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, 1997.
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
------------------------------- -------------------
(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
---------------------------------------- ----------
(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 8, 1997, Registrant had 10,340,380 shares of its $.0001 par value
common stock outstanding.
<PAGE>
FULL HOUSE RESORTS, INC.
TABLE OF CONTENTS
PAGE
-----
PART I. Financial Information
Item 1. Condensed Financial Statements
Condensed Consolidated Balance Sheets as of
June 30, 1997 and December 31, 1996 3
Condensed Consolidated Statements of Operations for
the three months and six months ended June 30, 1997 and 1996 4
Consolidated Statements of Cash Flows for the six
months ended June 30, 1997 and 1996 5
Notes to Condensed Consolidated Financial Statements 6-7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II. Other Information 10
Signature Page 10
2
<PAGE>
<TABLE>
<CAPTION>
FULL HOUSE RESORTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
JUNE 30, DECEMBER 31,
1997 1996
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $1,244,288 $1,049,183
Note receivable - joint venture, current portion 152,224 626,042
Restricted cash 504,450 585,934
Accounts receivable 65,514 20,489
Inventories 88,844 92,578
Prepaid expenses 254,203 317,724
Receivable from joint ventures 649,044 -
--------- --------
Total current assets 2,958,567 2,691,950
ASSETS HELD FOR SALE - net 5,551,640 5,574,500
INVESTMENTS IN JOINT VENTURES 5,302,345 5,183,454
GOODWILL - net 2,151,651 2,404,785
NOTE RECEIVABLE - JOINT VENTURE 938,368 1,260,456
OTHER ASSETS 30,320 32,384
----------- -----------
TOTAL $16,932,891 $17,147,529
----------- -----------
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 680,092 $ 667,258
Accounts payable 166,658 130,030
Accrued expenses 479,263 411,625
Payable to joint ventures - 516,787
----------- -----------
Total current liabilities $ 1,326,013 $ 1,725,700
----------- -----------
LONG-TERM DEBT, net of current portion 6,246,047 6,290,655
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY:
Cumulative, convertible preferred stock,
par value $.0001, 5,000,000 shares authorized;
700,000 shares issued and outstanding;aggregate
liquidation preference of $3,150,000 and $3,045,000 70 70
Common stock, par value $.0001, 25,000,000 shares
authorized; 10,340,380 and 10,339,549 shares issued
and outstanding 1,034 1,034
Additional paid in capital 16,907,015 16,853,042
Accumulated deficit (7,547,288) (7,722,972)
---------- ----------
Total stockholders' equity 9,360,831 9,131,174
----------- -----------
TOTAL $16,932,891 $17,147,529
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
FULL HOUSE RESORTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Casino $ 337,119 $ 387,955 $ 610,289 $ 686,849
Hotel/RV park 365,707 352,391 599,183 558,645
Retail 284,557 319,893 528,910 547,355
Food and beverage 169,188 195,394 342,346 374,020
Fun park 161,275 216,417 162,022 263,743
Joint ventures 818,862 217,231 1,593,318 389,399
---------- ---------- ---------- ----------
2,136,708 1,689,281 3,836,068 2,820,011
Less: promotional allowances (29,944) (40,288) (60,144) (92,425)
---------- ---------- ---------- ----------
Net operating revenues 2,106,764 1,648,993 3,775,924 2,726,586
---------- ---------- ---------- ----------
OPERATING COSTS AND EXPENSES:
Casino 259,023 279,429 533,581 538,388
Hotel/RV park 135,924 156,993 252,630 287,531
Retail 267,155 288,221 493,142 501,154
Food and beverage 143,935 157,297 278,296 289,097
Fun park 107,193 160,621 118,582 231,228
Sales and marketing 81,359 59,218 155,232 112,401
General and administrative 573,267 620,103 1,113,892 1,121,593
Depreciation and amortization 128,366 129,108 256,678 259,825
Impairment of long-lived assets - - 3,220 250,000
---------- ---------- ---------- ----------
Total operating costs and expenses 1,696,222 1,850,990 3,205,253 3,591,217
---------- ---------- ---------- ----------
INCOME (LOSS) FROM OPERATIONS 410,542 (201,997) 570,671 (863,631)
OTHER INCOME (EXPENSE):
Interest expense and debt issue costs (173,412) (121,956) (349,417) (373,071)
Interest and other income 38,671 26,449 82,855 53,863
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES 275,801 (297,504) 304,109 (1,182,839)
Provision for income taxes (82,400) - (128,425) -
---------- ---------- ---------- ----------
NET INCOME (LOSS) 193,401 (297,504) 175,684 (1,182,839)
Less, undeclared dividends
on cumulative preferred stock (52,500) (52,500) (105,000) (105,000)
---------- ---------- ---------- ----------
NET INCOME (LOSS) APPLICABLE TO
COMMON SHARES $ 140,901 $ (350,004) $ 70,684 $(1,287,839)
---------- ---------- ---------- ----------
