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 SEPTEMBER 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.
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(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 October 31, 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
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PART I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of
September 30, 1996 and December 31, 1995 ................................ 3
Consolidated Statements of Operations for the three months and
nine months ended September 30, 1996 and 1995 ............................ 4
Consolidated Statements of Cash Flows for the nine months ended
September 30, 1996 and 1995 ............................................. 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........................................................ 13
Signature Page....................................................................... 14
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FULL HOUSE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
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SEPTEMBER 30, DECEMBER 31,
ASSETS 1996 1995
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CURRENT ASSETS:
Cash and cash equivalents $ 1,823,839 $ 356,754
Restricted cash 1,105,996 224,775
Accounts receivable 60,913 24,959
Receivable from GTECH 157,278 1,149,486
Receivables from joint ventures - 10,211,703
Inventories 84,610 90,730
Prepaid expenses 429,550 373,217
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Total current assets 3,662,186 12,431,624
GAMING RIGHTS 3,258,836 3,258,836
ASSETS HELD FOR SALE - net 6,353,848 6,560,333
INVESTMENTS IN JOINT VENTURES 1,064,745 862,508
GOODWILL - net 2,531,352 2,912,698
OTHER ASSETS 20,771 11,750
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TOTAL $ 16,891,738 $ 26,037,749
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $659,616 $11,042,260
Accounts payable 105,782 386,914
Accrued expenses 551,811 611,334
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Total current liabilities 1,317,209 12,040,508
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LONG-TERM DEBT, net of current portion 6,604,833 4,545,194
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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 $2,992,500 and $2,835,000
at September 30, 1996 and December 31, 1995 respectively 70 70
Common stock, par value $.0001, 25,000,000 shares authorized;
10,339,549 shares issued and outstanding at September 30, 1996
and December 31, 1995 1,034 1,034
Additional paid in capital 16,413,315 16,413,315
Accumulated deficit (7,444,723) (6,962,372)
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Total stockholders' equity 8,969,696 9,452,047
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TOTAL $16,891,738 $ 26,037,749
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See notes to consolidated financial statements.
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FULL HOUSE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
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THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
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OPERATING REVENUES:
Casino $ 501,409 $ 531,468 $1,188,258 $ 1,227,896
Hotel/RV park 782,858 748,358 1,341,503 1,264,220
Retail 483,625 519,374 1,030,980 1,020,695
Food and beverage 247,957 259,642 621,977 583,479
Fun park 436,530 491,041 700,273 779,784
Joint ventures 426,153 196,266 815,552 196,266
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2,878,532 2,746,149 5,698,543 5,072,340
Less: promotional allowances (25,613) (52,177) (118,038) (156,882)
---------- ---------- --------- ---------
Net operating revenues 2,852,919 2,693,972 5,580,505 4,915,458
---------- ---------- --------- ---------
OPERATING COSTS AND EXPENSES:
Casino 241,782 229,297 780,170 832,893
Hotel/ RV park 201,470 219,288 489,001 515,186
Retail 429,136 435,295 930,290 886,927
Food and beverage 197,423 202,261 486,520 465,073
Fun park 250,907 278,953 482,135 557,785
Sales and marketing 74,345 55,265 186,746 173,621
General and administrative 556,174 533,190 1,677,767 1,820,377
Depreciation and amortization 129,393 152,533 389,218 479,144
Abandoned project costs - - - 1,770,605
Impairment of long-lived assets - - 250,000 -
Other - - - 100,000
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Total operating costs and expenses 2,080,630 2,106,082 5,671,847 7,601,611
---------- ---------- --------- -----------
INCOME (LOSS) FROM OPERATIONS 772,289 587,890 (91,342) (2,686,153)
OTHER INCOME (EXPENSE):
Interest expense and debt
issue costs (122,310) (328,463) (495,381) (628,240)
Interest and other income 50,509 370,984 104,372 381,962
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NET INCOME (LOSS) 700,488 630,411 (482,351) (2,932,431)
Less, undeclared dividends
on cumulative preferred stock 52,500 52,500 157,500 157,500
---------- ---------- --------- -----------
NET INCOME (LOSS) APPLICABLE
