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, 1999.
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
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FULL HOUSE RESORTS, INC.
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(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.)
2300 W. Sahara Ave.
Suite 450, Box 23
Las Vegas, Nevada 89102
- ---------------------------------------- ----------
(Address of principal executive offices) (zip code)
(702) 221-7800
-------------------------------
(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 November 10, 1999, Registrant had 10,340,380 shares of its $.0001 par
value common stock outstanding.
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FULL HOUSE RESORTS, INC.
TABLE OF CONTENTS
PAGE
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PART I. Financial Information
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of
September 30, 1999 and December 31, 1998 3
Condensed Consolidated Statements of Operations
for the three months ended September 30, 1999 and 1998 4
Condensed Consolidated Statements of Operations
for the nine months ended September 30, 1999 and 1998 5
Condensed Consolidated Statements of Cash Flows
for the nine months ended September 30, 1999 and 1998 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II. Other Information 14
Signatures 14
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<CAPTION>
FULL HOUSE RESORTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
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SEPTEMBER 30, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 536,680 $ 1,092,178
Income tax refund receivable - 35,871
Prepaid expenses 118,191 88,018
Receivable from joint ventures 141,105 216,188
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Total current assets 795,976 1,432,255
LAND HELD FOR DEVELOPMENT 4,621,670 4,621,670
GOODWILL - net 1,012,548 1,392,249
NOTE RECEIVABLE - JOINT VENTURE 287,106 232,421
INVESTMENTS IN JOINT VENTURES 4,271,144 5,017,470
DEFERRED TAX ASSET 158,940 -
DEPOSITS AND OTHER ASSETS 4,371,258 2,777,199
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TOTAL $ 15,518,642 $ 15,473,264
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 20,520 $ 33,566
Accrued expenses 1,182,269 1,111,158
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Total current liabilities 1,202,789 1,144,724
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LONG-TERM DEBT 3,000,000 3,000,000
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DEFERRED INCOME TAXES - 121,235
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COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Cumulative preferred stock, par value $.0001, 5,000,000
shares authorized; 700,000 shares issued and outstanding;
aggregate liquidation preference of $3,622,500 and $3,465,000 70 70
Common stock, par value $.0001, 25,000,000 shares authorized;
10,340,380 shares issued and outstanding 1,034 1,034
Additional paid in capital 17,335,353 17,218,065
Accumulated deficit (6,020,604) (6,011,864)
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Total stockholders' equity 11,315,853 11,207,305
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TOTAL $ 15,518,642 $ 15,473,264
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</TABLE>
See notes to condensed consolidated financial statements.
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<TABLE>
<CAPTION>
FULL HOUSE RESORTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
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THREE MONTHS ENDED
SEPTEMBER 30,
1999 1998
<S> <C> <C>
OPERATING REVENUES:
Joint ventures $ 863,545 $ 941,304
Less: promotional allowances -- --
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Net operating revenues 863,545 941,304
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OPERATING COSTS AND EXPENSES:
General and administrative 539,567 443,817
Depreciation and amortization 132,687 129,239
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Total operating costs and expenses 672,254 573,056
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INCOME FROM OPERATIONS 191,291 368,248
Interest expense and debt issue costs (62,371) (64,938)
Interest and other income 265,085 29,468
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INCOME BEFORE INCOME TAXES 394,005 332,778
INCOME TAX PROVISION (60,891) (61,843)
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NET INCOME 333,114 270,935
Less, undeclared dividends on cumulative preferred stock 52,500 52,500
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NET INCOME APPLICABLE TO COMMON SHARES $ 280,614 $ 218,435
============ ============
NET INCOME PER COMMON SHARE, Basic and Diluted $ 0.03 $ 0.02
============ ============
Weighted average shares, Basic 10,340,380 10,340,380
============ ============
Diluted 10,340,380 10,395,508
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
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<TABLE>
<CAPTION>
FULL HOUSE RESORTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
- ------------------------------------------------------------------------------------------------
NINE MONTHS ENDED
SEPTEMBER 30,
1999 1998
------------ ------------
<S> <C> <C>