INCOME (LOSS) PER COMMON SHARE $ 0.02 $ (0.03) $ 0.01 $ (0.12)
========== =========== ========== ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 10,340,380 10,339,549 10,340,187 10,339,549
========== ========== ========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
FULL HOUSE RESORTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
SIX MONTHS ENDED
JUNE 30,
1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 175,684 $(1,182,839)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization 256,678 259,825
Debt issue costs and imputed interest
amortization 128,556 18,624
Amortization of deferred compensation
expense 50,473 -
Impairment of long-lived assets 3,220 250,000
Gain on disposal of assets held for sale (274) -
Equity in income of joint ventures (1,593,318) (389,399)
Changes in assests and liabilities:
(Increase) decrease in restricted cash 81,484 (244,188)
Increase in accounts receivable (45,025) (22,291)
(Increase) decrease in inventories 3,734 (15,007)
Decrease in prepaid expenses 63,521 124,904
Increase in other assets (1,480) (3,878)
(Increase) decrease in accounts payable
and accrued expenses 104,266 (6,088)
---------- ----------
Net cash used in operating activities (772,481) (1,210,337)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of assets held for sale (42,371) (58,642)
Proceeds from disposal of assets held
for sale 43,661 -
Investments in joint ventures (147,060) (186,887)
Distributions from joint ventures 1,621,487 589,160
(Increase) decrease in receivables from
GTECH and joint ventures (369,925) 11,218,112
---------- ----------
Net cash provided by investing activities 1,105,792 11,561,743
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt - 3,000,000
Proceeds from exercise of warrants 3,500 -
Repayment of debt (141,706) (11,256,441)
---------- ----------
Net cash used in financing activities (138,206) (8,256,441)
---------- ----------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 195,105 2,094,965
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 1,049,183 356,754
---------- ----------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $1,244,288 $2,451,719
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
FULL HOUSE RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INTERIM CONDENSED FINANCIAL STATEMENTS - The interim condensed
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 condensed 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, 1996.
The results of operations for the period ended June 30, 1997 are not
necessarily indicative of the results to be expected for the year ending
December 31, 1997.
2. RECENTLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards No. 128 (FASB 128), EARNINGS PER SHARE,
which is effective for fiscal years beginning after December 15, 1997.
FASB 128 establishes standards for computing and presenting earnings per
share to make them comparable to international earnings per share
standards and requires dual presentation of basic and diluted earnings per
share for entities with complex capital structures. After adoption, the
Company expects there will be no material effect on the presentation or
computation of its earnings per share.
The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards No. 130 (FASB 130), REPORTING COMPREHENSIVE
INCOME, which is effective for fiscal years beginning after December 15,
1997. FASB 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. The Company has not yet determined the effect
adoption of FASB 130 will have on disclosures in its consolidated
financial statements.
The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards No. 131 (FASB 131), DISCLOSURES ABOUT
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION, which is effective for
financial statements for periods beginning after December 15, 1997. FASB
131 establishes standards for the way that public business enterprises
report information about operating segments in annual financial statements
and requires that those enterprises report selected information about
operating segments on interim financial reports issued to shareholders. It
also establishes standards for related disclosures about products and
services, geographic areas and major customers. The Company has not yet
determined the effect adoption of FASB 131 will have on disclosures in its
consolidated financial statements.
6
<PAGE>
3. LETTER OF INTENT
The Company announced on April 18, 1997 that it had signed an agreement
for the purchase of the Deadwood Gulch Resort ("DGR"). The agreement
expired without a sale taking place and the contract was not extended
beyond the intended May 1, 1997 closing date. The Company will continue
its efforts to sell DGR.
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 $3,220 recorded in the
three months ended March 31, 1997.
