U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended: December 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission file number 0-20630
FULL HOUSE RESORTS, INC.
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(Name of Small Business Issuer in Its Charter)
DELAWARE 13-3391527
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2300 WEST SAHARA AVENUE, SUITE 450 - BOX 23, LAS VEGAS, NEVADA 89102
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(Address and zip code of principal executive offices)
(702) 221-7800
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(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
NONE NONE
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(Title of Each Class) (Name of Each Exchange
on Which Registered)
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, $.0001 PER SHARE
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(Title of class)
Check whether the registrant: (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act 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 [ ]
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year: $3,604,472.
The aggregate market value of registrant's voting $.0001 par value
common stock held by non-affiliates of the registrant, as of March 22, 2000,
was: $6,783,670.
The number of shares outstanding of registrant's $.0001 par value
common stock, as of March 22, 2000, was 10,340,380 shares.
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PART I
1. DESCRIPTION OF BUSINESS.
BACKGROUND
We are a developer of destination resorts and entertainment, gaming and
commercial centers. We were incorporated in the State of Delaware on January 5,
1987. On August 17, 1993, we completed a registered public offering of units,
each consisting of three shares of our common stock and a warrant entitling the
holder to purchase, for $5.00, one additional share of common stock during the
period between August 10, 1994 and August 9, 1996 for net proceeds of
$6,742,841. We later extended the exercise period of the warrants until February
10, 1997.
In May 1994, Lee Iacocca, currently one of our directors, brought to
our attention certain opportunities to enter into gaming agreements.
Specifically, Mr. Iacocca advised us of his negotiations, together with Omega
Properties, Inc. ("Omega"), with certain Indian Tribes (the "Organized Tribes")
regarding the development of a gaming operation in the Detroit, Michigan
metropolitan area. Mr. Iacocca also advised us of the ongoing discussions with a
second Indian Tribe in Michigan (the Nottawaseppi Huron Band of Potawatomi), a
tribe in southern California (the Torres Martinez Desert Cahuilla Indians) and a
project at the Delaware State Fairgrounds. In each case, the other parties had
entered into discussions with Mr. Iacocca based upon their perception of his
integrity and ability to facilitate completion of the proposed transactions. Mr.
Iacocca had conducted these negotiations through LAI Associates, Inc. ("LAI"), a
corporation owned by him.
In 1994, we entered into a Merger Agreement (the "Merger Agreement")
with LAI and Omega (30% owned by William P. McComas, a director and stockholder
of Full House) whereby these entities were to merge with one of our
subsidiaries. In exchange, the entities were to receive 1,750,000 shares of
common stock of Full House and our note for $375,000 bearing interest at the
"prime rate" of Bank of America, N.A. and due on demand, but in no event prior
to August 31, 1996. Although Full House also entered into a Purchase Agreement
with Mr. McComas on the same date to purchase a portion of the assets originally
included in the May 1994 letter of intent in exchange for a $625,000 note from
Full House, this portion of the transaction was not consummated and the note was
not issued.
The transaction was completed in 1995. As a result we obtained a 100%
interest in the agreements with the Organized Tribes and the Nottawaseppi Huron
Band of Potawatomi, and a 100% interest in the agreements with the Torres
Martinez Desert Cahuilla Indians and the Delaware State Fair. The shareholders
of Omega received an aggregate of 500,000 shares of our common stock and our
promissory note in the principal amount of $375,000. The principal amount of
this promissory note accrued interest, payable quarterly, at a rate equal to the
"prime" rate and such principal amount, together with all accrued interest, was
due and payable in full upon demand by the holder(s) of this note, but in no
event before August 31, 1996. William P. McComas received the note and the other
stockholder of Omega received the shares in exchange for their interests as
shareholders of Omega. The promissory note was paid in full in 1998.
Our executive offices are located at 2300 West Sahara Avenue, Suite 450
- - Box 23, Las Vegas, Nevada 89102, telephone (702) 221-7800.
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GTECH RELATIONSHIP
Effective April 1, 1995, we entered into a series of agreements with
GTECH Corporation, a wholly-owned subsidiary of GTECH Holdings Corporation, a
leading supplier of computerized on-line lottery systems and services for
government-authorized lotteries, to jointly pursue gaming opportunities.
Excluded from these agreements was the Deadwood Gulch Resort, which we then
owned. Pursuant to the agreements, joint venture companies equally owned by
Dreamport, Inc., the gaming and entertainment subsidiary of GTECH, and Full
House have been formed. We contributed our rights (as described below) to the
North Bend, Oregon facility and our rights to develop the Torres Martinez,
Nottawaseppi Huron Band of Potawatomi and Delaware State Fair projects to the
joint venture companies.
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 companies up to $16.4 million to complete the North Bend,
Oregon and Delaware facilities. We agreed to guarantee one-half of the
obligations of the joint venture companies to GTECH under these loans and at
December 31, 1999 had guaranteed to GTECH one-half of a loan to the Oregon Tribe
with a balance of $2 million. The Delaware venture loan was paid in full during
February 1998. GTECH also agreed to make loans to us for our portion of the
financing of projects if we are unable to otherwise obtain financing. GTECH will
also provide project management, technology and other expertise to analyze and
develop/manage the implementation of opportunities developed by the joint
venture companies. GTECH has also loaned us $3.0 million, with interest payable
monthly at prime, and the principal balance due in January 2001. Although the
loan was convertible into 600,000 shares of our common stock in January 1998,
the loan conversion clause expired without exercise. As part of the GTECH
relationship, Allen E. Paulson, William P. McComas and Lee Iacocca have granted
to GTECH an option, which expires on December 29, 2000, to purchase their shares
should they propose to transfer the same. In March 1997, we modified our
agreement with GTECH to no longer require each party to present prospective
business opportunities to the other.
Set forth below is a brief description of each of the gaming
opportunities that have been transferred to the joint venture companies that we
equally own with Dreamport.
THE MILL CASINO-NORTH BEND, OREGON
On May 19, 1995, the first phase of the facility known as the "Mill"
was opened with 250 video lottery terminals, nine blackjack tables, three poker
tables, a restaurant and buffet, a saloon, a bingo hall, a gift shop and a snack
bar on Tribal Trust Lands of the Coquille Indian Tribe in North Bend, Oregon (as
of December 31, 1999, there were approximately 350 video lottery terminals, 10
blackjack tables and nine poker tables). A Full House - Dreamport joint venture
entity leases approximately 12.5 acres of Tribal Trust Lands from an entity
owned by the Coquille Indian Tribe on which the Mill is located and subleases a
portion of the land on which the casino is located back to the same entity. The
sublease expires in 2002.
The joint venture modified its agreement with the Coquille Indian Tribe
on July 19, 1995 reducing the obligations of the joint venture company to
provide financing to $10.4 million, extending the date when repayments begin and
modifying the method of computing participating rents and loan repayments. Lease
and debt payments commenced on August 19, 1995 and September 19, 1995,
respectively. In October 1996, the Tribe secured a new $17.5 million loan to
refinance certain outstanding indebtedness, finance the acquisition of gaming
equipment and finance certain improvements to the gaming facility. The joint
venture company was repaid 100% of its original development loan from the
refinancing. GTECH Corporation purchased a $2.0 million participation in that
new loan, half of which is guaranteed by us. As part of the loan, the joint
venture company subordinated its rights to receive a percentage of gross gaming
revenues. As rental under the sublease to the Tribal entity, from October 8,
1996 through October 7, 1999, the joint
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venture company received 13% of gross gaming revenue. The monthly percentage
rental was reduced to 12% from October 8, 1999 until October 8, 2000 when it
will reduce to 11% until October 8, 2001. Thereafter, it will be 10% of gross
gaming revenue. No Annual Percentage Rental will be paid after August 19, 2002;
but if gross gaming revenue for any twelve-month period exceeds $20,000,000, 10%
of amounts in excess of such threshold will be paid as rent under the sublease.
The Mill is located in North Bend, Oregon on the Port of Coos Bay. The
Coos County population, which includes the Bay area, is approximately 65,000.
The Bay area's economy is primarily based on forestry and fishing. Oregon's Coos
Bay area is located on the Pacific Coast midway between San Francisco,
California and Seattle, Washington. The communities of Coos Bay, North Bend and
Charleston are approximately 115 miles from Eugene, Oregon's second largest
city. The North Bend Municipal Airport is Southwestern Oregon's regional air
terminal that provides commercial air service to and from Portland.
The Mill Casino is one of several Indian casinos presently operating in
Oregon. The closest competing casino is located approximately 90 miles from
North Bend and operates 700 devices, a card room, bingo and keno. Two other
facilities, which are 140 and 160 miles from North Bend, are located closer to
Portland, Oregon.
MIDWAY SLOTS AND SIMULCAST-HARRINGTON, DELAWARE
On August 20, 1996 Midway Slots and Simulcast, owned by Harrington
Raceway, Inc., was opened. The 35,000 square foot facility located near Dover,
Delaware, was developed, financed and is managed by a Full House-Dreamport joint
venture company. The facility employs approximately 285 people, and features 742
gaming devices and a 150-seat simulcast parlor. Individual screens for players
broadcast horse racing from harness and thoroughbred tracks around the world.
The facility also features a 150-seat Las Vegas-style buffet, lounge, and gift
shop. The joint venture provided over $11 million in financing, developed the
project and acts as manager of the gaming facility pursuant to a 15-year
contract. The development loan was paid in full in February 1998.
The facility is currently being expanded by an additional 35,000 square
feet, which will allow the addition of 400 gaming devices, the expansion of the
food service offerings, and provide for an entertainment lounge area. The total
cost is approximately $6.5 million and is being fully funded by the owner.
Completion is expected by the end of the second quarter of 2000. The joint
venture company has agreed to modify its management fee structure for revenues
and operating profits in excess of defined amounts, in recognition of the owner
providing complete financing for the expansion.
Midway Slots and Simulcast is located in Harrington, Delaware on Route
13, south of Dover, Delaware between Philadelphia and Baltimore/Washington, D.C.
Midway Slots and Simulcast is one of three facilities presently operating in
Delaware. The closest competing casino is located in Dover, approximately 20
miles north of Harrington, and currently operates 2,000 devices, which is the
maximum number allowed in Delaware. The other facility is located approximately
60 miles north of Harrington.
Under the 15-year management agreement with the joint venture company,
the venture receives a percentage of Gross Revenues and Operating Profits, as
defined in the agreements. The joint venture company developed and constructed
the gaming facility and provided financing through a capital lease arrangement.
During 1998, the 150-seat simulcast parlor was moved to the Harrington Raceway
Grandstand, the food and beverage operation in the Grandstand was improved and
expanded, and additional 122 gaming devices were added to the facility.
Harrington Raceway, Inc. secured a bank loan to pay for these and other
improvements and pay off the development loan from the joint venture company.
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NOTTAWASEPPI HURON BAND OF POTAWATOMI-BATTLE CREEK, MICHIGAN
We entered into a series of agreements in January 1995 with the
Nottawaseppi Huron Band of Potawatomi, a Michigan Indian Tribe, to develop
gaming and non-gaming commercial opportunities for the Tribe and to construct
and manage gaming facilities. The Tribe's state reservation lands are located in
Southcentral Michigan. If developed, the facility will target the Ft. Wayne,
Indiana and Lansing and Detroit, Michigan metropolitan areas. In December 1999,
the Tribe applied to have its existing State reservation land as well as
additional land in its ancestral territory taken into trust by the Bureau of
Indian Affairs. A Full House - Dreamport joint venture company has the exclusive
right to provide financing and casino management expertise to the Tribe in
exchange for a defined percentage of net profits and certain other
considerations from any future gaming or related activities of the Tribe. A
third party will be paid a royalty fee in lieu of its original 15% ownership
interest in earlier contracts with the Tribe.
The Huron Potawatomi achieved final federal recognition as a tribe in
April 1996, and obtained a Gaming Compact from Michigan's governor early in
1997, to operate an unlimited number of electronic gaming devices as well as
roulette, Keno, dice and banking card games. The Michigan Legislature ratified
the Compact by resolution in December 1998, along with compacts for three other
tribes. A suit was filed in 1999 by "Taxpayers of Michigan Against Casinos" in
Ingham County Circuit Court challenging the constitutionality of the approval
process of these gaming compacts. On January 18, 2000 Judge Peter D. Houk issued
a ruling that the compacts must be approved by a legislative bill rather than by
resolution. The State of Michigan filed an appeal to the Michigan Court of
Appeals on February 4, 2000. The joint venture company, as an intervening
defendant, joined in the appeal filing.
We and the Tribe have continued to move forward with casino development
plans while working towards a favorable resolution of the current litigation.
The management agreements, along with the required licensing applications were
submitted to the National Indian Gaming Commission in December 1999. The parties
have identified a suitable parcel of land for the gaming enterprise, which is
under option, and have submitted a Fee to Trust application to the Bureau of
Indian Affairs.
On November 5, 1996, Michigan voters approved licenses for three gaming
facilities within the City of Detroit, approximately 100 miles from the Battle
Creek area. Two temporary facilities began operations in 1999, and the third is
expected to open in 2000. We do not believe that operation of three gaming
facilities in Detroit will have a material adverse impact the proposed Huron
Potawatomi casino.
TORRES MARTINEZ BAND OF DESERT CAHUILLA INDIANS-THERMAL, CALIFORNIA
In April 1995, We entered into a Gaming and Development Agreement and a
Gaming Management Agreement with the Torres Martinez Desert Cahuilla Indians.
The agreements grant us certain rights to develop, manage, and operate gaming
activities for the Tribe and the right to receive a defined percentage of the
net revenues from gaming activities subject to our obligation to arrange or
provide financing for the development. The rights to these agreements were
assigned to a Full House-Dreamport joint venture company. In 1997, a new Gaming
Management Agreement was executed, further defining the rights and obligations
of the Tribe and the Company.
During 1996, the Tribe reached a settlement in its litigation with the
Department of Justice and two water districts, pursuant to which the Tribe will
be paid $14.0 million in compensation, and will have the right to select up to
11,200 acres of new reservation land to be taken into trust in replacement for
the same quantity of land which was flooded by the rising level of the Salton
Sea. That settlement, which requires legislative enactment, was approved by the
U. S. House of Representatives but not by the Senate. The bill has not been
reintroduced as the Tribe focused its attention upon a settlement with the State
of California
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under which it will also take replacement lands in exchange for granting a right
of way through its reservation to accommodate the re-routing of a state highway.
On March 6, 1998, California Governor Pete Wilson announced that he had
reached an agreement on a compact for gaming, which was intended to be the
standard for gaming compacts with all Indian tribes in California. In November
1998, California voters passed the "Tribal Government Gaming and Economic
Self-Sufficiency Act of 1998" (the "Act"). The Act's constitutionality was
challenged and the California Superior Court upheld the challenge. On March 7,
2000, the voters approved a ballot measure to amend the constitution, which now
enables the compacted Tribes to pursue gaming under the provisions of the
compacts.
We and the Tribe are currently exploring the best manner in which to
optimize the gaming enterprise alternatives; both short and long term. Compact
negotiations are expected to be concluded by the third quarter of 2000.