OPERATING REVENUES:
Casino $ -- $ 281,796
Hotel/RV park -- 320,313
Retail, food and beverage -- 538,357
Joint ventures 2,627,004 2,735,994
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2,627,004 3,876,460
Less: promotional allowances -- (64,226)
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Net operating revenues 2,627,004 3,812,234
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OPERATING COSTS AND EXPENSES:
Casino -- 250,637
Hotel/ RV park -- 194,206
Retail, food and beverage -- 511,602
Sales and marketing -- 92,525
General and administrative 1,606,047 1,593,823
Depreciation and amortization 395,339 387,626
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Total operating costs and expenses 2,001,386 3,030,419
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INCOME FROM OPERATIONS 625,618 781,815
Interest expense and debt issue costs (187,230) (434,265)
Interest and other income 283,210 562,046
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INCOME BEFORE INCOMES TAXES AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 721,598 909,596
INCOME TAX PROVISION (186,467) (199,543)
------------ ------------
NET INCOME BEFORE CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE 535,131 710,053
CUMULATIVE EFFECT OF ACCOUNTING CHANGE, net of tax (543,870) --
------------ ------------
NET INCOME (LOSS) (8,739) 710,053
Less, undeclared dividends on cumulative preferred stock 157,500 157,500
------------ ------------
NET INCOME (LOSS) APPLICABLE TO COMMON SHARES $ (166,239) $ 552,553
============ ============
Income per common share before cumulative effect of change in
accounting principle, Basic and Diluted $ 0.04 $ 0.05
Change in accounting principle, Basic and Diluted (0.05) --
------------ ------------
NET INCOME (LOSS) PER COMMON SHARE, Basic and Diluted $ (0.01) $ 0.05
============ ============
Weighted average shares; Basic 10,340,380 10,340,380
============ ============
Diluted 10,340,380 10,390,612
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
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<TABLE>
<CAPTION>
FULL HOUSE RESORTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------------------
NINE MONTHS ENDED
SEPTEMBER 30,
1999 1998
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (8,739) $ 710,053
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 395,339 387,626
Debt issue costs and imputed interest amortization -- 33,840
Amortization of deferred compensation expense 117,288 177,982
Cumulative effect of change in accounting principle 543,870 --
Equity in income of joint ventures (2,627,004) (2,735,994)
Distributions from joint ventures 2,549,285 2,641,205
Gain on disposal of assets held for sale -- (385,225)
Changes in assets and liabilities:
Receivables 35,871 112,983
Restricted cash -- 530,881
Inventories -- 8,297
Prepaid expenses (30,173) 138,132
Other assets (442,661) (4,774)
Accounts payable and accrued expenses 58,065 (425,150)
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Net cash provided by operating activities 591,141 1,189,856
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (42,037) (5,855)
Deposits on purchase options (1,125,000) (125,000)
Proceeds from sale of assets held for sale -- 5,930,326
Acquisition of land held for development -- (3,954,340)
Proceeds from sale of current assets and liabilities -- 11,439
Decrease in receivables from joint ventures 20,398 474,232
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Net cash provided by (used in) investing activities (1,146,639) 2,330,802
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit 1,000,000 2,000,000
Repayment of debt (1,000,000) (5,905,982)
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Net cash used in financing activities -- (3,905,982)
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NET DECREASE IN CASH AND CASH EQUIVALENTS (555,498) (385,324)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,092,178 2,422,884
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 536,680 $ 2,037,560
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
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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, 1998. The results of operations for the periods
ended September 30, 1999 are not necessarily indicative of the results
to be expected for the year ending December 31, 1999.
CONSOLIDATION - The condensed consolidated financial statements include
the accounts of the Company and all its majority-owned subsidiaries.
All material intercompany accounts and transactions have been
eliminated. Certain prior year amounts have been reclassified to
conform with the current year presentation.
EARNINGS PER SHARE - The Company applies Statement of Financial
Accounting Standards No. 128 in computing earnings per share ("EPS").
Basic EPS is computed by dividing net income/(loss) by the weighted
average number of shares outstanding during the periods presented.
Diluted EPS is determined on the assumption that outstanding options
are exercised and repurchased at the average price for the periods
presented. For periods in which a loss is reported, diluted EPS is
computed without regard to the assumed exercise of options, but is
based on the weighted average shares outstanding.
