UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

(Exact Name of Registrant as specified in Its Charter) 

 

 

(Title of class)

  

 

 Documents Incorporated By Reference

FULL HOUSE RESORTS, INC.

TABLE OF CONTENTS

 

PART I

 

Forward-Looking Statements

 

This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) for which the Private Securities Litigation Reform Act of 1995 provides a safe harbor. These forward-looking statements include, but are not limited to, statements about our plans, objectives, representations and intentions and are not historical facts and typically are identified by use of terms such as “believes,” “expects,” “anticipates,” “estimates,” “plans,” “intends,” “objectives,” “goals,” “aims,” “projects,” “forecasts,” “possible,” “seeks,” “may,” “could,” “should,” “might,” “likely,” “enable,” or similar words or expressions, as well as statements containing phrases such as “in our view,” “there can be no assurance,“we cannot assure you,” “although no assurance can be given,” or “there is no way to anticipate with certainty”.certainty.” Specifically, this Annual Report on Form 10-K contains forward-looking statements relating to our growth strategies; our development and expansion plans, including a planned expansion of Bronco Billy’s;Billy’s, our budget and ability to obtain financing for such expansion and the timing for commencement or completion of each phase of such expansion; our investments in capital improvements and other projects, including the amounts of such investments, the timing of commencement or completion of such capital improvements and projects and the resulting impact on our financial results; timing for required approvals; impact of the 2017 Tax Act (as defined below); management’s expectation to exercise its buyout option on the Silver Slipper Casino and Hotel; adequacy of our financial resources to fund operating requirements and planned capital expenditures and to meet our debt and contractual obligations; expected sources of revenue; cash interest expense in 2019; anticipated sources of funds; anticipated legislative pursuits; intentionsexpectations regarding the operation of a vehicleour new ferry boat fromservice at Rising Star Casino;Casino Resort; beliefs in connection with our marketing efforts; factors that affectedaffect the financial performance of our properties; adequacy of our insurance; competitive outlook; outcome of legal matters; impact of recently issued accounting standards; and estimates regarding certain accounting and tax matters, among others.

Various factors may affect the operation, performance, development and results of our business and could cause future outcomes to change significantly from those set forth in our forward-looking statements, including risks and uncertainties about the following:

 

 

Formed as a Delaware corporation in 1987, Full House Resorts, Inc. owns, leases, operates, develops, manages, and/or invests in casinos and related hospitality and entertainment facilities. References in this document to “Full House”,House,” the “Company”, “we”,“Company,” “we,” “our,” or “us” refer to Full House Resorts, Inc. and its subsidiaries, except where stated or the context otherwise indicates.

 

The following table presents selected information concerning our casino resort properties as of December 31, 2017:2018:

Our revenues are primarily derived from gaming sources, which include revenues from slot machines, table games, keno, and keno.sports betting. Play at our slot machines accounts for most of our revenues, but we also offer a wide range of table games. We set minimum and maximum betting limits for our slot machines and table games based on market conditions, customer demand and other factors. Our gaming revenues are derived from a broad base of guests that includes both high- and low-stakes players. We alsoOur sports book operations at Silver Slipper Casino and Hotel is in partnership with a company specializing in race and sports betting. In addition, we derive a significant amount of revenues from our hotel rooms, food and beverage outlets retail outlets, entertainment and our hotel rooms. We also derive revenues from our golf course at the Rising Star Casino Resort.Resort, recreational vehicle parks (“RV parks”) at both Rising Star Casino Resort and Silver Slipper Casino and Hotel, retail outlets and entertainment, and expect to derive additional revenues from our newly-constructed projects and ferry boat service as further described herein. Our financial results are dependent upon the number of patrons that we attract to our properties and the amounts those guests spend per visit. Additionally, our operating results may be affected by, among other things, overall economic conditions affecting the disposable income of our guests, weather conditions affecting access to our properties, achieving and maintaining cost efficiencies, taxation and other regulatory changes, and competitive factors, including but not limited to, additions and improvements to the competitive supply of gaming facilities. We may experience significant fluctuations in our quarterly operating results due to seasonality, variations in gaming hold percentages, and other factors.

