U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
OR
[ ] TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____________________
TO _____________________
Commission File No. 0-20630
FULL HOUSE RESORTS, INC.
------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 13-3391527
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Deadwood Gulch Resort
Highway 85 South
P.O. Box 643
Deadwood, South Dakota 57732
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(Address of principal executive offices) (zip code)
(605) 578-1294
-------------------------------
(Registrant's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 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
APPLICABLE ONLY TO CORPORATE ISSUERS
As of August 14, 1996, Registrant had 10,339,549 shares of its $.0001 par value
common stock outstanding.
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FULL HOUSE RESORTS, INC.
TABLE OF CONTENTS
PAGE
PART I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of
June 30, 1996 (unaudited) and December 31, 1995 3
Consolidated Statements of Operations for the
three months and six months ended June 30, 1996
and 1995 (unaudited) 4
Consolidated Statements of Cash Flows for the
six months ended June 30, 1996 and 1995
(unaudited) 5
Notes to Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II. Other Information 16
Signature Page 17
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<TABLE>
<CAPTION>
FULL HOUSE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31,
1996 1995
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,451,719 $ 356,754
Restricted cash 468,963 224,775
Accounts receivable 47,250 24,959
Receivable from GTECH 143,077 1,149,486
Receivables from joint ventures - 10,211,703
Inventories 105,737 90,730
Prepaid expenses 248,313 373,217
----------- -----------
Total current assets 3,465,059 12,431,624
GAMING RIGHTS 3,258,836 3,258,836
ASSETS HELD FOR SALE - net 6,346,659 6,560,333
INVESTMENTS IN JOINT VENTURES 849,634 862,508
GOODWILL - net 2,657,919 2,912,698
OTHER ASSETS 14,274 11,750
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TOTAL $16,592,381 $26,037,749
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 652,173 $11,042,260
Accounts payable 643,130 386,914
Accrued expenses 349,030 611,334
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Total current liabilities 1,644,333 12,040,508
LONG-TERM DEBT, net of current portion 6,678,840 4,545,194
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS EQUITY:
Cumulative, convertible preferred stock, par value $.0001,
5,000,000 shares authorized; 700,000 shares issued and
outstanding; aggregate liquidation preference of
$2,940,000 and $2,835,000 70 70
Common stock, par value $.0001, 25,000,000 shares authorized;
10,339,549 shares issued and outstanding 1,034 1,034
Additional paid in capital 16,413,315 16,413,315
Accumulated deficit (8,145,211) (6,962,372)
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Total stockholders equity 8,269,208 9,452,047
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TOTAL $ 16,592,381 $26,037,749
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</TABLE>
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<TABLE>
<CAPTION>
FULL HOUSE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Casino $ 387,955 $ 417,549 $ 686,849 $ 696,428
Hotel/RV park 352,391 332,894 558,645 515,862
Retail 319,893 306,342 547,355 501,321
Food and beverage 195,394 204,330 374,020 323,837
Fun park 216,417 238,711 263,743 288,743
Joint ventures 217,231 - 389,399 -
----------- ----------- ----------- ----------
1,689,281 1,499,826 2,820,011 2,326,191
Less: promotional allowances (40,288) (65,272) (92,425) (104,705)
----------- ----------- ----------- ----------
Net operating revenues 1,648,993 1,434,554 2,727,586 2,221,486
----------- ----------- ----------- ----------
OPERATING COSTS AND EXPENSES:
Casino 279,429 319,873 538,388 603,596
Hotel/ RV park 156,993 178,398 287,531 295,898
Retail 288,221 271,038 501,154 451,632
Food and beverage 157,297 156,230 289,097 262,812
Fun park 160,621 201,675 231,228 278,832
Sales and marketing 59,218 80,666 112,401 118,356
General and administrative 620,103 621,755 1,121,593 1,287,187
Depreciation and amortization 129,108 163,889 259,825 326,611
Abandoned project costs - 1,770,605 - 1,770,605
Impairment of long-lived assets - - 250,000 -
Other - 100,000 - 100,000
----------- ----------- ----------- ----------
Total operating costs and expenses 1,850,990 3,864,129 3,591,217 5,495,529
----------- ----------- ----------- ----------
LOSS FROM OPERATIONS (201,997) (2,429,575) (863,631) (3,274,043)
OTHER INCOME (EXPENSE):
Interest expense and debt issue costs (121,956) (211,987) (373,071) (299,777)
Interest and other income 26,449 4,833 53,863 10,978
----------- ----------- ----------- ----------
NET LOSS (297,504) (2,636,729) (1,182,839) (3,562,842)
Less, undeclared dividends
on cumulative preferred stock (52,500) (52,500) (105,000) (105,000)
----------- ----------- ----------- ----------
NET LOSS APPLICABLE TO
COMMON SHARES $ (350,004) $ (2,689,229) (1,287,839) (3,667,842)
=========== =========== =========== ==========
LOSS PER COMMON SHARE $ (0.03) $ (0.27) $ (0.12) $ (0.39)
=========== =========== =========== ==========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 10,339,549 10,023,304 10,339,549 9,461,283
=========== =========== =========== ==========
</TABLE>
See notes to consolidated financial statements.