THEME HOTEL/CASINO-BILOXI, MISSISSIPPI
We purchased a one-acre parcel of land on the gulf coast in Biloxi,
Mississippi in February 1998, for $4,621,670 with the intent of developing a
themed casino resort. The land is located near the interchange of Beach Blvd.
and Interstate 110, and next to the recently opened Beau Rivage Resort developed
by Mirage Resorts, Inc. We subsequently entered negotiations to purchase and/or
lease approximately six additional acres, which, together with the parcel
already acquired, will constitute the project site.
We and Allen Paulson (a principal stockholder) have formed a limited
liability company, equally owned, for the purpose of owning and developing the
proposed resort. Mr. Paulson has agreed to contribute a gaming vessel (the
former Treasure Bay barge in Tunica, Mississippi) and we have agreed to
contribute our rights to various agreements with Hard Rock Cafe International
("Hard Rock").
In November 1998, we executed a series of agreements with Hard Rock
related to the proposed development project in Biloxi, Mississippi. The
agreements allow us the right to develop and operate a Hard Rock Casino in
Biloxi. We agreed to pay a territory fee of $2,000,000, which has been paid. We
were to pay an annual licensing fee of 5% of net gaming revenue plus 5% of hotel
revenue upon opening the casino. Hard Rock was to be a partner with us in a
Management and Development Agreement for an onging management fee. In February
1999, we entered into various option agreements with several owners of the
adjacent properties needed for our project. We also began discussions with
investment bankers concerning the financing for the project, and began preparing
our offering materials. During those discussions it became apparent that the
expected capital market requirements for the project financing were not
acceptable to either Hard Rock or us. Consequently, our agreements were amended
in a fashion that would allow us to attempt to attract an additional partner who
could provide the necessary equity and credit enhancements.
We jointly agreed to terminate the Management and Development Agreement
which relieves Hard Rock of its obligation co-manage the facility. This allows
us to seek an equity partner to fill that role. Additionally, the parties
amended certain portions of the Licensing Agreement to reduce the ongoing annual
licensing fee to a flat $2,500,000 plus 3% of hotel revenue. Concurrent with the
negotiations to amend the agreements, we entered into discussions with potential
equity partners. Our substantive discussions with potential partners ended in
November without a definitive agreement. At that time we were faced with
expiring, but extendible, purchase options and deposits. After analyzing the
costs and risks of those options, we elected not to spend the necessary $600,000
for an additional 90 day extension, since there was no reasonable likelihood of
completing the transaction by the extended expiration date. As a result, the
options expired and the deposits were forfeited, resulting in a write-off of
$1,350,000. In addition, the costs incurred
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for preparing the draft offering documents were also expensed.
Although we no longer have agreements in place to control the
development site, our communications with the various landowners continue. We
are actively pursuing an equity partner to assist in the development and
management of the project. The Hard Rock - Biloxi, as currently envisioned, is
expected to cost between $250 and $300 million. No assurance can be given that
the necessary financing will be available upon commercially reasonable terms, or
at all.
In connection with the parcel of land that we acquired in Mississippi,
we also obtained rights to some outstanding litigation concerning back rents due
from a former lessee. In September 1999, that litigation was concluded and we
received proceeds of $262,767.
DEADWOOD GULCH RESORT
On May 12, 1998, we completed the sale of Deadwood Gulch Resort ("DGR")
for $6.0 million cash and the proration of certain related items. After
prorations and closing costs we received net proceeds of $5,941,765. The gain on
the sale, recorded in the second quarter 1998, was $385,227.
The Company determined that ownership of this facility was inconsistent
with our future plans. From the time of its acquisition through its sale, the
Resort had a cumulative operating deficit of approximately $3.83 million and we
had recognized an impairment loss of $4.15 million.
GOVERNMENT REGULATION
The ownership and operation of a gaming business by Full House,
wherever conducted in the United States, will be subject to extensive and
complex governmental regulation and control under federal, state and/or local
laws and regulations.
INDIAN GAMING. Gaming on Indian Lands (lands over which Indian tribes
exercise jurisdiction and which meet the definition of Indian Lands under the
Indian Gaming Regulatory Act of 1988 ("IGRA")) is extensively regulated by
federal, state and tribal governments. The current regulatory environment
regarding Indian gaming is evolving rapidly. Changes in federal, state or tribal
law or regulations may limit or otherwise affect Indian gaming or may be applied
retroactively and could therefore have a material, adverse effect on the Company
or its operations.
The terms and conditions of management contracts and collateral
agreements, and the operation of casinos on Indian Land, are subject to IGRA,
which is implemented by the National Indian Gaming Commission (the "Gaming
Commission"), and also are subject to the provisions of statutes relating to
contracts with Indian tribes, which are overseen by the Secretary of the U.S.
Department of the Interior (the "Secretary"). IGRA is subject to interpretation
by the Secretary and the Gaming Commission and may be subject to judicial and
legislative clarification or amendment. Under IGRA, the Gaming Commission has
the power to inspect and examine certain Indian gaming facilities, to conduct
background checks on persons associated with Indian gaming, to inspect, copy and
audit all records of Indian gaming facilities, and to hold hearings, issue
subpoenas, take depositions, and adopt regulations in furtherance of its
responsibilities. IGRA authorizes the Gaming Commission to impose civil
penalties for violations of the IGRA or the regulations promulgated thereunder
(the "Regulations"), including fines, and to temporarily or permanently close
gaming facilities for violations of the law or the Regulations. The Department
of Justice may also impose federal criminal sanctions for illegal gaming on
Indian Lands and for theft from Indian gaming facilities.
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IGRA also requires that the Gaming Commission review tribal gaming
ordinances and approve such ordinances only if they meet certain requirements
relating to the ownership, security, personnel background, recordkeeping, and
auditing of the tribe's gaming enterprises; the use of the revenues from such
gaming; and the protection of the environment and the public health and safety.
IGRA also regulates Indian gaming management contracts, requiring the
Gaming Commission to approve management contracts and collateral agreements,
which include agreements such as promissory notes, loan agreements and security
agreements. A management contract can be approved only after determination that
the contract provides for: (i) adequate accounting procedures and verifiable
financial reports, which must be furnished to the tribe; (ii) tribal access to
the daily operations of the gaming enterprise, including the right to verify
daily gross revenues and income; (iii) minimum guaranteed payments to the tribe,
which must have priority over the retirement of development and construction
costs; (iv) a ceiling on the repayment of such development and construction
costs; and (v) a contract term not exceeding five years and a management fee not
exceeding 30% of profits if the Chairman of the Gaming Commission determines
that the fee is reasonable considering the circumstances; provided that the
Gaming Commission may approve up to a seven year term and a management fee not
to exceed 40% of net revenues if the Gaming Commission is satisfied that the
capital investment required or the income projections for the particular gaming
activity justify the larger profit allocation and longer term.
Under IGRA, the Company must provide the Gaming Commission with
background information on each person with management responsibility for a
management contract, each director of the Company and the ten persons who have
the greatest direct or indirect financial interest in a management contract to
which the Company is a party (an "Interested Party"), including a complete
financial statement and a description of such person's gaming experience. Such a
person must also agree to respond to questions from the Gaming Commission.
The Gaming Commission will not approve a management company and may
void an existing management contract if a director, key employee or an
Interested Party of the management company is (i) an elected member of the
Indian tribal government that owns the facility being managed; (ii) has been or
is convicted of a felony or misdemeanor gaming offense; (iii) has knowingly and
willfully provided materially false information to the Gaming Commission or a
tribe; (iv) has refused to respond to questions from the Gaming Commission; or
(v) is a person whose prior history, reputation and associations pose a threat
to the public interest or to effective gaming regulation and control, or create
or enhance the chance of unsuitable, unfair or illegal activities in gaming or
the business and financial arrangements incidental thereto. In addition, the
Gaming Commission will not approve a management contract if the management
company or any of its agents has attempted to unduly influence any decision or
process of tribal government relating to gaming, or if the management company
has materially breached the terms of the management contract, or the tribe's
gaming ordinance, or, if a trustee, exercising the skill and diligence to which
a trustee is commonly held, would not approve such management contract.
IGRA divides games that may be played on Indian Land into three
categories. Class I Gaming includes traditional Indian games and private social
games and is not regulated under IGRA. Class II Gaming includes bingo, pull
tabs, lotto, punch boards, tip jars, instant bingo, and other games similar to
bingo, if those games are played at a location where bingo is played. Class III
Gaming includes all other commercial forms of gaming, such as video casino games
(e.g., video slots, video blackjack); so-called "table games" (e.g., blackjack,
craps, roulette); and other commercial gaming (e.g., sports betting and
pari-mutuel wagering).
Class II Gaming is permitted on Indian Land if conducted in accordance
with a tribal ordinance which has been approved by the Gaming Commission and the
state in which the Indian Land is located
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permits such gaming for any purpose. Class II Gaming also must comply with
several other requirements, including a requirement that key management
officials and employees be licensed by the tribe.
Class III Gaming is permitted on Indian Land if the conditions
applicable to Class II Gaming are met and, in addition, if the gaming is
conducted in compliance with the terms of a written agreement between the tribe
and the host state. IGRA requires states to negotiate in good faith with Indian
tribes that seek to enter into tribal-state compacts, and grants Indian tribes
the right to seek a federal court order to compel such negotiations. The
negotiation and adoption of tribal-state compacts is susceptible to ongoing
legal and political developments that may impact the Company's future revenues
and securities prices. The Company cannot predict which additional states, if
any, will approve casino gaming on Indian Land, the timing of any such approval,
the types of gaming permitted by each tribal-state compact, any limits on the
number of gaming machines allowed per facility or whether states will attempt to
renegotiate or take other steps that may affect existing compacts.
Under IGRA, Indian tribal governments have primary regulatory authority
over gaming on Indian Land within the tribe's jurisdiction unless a tribal-state
compact has delegated this authority. Therefore, persons engaged in gaming
activities, including the Company, are subject to the provisions of tribal
ordinances and regulations on gaming.
The Gaming Commission has determined that provisions of IGRA relating
to management agreements do not govern the current operations of Full House in
North Bend, Oregon.
Tribal-State Compacts have been the subject of litigation in several
states, including California and Michigan. In addition, several bills have been
introduced in Congress that would amend IGRA. If IGRA were amended, the
amendment could change the governmental structure and requirements within which
Indian tribes may conduct gaming.
MISSISSIPPI. The ownership and operation of casino gaming facilities in
Mississippi are subject to extensive state and local regulation, but primarily
the licensing and regulatory control of the Mississippi Gaming Commission. The
Mississippi Gaming Commission has the authority to require a finding of
suitability with respect to any security holder of a licensed entity, regardless
of the percentage of ownership.
Applicable Mississippi law requires the Company, and their respective
officers, directors, members and significant equity holders to submit to a
background regulatory review process prior to the licensing of the Hard
Rock-Biloxi. The review process includes the submission of a gaming application,
an investigation and submission of a personnel history and financial
information. In addition, employees engaged in gaming operations will have to be
separately licensed. The applicant for the gaming license has the burden of
proving its qualifications for license. Any license issued or other approval
granted is a revocable privilege, and must be renewed, as a general rule, on an
annual basis. The Mississippi gaming authorities have broad discretion to
condition, suspend, revoke, limit, restrict or deny renewal of any gaming
license at any time. Persons found unsuitable by the Mississippi gaming
authorities may be required immediately to terminate any interest in,
association or agreement with or relationship to a licensee. A finding of
unsuitability with respect to any officer, director, employee, associate, lender
or beneficial owner of a licensee or applicant also may jeopardize the
licensee's license or the applicant's license application. A license grant may
be conditioned upon the termination of any relationship with unsuitable persons.
Unless properly licensed, no person is permitted to collect gaming
revenues. In addition, no person is permitted to act as an attorney in fact for
any licensee. Gaming licenses are not salable, otherwise transferable or subject
to nominee arrangements.
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EMPLOYEES
As of March 15, 2000, we and our subsidiaries had five full time
employees, three of whom are our executive officers. Our joint venture
operations have approximately 275 full time employees, and management believes
that its relationship with its employees is good. None of our employees are
currently represented by a labor union, although such representation could occur
in the future.
2. DESCRIPTION OF PROPERTY.
A Full House-Dreamport joint venture company leases approximately 12.5
acres of Tribal Trust Lands from an entity owned by the Coquille Indian Tribe on
which the Mill is located. The joint venture company subleases the land on which
the casino is located back to the same entity. The master lease expires in 2019
and the sublease expires in 2002 with options to renew. Pursuant to a July 19,
1995 addendum, the joint venture company receives a percentage of "Gross Gaming
Revenues" (as defined) of the casino. Payments commenced August 19, 1995.
A Full House-Dreamport joint venture company has a lease and leaseback
agreement with Harrington Raceway, Inc. The lease encumbers the revenues of the
gaming facility. The lease is treated as a capital lease and payments commenced
on August 20, 1996.
The Company acquired a one-acre parcel of land in Biloxi, Mississippi
in February 1998, which is intended to be a portion of a future gaming
development site.
3. LEGAL PROCEEDINGS.
In October 1994, Full House filed an action for declaratory relief in
Mississippi, seeking a determination by the court that no relationship exists
between it and Lone Star Casino Corporation regarding the potential acquisition
of a riverboat casino on the Mississippi gulf coast (FULL HOUSE RESORTS, INC. V.
LONE STAR CASINO CORPORATION V. ALLEN E. PAULSON, Second Judicial District of
the Chancery Court of Harrison County, Mississippi). Lone Star filed a
counterclaim alleging breaches of fiduciary duty, breach of contract, conspiracy
to breach contract and to breach fiduciary duty and common law fraud. The trial
court granted summary judgment in favor of all defendants on that counterclaim,
and Lone Star appealed that judgment to the Mississippi appellate court. In
April 1998, the Appeals Court affirmed the dismissal of all counts against all
parties, excepting Lone Star's claim against the Company for breach of contract,
which it remanded to the trial court for additional hearing. No action has been
taken on that matter to date. In January 2000, LS Capital, successor to Lone
Star, announced it had retained new counsel to pursue this claim. Management is
unable to determine the outcome of this litigation, but does not believe the
outcome will have a material adverse effect on the Company's financial
condition.
In January 1999, we were advised that the Securities and Exchange
Commission ("SEC") was conducting an inquiry into trading of our stock by our
President, Gregg R. Giuffria, for a period beginning prior to his association
with the Company and continuing for a period after he became a consultant to the
Company. The SEC has admonished that this inquiry is not to be construed as an
indication that any violations of federal securities laws have occurred. We and
Mr. Giuffria voluntarily provided all information requested, and are cooperating
fully with the SEC in its investigation.
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
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PART II
5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(a) MARKET INFORMATION
The Company's Common Stock is listed on The Nasdaq SmallCap Market
under the symbol FHRI. Set forth below are the high and low sales prices of the
Company's Common Stock as reported on the Nasdaq SmallCap Market System for the
periods indicated.
HIGH LOW
---- ---
YEAR ENDED DECEMBER 31, 1999
First Quarter $3.00 $2.00
Second Quarter 2.69 2.00
Third Quarter 2.31 1.13
Fourth Quarter 2.00 1.00
YEAR ENDED DECEMBER 31, 1998
First Quarter $3.88 $2.00
Second Quarter 3.75 1.94
Third Quarter 3.00 1.25
Fourth Quarter 3.50 1.50
The quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission, and may not represent actual transactions. On March 22,
2000, the last sale price of the Common Stock as reported by the Nasdaq SmallCap
Market was $1.28.