2. RECENTLY ISSUED ACCOUNTING STANDARDS
In April 1998, The Accounting Standards Executive Committee of the
American Institute of Public Accountants issued Statement of Position
98-5, "Reporting on the Costs of Start - Up Activities." It requires
that the costs of start-up activities that had been previously
capitalized, be expensed as incurred. Accordingly, during the first
quarter of 1999, the Company's joint venture investments expensed
approximately $1.6 million of costs previously incurred. The Company
has recognized its 50% share of $824,045, net of the related tax
benefit of $280,175, yielding a net cumulative effect of a change in
accounting principle of $543,870.
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3. SEGMENT INFORMATION
The Company has several distinct operating segments as reflected in the
following tables. The Joint Venture segment includes the Company's
ventures with GTECH Corporation. (Note 4.) The operation of Deadwood
Gulch Resort ("DGR") represented a separate segment until its
disposition during 1998.
SUMMARY INFORMATION FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30,
<TABLE>
<CAPTION>
1999 JOINT
VENTURES CORPORATE DGR CONSOLIDATED
-------- --------- --- ------------
<S> <C> <C> <C> <C>
Net Revenues $2,627,004 $ - $ - $2,627,004
Operating income (loss) 2,247,303 (1,621,685) - 625,618
Net income before cumulative effect
of change in accounting principle 1,884,636 (1,349,505) - 535,131
Accounting change, net (543,870) - - (543,870)
Net income (loss) 1,340,766 (1,349,505) - (8,739)
1998 JOINT
VENTURES CORPORATE DGR CONSOLIDATED
-------- --------- --- ------------
<S> <C> <C> <C> <C>
Net Revenues $2,735,994 $ - $1,076,240 $ 3,812,234
Operating income (loss) 2,356,293 (1,369,547) (204,931) 781,815
Net income (loss) 1,995,121 (1,317,601) 32,533 710,053
</TABLE>
SUMMARY INFORMATION FOR THE THREE MONTH PERIODS ENDED SEPTEMBER 30,
<TABLE>
<CAPTION>
1999 JOINT
VENTURES CORPORATE DGR CONSOLIDATED
-------- --------- --- ------------
<S> <C> <C> <C> <C>
Net Revenues $ 863,545 $ - $ - $ 863,545
Operating income (loss) 736,978 (545,687) - 191,291
Net income (loss) 614,607 (281,493) - 333,114
1998 JOINT
VENTURES CORPORATE DGR CONSOLIDATED
-------- --------- --- ------------
<S> <C> <C> <C> <C>
Net Revenues $ 941,304 $ - $ - $ 941,304
Operating income (loss) 814,737 (442,851) (3,638) 368,248
Net income (loss) 674,404 (407,817) 4,348 270,935
</TABLE>
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<PAGE>
4. JOINT VENTURE INVESTMENTS
The Company has four joint ventures with GTECH. The Delaware venture
manages a slot operation at Harrington Raceway in Harrington. The
Oregon venture developed the Mill Casino in North Bend for the Coquille
Indian Tribe. The Michigan venture, which is still in the development
stage, has a management agreement with a Tribe in Battle Creek, while
the California venture, also in the development stage, has an agreement
with a Tribe in Thermal.