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<TABLE>
<CAPTION>
FULL HOUSE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
June 30,
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss $ (1,182,839) $ (3,562,842)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 259,825 326,611
Debt issue costs 18,624 22,546
Abandoned project costs - 1,770,605
Impairment of long-lived assets 250,000 -
Other non cash expense - 100,000
Changes in assets and liabilities:
Increase in restricted cash (244,188) -
Increase in accounts receivable (22,291) (1,358)
Increase in inventories (15,007) (8,606)
(Increase) decrease in prepaid expenses 124,904 (90,669)
Increase (decrease) in accounts payable
and accrued expenses (6,088) 482,479
------------ ------------
Net cash used in operating activities (817,060) (961,234)
------------ ------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchases of property and equipment (58,642) (104,242)
Increase in investments in joint ventures 12,874 -
Decrease in receivables from GTECH and joint ventures 11,218,112 -
Increase in note receivable - (5,734,045)
Gaming development costs - (227,067)
Increase in other assets (3,878) (530,994)
Other - 9,122
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Net cash provided by (used in) investing activities 11,168,466 (6,587,226)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt 3,000,000 9,239,906
Repayment of debt (11,256,441) (1,310,762)
Payment of debt issue costs - (260,818)
Proceeds from sale of common stock,
net of offering costs - (8,797)
------------ ------------
Net cash provided by (used in) financing activities (8,256,441) 7,659,529
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,094,965 111,069
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 356,754 384,670
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,451,719 $ 495,739
============ ============
</TABLE>
See notes to consolidated financial statements.
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FULL HOUSE RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INTERIM FINANCIAL STATEMENTS - The interim consolidated financial
statements of Full House Resorts, Inc. (the "Company") included herein
reflect all adjustments which are, in the opinion of management, necessary
to present a fair statement of the results for the interim periods
presented. All such adjustments are of a normal recurring nature. Certain
information and note disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have
been omitted pursuant to the rules and regulations of the Securities and
Exchange Commission.
These consolidated financial statements should be read in conjunction with
the consolidated financial statements and notes thereto included in Full
House Resorts, Inc.'s Annual Report on Form 10-KSB for the year ended
December 31, 1995.
The results of operations for the period ended June 30, 1996 are not
necessarily indicative of the results to be expected for the year ending
December 31, 1996.
CONSOLIDATION - The consolidated financial statements include the accounts
of the Company and all its majority-owned subsidiaries. All material
intercompany accounts and transactions have been eliminated.