(b) HOLDERS
As of March 22, 2000, the Company had approximately 138 holders of
record of its Common Stock. The Company believes that there are over 2,000
beneficial owners of its Common Stock.
(c) DIVIDENDS
The Company has paid no dividends on its Common Stock or Preferred
Stock since its inception. Holders of the Company's Common Stock are entitled to
receive such dividends as may be declared by the Board of Directors out of funds
legally available therefor.
Holders of the Company's Series 1992-1 Preferred Stock are entitled to
receive dividends, when, as and if declared by the Board of Directors out of
funds legally available therefor, in the annual amount of $.30 per share,
payable in arrears semi-annually on the 15th day of December and June, in each
year. Dividends on the Series 1992-1 Preferred Stock commenced accruing on July
1, 1992 and are cumulative. The Company has not declared or paid the accrued
dividends on its Preferred Stock which were payable since issuance, totaling
$1,575,000 and, accordingly, is in default in regard thereto.
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As the Company is in default in declaring, setting apart for payment or
paying dividends on the Preferred Stock, it is restricted from paying any
dividend or making any other distribution or redeeming any stock ranking junior
to the Preferred Stock.
The Company intends to retain future earnings, if any, to provide funds
for the operation of its business, retirement of its debt and payment of
preferred stock dividends and, accordingly, does not anticipate paying any cash
dividends on its common stock in the reasonably foreseeable future.
6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
JOINT VENTURE REVENUES. Joint venture revenues increased $17,299 for
the year ended December 31, 1999 as compared to 1998. This increase was due to
the improved operating results from the Delaware and Oregon joint ventures,
offset by a fee reduction agreement in Delaware.
DELAWARE JOINT VENTURE. The Company's share of income from the Delaware
joint venture was $2,479,782 for the year ended December 31, 1999, which
represented a decrease of $26,655, or 1.1%, from 1998. This reduction was
primarily due to a June 1998 agreement to reduce management fees by $15,000 per
month for a period of 60 months in consideration of the owner financing certain
capital improvements. Accordingly, the management fees were reduced by $180,000
in 1999, and $105,000 in 1998. The operating performance of Midway Slots and
Simulcast showed a 2.6% increase in revenue and a 7.2% increase in operating
cash flow.
OREGON JOINT VENTURE. The Company's share of income from the Oregon
joint venture was $1,124,690 for the year ended December 31, 1999, which
represented an increase of $43,955, or 4.1%, from 1998. This increase was due to
continued market growth, coupled with the introduction in March 1999 of
"Wide-Area Progressive" games featuring a linked jackpot.
JOINT VENTURE PREOPENING COSTS. The Company's share of costs from the
development stage joint ventures in California and Michigan increased to
$515,802 for the year ended December 31, 1999 as compared to $57,486 in 1998.
This increase is primarily due to increased activity in Michigan.
MICHIGAN JOINT VENTURE. During 1999, the joint venture began to incur
legal, consulting, payroll, and land costs associated with the planned
development of a tribal casino in Battle Creek. The Company's share of these
costs amounted to $474,336, compared to only $17,185 during 1998. In December of
1998, the Michigan legislature ratified the tribal compact and as a result, the
joint venture has significantly increased its active pursuit of this project.
CALIFORNIA JOINT VENTURE. The Company's share of costs associated with
the California project amounted to $41,466, for the year ended December 31, 1999
as compared to compared to $40,301 in 1998. While awaiting a definitive outcome
to the status of Indian Gaming legislation in California, no significant
expenditures have been incurred.
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DEVELOPMENT COSTS. The Company expensed development costs related to
the Biloxi Project of $1,644,542. These costs were primarily for land deposits
and options of $1,350,000, which expired and were either not renewed, or the
available extensions were not exercised. The Company's negotiations with a
potential joint venture partner broke off in November 1999, and as a result, the
Company had no reasonable expectation of being able to consummate the land
transaction prior to a later expiration of the available extension periods. The
Company also expensed $294,542 in deferred legal and consulting fees that were
primarily due to a postponed debt offering for the project.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses increased by $208,093, or 10.6% for the year ended December 31, 1999 as
compared to 1998. This increase is due to increased payroll, legal fees, and
travel expenses related to the investigation, due diligence and pre-development
of various ongoing expansion opportunities.
INTEREST EXPENSE AND DEBT ISSUE COSTS. For the year ended December 31,
1999, interest expense and debt issue costs decreased by $342,966 as compared to
1998. This decrease is primarily due to the payoff of the DGR loan in May 1998.
The interest expense for 1999 primarily reflects interest on the $3.0 million
GTECH note, which became interest bearing in January 1998.
INTEREST AND OTHER INCOME. Interest and other income of $290,907 for
the year ended December 31, 1999 is primarily due to proceeds of $262,767 from a
litigation settlement in connection with the Company's land in Mississippi. In
1998 the Company realized a gain on the sale of DGR of $385,227, and also
received a one time reimbursement of $85,532 from the former Chairman of the
Board for costs associated with the gaming opportunities presented to the
Company by him. Interest income on invested cash balances declined by $58,513 as
a result of a decrease in cash.
INCOME TAX EXPENSE. An income tax benefit of $257,733 for the year
ended December 31, 1999 primarily reflects state taxes due on joint venture
revenues, offset by deferred tax benefits. At December 31, 1999, the Company had
net operating loss carryforwards for federal income tax purposes of
approximately $4,455,000, 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 Certified
Public Accountants issued Statement of Position 98-5, "Reporting on 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. As a result of the sale of the resort in May
1998, there were no revenues or expenses for 1999. The operating loss from DGR
was $345,769 for 1998 prior to its sale. The Company recognized a gain on the
sale of DGR of $385,227 after considering the impairment reserve of $4,154,290.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
JOINT VENTURE REVENUES. Joint venture revenues increased $430,673, or
13.6% for the year ended December 31, 1998 as compared to 1997. These increases
are due to the improved operating results from the Delaware and Oregon joint
ventures.
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DELAWARE JOINT VENTURE. The Company's share of income from the Delaware
joint venture was $2,506,437 for the year ended December 31, 1998. This
represented an increase in the Company's share of income of $350,011, or 16.2%,
over 1997. The increase is attributed to a new marketing plan at the facility
and the addition of 122 video slot machines on May 22, 1998. As a result of
operating results exceeding initial projections, Midway Slots and Simulcast has
prepaid its obligation to the Delaware joint venture. The joint venture, in
turn, prepaid its obligation to the Company in February 1998.
OREGON JOINT VENTURE. The Company's share of income from the Oregon
joint venture increased $80,662, or 8.1% for the year ended December 31, 1998 as
compared to 1997 primarily as a result of improved marketing of the casino.
JOINT VENTURE PREOPENING COSTS.
CALIFORNIA AND MICHIGAN JOINT VENTURES. The Company's share of the loss
from the California and Michigan joint ventures increased to $57,486 for the
year ended December 31, 1998 as compared to $46,634 in 1997. These joint venture
companies are still in the development stage and do not have operating revenues.
GENERAL AND ADMINISTRATIVE EXPENSES. Non-resort expenses increased
$217,416, or 13.5% for the year ended December 31, 1998 as compared to 1997.
This increase is primarily due to the grant, on January 6, 1998 of a vested
stock option to Gregg Giuffria, who later became president and chief operating
officer of the Company, to purchase 70,001 common shares at $2.03, and an
unvested option to purchase 279,999 shares at $2.03. The value of $240,964 for
the options was estimated on the date of grant using the Black-Scholes
option-pricing model with the following assumptions: expected volatility of 95
percent, risk-free interest rate of 5.4 percent, and expected life of 2.0 years.
As the vested options were granted to a then nonemployee in return for prior
services, consulting expense was recognized in the first quarter of 1998 in the
amount of $74,644, and the remaining $166,320 is being amortized over the 36
month vesting period beginning April 1998. In addition, in 1998, 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 year ended December 31,
1998, interest expense and debt issue costs decreased by $98,131 as compared to
1997. This decrease is primarily due to interest on the $3.0 million GTECH note,
which became interest bearing in January 1998, and the bank loan used to fund
the Mississippi land acquisition, offset by the decrease in interest expense due
to the payoff of the DGR loan.
INTEREST AND OTHER INCOME. Interest and other income increased by
$443,271 for the year ended December 31, 1998 primarily due to the $385,227 gain
on the sale of DGR and a one time reimbursement of $85,532 from the former
Chairman of the Board for costs associated with the gaming opportunities
presented to the Company by him, partially offset by a reduction in interest
income due to the prepayment of the Delaware LLC note receivable.
INCOME TAX EXPENSE. Income tax expense was $344,082 for the year ended
December 31, 1998 and primarily reflects state taxes due on joint venture
revenues. At December 31, 1998, the Company had net operating loss carryforwards
for federal income tax purposes of approximately $3,600,000, 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.
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DEADWOOD GULCH RESORT
INCOME (LOSS) FROM OPERATIONS. The operating loss from DGR was $345,769
for 1998 as compared to a profit of $424,815 in 1997 primarily due to the sale
of the Resort in May 1998, which was prior to the beginning of the peak season.
IMPAIRMENT OF LONG-LIVED ASSETS. In January 1996, the Company announced
its intent to dispose of DGR. The Company adopted the provisions of SFAS No.
121, ACCOUNTING FOR THE IMPAIRMENT OF 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. Since the adoption of SFAS No. 121, the Company has written off
$4,154,290 related to DGR.
GAIN ON SALE OF ASSETS HELD FOR SALE. The Company recognized a gain on
the sale of DGR of $385,227 after considering the impairment of long-lived
assets discussed above. DGR was sold on May 12, 1998. See also "Liquidity and
Capital Resources".
LIQUIDITY AND CAPITAL RESOURCES
The Company held cash and cash equivalents of $438,800 as of December
31, 1999. Net cash used by operating activities was $1,325,793 as compared to
cash provided by operating activities of $2,446,719 in the comparable prior year
period. The significant reduction resulted from using $1,000,000 to pay the
accrued Hard Rock territory fee and approximately $1,250,000 for expenses
related to the Biloxi project. Additionally, 1998 benefited from the disposition
of DGR. Net cash used in investing activities was $77,585, primarily for
forfeited options for land in Biloxi, and for funding expenses and land options
for the Michigan joint venture. In 1998, net cash provided by investing
activities of $144,074 resulted primarily from the sale of DGR for $6.0 million,
the acquisition of the proposed gaming site in Biloxi, Mississippi for $4.6
million, and a $1.0 million deposit for the Hard Rock License.
In 1998, the Company obtained a $2,000,000 line of credit with Coast
Community Bank of Mississippi. The line bears interest adjustable daily at
one-half percent above prime, requires interest payments monthly on the
outstanding balance, and all principal and accrued interest is due at maturity
on February 25, 2001. At December 31, 1999, $750,000 was outstanding on the bank
line.
In November 1998, the Company executed a series of agreements with Hard
Rock Cafe International related to its proposed development project in Biloxi,
Mississippi. Pursuant to a licensing agreement, the Company agreed to pay a
$2,000,000 territory fee with $1,000,000 paid in 1998, and the second $1,000,000
due March 31, 1999. The parties amended those agreements extending the due date
of the second installment to December 15, 1999. The Company used cash on hand
and a $750,000 draw on the bank line to make that payment.
In September 1998, the Company and Allen Paulson formed a limited
liability company, equally owned, for the purpose of developing a themed casino
resort in Biloxi, Mississippi. Mr. Paulson agreed to contribute a gaming vessel
(the former Treasure Bay barge in Tunica, Mississippi) and the Company agreed to
contribute its rights to the Hard Rock agreements. The newly formed entity
expects to develop a Hard Rock-Biloxi and is currently exploring various
financing alternatives. The project, as currently envisioned, is expected to
cost between $250 and $300 million. Substantial additional financing will be
required for the
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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.
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
accrued interest, payable quarterly, at a rate equal to the "prime" rate, and
such principal amount, together with all accrued interest, was due and payable
in full upon demand by the holder 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. The note was paid in full
in 1998.
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 $3.0 million, which loan was convertible, until January 1998 into
600,000 shares of Full House Common Stock. The loan conversion clause expired
without exercise. 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, which expires December 29, 2000, 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 operations of projects 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, with the sale of DGR, the Company's continuing
cash flow is dependent on the operating performance of its joint ventures, and
the ability to receive monthly distributions.
As of December 31, 1999, Full House had cumulative undeclared and
unpaid dividends in the amount of $1,575,000 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.
On May 31, 1995, DGR borrowed $5.0 million, secured by its real
property. The note accrued interest at prime plus 2-1/4%, and payments were 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 was guaranteed by Messrs. McComas and Paulson and a former director of the
Company. This note was paid in full from the proceeds of the sale of the Resort
in 1998.
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YEAR 2000 ISSUES
The Company implemented a Year 2000 program to ensure that its computer
systems and applications would function properly beyond 1999. The Company
believes that it has allocated adequate resources for this purpose and its Year
2000 date conversion program was completed on a timely basis. The Company has
not experienced any disruptions to its internal systems as a result of the
rollover to 2000, but continues to monitor performance for any latent problems.
Although the Company discussed and received assurances from its joint
venture's significant vendors that they were fully prepared for the date
conversion, one system did not function as intended. Numerous slot devices at
the Delaware location did not function beginning the morning of December 27,
1999. These devices were sending a "bad date" error message. The problem was
resolved over the next several days, and did not significantly impact the
business for New Year's Eve. The Company, along with the two other operators in
Delaware, and the Delaware State Lottery, are discussing this matter with the
vendor.
7. FINANCIAL STATEMENTS.
The following financial statements are filed as part of this Report
/bullet/ Independent Auditors' Report
/bullet/ Consolidated Balance Sheets as of December 31, 1999 and 1998
/bullet/ Consolidated Statements of Income for the years ended December
31, 1999 and 1998
/bullet/ Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1999 and 1998
/bullet/ Consolidated Statements of Cash Flows for the years ended
December 31, 1999 and 1998
/bullet/ Notes to Consolidated Financial Statements
8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
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PART III
9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
(a) DIRECTORS OF THE COMPANY
The information required regarding the identification of the
Company's directors is incorporated by reference to the information in the Proxy
Statement for the 2000 Annual Meeting of Stockholders of the Company.
(b) EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company and their ages as of
March 21, 2000 are as follows:
NAME AGE POSITIONS
---- --- ---------
William P. McComas 73 Chairman, Chief Executive Officer
Gregg R. Giuffria 48 President, Chief Operating Officer and Director
Michael P. Shaunnessy 46 Executive Vice President-Finance and Treasurer
Megan G. McIntosh 44 Secretary
WILLIAM P. MCCOMAS became Chairman of the Board and Chief Executive
Officer on March 5, 1998. Mr. McComas has been a Director of Full House since
November 1992. Mr. McComas has been President of McComas Properties, Inc., a
California real estate development company since January 1984. Mr. McComas and
companies controlled by him have developed several hotels and resorts, including
Marina Bay Resort, Fort Lauderdale, Florida; Ocean Colony Hotel and Resort, Half
Moon Bay, California; Residence Inn by Marriott, Somers Point, New Jersey; and
five Holiday Inns located in Des Moines, Iowa; San Angelo, Texas; Suffern, New
York; Niagara Falls, New York; and Fort Myers, Florida.