TO COMMON SHARES $647,988 $577,911 $(639,851) $(3,089,931)
========== ========== ========== ===========
INCOME (LOSS) PER COMMON SHARE $ 0.06 $ 0.06 $ (0.06) $ (0.32)
========== ========== ========== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 10,339,549 10,294,398 10,339,549 9,563,521
========== ========== ========== ===========
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See notes to consolidated financial statements
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FULL HOUSE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
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NINE MONTHS ENDED
SEPTEMBER 30,
1996 1995
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CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss $ (482,351) $(2,932,431)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 389,218 479,144
Debt issue costs 27,936 31,858
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 (881,221) 0
(Increase) decrease in accounts receivable (35,954) 19,305
Decrease (increase) in inventories 6,120 (11,592)
Decrease (increase) in prepaid expenses 111,375 (290,761)
(Decrease) increase in accounts payable
and accrued expenses (508,363) 505,397
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Net cash used in operating activities (1,123,240) (328,475)
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CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchases of property and equipment (76,992) (431,921)
Increase in investments in joint ventures (202,237) 0
Decrease in receivables from GTECH and joint ventures 11,203,911 0
Increase in note receivable - (9,110,716)
Gaming development costs - (587,364)
Increase in other assets (11,352) (668,262)
Other - 9,122
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Net cash provided by (used in) investing activities 10,913,330 (10,789,141)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt 3,000,000 13,107,285
Repayment of debt (11,323,005) (1,474,406)
Payment of debt issue costs - (260,818)
Proceeds from sale of common stock,
net of offering costs 18,071
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Net cash provided by (used in) financing activities (8,323,005) 11,390,132
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NET INCREASE IN CASH AND CASH EQUIVALENTS 1,467,085 272,516
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 356,754 384,670
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,823,839 $ 657,186
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See notes to consolidated financial statements.
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FULL HOUSE RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INTERIM FINANCIAL STATEMENTS - The interim consolidated financial
statements of Full House Resorts, Inc. and subsidiaries (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 the
Company's Annual Report on Form 10-KSB for the year ended December 31,
1995.
The results of operations for the period ended September 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
nine months ended September 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."
The Company is actively marketing the Deadwood Gulch Resort for the
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 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.
On August 20, 1996, the Delaware limited liability joint venture
company opened Midway Slots and Racebook, a gaming and entertainment facility at
Harrington Raceway near Dover, Delaware as the manager for the Harrington
Raceway. The 35,000 square foot facility features 500 gaming devices including
quarter, dollar and five-dollar slot machines and a 150-seat simulcast parlor
and racebook with individual television screens for players.
On November 5, 1996, licenses for three gaming facilities were approved
for the city of Detroit by the voters. The downtown Detroit location at which it
is contemplated those facilities will be located is approximately 100 miles from
the reservation of the Nottawaseppi Huron Band of Potawatomi at which the joint
venture of which the Company is a member purposes to construct a gaming
facility. The Company does not believe that the issuance of these licenses will
adversely impact its proposed venture in Michigan.
RESULTS OF OPERATIONS
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE MONTHS
AND NINE MONTHS ENDED SEPTEMBER 30, 1995
Net income increased by $70,077 during the three months ended September
30, 1996 over the same period ended September 30, 1995. Net loss decreased by
$2,450,080 to $482,351 during the nine months ended September 30, 1996 over the
same period ended September 30, 1995. Revenues for the three months ended
September 30, 1996 increased $158,947 or 5.9% to $2,852,919 as compared with
revenues of $2,693,972 for the three months ended September 30, 1995. This
increase combined with the increase in revenues for the first six months of 1996
results in an increase in revenues for the nine months ended September 30, 1996
over the prior year period of $665,047 or 13.5% to $5,580,505.