2. RECENTLY ISSUED ACCOUNTING STANDARDS ADOPTED
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 123, "ACCOUNTING FOR
STOCK-BASED COMPENSATION," which was adopted by the Company during the
first quarter of 1996. SFAS No. 123 requires expanded disclosures of
stock-based compensation arrangements with employees and encourages (but
does not require) compensation cost to be measured based on the fair value
of the equity instrument awarded. Companies are permitted, however, to
continue to apply APB Opinion No. 25, which recognizes compensation cost
based on the intrinsic value of the equity instrument awarded. The Company
will continue to apply APB Opinion No. 25 to its stock-based compensation
awards to employees and will disclose the required pro forma effect on net
income and earnings per share.
3. GTECH LOAN
On January 26, 1996, GTECH loaned the Company $3 million, which loan is
convertible, subject to regulatory approval, into 600,000 shares of the
Company's common stock. The loan is non-interest bearing through January
25, 1998, at which time the note begins to accrue interest at the prime
rate. Monthly interest only payments commence on February 1, 1998, with
the total principal and any unpaid interest due on January 25, 2001.
4. LETTER OF INTENT
On April 9, 1996, the Company signed a non-binding letter of intent for
the sale of Deadwood Gulch Resort ("DGR"). Subsequently, during May 1996,
negotiations with the purchaser under the letter of intent terminated.
The Company will continue its efforts to sell DGR.
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Because of the Company's intent to dispose of DGR, the Company has
reclassified certain assets of DGR to other assets - assets held for sale.
Further analysis of the estimated realizable value of the assets held for
sale resulted in an additional impairment loss of $250,000 recorded in the
six months ended June 30, 1996.
******
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RECENT DEVELOPMENTS
Effective December 29, 1995, Full House entered into a series of
agreements with GTECH Corporation. Pursuant to the agreements, limited liability
joint venture companies were formed which are equally owned by GTECH and Full
House. The rights of Full House to agreements with various Indian Tribes and the
Delaware State Fair were contributed to the joint ventures. See "Results of
Operations" and "Liquidity."
On April 9, 1996, the Company signed a non-binding letter of intent for
the purchase of the Deadwood Gulch Resort by RGB Deadwood Gulch L.L.C. Although
negotiations for the sale of the resort to RGB Deadwood Gulch L.L.C. terminated
on May 15, 1996, the Company is still actively marketing the Resort for sale.
The Company determined that continued ownership of the Resort is not consistent
with its future plans which anticipate focusing on gaming facilities in areas of
higher population density and locations at which applicable regulations permit
higher stakes and expanded types of gaming. Any sale will be subject to approval
by the Company's stockholders and a finding by the South Dakota Commission on
Gaming that the purchaser is suitable to obtain a gaming license in South
Dakota. There can be no assurance that a sale will ultimately be consummated.
RESULTS OF OPERATIONS
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO THREE MONTHS AND
SIX MONTHS ENDED JUNE 30, 1995
Revenues for the three months ended June 30, 1996 increased $214,439 or
14.9% to $1,648,993 as compared with revenues of $1,434,554 for the three months
ended June 30, 1995. This increase combined with the increase in revenues for
the first three months of 1996 resulted in an increase in revenues for the six
months ended June 30, 1996 over the prior year period of $506,100 or 22.8% to
$2,727,586. Net loss decreased by $2,339,225 and $2,380,003, respectively,
during the three months and six months ended June 30, 1996 over the same periods
ended June 30, 1995.
Management attributes the majority of the increase in revenues to the
Joint Ventures revenues discussed below. Results for the six months ended June
30, 1995 were impacted by an abandoned project charge of $1,770,605 during the
quarter as a result of the decision of the Governor of Michigan regarding off
reservation gaming.
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JOINT VENTURES
During 1995, four limited liability joint venture companies were formed
by Full House and GTECH to pursue gaming opportunities and to which Full House
transferred three of its present gaming ventures. Excluded were the Deadwood
Gulch Resort and an additional venture where assignment was not completed
pending further discussions with the tribe and with the holder of a 15% interest
in that gaming contract. If assignment is not completed, Full House will assign
its rights to revenues and GTECH will bear an appropriate portion of the
expenses. Full House and GTECH each have a 50% interest in each limited
liability company. Full House's share of the income generated by those companies
was $389,399 for the six months and $217,231 for the three months ended June 30,
1996, respectively.