GREGG R. GIUFFRIA joined the Company as President, Chief Operating
Officer and Director in April 1998. Mr. Giuffria has been involved in the gaming
industry since 1991, following nearly 20 years in the music, film, and
publishing business. From 1995 to 1996 he was with Casino Data Systems, Inc. as
the head of corporate development with responsibility for design and development
of innovative technology for casino gaming. From 1993 to 1995 he was vice
president of MEC American Leisure Technology. From 1997 to 1999 he owned
American Laser Cutting, Inc., which provided specialty items to the gaming
industry, among others.
MICHAEL P. SHAUNNESSY joined the Company as Executive Vice
President-Finance and Chief Financial Officer in July 1998. Mr. Shaunnessy has
over 15 years experience in the gaming industry. From 1995 to 1998 he was Vice
President-Finance and Chief Accounting Officer of Primadonna Resorts, Inc., the
developer of New York - New York in Las Vegas, Nevada. He was with Aztar
Corporation from 1983 to 1995, serving in senior financial positions at
properties in New Jersey and Nevada, most recently as Vice President - Finance
for the Tropicana Resort in Las Vegas.
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MEGAN G. MCINTOSH has been employed by Full House since December 1,
1994 and has been the Secretary of Full House since November 20, 1995. From
April 1991 until she joined Full House, Ms. McIntosh was an administrative
assistant for a civil engineering firm located in California. Prior to that
time, Ms. McIntosh was an administrative assistant for a real estate development
firm located in Southern California.
10. EXECUTIVE COMPENSATION.
The information required in response to this item is incorporated by
reference to the information contained in the Proxy Statement for the 2000
Annual Meeting of Stockholders of the Company.
11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required in response to this item is incorporated by
reference to the information contained in the Proxy Statement for the 2000
Annual Meeting of Stockholders of the Company.
12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required in response to this item is incorporated by
reference to the information contained in the Proxy Statement for the 2000
Annual Meeting of Stockholders of the Company.
13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
10.25 Master Lease between Coquille Economic Development
Corporation ("CEDC") and the Company (Incorporated by reference to the
Company's Post Effective Amendment No. 1 to Registration Statement on
Form SB-2, No. 33-61580 as filed with the Securities and Exchange
Commission on July 28, 1994)
10.26 Participating lease between CEDC and the Company
(Incorporated by reference to the Company's Post Effective Amendment
No. 1 to Registration Statement on Form SB-2, No. 33-61580 as filed
with the Securities and Exchange Commission on July 28, 1994)
10.27 Loan Agreement between CEDC and the Company
(Incorporated by reference to the Company's Post Effective Amendment
No. 1 to Registration Statement on Form SB-2, No. 33-61580 as filed
with the Securities and Exchange Commission on July 28, 1994)
10.28 Promissory Note from The Coquille Indian Tribe and CEDC
to the Company. (Incorporated by reference to the Company's Post
Effective Amendment No. 1 to Registration Statement on Form SB-2, No.
33-61580 as filed with the Securities and Exchange Commission on July
28, 1994)
10.29 Security Agreement between The Coquille Indian Tribe,
CEDC and the Company (Incorporated by reference to the Company's Post
Effective Amendment No. 1 to Registration Statement on Form SB-2, No.
33-61580 as filed with the Securities and Exchange Commission on July
28, 1994)
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10.30 Absolute Assignment of Rents and Leases from The
Coquille Indian Tribe to the Company (Incorporated by reference to the
Company's Post Effective Amendment No. 1 to Registration Statement on
Form SB-2, No. 33-61580 as filed with the Securities and Exchange
Commission on July 28, 1994)
10.31 Escrow Agreement by and among the Company, CEDC, The
Coquille Indian Tribe, Sun Plywood, Inc. and Ticor Title Insurance
Company of California (Incorporated by reference to the Company's Post
Effective Amendment No. 1. to Registration Statement on Form SB-2, No.
33-61580 as filed with the Securities and Exchange Commission on July
28, 1994)
10.32 Purchase Agreement between the Company and William P.
McComas dated August 18, 1994 (Incorporated by reference to the
Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1994)
10.33 Agreement among the Company, Hannahville Indian
Community, Lac Vieux Desert Band of Lake Superior Chippewa Indians,
Grand Traverse Band of Ohawa and Chippewa Indians and Keweenah Bay
Indian Community dated September 10, 1994 (Incorporated by reference to
the Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1994)
10.34 Agreement between Green Acres Casino Management Company,
Inc. and the Company dated January 4, 1995 (Incorporated by reference
to the Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1994)
10.35 Agreement for Commercial Development between the
Nottawaseppi Huron Band of Potawatomi, Green Acres Casino Management
Company, Inc. and the Company dated January 11, 1995 (Incorporated by
reference to the Company's Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1994)
10.36 Addendum to Class II and III Management Agreements among
the Nottawaseppi Huron Band of Potawatomi, Green Acres Casino
Management Company, Inc. and the Company dated January 12, 1995
(Incorporated by reference to the Company's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1994)
10.37 Gaming and Development Agreement between the Company and
the Torres Martinez Desert Cahuilla Indians dated March 21, 1993
(incorporated by reference to the Company's Quarterly Report on Form
10-QSB for the quarter ended March 31, 1995)
10.38 Gaming Management Agreement between the Company and the
Torres Martinez Desert Cahuilla Indians dated April 23, 1993
(incorporated by reference to the Company's Quarterly Report on Form
10-QSB for the quarter ended March 31, 1995)
10.39 Agreement between the Company and GTECH Corporation
dated May 20, 1995 (Incorporated by reference to the Company's Post
Effective Amendment No. 2 to Registration Statement on Form SB-2, No.
33-61580 as filed with the Securities and Exchange Commission on May
26, 1995)
10.40 Promissory Note dated November 20, 1995 in the original
principal amount of $375,000 from the Company to William P. McComas
(Incorporated by reference to the Company's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1995)
-20-
<PAGE>
10.41 Master Agreement dated as of December 29, 1995 by and
between GTECH Corporation and the Company (Incorporated by reference to
the Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1995)
10.42 Option Agreement dated as of December 29, 1995 by and
among GTECH Corporation, the Company, Lee Iacocca, William P. McComas
and Allen E. Paulson (Incorporated by reference to the Company's Annual
Report on Form 10-KSB for the fiscal year ended December 31, 1995)
10.43 Convertible Note dated July 26, 1996 in the original
principal amount of $3,000,000 payable by the Company to GTECH
Corporation (Incorporated by reference to the Company's Annual Report
on Form 10-KSB for the fiscal year ended December 31, 1995)
10.44 Guaranty Agreement dated as of December 29, 1995 from
the Company to GTECH Corporation pursuant to which the Company
guarantees 50% of the obligations of Gaming Entertainment, L.L.C. to
GTECH under a Promissory Note of even date therewith in the amount of
$10,400,000 (Incorporated by reference to the Company's Annual Report
on Form 10-KSB for the fiscal year ended December 31, 1995)
10.45 Guaranty Agreement dated as of December 29, 1995 from
the Company to GTECH Corporation pursuant to which the Company
guarantees 50% of the obligations of Gaming Entertainment (Delaware),
L.L.C. to GTECH in an amount not to exceed $6,000,000 (Incorporated by
reference to the Company's Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1995)
10.46 Loan Agreement dated as of May 31, 1995 between Deadwood
Gulch Resort and Gaming Corp. and Miller & Schroeder Investment
Corporation; Guaranty dated as of May 31, 1995 by Allen E. Paulson, H.
Joe Frazier and William P. McComas; Subordination Agreement dated as of
May 31, 1995 among Miller & Schroeder Investment Corporation, Deadwood
Gulch Resort and Gaming Corp. and the Corporation; Waiver of Breach of
Covenants and Amendment Number 1 to Loan Agreement dated March 28,
1996; and Guaranty dated March 28, 1996 by the Company (Incorporated by
reference to the Company's Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1995)
10.47 Subordination and Participation Agreement dated as of
October 8, 1996 between Gaming Entertainment L.L.C. and Miller &
Schroeder Investments Corporation (Incorporated by reference to the
Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1996.)
10.48 First Amended and Restated Participating Lease dated as
of October 8, 1996 between Gaming Entertainment L.L.C. and Coquille
Economic Development Corporation (Incorporated by reference to the
Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1996.)
10.49 First Amended and Restated Master Lease dated as of
October 8, 1996 between Gaming Entertainment L.L.C. and Coquille
Economic Development Corporation (Incorporated by reference to the
Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1996.)
-21-
<PAGE>
10.50 Agreement dated as of November 18, 1996 by and among
Green Acres Casino Management Company, GTECH Corporation, Gaming
Entertainment (Michigan) L.L.C. and the Company (Incorporated by
reference to the Company's Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1996.)
10.51 Amended and Restated Class III Management Agreement
dated November 18, 1996 between Nottawaseppi Huron Band of Potawatomi
and Gaming Entertainment (Michigan) L.L.C. (Incorporated by reference
to the Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1996.)
10.52 License Agreement between Hard Rock Cafe International
(USA), Inc. and Full House Mississippi, LLC dated November 18, 1998.
10.53 Management and Development Agreement by and between
FH/HR Management, LLC and Full House Mississippi, LLC dated November
18, 1998.
10.54 Amendment to License Agreement between Hard Rock Cafe
International (USA), Inc. and Full House Mississippi, LLC dated
November 30, 1999.*
10.55 Termination Agreement by and among Hard Rock Cafe
International (USA), Inc., Full House Resorts, Inc., Allen E. Paulson,
AEP & FHR LLC, FH/HR Management, LLC .and Full House Mississippi, LLC
dated November 30, 1999.*
21 List of Subsidiaries of Full House Resorts, Inc.*
23.1 Consent of Deloitte & Touche LLP *
27.1 Financial Data Schedule *
* Filed herewith.
(b) REPORTS ON FORM 8-K.
None.
-22-
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the Registrant has caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
FULL HOUSE RESORTS, INC.
Date: March 29, 2000 By: /S/ WILLIAM P. MCCOMAS
----------------------
William P. McComas, CEO
In accordance with the Securities Exchange Act of 1934, this Report has
been signed below by the following persons on behalf of the Registrant and in
the capacities and on the dates indicated.
NAME AND CAPACITY DATE
----------------- ----
/S/ WILLIAM P. MCCOMAS March 29, 2000
- ----------------------------------------------------
William P. McComas, Chairman of the Board and
Chief Executive Officer
/S/ GREGG R. GIUFFRIA March 29, 2000
- ----------------------------------------------------
Gregg R. Giuffria, President , Chief Operating
Officer and Director
/S/ RONALD K. RICHEY March 29, 2000
- ----------------------------------------------------
Ronald K. Richey, Director
/S/ LEE A. IACOCCA March 29, 2000
- ----------------------------------------------------
Lee A. Iacocca, Director
/S/ JAMES C. GILSTRAP March 29, 2000
- ----------------------------------------------------
James C. Gilstrap, Director
/S/ MICHAEL P. SHAUNNESSY March 29, 2000
- ----------------------------------------------------
Michael P. Shaunnessy, Executive Vice President-
Finance (Principal Financial and Accounting Officer)
-23-
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Full House Resorts, Inc.:
We have audited the accompanying consolidated balance sheets of Full House
Resorts, Inc. and Subsidiaries (the "Company") as of December 31, 1999 and 1998,
and the related consolidated statements of operations, stockholders' equity, and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Full House Resorts, Inc. and
Subsidiaries as of December 31, 1999 and 1998, and the results of its operations
and its cash flows for the years then ended in conformity with accounting
principles generally accepted in the United States of America.
As discussed in Note 2 to the financial statements, in 1999 the Company changed
its method of accounting for start-up costs.
DELOITTE & TOUCHE LLP
Las Vegas, Nevada
March 3, 2000
F-1
<PAGE>
FULL HOUSE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
ASSETS
1999 1998
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 438,800 $ 1,092,178
Income tax refund receivable 34,057 35,871
Receivable from joint ventures -- 216,188
Prepaid expenses 87,590 88,018
------------ ------------
Total current assets 560,447 1,432,555
LAND HELD FOR DEVELOPMENT 4,621,670 4,621,670
FIXTURES AND EQUIPMENT, net 69,413 44,457
INVESTMENTS IN JOINT VENTURES 3,672,175 5,017,470
GOODWILL, net 885,981 1,392,249
NOTE RECEIVABLE - JOINT VENTURE 839,580 232,421
DEFERRED TAX ASSET 614,083 --
DEPOSITS AND OTHER ASSETS 2,620,487 2,732,742
------------ ------------
TOTAL $ 13,883,836 $ 15,473,264
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 19,238 $ 33,566
Payable to joint ventures 60,077 --
Accrued expenses 190,332 1,111,158
------------ ------------
Total current liabilities 269,647 1,144,724
------------ ------------
LONG-TERM DEBT, net of current portion 3,750,000 3,000,000
------------ ------------
DEFERRED INCOME TAXES -- 121,235
------------ ------------
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 $3,675,000 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 17,374,449 17,218,065
Accumulated deficit (7,511,364) (6,011,864)
------------ ------------
Total stockholders' equity 9,864,189 11,207,305
------------ ------------
TOTAL $ 13,883,836 $ 15,473,264
============ ============
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE>
FULL HOUSE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
OPERATING REVENUES
Joint ventures $ 3,604,472 $ 3,587,173
Resort and casino -- 1,140,466
------------ ------------
3,604,472 4,727,639
Less promotional allowances -- (64,226)
------------ ------------
Net operating revenues 3,604,472 4,663,413
OPERATING COSTS AND EXPENSES
Joint venture pre-opening costs 515,802 57,486
Development costs 1,644,542 --
Resort and casino -- 1,053,084
General and administrative 2,165,439 1,957,346
Depreciation and amortization 528,004 517,081
------------ ------------
Total operating costs and expenses 4,853,787 3,584,997
------------ ------------
INCOME (LOSS) FROM OPERATIONS (1,249,315) 1,078,416
Interest expense and debt issue costs (254,955) (597,921)
Interest and other income 290,907 587,896
------------ ------------
INCOME (LOSS) BEFORE TAXES AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE (1,213,363) 1,068,391
INCOME TAX BENEFIT (PROVISION) 257,733 (344,082)
------------ ------------
NET INCOME (LOSS) BEFORE CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE (955,630) 724,309
CUMULATIVE EFFECT OF ACCOUNTING CHANGE
net of tax benefit of $280,175 (543,870) --
------------ ------------
NET INCOME (LOSS) (1,499,500) 724,309
Less, undeclared dividends on cumulative preferred stock (210,000) (210,000)
------------ ------------
NET INCOME (LOSS) APPLICABLE TO COMMON SHARES $ (1,709,500) $ 514,309
============ ============
INCOME (LOSS) PER COMMON SHARE BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGE, basic and diluted $ (0.12) $ 0.05
CHANGE IN ACCOUNTING PRINCIPLE, basic and diluted $ (0.05) $ --
------------ ------------
NET INCOME (LOSS) PER COMMON SHARE, basic and diluted $ (0.17) $ 0.05
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING, basic and diluted 10,340,380 10,340,380
============ ============
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
FULL HOUSE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
ADDITIONAL
PREFERRED STOCK COMMON STOCK PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
------- ------ ---------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE
JANUARY 1, 1998 700,000 $ 70 10,340,380 $ 1,034 $ 16,957,487 $ (6,736,173) $ 10,222,418
Net income -- -- -- -- -- 724,309 724,309
Amortization of deferred
compensation expense -- -- -- -- 260,578 -- 260,578
------- ------ ---------- -------- ------------ ------------ ------------
BALANCE
DECEMBER 31, 1998 700,000 70 10,340,380 1,034 17,218,065 (6,011,864) 11,207,305
Net loss -- -- -- -- -- (1,499,500) (1,499,500)
Amortization of deferred
compensation expense -- -- -- -- 156,384 -- 156,384
------- ------ ---------- -------- ------------ ------------ ------------
BALANCE
DECEMBER 31, 1999 700,000 $ 70 10,340,380 $ 1,034 $ 17,374,449 $ (7,511,364) $ 9,864,189
======= ====== ========== ======== ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
FULL HOUSE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(1,499,500) $ 724,309
Adjustments to reconcile net income (loss) to net
cash (used in) provided by operating activities:
Depreciation and amortization 528,004 517,081
Debt issue costs and debt discount -- 33,840
Amortization of deferred compensation expense 156,384 260,578
Cumulative effect of change in accounting principle 543,870 --
Gain on disposition of assets -- (385,227)
Equity in earnings of joint ventures (3,088,670) (3,529,687)
Distributions from joint ventures 3,609,919 3,537,597
Changes in assets and liabilities:
Restricted cash -- 530,881
Receivables 1,814 125,671
Inventories -- 8,297
Prepaid expenses 428 171,734
Other assets (187,745) (229,151)
Income taxes payable -- (52,733)
Deferred taxes (455,143) 121,235
Accounts payable and accrued expenses (935,154) 612,294
----------- -----------
Net cash (used in) provided by operating activities (1,325,793) 2,446,719
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (46,691) (5,855)
Proceeds from disposal of assets held for sale -- 5,933,160
Proceeds from sale of current assets and liabilities -- 11,439
Acquisition of land for development -- (4,007,920)
(Increase) decrease in receivables from
GTECH and joint ventures (330,894) 463,250
(Increase) decrease in deposits on purchase options 300,000 (2,250,000)
----------- -----------
Net cash (used in) provided by investing activities (77,585) 144,074
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit 1,750,000 2,000,000
Repayment of debt (1,000,000) (5,921,499)
----------- -----------
Net cash provided by (used in) financing activities 750,000 (3,921,499)
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (653,378) (1,330,706)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 1,092,178 2,422,884
----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 438,800 $ 1,092,178
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
FULL HOUSE RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF OPERATIONS
Full House Resorts, Inc. ("FHRI" or the "Company") was incorporated in
the State of Delaware on January 5, 1987. FHRI is currently pursuing
various gaming opportunities throughout North America.