Management attributes the majority of the increase in revenues to the
Joint Ventures revenues discussed below. Results for the nine months ended
September 30, 1995 were impacted by an abandoned project charge of $1,770,605
during the second quarter as a result of the decision of the Governor of
Michigan regarding off reservation gaming.
JOINT VENTURES
Effective December 29, 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 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 $815,552 and $426,153 for the nine months and three months ended September
30,
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1996, respectively and $196,266 for both the nine months and three months ended
September 30, 1995.
DEADWOOD GULCH RESORT
CASINO OPERATIONS. Revenues decreased 3.2% for the nine months ended September
30, 1996 over 1995. As a result of departmental expenses decreasing 6.3%,
departmental profit increased $13,085 as compared to the same period in 1995.
Management attributes the decline in revenues to a general decline in the market
area. Gaming revenues in Deadwood declined 4.8% for the nine months and 3.6% for
the three months ended September 30, 1996 compared to the same periods in 1995
as reported by the South Dakota Commission on Gaming. Revenues decreased 5.7%
for the three months ended September 30, 1996 over 1995. As a result of
departmental expenses increasing 5.4% over 1995, department profit decreased
$42,544. Management intends to focus its efforts towards reducing operating
costs and expanding marketing activities in an attempt to attract additional
customers.
HOTEL/RV RESORT. Hotel/RV Resort Revenues increased 4.6%, to $782,858,
for the three months ended September 30, 1996 as compared to 1995. Hotel/RV
Resort departmental profit increased $52,318 or 9.9%. For the nine months ended
September 30, 1996 departmental revenues and profits increased $77,283 and
$103,468, respectively, as compared to the same period in 1995. Management
attributes the improvements to the RV Resort being operational 100% of the
season and improved occupancy at the hotel associated with more efficient
operations as a result of reorganizing both the Hotel and RV Resort management.
RETAIL. For the nine months ended September 30, 1996, revenues
increased by $10,285 to $1,030,980 but departmental profits decreased by $33,078
to $100,690, as compared to the same period in 1995. Revenues decreased by
$35,749 or 6.9% for the three months ended September 30, 1996 from 1995.
Departmental profit of $54,489 for the three months ended September 30, 1996 was
$29,590 lower than the prior year period due to loss of business to expanded
operations and more convenient location of a competitor.
FOOD AND BEVERAGE. Revenues for the three months and nine months ended
September 30, 1996 were $247,957 and $621,977 (which includes $18,865 and
$104,410 of promotional allowances), respectively. The departmental profit after
subtracting promotional allowances increased $14,238 and $45,894 respectively
over the three month and nine month periods ended September 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 nine months ended September 30,
1996, revenues decreased $79,511, however, departmental profits decreased only
$3,861 as compared to the same period in 1995. Revenues for the three months
ended September 30, 1996 decreased $54,511 from 1995 and department profits
decreased $26,465 from the comparable period in 1995. Management attributes this
to decreased tourism in the region and adverse weather conditions during the
1996 period.
SALES AND MARKETING EXPENSES. Sales and Marketing expenses increased
$19,080 for the three months ended September 30, 1996 as compared to the prior
year period. For the nine months ended September 30, 1996, expenses increased by
$13,125 as compared to the same period in 1995. Management attributes this to
increased levels of one-time promotions.
GENERAL AND ADMINISTRATIVE EXPENSES - RESORT. For the nine months ended
September 30, 1996, expenses decreased by $88,345 as compared to 1995. Expenses
decreased $32,410 for the three months ended September 30, 1996 from the
comparable period in 1995. Management attributes this improvement to more
efficient operations and cost reduction measures.
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DEPRECIATION AND AMORTIZATION. Depreciation and amortization decreased
$23,140 and $89,926 for the three months and nine months ended September 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 nine
months ended September 30, 1996 totaled $1,244,167, a decrease of $54,265 over
the prior year period. For the three months ended September 30, 1996, expenses
increased by $55,394 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 nine months ended September 30,
1996, interest expense and debt issue costs decreased by $132,859 as compared to
1995. Interest expense and debt issue costs decreased by $206,153 during the
three months ended September 30, 1996 primarily due to reduced levels of debt.