DEADWOOD GULCH RESORT
CASINO OPERATIONS. Revenues decreased 7.1% for the three months ended
June 30, 1996 over 1995. As a result of departmental expenses decreasing 12.6%
over 1995, department profit increased $10,850. Revenues decreased 1.4% for the
six months ended June 30, 1996 over 1995. As a result of departmental expenses
decreasing 10.8%, departmental profit increased $55,629 as compared to the same
period in 1995. Management attributes the decline in revenues to a general
decline in the market area.
HOTEL/RV RESORT. Hotel/RV Resort Revenues increased 5.9%, to $352,391,
for the three months ended June 30, 1996 as compared to 1995. Hotel/RV Resort
departmental profit increased $40,902 or 26.5%. For the six months ended June
30, 1996, revenues and departmental profits increased $42,783 and $51,150,
respectively, as compared to the same period in 1995. Management attributes the
improvements to the RV Resort being operational 100% of the season combined with
more efficient cost-reduction measures in both the Hotel and RV Resort.
RETAIL. For the six months ended June 30, 1996, revenues increased by
$46,034 to $547,355 but departmental profits decreased by $3,488, as compared to
the same period in 1995. Revenues increased by $13,551 or 4.4% for the three
months ended June 30, 1996 from 1995. Department profit of $31,672 for the three
months ended June 30, 1996 was $3,632 lower than the prior year period based
upon the fact that the increased sales were primarily of low margin goods.
FOOD AND BEVERAGE. Revenues for the three months and six months ended
June 30, 1996 were $195,394 and $374,020 (which includes $36,737 and $85,545 of
promotional allowances). The departmental loss after subtracting promotional
allowances decreased $13,738 and $35,379 respectively over the three month and
six month periods ended June 30, 1995. Management attributes the improvement to
better cost of sales management and the development of a new menu, repositioning
the restaurant in the market.
GULCHES OF FUN FAMILY CENTER. For the six months ended June 30, 1996,
revenues decreased $25,000, however, departmental profits increased $22,604 as
compared to the same period in 1995. Revenues for the three months ended June
30, 1996 decreased $22,294 from 1995 and department profits
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increased $18,760 from the comparable period in 1995. Management attributes this
improvement to more efficient cost reduction measures.
SALES AND MARKETING EXPENSES. Sales and Marketing expenses decreased
$21,448 for the three months ended June 30, 1996 as compared to the prior year
period. For the six months ended June 30, 1996, expenses decreased by $5,955 as
compared to the same period in 1995. Management attributes this improvement to
more efficient cost reduction measures.
GENERAL AND ADMINISTRATIVE EXPENSES - RESORT. For the six months ended
June 30, 1996, expenses decresed by $55,935 as compared to 1995. Expenses
decreased $23,767 for the three months ended June 30, 1996 from the comparable
period in 1995. Management attributes this improvement to more efficient cost
reduction measures.
DEPRECIATION. Depreciation and amortization decreased $34,781 and
$66,786 for the three months and six months ended June 30, 1996 over the
comparable periods in 1995. This decrease is due to suspension of depreciation
of the Resort offset by the amortization of goodwill.
IMPAIRMENT OF LONG-LIVED ASSETS. In January, 1996, the Company
announced its intent to dispose of the Deadwood Gulch Resort. The Company
adopted the provisions of SFAS No. 121, ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, during the fourth
quarter of the year ended December 31, 1995. Under SFAS No. 121, the Company
reviews the carrying values of its long-lived and identifiable intangible assets
for possible impairment whenever events or changes in circumstances indicate
that the carrying amount of assets may not be recoverable. Further analysis of
the estimated realizable value of the Deadwood Gulch Resort assets resulted in
an additional impairment loss of $250,000 recorded during the three month period
ended March 31, 1996. Pursuant to SFAS No. 121, the Company has suspended
recording depreciation of the assets of the Deadwood Gulch Resort.