Effective December 29, 1995, FHRI entered into a series of agreements
with GTECH Corporation ("GTECH") to jointly pursue gaming
opportunities. Pursuant to the agreements, four limited liability
companies ("Joint Ventures") were formed. FHRI has a 50% interest in
each joint venture. These interests are accounted for using the equity
method.
FHRI and its principal stockholder entered into an agreement to jointly
pursue development of a themed casino resort in Biloxi, Mississippi and
formed a limited liability company for such purpose, which is 50% owned
by each member.
Through its subsidiary, Deadwood Gulch Resort and Gaming Corp. ("DGR"),
FHRI operated a 99-room hotel, a recreational vehicle park and
campground, conference center, convenience store/gas mart, restaurant,
lounge, family entertainment facility and two small casinos in
Deadwood, South Dakota. During January 1996, the Company announced its
intent to dispose of DGR, and in May 1998 consummated a sale.
The consolidated financial statements include the accounts and
operations of FHRI and its wholly- owned and majority-owned
subsidiaries. All significant intercompany accounts and transactions
have been eliminated in consolidation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS - Cash in excess of daily requirements is
invested in highly liquid short-term investments with maturities of
three months or less when purchased. Such investments are stated at
cost, which approximates market, and are deemed to be cash equivalents
for purposes of the consolidated statements of cash flows.
CONCENTRATIONS OF CREDIT RISK - The Company's financial instruments
that are exposed to concentrations of credit risk consist primarily of
cash equivalents. A portion of the Company's cash equivalents is in
high quality securities placed with major banks and financial
institutions. Management does not believe that there is significant
risk of loss associated with such investments.
INVESTMENTS IN JOINT VENTURES - Investments in joint ventures are
accounted for using the equity method of accounting.
FIXTURES AND EQUIPMENT - Fixtures and equipment are stated at cost and
consist primarily of office furniture and fixtures and computer
equipment. Depreciation is computed by the straight-line method over
periods of 3 to 7 years. Accumulated depreciation was $59,614 and
$37,878 at December 31, 1999 and 1998, respectively.
F-6
<PAGE>
GOODWILL - Goodwill represents the excess cost over the net assets of
businesses acquired during 1995. Goodwill is being amortized on the
straight-line basis over 6 years. The Company reviews the carrying
value of goodwill quarterly to determine whether any impairment has
occurred. Amortization expense for both 1999 and 1998 totaled $506,268.
IMPAIRMENT OF LONG-LIVED ASSETS - The Company reviews the carrying
values of its long-lived and identifiable intangible assets for
possible impairment, at least annually, or whenever events or changes
in circumstances indicate that the carrying amount of assets may not be
recoverable.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying value of the
Company's cash and cash equivalents, receivables and accounts payable,
approximates fair value because of the short maturity of those
instruments. The Company estimates the fair value of its long-term debt
based on the current rates offered to the Company for loans of the same
remaining maturities. The estimated fair values of the Company's
long-term debt approximate their recorded values at December 31, 1999.
INCOME TAXES - The Company accounts for income taxes in accordance with
SFAS No. 109, "ACCOUNTING FOR INCOME TAXES," which requires recognition
of deferred tax assets and liabilities for the expected future tax
consequences of events that have been reflected in the financial
statements or tax returns. Deferred income taxes reflect the net effect
of (a) temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for
income tax purposes, and (b) operating loss and tax credit
carryforwards.
EARNINGS (LOSS) PER COMMON SHARE - Basic earnings per share ("EPS") is
computed based upon the weighted average number of common shares
outstanding during the year. Diluted EPS is computed based upon the
weighted average number of common and common equivalent shares plus the
weighted average number of options outstanding if their effect upon
exercise would have been dilutive using the treasury stock method.
AWARDS OF STOCK-BASED COMPENSATION - The Company has adopted SFAS No.
123, "ACCOUNTING FOR AWARDS OF STOCK-BASED COMPENSATION," which
establishes financial accounting and reporting standards for
stock-based employee compensation plans and for transactions where
equity securities are issued for goods and services. This statement
defines a fair value based method of accounting for an employee stock
option or similar equity instrument and encourages all entities to
adopt that method of accounting for all of their employee stock
compensation plans. However, it also allows an entity to continue to
measure compensation cost for those plans using the intrinsic value
based method of accounting prescribed by APB Opinion No. 25,
"ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES." The Company continues to
apply APB Opinion No. 25 to its stock based compensation awards to
employees and discloses the required pro forma effect on net income and
net income per common share (Note 13).
SEGMENT REPORTING - The Company's segments consist of its Joint
Ventures (Note 5), a previously operated casino, and its corporate
overhead department. The Company evaluates performance primarily based
upon operating income of the segment. The accounting policies of the
segments are the same as those described in this summary of significant
accounting policies (Note 2).
START - UP ACTIVITY COSTS - In April 1998, the Accounting Standards
Executive Committee of the American Institute of Certified 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. The Company adopted the provisions of this standard
F-7
<PAGE>
in the first quarter of 1999. Accordingly, 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.
RECENTLY ISSUED ACCOUNTING STANDARDS - In June 30, 1998, the Financial
Accounting Standards Board issued SFAS No. 133, "ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES." This statement
establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the
statement of financial position, and measure those instruments at fair
value, and is effective for all fiscal quarters of the fiscal years
beginning after June 15, 2000. This is a complex accounting standard,
however, the Company does not expect the adoption of this statement to
have a material impact on the consolidated financial statements.
USE OF ESTIMATES - The preparation of financial statements in
conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Significant estimates used by the
Company include estimated useful lives for depreciable and amortizable
assets, and certain accrued liabilities. Actual results could differ
from those estimates.
RECLASSIFICATIONS - Certain prior year amounts have been reclassified
to conform to the current year presentation.
3. LAND HELD FOR DEVELOPMENT
On February 23, 1998, the Company purchased a parcel of land for
$4,621,670 that represents a portion of a proposed gaming site in
Biloxi, Mississippi. The Company is in negotiations to acquire the
additional necessary parcels of land to complete the gaming site.
4. DEPOSITS AND OTHER ASSETS
On November 18, 1998, the Company executed a series of agreements with
Hard Rock Cafe International ("Hard Rock") for purposes of developing a
Hard Rock Hotel & Casino on the Gulf Coast of Mississippi. The
agreements required a Territory Fee of $2,000,000, due in two
installments. The first was paid in November 1998, and the second in
December 1999.
5. INVESTMENTS IN JOINT VENTURES
GTECH RELATIONSHIP
The Company entered into a series of agreements with GTECH in 1995 to
jointly pursue gaming opportunities. Pursuant to the agreements, the
following limited liability companies, each owned 50% by Dreamport,
Inc. ("Dreamport"), a subsidiary of GTECH, and 50% by the Company were
formed: Gaming Entertainment L.L.C. ("GELLC"), Gaming Entertainment
(Delaware) L.L.C. ("GEDLLC"), Gaming Entertainment (Michigan) L.L.C.
("GEMLLC"), and Gaming Entertainment (California) L.L.C. ("GECLLC").
The Company contributed to the capital of the joint ventures its rights
to agreements with the Coquille Indian Tribe to finance and develop a
gaming and entertainment facility in North Bend, Oregon and the rights
to develop the Torres Martinez, Nottawaseppi Huron Band of Potawatomi
and Delaware State
F-8
<PAGE>
Fair gaming projects. In payment for its interest in the joint
ventures, GTECH contributed cash and other intangible assets and
committed to loan the joint ventures up to $16.4 million to complete
the North Bend, Oregon and Delaware facilities. The Company agreed to
guarantee one-half of the obligations of the joint ventures to GTECH
under these loans. At December 31, 1998, the advances to the joint
venture had been repaid. GTECH has also agreed to make loans to the
Company for its portion of the financing of projects if the Company is
unable to otherwise obtain financing. GTECH will also provide project
management, technology and other expertise to analyze and
develop/manage the implementation of opportunities developed by the
joint ventures.
As part of the formation of the joint ventures, certain directors of
the Company and a stockholder have granted to GTECH an option, which
expires December 29, 2000, to purchase their shares of the Company
should they propose to transfer the same.
The following is a summary of each of the gaming opportunities and the
material items that the Company has contributed, at book value, to
capital of the joint ventures.
GAMING ENTERTAINMENT, LLC
GELLC leases approximately 12.5 acres of tribal trust lands from an
entity owned by the Coquilla Tribe on which the gaming facility is
located and subleases a portion of the land back to the same entity.
The master lease expires in 2019 and the sublease expires in 2002 with
options to renew. In July 1995, an addendum to the agreement with the
tribe was signed by the Company and Dreamport, which reduced the
obligations of GELLC to provide financing to $10.4 million, extended
the date when payments begin and modified the method of computing
participating rents and loan repayments. During 1995, the facility
began operations.
In October 1996, the tribe secured a new $17.5 million loan to
refinance certain outstanding indebtedness, finance the acquisition of
gaming equipment and finance certain improvements to the gaming
facility. GELLC was repaid 100% of its original development loan from
the financing. As part of the loan, the joint venture subordinated its
rights to receive a percentage of Gross Gaming Revenues, as defined. As
rental under the sublease to the tribal entity, GELLC will receive
rental payments based on a schedule of percentages of Gross Gaming
Revenues through 2002.
GAMING ENTERTAINMENT (MICHIGAN) LLC
In late 1996, GEMLLC renegotiated its management contract with the
Nottawaseppi Huron Band of Potawatomi and with the 15% owner of the
interests in the agreements. Under the new contract, the joint venture
will finance, develop and manage gaming operations on reservation lands
to be acquired near Battle Creek, Michigan. The 15% owner will be paid
a royalty fee in lieu of its original 15% ownership in earlier
contracts with the tribe. During 1996, the assignment of the
development rights by the Company to GEMLLC was approved by the tribe,
and gaming development costs of $4,372,446 were contributed to capital
of GEMLLC by the Company. During 1997, the Company contributed
additional gaming development costs of $160,962 and cash of $12,500 to
capital of GEMLLC. GEMLLC is a development stage company as of December
31, 1999.
On December 18, 1998, the Michigan legislature approved a gaming
compact that had been negotiated between the tribe and the Governor of
Michigan. A suit was filed in 1999 by "Taxpayers of Michigan Against
Casinos" in Ingham County Circuit Court challenging the
constitutionality of the approval process of these gaming compacts. On
January 18, 2000 Judge Peter D. Houk issued a ruling that the compacts
must be approved by a legislative bill rather than by resolution. The
State of Michigan filed
F-9
<PAGE>
an appeal to the Michigan Court of Appeals on February 4, 2000. The
joint venture company, as an intervening defendant, joined in the
appeal filing.
The Company and the tribe have continued to move forward with their
casino development plans while working towards a favorable resolution
of the current litigation. The management agreements, along with the
required licensing applications were submitted to the National Indian
Gaming Commission in December 1999. The parties have identified a
suitable parcel of land for the gaming enterprise, which is under
option, and have submitted a Fee to Trust application to the Bureau of
Indian Affairs.
GAMING ENTERTAINMENT (DELAWARE) LLC
GEDLLC developed, constructed and equipped a gaming entertainment
center at Harrington Raceway in Harrington, Delaware, and provided
financing through a capital lease arrangement. GEDLLC has a 15-year
management agreement and is compensated based upon a percentage of
Gross Revenues and a percentage of Operating Profits, as both are
defined. The facility began operations in August 1996.
Through December 31, 1997, the Company had advanced funds to GEDLLC
totaling $544,890 evidenced by an interest bearing note, and payable
from available operating cash flows. The note was secured by a similar
receivable from Midway Slots and Simulcast, a division of Harrington
Raceway, Inc., with the same terms and interest rate. The note was paid
in full in March 1998.
GAMING ENTERTAINMENT (CALIFORNIA) LLC
GECLLC, pursuant to an agreement with the Torres Martinez Desert
Cahuilla Indians, has certain rights to develop, manage and operate
gaming activities for the tribe. During 1997 and 1996, the Company
contributed gaming development costs of $67,768 and cash of $12,500 to
the capital of GECLLC. GECLLC is a development stage company as of
December 31, 1999.
On March 6, 1998, California Governor Pete Wilson announced that he had
reached an agreement on a compact for gaming that was intended to be
the standard for gaming compacts with all Indian tribes in California.