Our mission is to maximize shareholder value. We seek to increase revenues by providing our customers with their favorite games and amenities, high-quality customer service, and appropriate customer loyalty programs. Our customers include nearby residents who represent a high potential for repeat visits, along with drive-in tourist patrons. We continuously focus on improving the operating margins of our existing properties through a combination of revenue growth and expense management.management efforts. The casino resort industry is capital-intensive, and we rely on the ability of our properties to generate operating cash flow to pay interest, repay debt, and fund maintenance and certain growth-related capital expenditures. We also assess the potential impact of growth and development opportunities, including capital investments at our existing properties, the development of new properties, and the acquisition of existing properties.

All of our casino properties are operated by us 24 hours each day, nearly every day of the year.year with the exception of Christmas morning for four to six hours at Rising Star Casino Resort. We also operate the hotel and food and beverage operations at Silver Slipper Casino and Hotel, Bronco Billy's,Billy’s Casino and Hotel, Rising Star Casino Resort and Stockman's.Stockman’s Casino. At the Grand Lodge Casino, the hotel and the food and beverage outlets are managed by Hyatt Regency Lake Tahoe Resort, Spa and Casino ("(“Hyatt Lake Tahoe"Tahoe”) manages the hotel and food and beverage outlets.  

 

Silver Slipper Casino and Hotel

 

The Silver Slipper Casino and Hotel ("(“Silver Slipper"Slipper”) is situated on the west end of the Mississippi Gulf Coast, near Bay St. Louis, Mississippi, and includes approximately 37,000 square feet ofin addition to gaming space, includes 129 hotel rooms, a fine-dining restaurant, a buffet, a quick-service restaurant, an oyster bar, a casino bar and a casinobeachfront bar. The property sits at the western end of an approximately eight-mile-long white sand beach, the closest such beach to the New Orleans and Baton Rouge metropolitan areas. Its customers are primarily from communities in southern Louisiana, including the North Shore of Lake Pontchartrain and the New Orleans and Baton Rouge metropolitan areas, and southwestern Mississippi. The Silver Slipper Casino and Hotel currently generates the most revenue and operating income of any of our properties. In August 2018, we added a sports book operation to the casino in partnership with a company specializing in race and sports betting.

The primary lease for the Silver Slipper includes approximately 38 acres, consisting of the seven-acre parcel on which the casino and hotel is situated and approximately 31 acres of marshlands. The lease term ends in April 2058. Between February 2019 and October 2027, we have the option to purchase the land site. Management believes that it will be economically favorable to exercise the buyout option and intends to do so, subject to our financial resources and future capital market conditions. During the third quarter of 2017, we opened our new swimming pool and beach complex and made certain improvements to traffic patterns and landscaping around the front of the property.

We also openedmanage a new 18-seat oyster bar in the casino in mid-2017.nearby 37-space beachfront RV park under a management contract, which expires on March 31, 2020, unless canceled by either party.

Bronco Billy'sBilly’s Casino and Hotel

Bronco Billy'sBilly’s Casino and Hotel ("(“Bronco Billy's"Billy’s”) occupies a significant portion of the key city block of Cripple Creek’s “casino strip” and contains approximately 17,000 square feet ofin addition to gaming space, 24contains 36 hotel rooms, a steakhouse and four casual dining outlets. Bronco Billy'sBilly’s also leases certain parking lots and buildings, including a portion of the hotel and casino, under a long-term lease. The lease has six renewal options in three-year increments to 2035, and we have the right to buy out the lease at any time during its term. We also commenced a three-year lease in August 2018 for the new Christmas Casino, which also includes an option to extend or buy out the lease. Bronco Billy'sBilly’s customers are primarily from the Colorado Springs/Pueblo/Cañon City metropolitan area, the second-largest metropolitan area in Colorado, with a population of approximately 900,000.900,000 residents. Cripple Creek is approximately a one-hour drive from Colorado Springs, as well as a two-hour drive from the Denver metropolitan area, which has a population of approximately four million people.