NON-RESORT GENERAL AND ADMINISTRATION EXPENSES
Non-Resort expenses for the six months ended June 30, 1996 totaled
$828,814, a decrease of $109,659 over the prior year period. For the three
months ended June 30, 1996, expenses increased by $22,115 as compared to the
same period in 1995. In 1996, the Company continued to incur costs related to
the investigation, due diligence and pre-development of various ongoing
opportunities for expansion of its business and the increase in the Company's
corporate structure necessary to administer the Company's expansion.
INTEREST EXPENSE AND DEBT ISSUE COSTS
For the six months ended June 30, 1996, interest expense and debt
issue cost increased by $73,294 as compared to 1995. Interest expense and debt
issue costs decreased by $90,031 during the three months ended June 30, 1996
primarily due to reduced levels of debt.
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INTEREST AND OTHER INCOME
Interest and other income increased by $21,616 and $42,885 during the
three months and six months ended June 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
For the six month period ending June 30, 1996, cash flow used in
operating activities was $817,060. Cash flow provided by investing activities
was $11,168,466. The major item impacting this positive flow of cash from
investing activities was the receipt by the Company from GTECH and the joint
venture companies of approximately $11,218,112. Cash flow used in financing
activities was $8,256,441. The repayment of debt of $11,256,441 was offset by
the $3,000,000 proceeds from the issuance of a convertible note to GTECH. As a
result of the above, the Company's net cash and cash equivalents increased by
$2,094,965 to $2,451,719.
On July 1, 1996, the Company's line of credit with Bank of America
expired by its terms. No amounts had been outstanding under this line since
February, 1996.
On March 23, 1995, LAI Associates, Inc., a corporation wholly-owned by
Lee Iacocca, merged with a subsidiary of Full House and became a wholly-owned
subsidiary of Full House. The Company issued 1,250,000 shares of Common Stock to
Mr. Iacocca. In exchange, the Company received LAI's interest in its agreements
with the Organized Tribes (55%), Nottawaseppi Huron bank of Potawatomi (55%),
Torres Martinez Desert Cahuilla Indians (50%) and Delaware State Fair (50%)
projects. The remainder of the interests in these projects was acquired through
the Omega merger described below. Subsequently, Full House returned to Mr.
Iacocca a 25% interest in a total of 21 acres of land in Branson, Missouri, and
a 50% interest in certain royalties receivable. In exchange, Mr. Iacocca
returned 193,529 shares of Common Stock to Full House in March 1996.
On November 20, 1995, Full House merged a wholly-owned subsidiary into
Omega Properties, Inc. (30% owned by William P. McComas, a director/stockholder
of the Company). In exchange, the shareholders of Omega received an aggregate of
500,000 shares of Full House Common Stock and a promissory note of Full House in
the principal amount of $375,000. The principal amount of this promissory note
accrues interest, payable quarterly, at a rate equal to the "prime" rate and
such principal amount, together with all accrued interest, is due and payable in
full upon demand by the holder(s) of this note, but in no event before August
31, 1996. William P. McComas received the note and Mr. Fugazy, the other
stockholder of Omega, received the shares in exchange for their interests as
shareholders of Omega. As a result of such merger, Full House obtained the
remaining 45% interests in the agreements
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with the Organized Tribes and the Nottawaseppi Huron Band of Potawatomi and the
remaining 50% interests in the agreements with the Torres Martinez Desert
Cahuilla Indians and the Delaware State Fair.
Full House entered into a series of agreements with GTECH Corporation,
a wholly owned subsidiary of GTECH Holdings Corporation, a leading supplier of
computerized on-line lottery systems and services for government-authorized
lotteries, to jointly pursue existing (except the Deadwood Gulch Resort and
certain other specified projects) and future gaming opportunities. Although the
agreements were dated as of December 29, 1995, the parties agreed to share
equally in the equity investment, financing responsibility and in revenues and
expenses of each project commencing April 1, 1995. Pursuant to the agreements,
joint venture corporations equally owned by GTECH and Full House have been
formed. Full House has contributed its rights to the North Bend, Oregon facility
and the rights to develop the Torres Martinez and Delaware State Fair Projects
to the joint venture companies. Full House has agreed, subject to further
discussion with the Nottawaseppi Huron Bank of Potawatomi and with the holder of
a 15% interest in that gaming contract, to assign to a joint venture company its
rights to develop a project with such Tribe. If the assignment is not completed,
Full House will assign its rights to revenues and GTECH will bear an appropriate
portion of the expenses related thereto.