In November 1998, the "Tribal Government Gaming and Economic
Self-Sufficiency Act of 1998" (the "Act") was passed by the voters of
California in the general election. The Act's constitutionality was
challenged and the California Superior Court upheld the challenge.
Numerous tribes have now reached modified compacts with Governor Gray
Davis, and on March 7, 2000, the voters approved a ballot measure to
amend the constitution, which now enables the compacted tribes to
pursue gaming under the provisions of the compacts. The tribe and the
Company are currently exploring the best manner in which to optimize
the gaming enterprise alternatives.
The following is a summary of condensed financial information for the
joint ventures as of December 31, 1999 and 1998 and for the years then
ended:
F-10
<PAGE>
<TABLE>
<CAPTION>
1999
CONDENSED BALANCE SHEET
INFORMATION
GELLC GEMLLC GEDLLC GECLLC TOTAL
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Total assets $ 378,525 $ 4,418,222 $ 729,759 $ 22,957 $ 5,549,463
Total liabilities $ 191,523 $ 1,391,435 $ 476,680 $ 300,693 $ 2,360,331
Member's capital $ 187,002 $ 3,026,787 $ 253,079 $ (277,736) $ 3,189,132
CONDENSED STATEMENTS
OF OPERATIONS
Revenues $ 2,297,181 $ -- $ 12,468,928 $ -- $ 14,766,109
Operating income (loss) 2,244,726 (948,670) 4,953,559 (82,933) 6,166,682
Cumulative effect of
Change in accounting, (137,351) (1,260,818) (9,157) (240,765) (1,648,091)
Net income (loss) 2,112,028 (2,209,488) 4,950,406 (323,698) 4,529,248
Company's equity
in net income (loss) $ 1,056,014 $ (1,104,744) $ 2,475,203 $ (161,849) $ 2,264,624
============ ============ ============ ============ ============
<FN>
The joint venture entities are treated as partnerships for tax purposes
and consequently, no tax provision / benefit is recognized at the
venture level.
</FN>
</TABLE>
<TABLE>
<CAPTION>
1998
CONDENSED BALANCE SHEET
INFORMATION
GELLC GEMLLC GEDLLC GECLLC TOTAL
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Total assets $ 550,624 $ 5,490,350 $ 516,194 $ 265,954 $ 6,823,122
Total liabilities $ 216,974 $ 254,075 $ 252,413 $ 219,992 $ 943,454
Members' capital $ 333,650 $ 5,236,275 $ 263,781 $ 45,962 $ 5,879,668
CONDENSED STATEMENTS
OF OPERATIONS
Revenues $ 2,236,903 $ -- $ 12,152,631 $ -- $ 14,389,534
Operating income (loss) 2,159,382 (34,371) 4,870,523 (80,602) 6,914,932
Interest expense -- -- 45,478 -- 45,478
Net income (loss) 2,161,470 (34,371) 5,012,876 (80,602) 7,059,373
Company's equity
in net income (loss) $ 1,080,735 $ (17,185) $ 2,506,438 $ (40,301) $ 3,529,687
============ ============ ============ ============ ============
</TABLE>
F-11
<PAGE>
6. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Convertible, unsecured note payable to GTECH Corporation;
interest at the prime rate (81/2% at December 31, 1999) due
monthly through January 25, 2001, at which time all unpaid
principal and interest will be due. The note was convertible
at the holder's option, in whole or part, prior to January 25,
1998 into common stock of the Company at a conversion price
of five dollars principal amount of the note for one share of stock $3,000,000 $3,000,000
Line of credit; interest at prime plus 1/2% (9% at December 31,
1999), payable monthly, principal due February 25, 2001
Amount represents the balance outstanding at December 31,
1999 of a $2,000,000 line of credit from Coast Community
Bank, which provided the initial loan for the acquisition of
Land in Biloxi, Mississippi 750,000 --
---------- ----------
Total 3,750,000 3,000,000
Less current portion -- --
---------- ----------
Long-term portion $3,750,000 $3,000,000
========== ==========
</TABLE>
The scheduled maturities of debt are as follows:
2000 $ --
2001 3,750,000
----------
Total $3,750,000
==========
7. STOCKHOLDERS' EQUITY
As part of a public offering in August 1993, the Company sold to the
underwriters warrants at $.01 per warrant to acquire 80,000 units, each
unit consisting of three shares of the Company's common stock and a
warrant to purchase additional shares of the Company's common stock.
The exercise price of warrants to purchase the units and the exercise
price and number of shares issuable per warrant for the warrants
issuable upon purchase of the unit are based upon a dilution agreement.
As of January 1, 1997, 57,500 warrants to purchase 68,393 shares of
common stock at $4.20 per share were exercisable through, and expired
on February 10, 1997. As of January 1, 1998, warrants to purchase
22,500 units at $13.17 per unit were exercisable through, and expired
on, August 9, 1998.
Options to purchase 150,000 shares of common stock at $3.69 per share
(market value on date of grant) were issued in 1994 to a consultant.
These options were repriced in June 1998 at $2.25 per share (market
value on the repricing date). The fair value of $43,410 for the options
was estimated on the date of grant using the Black-Scholes
option-pricing model with the following assumptions: expected
volatility of 97 percent, risk-free interest rate of 5.0 percent, and
expected life of 2.0 years. As the options were granted to a
nonemployee in return for services, consulting expense of $43,410 was
F-12
<PAGE>
recognized in 1998, along with an equivalent increase in paid in
capital. All of these options were exercisable at December 31, 1999.
On December 20, 1996, a consultant, who is also a principal
stockholder, was granted an option to purchase 250,000 common shares at
$3.69 in return for consulting services to be provided over an
approximate three-year period. The options vested immediately. The fair
value of $302,826 for the options was estimated on the date of grant
using the Black-Scholes option-pricing model with the following
assumptions: expected volatility of 80 percent, risk-free interest rate
of 6.0 percent, and expected life of 2.0 years. As the options were
granted to a nonemployee in return for services, consulting expense was
recognized ratably over the three-year service period commencing in
1997.
Options to purchase 70,001 shares of common stock at $2.06 per share
(market value on date of grant) were issued in 1998 to the Company's
current President for services previously performed in a consulting
capacity. The Company recognized consulting expense of $116,224 and
recorded an equivalent increase in paid in capital. The fair value for
the options was estimated on the date of grant using the Black-Scholes
option-pricing model with the following assumptions: expected
volatility of 95 percent, risk-free interest rate of 5.4 percent, and
expected life of two years.
The Company's preferred stock has a $.30 per share cumulative dividend
rate, and has a liquidation preference equal to $3.00 per share plus
all unpaid dividends. If the Company is in default in declaring or
setting apart for payment of dividends on the preferred stock, it is
restricted from paying any dividend, making any other distribution, or
redeeming any stock ranking junior to the preferred stock. The
stockholders' right to the $.30 per share cumulative dividends on the
preferred stock commenced as of June 30, 1992 and totaled $1,575,000
and $1,365,000 at December 31, 1999 and 1998, respectively. Through
December 31, 1999, no dividends have been declared or paid.
8. INTEREST AND OTHER INCOME
In 1999 the Company received litigation settlement proceeds of $260,907
in connection with its land in Mississippi.
In May 1998, the Company sold all of the assets and operations of DGR
for $6,000,000 cash and the proration of certain related items, and
recorded a gain on the transaction of $385,227. This gain represented
the proceeds in excess of the carrying value, which had been reduced by
a previously recorded impairment loss estimate of $4,154,290.
9. INCOME TAX PROVISION
The income tax (provision) benefit recognized in the consolidated
financial statements consists of the following:
1999 1998
--------- ---------
Current: Federal $ -- $ --
State (197,410) (222,847)
--------- ---------
Total current (197,410) (222,847)
--------- ---------
Deferred: Federal 493,525 132,495
State 241,793 (253,730)
--------- ---------
Total deferred 735,318 (121,235)
--------- ---------
Total (Provision) Benefit $ 537,908 $(344,082)
========= =========
F-13
<PAGE>
A reconciliation of the income tax provision with amounts determined by
applying the statutory U.S. Federal income tax rate to consolidated
income before income taxes is as follows:
1999 1998
----------- -----------
Tax provision at U.S. statutory rate $ 692,719 $ (363,253)
State taxes 29,292 (314,541)
Change in valuation allowance -- 507,315
Goodwill amortization (172,131) (172,131)
Other (11,972) (1,472)
----------- -----------
Total $ 537,908 $ (344,082)
=========== ===========
The Company's deferred tax items as of December 31, 1999 and 1998 are
as follows:
1999 1998
----------- -----------
Deferred tax assets:
Net operating loss carryforward $ 1,514,038 $ 1,225,606
Tax credit carryforwards 26,643 23,416
Intangibles 294,817 21,057
Accrued expenses 5,364 6,437
Stock option plans 145,928 109,433
State taxes -- 115,548
----------- -----------
Total deferred tax assets 1,986,790 1,501,947
----------- -----------
Deferred tax liabilities:
Difference between book and tax basis
of gaming rights (1,369,474) (1,618,339)
Other (3,233) (4,843)
----------- -----------
Total deferred tax liabilities (1,372,707) (1,623,182)
----------- -----------
Net $ 614,083 $ (121,235)
=========== ===========
At December 31, 1999, the Company had net operating loss carryforwards for
income tax purposes of approximately $4,455,000, which may be carried forward to
offset future taxable income. The loss carryforwards expire in 2009 through
2019. The availability of the loss carryfowards may be limited in the event of a
significant change in ownership of the Company or its subsidiaries.
10. RELATED PARTY TRANSACTIONS
At December 31, 1997, the Company held a note receivable of $106,760
from a director of the Company. This note was paid in full in 1998.
Total interest expense charged to operations in 1998 related to a note
payable to a stockholder was $11,702.
See Note 5 for discussion of transactions with joint ventures.
F-14
<PAGE>
11. SUPPLEMENTAL STATEMENT OF CASH FLOWS INFORMATION
Cash payments for interest for the years ended December 31, 1999 and
1998 were $232,187 and $518,187, respectively.
Income taxes paid for the years ended December 31, 1999 and 1998 were
$210,738 and $319,217 respectively.
The following noncash investing and financing activities are not
reflected in the consolidated statements of cash flows:
During the years ended December 31, 1999 and 1998, additional paid-in
capital increased by $156,384 and $260,578, respectively, as a result
of granting and repricing stock options issued to non-employees for
consulting services.
During the year ended December 31, 1998, the Company applied purchase
option deposits of $613,750 towards the acquisition of land held for
development.
12. COMMITMENTS AND CONTINGENCIES
The Company leases office space under a noncancelable lease expiring on
March 31, 2001. Future minimum lease obligations are $72,261 and
$18,065 for fiscal years 2000 and 2001, respectively. Rent expense
pertaining to operating leases was $72,261 and $54,168 for the years
ended December 31, 1999 and 1998, respectively.
In connection with the land negotiations for the Biloxi development
project, the Company has granted an option and right of first refusal
to an unrelated third party that owns and leases the balance of the
necessary acreage. The option, which is exerciseable through February
15, 2001, allows the optionee to acquire the Company's one-acre parcel
at cost plus carrying charges, as defined. The right of first refusal
allows the optionee to match any bona fide offer the Company receives
for its land, and desires to accept.
The Company is party to legal proceedings arising in the normal conduct
of business. Management believes that the final outcome of these
matters will not have a material adverse effect upon the Company's
consolidated financial position, results of operations or cash flows.
In October 1994, Full House filed an action for declaratory relief in
Mississippi, seeking a determination by the court that no relationship
exists between it and Lone Star Casino Corporation regarding the
potential acquisition of a riverboat casino on the Mississippi gulf
coast (FULL HOUSE RESORTS, INC. V. LONE STAR CASINO CORPORATION V.
ALLEN E. PAULSON, Second Judicial District of the Chancery Court of
Harrison County, Mississippi). Lone Star filed a counterclaim alleging
breaches of fiduciary duty, breach of contract, conspiracy to breach
contract and to breach fiduciary duty and common law fraud. The trial
court granted summary judgment in favor of all defendants on that
counterclaim, and Lone Star appealed that judgment to the Mississippi
appellate court. In April 1998, the Appeals Court affirmed the
dismissal of all counts against all parties, excepting Lone Star's
claim against the Company for breach of contract, which it remanded to
the trial court for additional hearing. No action has been taken on
that matter to date. In January 2000, LS Capital, successor to Lone
Star, announced it had retained new counsel to pursue this litigation.
Management is unable to determine the outcome of this litigation, but
does not believe the outcome will have a material adverse effect on the
Company's financial condition.
F-15
<PAGE>
13. STOCK-BASED COMPENSATION PLANS
At December 31, 1999, the Company had three stock-based compensation
plans that are described below. The Company applies APB Opinion No. 25
and related interpretations in accounting for these plans. Because
options have been granted with exercise prices equal to market value on
the grant date, no compensation cost has been recognized for options
granted under the Nonemployee Director Stock Plan, Incentive Stock Plan
(except as disclosed below related to options granted under the
Incentive Stock Plan to a consultant/principal shareholder) and an
informal director stock plan. Had compensation cost for options granted
under the Company's three stock-based compensation plans been
determined based on the fair value at the grant dates for awards under
those plans consistent with the method of SFAS Statement 123, the
Company's net income and income per common share would have been
restated to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C> <C>
Net income (loss) As reported $ (1,499,500) $ 724,309
Pro forma $ (2,004,729) $ 568,250
Income (loss) per common share,
basic and diluted As reported $ (.17) $ 0.05
Pro forma $ (.21) $ 0.03
</TABLE>
The fair value of each option grant for the pro forma disclosure was
estimated on the date of grant using the Black-Scholes option-pricing
model with the following weighted-average assumptions used for grants
in 1999 and 1998: expected volatility of 95%, risk-free interest rate
of 5.5 percent and 5.1 percent, and expected life of 2.5 years and 3.6
years.
The Company has reserved 300,000 shares of its common stock for
issuance under the Nonemployee Director Stock Plan. The Plan allows for
options to be granted at prices not less than fair market value on the
date of grant and are generally exercisable over a term of five years.
The Company issued 20,000 options under the Plan during both 1999 and
1998.
The Company has reserved 3,000,000 shares of its common stock for
issuance under the 1992 Incentive Plan as amended in June 1999. The
Plan allows for the issuance of options and other forms of incentive
awards, including qualified and non-qualified incentive stock options.
Incentive stock options may be granted at prices not less than fair
market value on the date of grant, while non-qualified incentive stock
options may be granted at a price less than fair market value on the
date of grant. The persons eligible for such plan include employees and
officers of the Company (whether or not such officers are also
directors of the Company) and consultants and advisors to the Company,
who are largely responsible for the management, growth and protection
of the business of the Company. Options issued under the Incentive Plan
are generally exercisable over a term of ten years.
On March 3, 1997 ("the Grant Date"), the Board of Directors approved a
grant of an option ("Option") to each of the Company's three directors,
to purchase 250,000 shares of common stock at an exercise price per
share of $3.375, the closing price of the common stock on the Grant
Date. The Options were granted in consideration of the fact that
services to the Company by such directors have exceeded and are
expected to continue to exceed the duties of a typical corporate
director. On May 12, 1997, at the Company's annual meeting, the
stockholders ratified the Options. The Options become exercisable in
50,000 share increments commencing April 9, 1997 and on each
anniversary thereafter. In addition, the Options for two of the
directors provide that a 50,000 share increment became exercisable on
the Grant
F-16
<PAGE>
Date. In March 1998, 250,000 of these shares were forfeited, and in
June 1998, the remaining 500,000 shares were repriced to $2.25 per
share (fair market value at repricing).