******
7
<PAGE>
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RECENT DEVELOPMENTS
The Company announced that its Chairman and Chief Executive Officer,
Allen Paulson, has presented to the Company for its consideration certain gaming
industry investments in which he is personally involved or is considering. Those
include possible acquisition transactions relating to Riviera Holdings
Corporation and Elsinore Corporation (which owns the Four Queens Casino in Las
Vegas), a contingent interest in the Gold River Hotel and Casino in Laughlin,
Nevada, and a riverboat formerly operated as the Treasure Bay Casino in Tunica,
Mississippi.
The Board of Directors of the Company has formed a special committee of
directors to evaluate whether, and to what extent, the Company may become
involved in the investments and transactions presented by Mr. Paulson. There can
be no assurance that any of these transactions will occur or that the Company
will determine to become involved in them.
The agreement with entities controlled by Kenneth L. Kellar for the
purchase of Deadwood Gulch Resort, which was announced on April 18, 1997,
expired without a sale taking place. The contract was not extended beyond the
intended May 1, 1997 closing date, and the buyer's deposit was returned.
RESULTS OF OPERATIONS
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS AND
SIX MONTHS ENDED JUNE 30, 1996
Revenues for the three months ended June 30, 1997 increased $457,771 or
27.8% to $2,106,764 as compared with revenues of $1,648,993 for the three months
ended June 30, 1996. This increase, combined with the increase in revenues for
the first three months of 1997, resulted in an increase in revenues for the six
months ended June 30, 1997 over the prior year period of $1,048,338 or 38.4% to
$3,775,924.
JOINT VENTURE INCOME
Joint Venture income increased $601,631 or 277% and $1,203,919 or 309%
for the three month and six month periods ended June 30, 1997 as compared to the
comparable period in 1996. This increase is due to inclusion of the Delaware
joint venture income, which was not in operation until August 1996, and to the
improved operating results from the Oregon joint venture.
OREGON JOINT VENTURE. The Company's share of income from the Oregon joint
venture increased $8,199 or 3.6% and $49,792 or 11.9% as compared to the
comparable period in 1996, respectively, for the three month and six month
periods ended June 30, 1997. The facility has experienced improvements in its
operating results due to improved marketing of and road access to the casino.
8
<PAGE>
DELAWARE JOINT VENTURE. The Company's share of income from the Delaware
joint venture was $597,652 and $1,151,881, respectively, for the three month and
six month periods ended June 30, 1997. Midway Slots and Simulcast began
operations in August of 1996. As reported by the Delaware Lottery Board, Midway
Slots & Simulcast had a net win of $14,822,048 and $28,658,280 for the three
months and six months ended June 30, 1997, respectively. As a result of
operating results exceeding initial projections, Midway Slots and Simulcast has
prepaid a portion of its obligation to the Delaware joint venture. The joint
venture, in turn, prepaid a portion of the obligation to the Company in July and
August. This obligation was $1,090,592 at June 30, 1997.
CALIFORNIA AND MICHIGAN JOINT VENTURES. The Company's share of the loss
from the California and Michigan joint ventures declined by $1,790 during the
six month period ended June 30, 1997. However, during the three month period
ended June 30, 1997, the loss increased by $4,674. These joint venture companies
continue to pursue opportunities using the most efficient and cost effective
methods available, and are still in the development stage and do not have
operating revenues.
DEADWOOD GULCH RESORT
The annual report of the South Dakota Commission on Gaming, which was
released during the second quarter of 1997, announced that gaming revenues in
Deadwood had declined by 6.4% in 1996 and that only 40% of the gaming businesses
were profitable in 1996 versus 58% in 1995. This trend has continued during 1997
with a further decline in gaming revenues and the regional national parks
attendance figures (Mount Rushmore, Badlands National Park and Yellowstone
National Park).
These factors have significantly impacted the operating results of
Deadwood Gulch Resort. As a result of management programs, departmental profits
for the first six months of 1997 declined only by $30,885 despite a decline in
revenues of $155,581.
CASINO OPERATIONS. Revenues decreased 13.1% for the three months ended
June 30, 1997 over 1996. As a result of departmental expenses decreasing 7.3%
over 1996, department profit decreased $30,430. Revenues decreased 11.1% for the
six months ended June 30, 1997 over 1996. As a result of departmental expenses
decreasing 0.9%, departmental profit decreased $71,753 as compared to the same
period in 1996. Management attributes the decline in revenues to the general
decline in the market area explained above and aggressive giveaways by other
casinos.