SUMMARY INFORMATION FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30,
<TABLE>
<CAPTION>
1999 DELAWARE OREGON MICHIGAN CALIFORNIA
-------- ------ -------- ----------
<S> <C> <C> <C> <C>
Revenues $9,185,334 $1,774,225 $ - $ -
Operating income (loss) 3,836,590 1,731,907 (278,598) (35,892)
Cumulative effect of change
in accounting principle ( 9,157) (137,351) (1,260,818) (240,765)
Net income (loss) 3,827,433 1,594,556 (1,539,416) (276,657)
1998 DELAWARE OREGON MICHIGAN CALIFORNIA
-------- ------ -------- ----------
<S> <C> <C> <C> <C>
Revenues $ 8,809,476 $1,699,665 $ - $ -
Operating income (loss) 3,907,680 1,645,123 (21,022) (59,794)
Net income (loss) 3,907,680 1,645,123 (21,022) (59,794)
</TABLE>
SUMMARY INFORMATION FOR THE THREE MONTH PERIODS ENDED SEPTEMBER 30,
<TABLE>
<CAPTION>
1999 DELAWARE OREGON MICHIGAN CALIFORNIA
-------- ------ -------- ----------
<S> <C> <C> <C> <C>
Revenues $ 3,218,788 $ 650,846 $ - $ -
Operating income (loss) 1,271,218 640,148 (188,458) 4,180
Net income (loss) 1,271,218 640,148 (188,458) 4,180
1998 DELAWARE OREGON MICHIGAN CALIFORNIA
-------- ------ -------- ----------
<S> <C> <C> <C> <C>
Revenues $ 3,048,726 $ 622,330 $ - $ -
Operating income (loss) 1,296,569 612,419 (12,960) (13,422)
Net income (loss) 1,296,569 612,419 (12,960) (13,422)
</TABLE>
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THREE AND
NINE MONTHS ENDED SEPEMBER 30, 1998
JOINT VENTURE INCOME. Joint Venture income decreased $77,759, or 8.3%
for the three month period and $108,990 or 4.0% for the nine month period as
compared to the same periods in 1998. These decreases are primarily due to the
increased costs of the Michigan venture, coupled with a slight decline in the
Delaware venture and continued improvement in the Oregon venture.
OREGON JOINT VENTURE. The Company's share of income from the Oregon
joint venture was $320,074, an increase of 4.5% for the three month period, and
$865,953, an increase of 5.3% for the nine month period. These increases are due
to continued growth in the market, coupled with the introduction in March 1999
of "Wide-Area-Progressive" games featuring a linked jackpot.
DELAWARE JOINT VENTURE. In June 1998, the Joint Venture Company agreed
to reduce its management fees by $15,000 per month for a 60 month period in
consideration for Harrington Raceway funding certain capital improvements at the
facility. This fee reduction began in June 1998, and will continue until May
2003, for a total cumulative fee reduction of $900,000. For the three months
ended September 30, 1999, the Company's share of income from the Delaware joint
venture was $635,609 which represented a decrease of $12,675 from the comparable
prior year period. Several days of inclement weather during September, coupled
with the competitive pressures resulting from an expansion by the major
competitor contributed to the decline. For the nine month period, revenues were
$1,918,295 after the fee reduction, which represented a decrease of $35,545 from
the prior year period.
CALIFORNIA AND MICHIGAN JOINT VENTURES. The Company's share of the loss
from the Michigan joint venture increased by $87,749 and $128,788 for the
respective three and nine month periods ended September 30, 1999. These
increases were due to increased activities related to the Huron Potawatomi Tribe
in Battle Creek. The Company has begun to incur payroll, legal, licensing and
other expenses in connection with assisting the Tribe in obtaining suitable land
for its gaming facility, and applying for the necessary licenses and approvals.
The California venture has incurred lower costs this year as the parties await
clear resolution of the outstanding Indian gaming issues. These joint venture
companies are still in the development stage and do not have operating revenues.
GENERAL AND ADMINISTRATIVE EXPENSES. Non-Resort expenses increased by
$95,750 and $240,789 for the respective three and nine month periods ended
September 30, 1999. These increases are primarily due to increased payroll and
legal expenses associated with the Company's efforts to develop the Biloxi,
Mississippi project. Resort expenses for the nine month period decreased by
$228,565 due to the disposal of Deadwood Gulch.
INTEREST EXPENSE AND DEBT ISSUE COSTS. Interest expense and debt issue
costs decreased by $247,035 for the nine month period, and were relatively
unchanged for the three month period. This was primarily due to the May 1998
repayment of debt associated with Deadwood Gulch Resort ("DGR"), and lower
amounts outstanding on the line of credit.
INTEREST AND OTHER INCOME. Interest and other income increased by
$235,617 in the three month period primarily due to proceeds received from the
settlement of outstanding litigation in connection with the Company's land in
Mississippi. For the nine month period, interest and other income decreased by
$278,836, as the Company realized a gain on the sale of DGR of $385,225 in the
second quarter of 1998, and also received a one time reimbursement of $85,532
from its former Chairman for previously incurred costs. In addition, in February
1998, the Delaware LLC note receivable was paid in full.