The total options outstanding under the 1992 Incentive Plan, including
the consulting options at December 31, 1999 and 1998 were 1,386,000.
The total options outstanding under the Nonemployee Director Stock Plan
at December 31, 1999 and 1998 were 50,000 and 30,000, respectively. The
total options outstanding under the Director Stock Plan at December 31,
1999 and 1998 were 575,000.
A summary of the status of the Company's stock option plans, including
consultant options, as of December 31, 1999 and 1998, and changes
during the years then ended is presented below:
<TABLE>
<CAPTION>
1999 1998
------------------------------ -------------------------------
WEIGHTED - WEIGHTED-
AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
--------- -------------- --------- --------------
<S> <C> <C> <C> <C>
Outstanding at beginning
of year 1,991,000 $ 2.36 1,420,000 $ 3.45
Granted 20,000 $ 2.22 1,081,000 $ 2.11
Exercised -- -- -- --
Forfeited -- -- 510,000 $ 3.34
--------- ---------
Outstanding at end of year 2,011,000 $ 2.35 1,991,000 $ 2.36
========= =========
Exercisable at year-end 1,261,333 $ 2.49 835,000 $ 2.68
Weighted-average fair value of
options granted during the year $ 1.40 $ 1.53
</TABLE>
As of December 31, 1999, the 2,011,000 options outstanding have
exercise prices ranging between $2.00 and $3.69, and a weighted average
remaining contractual life of 6 years. The options exercisable of
1,261,333 also have exercise prices ranging between $2.00 and $3.69,
and their weighted average remaining contractual life is 6.3 years
F-17
<PAGE>
14. SEGMENT REPORTING
The Company's primary segment consists of its joint venture investments
(Note 5). Two of the ventures have current operations, and two are
still in the development stage. The operating ventures are evaluated
primarily based on operating income, while the development stage
ventures are more subjectively assessed by reviewing the future
prospects relative to the ongoing expenditures. Prior to 1999, the
Company operated a casino resort in Deadwood, South Dakota, which
represented a distinct operating segment.
<TABLE>
<CAPTION>
1999
----
JOINT CONSOLIDATED
VENTURES CORPORATE DGR TOTAL
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 3,604,472 $ -- $ -- $ 3,604,472
Operating income (loss) 2,582,402 (3,831,717) -- (1,249,315)
Interest expense (241,152) (13,803) -- (254,955)
Other income -- 290,907 -- 290,907
Tax (expense) benefit (230,000) 487,733 -- 257,733
Net income (loss) before
Cumulative effect of change
in accounting principle 2,111,250 (3,066,880) -- (955,630)
Accounting change, net (543,870) -- -- (543,870)
Net income (loss) $ 1,567,380 $ (3,066,880) $ -- $ (1,499,500)
Identifiable Assets $ 5,397,736 $ 8,486,100 $ -- $ 13,883,836
</TABLE>
The assets of the corporate segment include the Company's land and
advanced costs for its proposed development project in Biloxi,
Mississippi. The decrease in assets of the joint venture segment
reflects the write off of $824,045 of start up-costs discussed in Note
2, along with a reduction in goodwill as a result of normal
amortization.
<TABLE>
<CAPTION>
1998
----
JOINT CONSOLIDATED
VENTURES CORPORATE DGR TOTAL
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 3,587,173 $ -- $ 1,076,240 $ 4,663,413
Operating income (loss) 3,023,419 (1,843,718) (101,285) 1,078,416
Interest expense (252,075) (78,326) (267,520) (597,921)
Other income -- 179,636 408,260 587,896
Tax expense (319,666) (24,416) -- (344,082)
Net income (loss) $ 2,451,678 $ (1,766,824) $ 39,455 $ 724,309
Identifiable Assets $ 6,858,327 $ 8,614,937 $ -- $ 15,473,264
</TABLE>
F-18
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
10.54 Amendment to License Agreement between Hard Rock Cafe
International (USA), Inc. and Full House Mississippi, LLC dated
November 30, 1999.
10.55 Termination Agreement by and among Hard Rock Cafe International
(USA), Inc., Full House Resorts, Inc., Allen E. Paulson, AEP &
FHR LLC, FH/HR Management, LLC and Full House Mississippi,LLC
dated November 30, 1999.
21 List of Subsidiaries of Full House Resorts, Inc.
23.1 Consent of Deloitte & Touche LLP
27.1 Financial Data Schedule
EXHIBIT 10.54
AMENDMENT TO LICENSE AGREEMENT
& AGREEMENT ON OTHER MATTERS
THIS AMENDMENT TO LICENSE AGREEMENT & AGREEMENT ON OTHER MATTERS
("Amendment") is executed this 30TH day of November, 1999 by and between FULL
HOUSE MISSISSIPPI, LLC ("Licensee") and HARD ROCK CAFE INTERNATIONAL (USA),
INC., a Florida corporation ("Licensor").
WHEREAS, Licensor and Licensee are parties to that certain License
Agreement dated as of November 18, 1998, a copy of which is attached hereto as
Exhibit "A"; and
WHEREAS, Licensor and Licensee wish to modify the License Agreement and
agree to other matters as more particularly set forth herein.
NOW, THEREFORE, in consideration of the foregoing mutual premises
contained herein and other good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, Licensor and Licensee agree as
follows:
1. RECITALS. The foregoing recitals are hereby incorporated by
reference.
2. CONFLICTS. In the event of any conflict or inconsistency between the
terms of this Amendment and the terms of the unamended License Agreement, the
terms of this Amendment shall control.
3. DEFINED TERMS. Unless specifically defined herein, capitalized terms
shall have the meaning ascribed to them in the License Agreement.
4. DEFINITIONS AND INTERPRETATION. Section 1 of the License Agreement
is hereby amended as follows:
A. The definition of "ACHIEVEMENT DATE" is deleted.
B. The definition of "ADJUSTED EBITDA" is deleted.
C. The definition of "COMPETITIVE TERRITORY" in the License
Agreement shall be deleted and, for all purposes under the License Agreement,
"Competitive Territory" shall mean the state of Mississippi.
D. The definition of "EBITDA" is deleted.
E. The definition of "FINANCING RATE" is deleted.
F. The definition of "INVESTMENT AGREEMENT" is deleted.
<PAGE>
G. The definition of "LEASE AGREEMENT" is amended to add
Exhibit "B-l" to the definition of the Lease Agreement.
H. The definition of "LICENSING FEE REVENUES" is deleted and
replaced with the following:
"LICENSING FEE REVENUES" shall mean, during the relevant
period, the aggregate of: (a) all revenues, income and
proceeds of any kind from the rental of guest rooms,
conference rooms and meeting rooms at the Hotel/Casino,
excluding any Federal, state and municipal excise, sales,
resort, use and other taxes collected from patrons or guests
as a part of or based upon the sales price of any goods or
services, including, without limitation, gross receipts, room,
bed, admission, cabaret or similar taxes, including, without
limitation, (i) the fair market values of any barter and other
non-cash property and services received as an alternative to
cash payments pursuant to recurring practices that reduce or
offset or substitute for revenues, (ii) the fair value of any
guest rooms offered to guests, customers or clients on a
"complimentary" basis, without charge or for a reduced charge
(other than to Hard Rock executives), whether as part of a
"frequent traveler" program offered by Licensee (except for
programs that grant awards based solely on paid room nights by
a guest at the Hotel/Casino) or for any other reason, (iii)
awards or any other form of incentive payments from any source
whatsoever which are attributable to the rental of guest rooms
the Hotel/Casino, and (b) the proceeds (after deduction from
said proceeds of all necessary expenses incurred in the
adjustment or collection thereof) of business interruption
insurance actually received by Licensee with respect to the
revenue items described in subsection (a) of this definition
with respect to the Project.
Notwithstanding the above, and for the avoidance of doubt, the
parties agree that Licensing Fee Revenues shall not include:
(i) any revenues, receipts and income of any kind received by
Licensee from "gaming" as defined by Miss. Code Ann.
/section/75- 76-5(l) (as hereafter amended), resulting from
the operation of the Hotel/Casino; (ii) revenues from the
Project's food and beverage operations; (ii) revenues
generated by Licensor at the Hard Rock Cafe and the Hard Rock
Retail Store located at the Project; (iii) revenues from the
parking facility; and (v) revenues from any other ancillary
Project facilities.
I. The definition of "MANAGEMENT AGREEMENT" is deleted.
J. The definition of "MEMORABILIA LEASE" is amended to add the
following at the end of the definition ", except the references to "fifteen
percent (15%)" contained in Section 4(A) thereof shall be changed to "ten
percent (10%)"."
K. The definition of "NET-WIN" is deleted.
2
<PAGE>
L. The definitions of "OPERATING AGREEMENT" and "OPERATOR" are
hereby deleted.
M. The definitions of "PREFERRED INVESTMENT" and "PRIMARY
DEBT" are deleted.
N. The definitions of "REQUIRED EBITDA"and "TARGET EBITDA" are
deleted.
0. The definition of "TOTAL PROJECT COST" is deleted.
P. Section 1(D) of the License Agreement is deleted.
5. TERM. Section 3(B) of the License Agreement is amended to
delete the last part of the Section commencing with "and (ii) the Continuing
Fees..." through the end of such sentence. Section 3(C) of the License Agreement
is hereby deleted.
6. COMPENSATION TO LICENSOR.
A. Section 4(A)(ii) of the License Agreement is amended to
change "March 31, 1999" to "December 15, 1999".
B. The second sentence of Section 4(A) of the License
Agreement is deleted. "Except as provided in the preceding sentence," is hereby
deleted from the last sentence of Section 4(A) of the License Agreement.
C. Section 4(B) of the License Agreement is amended to change
"five percent (5%)" to "three percent (3%)". Further, the following shall be
added to section 4(B) of the License Agreement: "In no event shall this Section
be construed so as to allow Licensor to share in any revenue generated by the
Licensee's gaming operations at the Hotel/Casino."
D. Section 4(D) of the License Agreement is deleted and
replaced with the following:
ANNUAL FEES. As further consideration for the grant f the
right to use the Licensed Rights as provided herein, Licensee
shall pay Licensor a non-refundable annual fee ("Annual Fee")
in the amount equal to Two Million Five Hundred Thousand
Dollars ($2,500,000.00), Adjusted for Inflation, without
regard to the revenues or financial performance of the
Hotel/Casino. The Annual Fee shall commence on the Opening
Date and continue for each year during the Term. The Annual
Fee shall be payable in equal monthly installments in arrears
within ten (10) days after the end of each calendar month.
E. The following shall be added as Section 5(G) to the License
Agreement:
3
<PAGE>
OFFSET BY LICENSE. The Lease Agreement requires an Affiliate
of Licensor, Hard Rock Cafe International (STP), Inc.
("HRC-STP) to pay an ongoing rental to Licensee, all as more
particularly described in the License Agreement ("Rental
Payment. In the event HRC-STP does not pay Licensee the Rental
Payment as required by the Lease Agreement, then in such
event, Licensee, in addition to any other remedies it may have
under the Lease Agreement, may offset the unpaid Rental
Payments against the Fees coming due under this License
Agreement.
7. DEVELOPMENT/OPERATION OF HOTEL/CASINO.
A. Section 5(A)(i) of the License Agreement is amended to
delete "as provided in the Management Agreement."
B. Section 5(A)(ii) of the License Agreement is amended to
delete "subject to an aggregate maximum cost of $270,000,000." Further, Section
5(A)(ii) is amended to change "350" to "300" and "500" to "700" in the third
sentence of such subsection.
C. Section 5(P) is amended to delete the last sentence of such
subsection.
8. ADVERTISING. Section 8(F) of the License Agreement is deleted.
9. STANDARDS OF QUALITY AND OPERATION. Section 9(C) of the
License Agreement is amended to delete the first part of the fourth sentence
beginning with 'After the earlier.." through "...equity interests of Operator,".
10. SECTION 12.
A. Section 12(A)(i) of the License Agreement is amended (i) to
delete "detailed"and insert in place thereof "preliminary" and (ii) to delete
"Total Revenues and".
B. Section 12(A)(ii) of the License Agreement is amended to
delete "and (F)" in the last line of such subsection.
C. Section 12(E) of the License Agreement is amended to add
"as it relates to documenting Licensing Fee Revenues" after "Hotel/Casino".
11. TERMINATION.
A. Section 14(A)(7) of the License Agreement is amended to
delete "the Management Agreement".
B. Section 14(B)(4)(a) of the License Agreement is deleted.
4
<PAGE>
12. NON-COMPETITION. Section 17(B) of the License Agreement is
amended to delete the second paragraph.
13. SECTION 21. Section 21 of the License Agreement is deleted.
14. SECTION 22.
A. Section 22(A) of the License Agreement is amended to delete
"the Management Agreement, the Operating Agreement, the Investment Agreement,"
from the first sentence of such Section, and add 'the Termination Agreement
between the parties dated as of the date of this Amendment' in place thereof.
B. Section 22(B) is amended to change Licensor's notice
address to:
Hard-Rock Cafe International (USA), Inc.
6100 Old Park Lane
Orlando, FL 32835
Telephone No.: (407)-445-7625
Facsimile No.: (407) 445-7630
Attention: General Counsel
C. Section 22(M) of the License Agreement is deleted and
replaced with the following:
(M) INFLATION ADJUSTMENT. Whenever any provision of this
Agreement or the Exhibits hereto requires that an amount be
Adjusted for Inflation, such adjustment shall be based upon
the "Inflation Index" (as defined below). Adjustments of
amounts required to be Adjusted for Inflation under this
Agreement shall be made every five (5) years on the
anniversary date of this Agreement and shall be determined by
multiplying the amount which is the subject of the escalation
by a fraction the denominator of which is the "Inflation
Index" for November 1999 (the "BASE MONTH"), and the numerator
of which is the "Inflation Index" for the month immediately
prior to the adjustment date (the "ADJUSTMENT MONTH"),
provided that if the percentage change from the Base Month to
the Adjustment Month is negative, no adjustment shall be made
hereunder. Notwithstanding the above, the adjustments provided
for above shall not exceed an annualized rate of two and
one-half percent (2.5%) on a cumulative basis for the first
five (5) years of the term of this Agreement and thereafter
shall not exceed an annualized rate of three percent (3%) on a
cumulative basis.
For purposes of this paragraph, the Inflation Index shall mean
the U.S. City Average Price Index for All Urban Consumers for
All Items (Base Year 1982
5
<PAGE>
-1984) as published by the United States Department of Labor,
Bureau of Labor Statistics; provided that if such index is
discontinued or is unavailable, then the parties will
substitute therefor a comparable index for use in calculating
changes in the cost of living or purchasing power of consumers
published by any other governmental agency, major bank,
financial institution or university or by another recognized
financial publication, with such adjustments as shall be
reasonably necessary to produce substantially the same results
as would have been obtained under the unavailable index.
D. Section 22(U) of the License Agreement is amended to change
"Florida" to "Nevada".