HOTEL/RV RESORT. Hotel/RV Resort Revenues increased 3.8%, to $365,707,
for the three months ended June 30, 1997 as compared to 1996. Hotel/RV Resort
departmental profit increased $34,385 or 17.6%. For the six months ended June
30, 1997, revenues and departmental profits increased $40,538 and $75,439,
respectively, as compared to the same period in 1996. Management attributes the
improvements to more efficient cost-reduction measures in both the Hotel and RV
Resort.
RETAIL. For the six months ended June 30, 1997, revenues decreased by
$18,445 to $528,910 and departmental profits decreased by $10,433, as compared
to the same period in 1996. Revenues decreased by $35,336 or 11.0% for the three
months ended June 30, 1997 from 1996. Department profit of $17,402 for the three
months ended June 30, 1997 was $14,270 lower than the prior year period based
upon the fact that the sales declined as a result of lower tourism and increased
pricing competition.
9
<PAGE>
FOOD AND BEVERAGE. Revenues for the three months and six months ended
June 30, 1997 were $169,188 and $342,346, respectively, (which includes $25,140
and $52,606 of promotional allowances). The departmental income after
subtracting promotional allowances increased $12,066 over the six month period
ended June 30, 1996. Management attributes the improvement to better management
of cost of sales and other departmental expenses.
GULCHES OF FUN FAMILY CENTER. For the six months ended June 30, 1997,
revenues decreased $101,721, however, departmental profits increased $10,925 as
compared to the same period in 1996. Revenues for the three months ended June
30, 1997 decreased $55,142 from 1996 and department profits decreased $1,714
from the comparable period in 1996.
SALES AND MARKETING EXPENSES. Sales and Marketing expenses increased
$22,141 for the three months ended June 30, 1997 as compared to the prior year
period. For the six months ended June 30, 1997, expenses increased by $42,831 as
compared to the same period in 1996. Management attributes the increase to
efforts to maintain market share.
GENERAL AND ADMINISTRATIVE EXPENSES - RESORT. For the six months ended
June 30, 1997, expenses increased by $3,640 as compared to 1996. Expenses
decreased $7,042 for the three months ended June 30, 1997 from the comparable
period in 1996.
DEPRECIATION AND AMORTIZATION.
Depreciation and amortization decreased $742 and $3,147 for the three
months and six months ended June 30, 1997, respectively, over the comparable
periods in 1996.
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 and $3,220 for the
three month period ended June 30, 1997. Pursuant to SFAS No. 121, the Company
has suspended recording depreciation of the assets of the Deadwood Gulch Resort.
GENERAL AND ADMINISTRATION EXPENSES.
Non-Resort expenses for the six months ended June 30, 1997 totaled
$817,473, a decrease of $11,341 over the prior year period. For the three months
ended June 30, 1997, expenses decreased by $39,794 as compared to the same
period in 1996. In 1997, 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, 1997, interest expense and debt issue
cost decreased by $23,654 as compared to 1996. Interest expense and debt issue
costs decreased by $51,456 during the three months ended June 30, 1997 primarily
due to reduced levels of debt.
INTEREST AND OTHER INCOME.
Interest and other income increased by $12,222 and $28,992 during the
three months and six months ended June 30, 1997.
10
<PAGE>
INCOME TAX EXPENSE.
State income tax expense was $82,400 and $128,425 for the second quarter
and the six months ended June 30, 1997, respectively, and -0- for the same
periods in 1996. At June 30, 1997, the Company had net operating loss
carryforwards for federal income tax purposes of approximately $3,010,000, which
may be carried forward to offset future taxable income. The loss carryforwards
expire in 2007 through 2010. The availability of the loss carryforwards may be
limited in the event of a significant change in ownership of the Company or its
subsidiaries.
EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION
Earnings before interest, taxes, depreciation and amortization (EBITDA),
for the three months and six months ended June 30, 1997 improved by $611,797 and
$1,184,375, respectively, over 1996 after exclusion of the impairment of
long-lived assets (sale of Deadwood Gulch Resort) to $538,908 for the three
months and $830,569 for the six months ended June 30, 1997. EBITDA should not be
construed as an indication of the Company's operating performance, or as an
alternative to cash flows from operating activities as a measure of liquidity.
The Company has presented EBITDA solely as supplemental disclosure because the
Company believes that it enhances the understanding of the financial performance
of companies with substantial depreciation and amortization.