INCOME TAX PROVISION. Income tax expense primarily represents state
taxes on the Company's earnings from its joint venture investments. For federal
tax purposes the Company has net operating loss carryforwards of
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approximately $3,400,000, which may be carried forward to offset future taxable
income. The loss carryforwards expire in 2007 through 2018. The availability of
the loss carryforwards may be limited in the event of a significant change in
ownership of the Company or its subsidiaries.
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE. In April 1998, The
Accounting Standards Executive Committee of the American Institute of Public
Accountants issued Statement of Position 98-5, "Reporting on the Costs of Start
- - Up Activities." It requires that the costs of start-up activities that had
been previously capitalized, be expensed as incurred. During the first quarter
of 1999, the Company expensed $824,045 of such costs that had been previously
incurred by its joint venture investments, net of the related tax benefit of
$280,175.
DEADWOOD GULCH RESORT. In May 1998, the Company completed the sale of
DGR and paid off the related outstanding indebtedness. There are no revenues or
expenses related to DGR in 1999. During the three and nine month periods of
1998, DGR generated operating losses of $3,638 and $204,931, respectively.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1999, the Company had cash and cash equivalents of
$536,680. For the nine months ended September 30, 1999, cash of $591,141 was
provided by operating activities, as compared to $1,189,856 in the prior year
period. The decline is primarily due to the decrease in various current assets,
including restricted cash, of DGR prior to the 1998 sale, coupled with a current
year increase in deposits and other assets which are primarily advances related
to the Biloxi project. Net cash used in investing activities was $1,146,639,
primarily for options and deposits related to the Biloxi project, compared to
cash provided by investing activities of $2,330,802 in the prior year primarily
due to receipt of proceeds from the sale of DGR, offset by the acquisition of
land for the Biloxi project. There was no net cash provided by financing
activities during the current year as a temporary draw on the line of credit was
also repaid. In the comparable prior period, $3,905,982 was used in financing
activities, the result of the payoff of debt associated with DGR and the
borrowing and repayment of $2,000,000 under the line of credit. As a result of
the above factors, there was a net decrease in cash and cash equivalents of
$555,498 during the nine months ended September 30, 1999.
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). The shareholders of Omega received an aggregate of 500,000
shares of Full House Common Stock and a promissory note in the amount of
$375,000. The principal amount of this note accrued interest, payable quarterly,
at the "prime" rate, and such principal amount, together with accrued interest,
was payable upon demand of the holder of the note. William P. McComas received
the note and Mr. Fugazy, the other stockholder of Omega, received the shares.
This note was paid in full in 1998.
On May 31, 1995, DGR borrowed $5 million, secured by its real property.
The note accrued interest at prime plus 2 1/4 %, with monthly installments of
principal and interest based on a ten-year amortization period, with the
remaining balance due on May 31, 2002. On May 12, 1998, the Company completed
the sale of DGR and used a portion of the proceeds to repay the outstanding
balance of $3,165,861.
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 end, 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 was convertible, until January 1998 into
600,000 shares of Full House
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Common Stock. The loan conversion clause expired without exercise. The note
bears interest at prime. Interest is paid monthly and the unpaid principal and
interest are due on January 25, 2001. 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, 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.
As a result of its agreements with GTECH, receipt by Full House of
revenues from the joint venture projects is governed by the terms of the related
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, the Company's continuing cash flow is dependent on the
operating performance of its joint ventures, and the ability to receive monthly
distributions.
On February 23, 1998, the Company completed the purchase of a portion
of a proposed gaming site in Biloxi, Mississippi. The Company acquired the site
for $4,155,000 and the payment of certain related costs. The Company utilized
cash on hand of $2,155,000 and obtained a $2 million bank loan in connection
with the purchase. The bank loan was repaid in June 1998 using the proceeds of
the DGR sale.
Upon the payoff of the bank loan, the Company negotiated a $2 million
line of credit with the same bank. The line was renewed in February 1999. The
line bears interest at prime plus 1/2%, with interest payable monthly, and any
outstanding principal is due at maturity in February 2000. No amount was
outstanding at September 30, 1999.