The following Sections shall be agreements between the parties on matters other
than the amendment of the License Agreement:
15. FRANCHISE LAWS. Licensee and/or its Affiliates and/or its
principals are sophisticated entities engaged in the business of operating
hotels and/or casinos throughout the United States and have significant
experience in the business of developing and operating hotels and/or casinos.
Licensee and its Affiliates shall not initiate any claim or proceeding or take
any action under, or with respect to, the franchise laws or regulations of any
jurisdiction, with respect to the negotiation, execution delivery and
performance of the License Agreement and this Amendment and the consummation of
the transactions contemplated thereby. It is the intention of Licensor and
Licensee that the negotiation execution, delivery and performance of the License
Agreement as modified by this Amendment and the consummation of the transaction
not trigger or be subject to the franchise laws and regulations of any
jurisdiction, and benefits of the protection of any such laws is hereby
expressly waived by Licensee.
16. RELEASES.
A. Licensee and its Affiliates (including, but not limited to,
Full House Resorts, Allen E. Paulson, AEP & FHR, LLC), do hereby release, remise
and forever discharge Licensor and its Affiliates (including, but not limited
to, Hard Rock Cafe International (STP), Inc.), and each of their respective
stockholders, members, directors, officers, employees and agents (the "Hard Rock
Releasees"), from any and all claims, causes of action, controversies, damages,
debts, demands, disputes, liabilities, settlements, or understandings,
whatsoever, known or unknown, which such parties, or any of them, have as of the
date of this Amendment against the Hard Rock Releasees arising out of or
relating to the License Agreement, including any claims under applicable
franchise laws. Notwithstanding the foregoing, the obligations of the Hard Rock
Releasees to Licensee and its Affiliates under the terms and conditions of the
License Agreement (as amended by this Amendment), the agreements contained in
Sections 15-18 hereof, and the Termination Agreement between the parties dated
of even date hereof shall continue in full force and effect from and after the
date hereof.
6
<PAGE>
B. Licensor and its Affiliates, (including, but not limited
to, Hard Rock Cafe International (STP), Inc.) do hereby release, remise and
forever discharge Licensee and its Affiliates (including, but not limited to,
Full House Resorts, Allen E. Paulson, AEP & FHR, LLC), and each of their
respective stockholders, members, directors, officers, employees and agents (the
"Full House Releasees"), from any and all claims, causes of action,
controversies, covenants, damages, debts (excluding the unpaid Territory Fee),
demands, disputes, settlements, or understandings, whatsoever, know or unknown,
which the such parties, or any of them, have as of the date of this Amendment
against the Full House Releasees arising out of or relating to the License
Agreement. Notwithstanding the foregoing, the obligations of the Full House
Releasees to Licensor and its Affiliates under the terms and conditions of the
License Agreement (as amended by this Amendment), the agreements contained in
Sections IS- 1 8 hereof, and the Termination Agreement between the parties dated
of even date hereof shall continue in full force and effect from and after the
date hereof.
17. RATIFICATION. The License Agreement as modified by this
Amendment is hereby ratified and confirmed, and as of the date hereof the
License Agreement is in full force and effect. All provisions of the License
Agreement not specifically modified herein remain in full force and effect.
18. COUNTERPARTS. This Amendment may be executed in any number of
counterparts, each of which shall be an original as against any party whose
signature appears thereon, and all of which shall constitute one and the same
agreement.
IN WITNESS WHEREOF, Licensor and Licensee have executed this Amendment
as of the date and year first above written.
[SIGNATURES ON FOLLOWING PAGE)
7
<PAGE>
LICENSOR
HARD ROCK CAFE INTERNATIONAL
(USA), INC.
By:_____________________________________________
Name:___________________________________________
Its:____________________________________________
LICENSEE
FULL HOUSE MISSISSIPPI, LLC
By: AEP & FHR LLC, its sole member
By: Full House Resorts, Inc., a member
By: /s/ GREGG R. GIUFFRIA
---------------------------------
Name: Gregg R. Giuffria
Its: President
By: Allen E. Paulson, a member
/s/ ALLEN E. PAULSON
---------------------------------------
Allen E. Paulson
8
<PAGE>
The foregoing parties are executing this Amendment for the sole purpose
of acknowledging and agreeing to the releases provided in Section 16 of this
Amendment.
HARD ROCK CAFE INTERNATIONAL (STP), INC.
By:_____________________________________________
Name:___________________________________________
Its:____________________________________________
FULL HOUSE RESORTS, INC.
By: /s/ GREGG R. GIUFFRIA
------------------------------------------------
Name: Gregg R. Giuffria
Its: President
/s/ ALLEN E. PAULSON
------------------------------------------------
Allen E. Paulson
AEP & FHR LLC
By: Full House Resorts, Inc., a member
By: /s/ GREGG R. GIUFFRIA
---------------------------------
Name: Gregg R. Giuffria
Its: President
By: Allen E. Paulson, a member
/s/ ALLEN E. PAULSON
---------------------------------------
Allen E. Paulson
9
EXHIBIT 10.55
TERMINATION AGREEMENT
This TERMINATION AGREEMENT ("Agreement") is made and entered into as of
November 30, 1999 by and among Hard Rock Cafe International (USA) Inc., a
Delaware corporation ("HRC-USA"), Hard Rock Cafe International (STP), Inc., a
New York corporation ("Hard Rock STP"), Full House Resorts, Inc., a Delaware
corporation ("Full House"), Allen E. Paulson ("Paulson"), AEP & FHR LLC, a
Nevada limited liability company ("AEP/FHR"), Full House Mississippi, LLC, a
Mississippi limited liability company ("FH Mississippi"), and FH/HR Management,
LLC, a Mississippi limited liability company ("Operator").
R E C I T A L S:
A. Pursuant to the Biloxi License Agreement (as defined below), HRC-USA
granted FH Mississippi the right to develop, operate, own and manage a hotel and
casino using certain licensed rights within a twenty-five (25) mile radius of
Biloxi, Mississippi, on the terms and conditions set forth in such agreement.
B. HRC-USA and FH Mississippi are simultaneously herewith entering into
an Amendment of the Biloxi License Agreement and the parties hereto mutually
desire to terminate certain other agreements related thereto and to release each
other from all further liabilities and obligations under such agreements, as
more specifically provided in this Agreement.
NOW THEREFORE, in consideration of the foregoing, the mutual covenants
and agreements contained herein, the parties covenant and agree as follows:
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS. For purposes of this Agreement, the following
definitions shall apply:
"AFFILIATE" means with respect to any Person, any other Person which
directly or indirectly controls, or which is controlled by or is under common
control with such Person. The term "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting securities, by
contract or otherwise.
"BILOXI LICENSE AGREEMENT" shall mean that certain License Agreement
dated as of November 18, 1998, between HRC-USA and FH Mississippi.
"GOVERNMENT AUTHORITY" means any foreign, federal, state or local
governmental entity or authority, or any department, commission, board, bureau,
agency, court or instrumentality thereof.
"INVESTMENT AGREEMENT" shall mean that certain Investment Agreement,
dated as of November 18, 1998, by and among FH Mississippi, AEP/FHR, Full House,
Paulson, and HRC-USA.
<PAGE>
"LAW(S)" means any and all laws, judgments, decrees, orders, rules,
regulations or official legal interpretations of any Governmental Authority.
"MANAGEMENT AGREEMENT" shall mean that certain Management and
Development Agreement, dated as of November 18, 1998, between Operator and FH
Mississippi.
"OPERATING AGREEMENT" shall mean that certain Operating Agreement of
FH/HR Management, LLC, dated as of November 18, 1998, between Full House and
Hard Rock STP.
"PERSON" shall mean (i) an individual, corporation, partnership, joint
venture, limited liability company, estate, trust, unincorporated, associated or
other entity, (ii) a Federal, state, county or municipal government or any
bureau, department, political subdivision or agency thereof or (iii) a fiduciary
acting in such capacity on behalf of any of the foregoing.
1.2 SCOPE OF TERMS. The use of the words defined herein shall include
the plural or singular forms of such terms, and the male, female, or neutral
gender thereof, as appropriate.
1.3 REFERENCE TERMS. The use of the words "herein", "thereof",
"hereinafter", "hereinabove", and other words of similar import shall be deemed
to refer to this Agreement as a whole, and not to a specific section,
subsection, or paragraph thereof.
ARTICLE II
TERMINATION
2.1 TERMINATION OF MANAGEMENT AGREEMENT. Operator and FH Mississippi
hereby agree to terminate the Management Agreement, effective immediately, and
further agree that neither party shall have any further claim against the other
whatsoever in respect of any matter or thing under said agreement, except that
the obligations of the parties under Article XIX of the Management Agreement
shall continue in full force and effect notwithstanding the termination of said
agreement.
2.2 TERMINATION OF INVESTMENT AGREEMENT AND OPERATING AGREEMENT. Full
House and Hard Rock STP hereby agree to terminate the Operating Agreement after
dissolving Operator and winding up Operator's affairs in accordance with Section
2.3 hereof. FH Mississippi, AEP/FHR, Full House, Paulson and HRC-USA, Inc.
hereby agree to terminate the Investment Agreement, effective immediately.
2.3 DISSOLUTION OF OPERATOR. Full House and Hard Rock STP, being all of
the members of Operator, hereby mutually agree to dissolve Operator. As soon as
practicable after the date hereof, Full House and Hard Rock STP shall cause a
certificate of dissolution of Operator to be filed with the Office of the
Mississippi Secretary of State and shall take such other actions as are
necessary and desirable to dissolve Operator and wind up its affairs in
accordance with the Operating Agreement and applicable Laws.
2
<PAGE>
ARTICLE III
RELEASES
3.1 RELEASE OF HARD ROCK. Each of Full House, Paulson, AEP/FHR, and FH
Mississippi does hereby release, remise and forever discharge HRC-USA and its
Affiliates (including Hard Rock STP), and Operator, and each of their respective
stockholders, members, directors, officers, employees and agents (the "Hard Rock
Releases"), from any and all accounts, agreements, claims, causes of action,
controversies, covenants, damages, debts, demands, disputes, duties,
liabilities, obligations, promises, settlements, or understandings, whatsoever,
known or unknown, which the such parties, or any of them, now have, may have
had, or may hereafter have, against the Hard Rock Releasees arising out of or
relating to the Operating Agreement, including Section 12.1 (b) of the Operating
Agreement, the Management Agreement or the Investment Agreement, including,
without limitation, any claims under applicable franchise Laws.
3.2 RELEASE OF FULL HOUSE. Each of Hard Rock, Hard Rock STP and
Operator does hereby release, remise and forever discharge Full House, Paulson,
AEP/FHR and FH Mississippi, and each of their respective stockholders, members,
directors, officers, employees and agents (the "Full House Releases"), from any
and all accounts, agreements, claims, causes of action, controversies,
covenants, damages, debts, demands, disputes, duties, liabilities, obligations,
promises, settlements, or understandings, whatsoever, know or unknown, which the
such parties, or any of them, now have, may have had, or may hereafter have,
against the Full House Releasees arising out of or relating to the Operating
Agreement, including Section 12.1 (a) of the Operating Agreement, the Management
Agreement or the Investment Agreement.
ARTICLE IV
GENERAL PROVISIONS
4.1 ENTIRE AGREEMENT. This Agreement sets forth the entire
understanding of the parties with respect to the subject matter hereof. Any
previous agreements or understandings between the parties regarding the subject
matter hereof are merged into and superseded by this Agreement.
4.2 BINDING NATURE. This Agreement shall be binding upon and inure to
the benefit of each of, and be enforceable by, the respective heirs, legal
representatives, successors and assigns of each of the parties hereto.
4.3 CONSTRUCTION. This Agreement is a commercial agreement between
sophisticated parties which has been entered into by the parties in reliance
upon the economic and legal bargains contained herein. This Agreement shall be
interpreted and construed in a fair and impartial manner without regard to which
party prepared the document, the relative bargaining powers of the parties or
the domicile of any party.
4.4 HEADINGS. The various headings used in this Agreement are inserted
for convenience only and shall not in any way affect the meaning or construction
of this Agreement or any provision hereof.
3
<PAGE>
4.5 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all such
counterparts together shall constitute but one agreement.
4.6 GOVERNING LAW. This Agreement shall be governed, construed and
enforced in accordance with the internal laws of the State of Florida, excluding
any choice of law rules, which may direct the application of the laws of another
jurisdiction.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed, effective as of the date first set forth above.
HARD ROCK CAFE INTERNATIONAL (USA), INC.
By: ____________________________________________
Name: ____________________________________________
Its: ____________________________________________
HARD ROCK CAFE INTERNATIONAL (STP), INC.
By: ____________________________________________
Name: ____________________________________________
Its: ____________________________________________
FULL HOUSE RESORTS, INC.
By: /s/ GREGG R. GIUFFRIA
--------------------------------------------
Name: Gregg R/ Giuffria
Its: President
/s/ ALLEN E. PAULSON
--------------------------------------------------
/s/ ALLEN E. PAULSON
4
<PAGE>
AEP & FHR LLC
By: Full House Resorts, Inc., a member
By: /s/ GREGG R. CIUFFRIA
-----------------------------------------
Name: Gregg R. Ciuffria
Its: President
By: Allen E. Paulson, a member
/s/ ALLEN E. PAULSON
-----------------------------------------
Allen E. Paulson
FULL HOUSE MISSISSIPPI, LLC
By: AEP & FHR LLC, its sole member
By: Full House Resorts, Inc., a member
By: /s/ GREGG R. CIUFFRIA
-----------------------------------------
Name: Gregg R. Ciuffria
Its: President
By: Allen E. Paulson, a member
/s/ ALLEN E. PAULSON
-----------------------------------------
Allen E. Paulson
FH/HR MANAGEMENT, LLC
By: Full House Resorts, Inc., a member
By: /s/ GREGG R. CIUFFRIA
-----------------------------------------
Name: Gregg R. Ciuffria
Its: President
By: Hard Rock Cafe International (STP), Inc.,
a member
By: ___________________________________
Name: ___________________________________
Its: ___________________________________
5
EXHIBIT 21
LIST OF SUBSIDIARIES OF FULL HOUSE RESORTS, INC.
NAME OF SUBSIDIARY JURISDICTION OF INCORPORATION
------------------ -----------------------------
Deadwood Gulch Resort and
Gaming Corp. South Dakota
Full House Mississippi, LLC Mississippi
Full House Subsidiary, Inc. Delaware
Full House Subsidiary of
Nevada, Inc. Nevada
AEP/FHR, LLC* Nevada
FH/HR Management, LLC* Mississippi
Gaming Entertainment, LLC* Delaware
Gaming Entertainment
(Delaware), LLC* Delaware
Gaming Entertainment
(Michigan), LLC* Delaware
Gaming Entertainment
(California), LLC* Delaware
Greenhouse Management, Inc.** Michigan
*50% owned
**85% owned
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.'s
33-84226, 33-80858, and 333-29299 of Full House Resorts, Inc. on Form S-8 of our
report dated March 3, 2000 appearing in this Annual Report on Form 10-KSB of
Full House Resorts, Inc. for the year ended December 31, 1999.
DELOITTE & TOUCHE LLP
Las Vegas, Nevada
March 27, 2000
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<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 438,800
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