In payment for its interest in the joint venture companies, GTECH
contributed cash and other intangible assets to the companies and committed to
loan the joint venture entities up to $16.4 million to complete the North Bend,
Oregon and Delaware facilities. Full House has agreed to guarantee one-half of
the obligations of the joint venture companies to GTECH under these loans and at
June 30, 1996 had guaranteed to GTECH approximately one-half of $9.6 million of
such loans to the North Bend, Oregon joint venture company. Upon completion of
the Delaware project, currently anticipated in August 1996, Full House will
execute a guarantee to GTECH of one-half of the amounts loaned to the joint
venture company by GTECH. The amount of the guarantee is currently estimated to
be approximately $3.0 million. The guarantees provide for full subrogation of
Full House to GTECH's rights and prohibit acceleration of the underlying
indebtedness so long as Full House makes the defaulted payments. The terms of
the loans vary by project, but in those instances in which the joint venture
companies loan funds to others involved in the project (e.g., North Bend,
Oregon), the loans to the joint venture companies are intended to be a mirror
image of the loans between the joint ventures and the third parties. Full House
is also responsible for an additional approximately $2.5 million incurred to
construct and equip the Delaware facility. While Full House is in discussions
with potential sources to fund the $2.5 million needed, no assurances can be
given that such additional capital will be available on terms and in amounts
acceptable to Full House. Although Full House is in discussions with potential
sources to fund this obligation, no assurance can be given that such additional
capital will be available.
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GTECH will also provide project management, technology and other
expertise to analyze and develop/manage the implementation of opportunities
developed by the joint venture entities. GTECH has also loaned Full House $3
million, which loan is convertible, subject to regulatory approval into 600,000
shares of Full House's Common stock. In addition, Full House has been reimbursed
by one of the joint venture companies for certain advances and expenditures made
by Full House relating to the gaming development agreements. As part of this
transaction, the directors of Full House and Lee Iacocca have granted to GTECH
an option to purchase their shares should they propose to transfer the same.
The agreement between Full House and GTECH provides that the joint
venture partners will provide funds needed to finance the development of the
joint venture projects. While the amounts necessary to finance the development
of the projects are subject to regulatory approval and adjustment as the
projects are more fully developed, the Company estimates that the amount to be
provided by the joint venture companies will be approximately $70 million during
the next three years. Although the agreement between Full House and GTECH
establishes a preference for obtaining non-recourse financing for the projects
undertaken in the joint venture companies, it may not be possible to obtain
needed funds in this manner. In the event that Full House is unable to obtain
the required funds on more favorable terms, GTECH has agreed to lend to Full
House its required portion of the financing at GTECH's cost of financing plus
22.5% of Full House's share of the "Profits" from the venture until the later of
repayment of the loan or one year after the project begins to receive revenues
from patrons of the facilities comprising the project. In the event that GTECH
loans funds to a joint venture entity, Full House has agreed to guarantee
one-half of the obligations of the joint venture company to GTECH.
Full House borrowed $4 million from GTECH during 1995. Such amounts
were repaid on January 26, 1996 with funds received as a part of the agreement
with GTECH. Interest expense on this indebtedness was $270,517.
As a result of its agreements with GTECH, receipt by Full House of
revenues from the operations of projects (other than the Deadwood Gulch Resort)
is governed by the terms of the joint venture agreements applicable to such
projects. These contracts provide that net cash flow (after certain deductions)
is to be distributed monthly to Full House and GTECH. While Full House does not
believe that this arrangement will adversely impact its liquidity, no assurances
of the same can be given based upon the lack of operating experience with this
structure.