INTEREST AND OTHER INCOME. Interest and other income decreased by $320,475 and
$277,590 during the three months and nine months ended September 30, 1996. The
major item causing the reduction was the pay-off of the note payable to the
Company by one of the four limited liability joint venture companies owned
equally by Full House and GTECH which leases the "Mill Casino" in North Bend,
Oregon.
LIQUIDITY AND CAPITAL RESOURCES
For the nine month period ending September 30, 1996, cash used in
operating activities was $1,123,240. A major use of operating cash was $881,221
to fund the DGR restricted accounts. Cash provided by investing activities was
$10,913,330. 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 $11,203,911. Cash used in financing activities was
$8,323,005. The repayment of debt of $11,323,005 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 $1,467,085 to
$1,823,839.
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 Band 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,
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Missouri, and a 50% interest in certain royalties receivable. In exchange, Mr.
Iacocca returned 193,529 shares of Common Stock to Full House.
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. William P. McComas received the
note and Mr. Fugazy, the other shareholder of Omega, received the shares in
exchange for their interest as shareholders of Omega. As a result of such
merger, Full House obtained the remaining 45% interests in the agreements with
the Organized Tribes and the Nottawaseppi Huron Band of Potawatomi and the
remaining 50% interest 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 Corporations, 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 Band 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.
GTECH will also provide project management, technology and other
expertise and 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 ventures 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 members 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 to 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.
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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
September 30, 1996 had guaranteed to GTECH approximately one-half of $9.6
million of such loans to the North Bend, Oregon joint venture company. In
October 1996, GTECH's loans to the North Bend, Oregon joint venture company were
repaid in full and GTECH has participated for a total of $2 million of the $17.5
million refinancing. Participating fees are subordinated to such financing upon
default. Full House has agreed to guarantee one-half of the participation. Upon
completion of the Delaware project, 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 and Delaware project), 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.
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. The 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 limited operating experience with this
structure.
On May 31, 1995, DGR borrowed $5 million, secured by its real property.
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. McComas and Paulson and by H. Joe Frazier, a director at the time of
the loan. 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 cash available in these
accounts was $1,105,996 as of September 30, 1996. 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 the 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
until February 10, 1997 for 1.1894 shares of Common Stock at a price of $4.20
per share. As of October 31, 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
- 12 -
<PAGE>
additional share) may be exercised at a price of $13.17 per Unit. As of October
31, 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 September 30, 1996, Full House had cumulative undeclared and
unpaid dividends in the amount of $892,500 on the 700,000 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 $2,344,977 as of September 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.
PART II - OTHER INFORMATION
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
-------------------------------
As of September 30, 1996, cumulative dividends were $892,500, 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.
ITEMS 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits.
None.
(b) Reports on Form 8-K;
None
- 13 -
<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: November 14, 1996
By /S/ WILLIAM R. JACKSON
------------------------------------------------
William R. Jackson
Executive Vice President - Corporate Finance and
Principal Financial Officer
- 14 -
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 2,929,835
<SECURITIES> 0
<RECEIVABLES> 218,191
<ALLOWANCES> 0
<INVENTORY> 84,610
<CURRENT-ASSETS> 3,662,186
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 16,891,738
<CURRENT-LIABILITIES> 1,317,209
<BONDS> 0
0
70
<COMMON> 1,034
<OTHER-SE> 8,968,592
<TOTAL-LIABILITY-AND-EQUITY> 16,891,738
<SALES> 5,580,505
<TOTAL-REVENUES> 5,580,505
<CGS> 0
<TOTAL-COSTS> 5,671,847
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 495,381
<INCOME-PRETAX> (482,351)
<INCOME-TAX> 0
<INCOME-CONTINUING> (482,351)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (482,351)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> 0
</TABLE>
