The following table presents the carrying amount, fair values and classification level within the fair value hierarchy of financial instruments measured or disclosed at fair value on a recurring basis:



	March 31, 2019		December 31, 2018
	Carrying Amount	Fair Value	Carrying Amount	Fair Value	Level of Fair Value Hierarchy
Assets:	(in thousands)
Cash and cash equivalents	$13,958	$13,958	$28,338	$28,338	Level 1
Restricted cash	143	143	373	373	Level 1
Interest Rate Cap	19	19	143	143	Level 2
Restricted cash and cash equivalents for Development Projects	15,889	15,889	21,039	21,039	Level 1
Other assets:
Non-derivative financial asset - Series F Preferred Stock, redeemable	25,662	25,662	31,122	31,122	Level 2
Contingent forward contract - bet365	104	104	1,865	1,865	Level 3

Liabilities:
Term B Loan, net of discount	439,889	439,870	440,803	440,660	Level 2
Term A Loan	62,988	62,988	64,750	64,750	Level 2
Bangkok Bank Loan	20,000	20,000	20,000	20,000	Level 3
Revolving Credit Facility	15,000	15,000	15,000	15,000	Level 2
Long-term loan, related party, net of debt issuance costs	31,939	31,939	30,954	30,954	Level 3
Equipment loans	16,493	16,493	20,384	20,384	Level 3
Guaranty liability - MHHA agreement	2,306	2,306	2,300	2,300	Level 2
Derivative liability - bet365	994	994	879	879	Level 3

Valuation of Derivative Liability and Contingent Forward Contract

The fair value of the derivative liabilities and asset recognized in connection with the Collaboration Agreement and the bet365 Common Stock Purchase Agreement (see Note I) was determined based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy. The derivative liability for the initial put option was recorded in "Other long-term liabilities" on the consolidated balance sheets. The contingent forward contract was recorded net of the contingent put option in "Other assets" on the condensed consolidated balance sheets. The fair value of the derivative liabilities and asset was determined using a Monte Carlo simulation valuation approach with the following assumptions:



	March 31, 2019		December 31, 2018
	Derivative Liability - bet365	Contingent forward contract - bet365	Derivative Liability - bet365	Contingent forward contract - bet365
Equity value	$21.66	$21.66	$29.48	$29.48
Strike price	$20.00	$18.81	$20.00	$20.00
Expected term	3.08 years	2.76 years	3.46 years	3.13 years
Volatility	61%	61%	61%	62%
Risk-free rate	2.2%	2.2%	2.9%	2.9%
Dividend yield	—	—	—	—

The following table provides a roll forward of the aggregate fair values of the Company’s derivative liabilities and asset, for which fair value is determined using Level 3 inputs (in thousands):



	March 31, 2019
	Derivative Liability - bet365	Contingent forward contract -bet365
Balance as of December 31, 2018	$(879)	$1,865
Change in fair value	$(115)	$(1,761)
Balance as of March 31, 2019	$(994)	$104

Valuation of Non-Derivative Liability

The fair value of the guaranty liability recognized in connection with the MHHA Agreement (see Note I) was determined based on significant inputs that are observable and quoted prices in active markets for similar liabilities, which represents a Level 2 measurement within the fair value hierarchy. The fair value of the derivative liability was determined using a Black Scholes valuation approach with the following assumptions:



	March 31, 2019	December 31, 2018
	Guaranty Liability - MHHA Horsemen	Guaranty Liability - MHHA Horsemen
Equity value	$10.05	$10.13
Strike price	$27.50	$27.50
Expected term	5.86 years	6.11 years
Volatility	68%	68%
Risk-free rate	2.2%	2.6%
Dividend yield	—	—

Stock-based compensation

The cost of all stock-based awards to employees, including grants of employee restricted stock units, is recognized in the financial statements based on the fair value of the awards at grant date. 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 March 31, 2019, there was approximately $3.9 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Company’s equity compensation plan. That cost 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.

Income taxes

The Company applies 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.

Intangible Assets

In accordance with ASC 350, Intangibles - Goodwill and Other, the Company amortizes intangible assets over their estimated useful lives unless the Company determines their lives to be indefinite.

The Company paid $51 million to the NYSGC on February 25, 2016 for a gaming facility license (the "Gaming Facility License"). The term of the Gaming Facility License is 10 years and the amortization commenced on the date the Casino opened to the public in February 2018. Beginning in February 2018, the Company recognized amortization on a straight line basis and will continue to amortize approximately $6.3 million annually over the next seven years until the license is up for renewal in 2026. The Company will assess the intangible asset for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired.

Seasonality

The gaming market in the northeastern United States is seasonal in nature. Peak gaming activities occur during the months of May through September.

Segment Reporting

The Company maintains discrete financial information for each of its operating companies, which is used by the Chief Executive Officer (the "CEO") as the basis for allocating resources. Each company has been identified as an operating segment and meets the criteria for aggregation due to similar economic characteristics as all of the companies provide similar gaming and entertainment services and shares similar processes for delivering services. Our companies have a high degree of similarity in the workforces and target similar patron groups. Accordingly, based on these economic and operational similarities and the way the CEO monitors and makes decisions, the Company has concluded that its operating segments may be aggregated and that it has one reportable segment.

Recent accounting pronouncements

In February 2016, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") 2016-02, "Leases (Topic 842)" ("ASU 2016-02"). This ASU requires lessees to recognize most leases on their balance sheets as lease liabilities with corresponding ROU assets. ASU 2016-02 takes effect for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The standard must be adopted using a modified retrospective approach and provides for certain practical expedients. The Company adopted the standard on January 1, 2019 and applied the package of practical expedients available to it upon adoption, which among other alternatives, allows us to carry forward the historical lease classification. The adoption of this standard did not not materially affect our consolidated net income or cash flows. See Note L for further details.