On July 19, 1995, an addendum to the agreement with the Coquille Indian
Tribe was executed. Pending regulatory approval, the addendum will reduce the
obligation of the Full House-GTECH joint venture company to provide financing to
$10.4 million, extend
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the date when repayments begin and modify the method of computing participating
rents (from net revenues to modified gross revenues) and loan repayments. Lease
and debt payments commenced on August 19, 1995, and September 19, 1995,
respectively. As of June 30, 1996, the Full House-GTECH joint venture company
had advanced approximately $10.7 million for the project of which approximately
$.6 million had been repaid.
On May 31, 1995, DGR borrowed $5 million, secured by its real property.
The proceeds from the loan were used to repay its obligation to H. Joe Frazier,
a stockholder and a then director of the Company, and to repay a portion of the
revolving note payable to Bank of America. The note bears interest at 10.25%
through May, 1996, and at prime plus 2-1/4% for the period June 1, 1996 through
May 1, 2002. Payments are due in monthly installments of principal and interest
based on a ten-year amortization with the remaining balance due on May 31, 2002.
A portion of the loan has been guaranteed by Messrs. Frazier, McComas and
Paulson. The agreement restricts substantially all of DGR's cash to pay
operating expenses and debt service of DGR. Cash from operations is placed into
a series of restricted accounts to pay obligations in the following priority:
(1) operating expenses of DGR for the current month; (2) a reserve for operating
expenses for off-season months; (3) a reserve for debt service equal to eight
monthly payments (for off-season months); and (4) an asset replacement reserve.
Because of these restrictions, no DGR cash has been available for dividends or
distribution to the Company for expansion purposes. The agreements also include
financial covenants which require maintenance of minimum tangible net worth and
debt service coverage ratios. The Company was not in compliance with these
covenants at December 31, 1995. However, the lender has waived these defaults
through the year ended December 31, 1996. The Company prepaid $751,827 of this
indebtedness in March, 1996.
The 800,000 Warrants and 80,000 units (the "Representative's Units)
issued to the representative of the underwriters in Full House's 1993 public
offering became exercisable on August 10, 1994. Each Warrant may be exercised
for 1.1894 shares of Common Stock at a price of $4.20 per share. As of May 6,
1996, 778,534 Warrants to purchase 925,988 shares were outstanding. Full House
may, in accordance with the Warrant Agreement, call the Warrants. Each
Representative's Unit (each consisting of three shares of Common Stock and the
right to buy one additional share) may be exercised at a price of $13.17 per
Unit. The Warrants can be exercised until February 10, 1997. As of June 30,
1996, a total of 57,500 Representative's Units has been exercised, leaving a
balance of 22,500 which may be exercised. As a result of such exercises, 57,500
warrants, which were included in the Representative's Units, are now
outstanding.
As of June 30, 1996, Full House had cumulative undeclared and unpaid
dividends in the amount of $840,000 on the 700,000
- 14 -
<PAGE>
outstanding shares of its 1992-1 Preferred Stock. Such dividends are cumulative
whether or not declared, and are currently in arrears.
Full House had working capital of $1,820,726 as of June 30, 1996.
Additional financing will be required for the Company to effect its
business strategy and no assurance can be given that such financing will be
available upon commercially reasonable terms.
- 15 -
<PAGE>
PART II - OTHER INFORMATION
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
As of June 30, 1996, cumulative dividends were $840,000, which
were undeclared, unpaid and were in arrears, with respect to
the Company's Series 1992-1 Preferred Stock, which class ranks
prior to the Company's Common Stock with regard to dividend
and liquidation rights.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
None.
(b) Reports on Form 8-K:
None.
- 16 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Company has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
FULL HOUSE RESORTS, INC.
Date: August 14, 1995 By /s/ William R. Jackson
-----------------------------------
William R. Jackson,
Executive Vice President -
Corporate Finance and
Principal Financial Officer
- 17 -
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 2,920,682
<SECURITIES> 0
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<INCOME-PRETAX> (1,182,839)
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