In November 1998, the Company executed a series of agreements with Hard
Rock Cafe International related to the proposed development project in Biloxi,
Mississippi. Pursuant to a licensing agreement, the Company has the right to
develop and operate a Hard Rock Casino in Biloxi. The Company agreed to pay a
territory fee of $2,000,000 in two installments. The first was paid in November
1998, and the second payment was due March 31, 1999. The Company requested a
continuing extension for the second payment and began discussions with Hard Rock
concerning an extended due date contingent upon financing for the development.
Hard Rock subsequently notified the Company that it wanted to amend certain
previous agreements, and modify its level of participation in the Biloxi
project.
The Company and Hard Rock have agreed to terminate the Management and
Development Agreement, which relieves Hard Rock of its obligation co-manage the
facility, and allows the Company to seek an equity partner to fill that role.
Additionally, the parties have agreed to amend certain portions of the current
Licensing Agreement which reduces the ongoing fees payable to Hard Rock from the
current 5% of net casino revenue to a flat $2,500,000 annual fee and establishes
December 15, 1999 as the due date for the second $1,000,000 installment of the
territory fee.
The Company is currently seeking an additional equity partner who will
also assist in the development and management of the project. In September 1998,
the Company and Allen Paulson formed a limited liability company, equally owned,
for the purpose of developing this project. Mr. Paulson agreed to contribute a
gaming vessel (the former Treasure Bay barge in Tunica, MS.), and the Company
agreed to contribute its rights to the Hard Rock agreements. This entity plans
to develop the Hard Rock - Biloxi and is currently exploring various financing
alternatives. The project, as currently envisioned, is expected to cost between
$250 and $300 million.
The Company expects to fund the remaining $1,000,000 territory fee and
the ongoing Biloxi project development costs through a combination of cash on
hand, cash provided by operations, and drawing upon its credit facility.
Substantial 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, or at all.
As of September 30, 1999, Full House had cumulative undeclared and
unpaid dividends in the amount of $1,522,500 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.
-12-
<PAGE>
YEAR 2000 ISSUES
The Company has implemented a Year 2000 program to ensure that its
computer systems and applications will function properly beyond 1999. The
Company believes that it has allocated adequate resources for this purpose and
expects its Year 2000 date conversion program to be completed successfully on a
timely basis. Although the ability of third parties with whom the Company
transacts business to address their Year 2000 issues is outside the Company's
control, the Company is discussing with its joint venture partners, significant
vendors and customers the possibility of any interface difficulties which may
affect the Company.
The Company has incurred approximately $10,000 to upgrade and replace
various hardware and software to address the Year 2000 issue, and does not
expect to incur any additional material costs. The Company has successfully
completed the testing of its critical internal systems.
The Company's joint ventures have reviewed their critical systems and
upgraded as necessary. Comprehensive testing has been completed, and all
critical systems are believed compliant. Nevertheless, manual procedures have
been updated for use in the event of certain automated system failures. The
joint ventures continue to monitor the progress of significant vendors in their
efforts to address this issue and provide assurances concerning their state of
readiness. All significant vendors have provided written assurances that their
systems are compliant and will function as intended. The ability to mitigate the
impact of the failure of certain vendor systems is limited. Additionally,
certain vendors are also dependent on others in order to insure uninterrupted
service.
-13-
<PAGE>
PART II - OTHER INFORMATION
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
As of September 30, 1999, cumulative dividends were $1,522,500, 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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
27.1 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: November 11, 1999
By /S/ GREGG R GIUFFRIA
------------------------------------------
Gregg R. Giuffria, President and Principal
Operating Officer
-14-
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
27.1 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 536,680
<SECURITIES> 0
<RECEIVABLES> 141,105
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 795,976
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 15,518,642
<CURRENT-LIABILITIES> 1,202,789
<BONDS> 0
0
70
<COMMON> 1,034
<OTHER-SE> 11,314,749
<TOTAL-LIABILITY-AND-EQUITY> 15,518,642
<SALES> 2,627,004
<TOTAL-REVENUES> 2,627,004
<CGS> 0
<TOTAL-COSTS> 2,001,386
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 187,230
<INCOME-PRETAX> 721,598
<INCOME-TAX> 186,467
<INCOME-CONTINUING> 535,131
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (543,870)
<NET-INCOME> (8,739)
<EPS-BASIC> (.01)
<EPS-DILUTED> (.01)
</TABLE>