LIQUIDITY AND CAPITAL RESOURCES
For the six month period ended June 30, 1997, cash of $772,481 was used
in operating activities. Included was the net income of $175,684, more fully
explained above, increased by depreciation and amortization of $256,678, debt
issue costs and debt discount of $128,556, a decrease in restricted cash and
prepaid expenses of $81,484 and $63,521, respectively, and other net changes of
$114,914, but increased by the equity earnings of joint ventures of $1,593,318.
Cash flow from investing activities was provided in the amount of $1,105,792 as
a result of payments from the joint venture companies. Included were
distributions from joint ventures of $1,621,487 and net change of $1,290 for
assets sold and purchased reduced by increases in investments and receivables
from the joint ventures of $516,985. Cash flows used by financing activities
were the result of proceeds from the exercise of warrants of $3,500, reduced by
repayment of debt totaling $141,706. As a result of the above factors, there was
a net increase in cash and cash equivalents of $195,105. During the first six
months of 1997, the Company working capital surplus improved by $666,304 or 69%.
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, 8.5%
at June 30, 1997, 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 stockholder of Omega,
received the shares in exchange for their interests as shareholders of Omega.
Full House is a party to a series of agreements with GTECH Corporation, a
leading supplier of computerized systems and services for government-authorized
lotteries, to jointly pursue certain gaming opportunities. Pursuant to the
agreements, joint venture companies 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, Nottawaseppi Huron Band
of Potawatomi and Delaware State Fair projects to the joint venture companies.
GTECH has contributed cash and other intangible assets and has agreed 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
has guaranteed to GTECH one-half of a $2.0 million loan to the North Bend,
Oregon Indian Tribe. GTECH also provides 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
11
<PAGE>
the joint venture companies for certain advances and expenditures made by Full
House relating to the gaming development agreements. As part of this
transaction, Allen E. Paulson, William P. McComas and Lee Iacocca have granted
to GTECH an option to purchase their shares should they propose to transfer the
same. The parties are no longer required to present gaming opportunities to the
other for joint development.
The Company advanced funds to the Delaware joint venture company during
1996 and 1995 totaling $1,886,498, of which $1,090,592 was outstanding as of
June 30, 1997. Such amount bears interest at prime plus 1% (9.5% at June 30,
1997) and is payable from available operating cash flow of the joint venture
company. The note is secured by a similar payable from Midway Slots and
Simulcast, a division of Harrington Raceway, Inc. to the Delaware joint venture
company with the same terms and interest rate. As the note is payable to FHRI
based upon available cash flows, the current portion as of June 30, 1997
reflects payments made through August 8, 1997.
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.
Full House has determined that continued ownership of the Deadwood Gulch
Resort is not consistent with its future growth plans. No assurance can be given
that a sale will ultimately be consummated.
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 agreements executed by DGR in connection with the note limit
payments by DGR to Full House. The agreements included financial covenants which
require maintenance of minimum tangible net worth and debt service coverage
ratios.
As of June 30, 1997, Full House had cumulative undeclared and unpaid
dividends in the amount of $1,050,000 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 a working capital surplus of $1,632,554 as of June 30,
1997.
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.
12
<PAGE>
PART II - OTHER INFORMATION
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
As of June 30, 1997, cumulative dividends were $1,050,000, 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.
ITEMS 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit.
27 Financial Data Schedule
(b) Reports on Form 8-K;
None
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 __, 1997
By /s/ WILLIAM R. JACKSON
-----------------------------
William R. Jackson
Executive Vice President-
Corporate Finance and
Principal Financial Officer
13
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESRIPTION
- ------- ----------
27 Financial Data Schedule
14
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,748,738
<SECURITIES> 0
<RECEIVABLES> 1,820,150
<ALLOWANCES> 15,000
<INVENTORY> 88,884
<CURRENT-ASSETS> 2,958,567
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 16,932,891
<CURRENT-LIABILITIES> 1,326,013
<BONDS> 0
0
70
<COMMON> 1,034
<OTHER-SE> 9,359,727
<TOTAL-LIABILITY-AND-EQUITY> 16,932,891
<SALES> 3,775,924
<TOTAL-REVENUES> 3,775,924
<CGS> 0
<TOTAL-COSTS> 3,205,253
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 349,417
<INCOME-PRETAX> 304,109
<INCOME-TAX> 128,425
<INCOME-CONTINUING> 175,684
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 175,684
<EPS-PRIMARY> .01
<EPS-DILUTED> 0
</TABLE>