During 2017,In 2018, we acquiredbegan our expansion of Bronco Billy’s, which we anticipate completing in two phases. Phase One of the Bronco Billy’s expansion project includes the construction of a 319-space parking garage and connector building, the purchase of the Imperial Hotel in June 2018 and certain other nearby parcels of land, and options to purchase or lease land and buildings, including the freestanding and closed Imperial Casino; the operating historic Imperial Hotel, which offers 12 refurbished guest rooms; and approximately four acresgrand reopening in November 2018 of vacant or underutilized land. We intend to develop a high-quality hotel and other amenities at this property and are considering reopeningboth the Imperial Casino and Imperial Hotel together as a partthe Christmas Casino & Inn. Phase Two of the proposed expansion.Bronco Billy’s expansion project, which is expected to include a new luxury hotel tower, spa, convention and entertainment space, two new restaurants, and a substantial remodeling of the casino. Construction of Phase Two is contingent upon receipt of financing on acceptable terms, among other contingencies.

Rising Star Casino Resort

 

Rising Star Casino Resort ("(“Rising Star"Star”) is located on the banks of the Ohio River in Rising Sun, Indiana, approximately one hour from Cincinnati, Ohio, and within two hours of Indianapolis, Indiana, and also within two hours of Louisville and Lexington, Kentucky. Rising Star offers, approximately 40,000 square feet ofin addition to casino space, a contiguous 190-room hotel, an adjacent leased 104-room hotel, a 56-space RV park, five dining outlets, and an 18-hole golf course. The 104-room hotel is leased pursuant to a capital lease agreement that expires in 2027 and contains a bargain purchase option.option, whereby we have the right to purchase the hotel and the landlord has the right to put the hotel to us, in both cases for $1 if exercised upon maturity of the lease. We also own 1.3 acres of vacant land located in Burlington, Kentucky that is used as part of our ferry boat operations, as further described below.

Stockman’s Casino

Stockman’s Casino (“Stockman’s”) is located approximately one hour from Reno, Nevada and includes approximately 8,400 square feet ofNevada. In addition to gaming space. Thespace, the facility has a bar, a fine-dining restaurant and a coffee shop. Stockman'sIn the first quarter of 2018, we completed numerous external improvements to the property, including a new porte cochère. Stockman’s primarily serves the local market of Fallon and surrounding areas, including the nearby Naval Air Station Fallon, the United States Navy'sNavy’s premier air-to-air and air-to-ground training facility, informally referred to as the "Top Gun"“Top Gun” school.

Grand Lodge Casino

We operate the Grand Lodge Casino at the Hyatt Lake Tahoe under a lease with Hyatt Equities, L.L.C. ("Hyatt"(“Hyatt”). The Grand Lodge Casino is located within the Hyatt Lake Tahoe in Incline Village, Nevada on the north shore of Lake Tahoe and includes approximately 18,90020,990 square feet of casinoleased space.  The Hyatt Lake Tahoe is one of three AAA Four Diamond hotels in the Lake Tahoe area and all of northern Nevada.area. Its customers consist of both locals and tourists visiting the Lake Tahoe area.

In November 2015, the lease was subsequently amended to extend our relationship and refurbish and improve the casino facility. The amendment includedincluded: (i) an agreement for Hyatt to renovate the casino up to a maximum cost of $3.5 million and for us to purchase up to $1.5 million of new gaming devices, equipment, or other capital expenditures, andwhich was completed during the second quarter of 2017, (ii) an extension of the initial lease term through August 31, 2023 with an additional five-year renewal option, (iii) an increase in monthly rent from $125,000 to $145,833 commencing on July 1, 2017, and to $166,667 commencing on January 1, 2018. Together with Hyatt, we completed2018, and (iv) the refurbishment during the second quarterdeferral of 2017.

Government Regulation

 

The gaming industry is highly regulated, and we must maintain our licenses and pay gaming taxes to continue our operations. Each of our casinos is subject to extensive regulation under the laws, rules, and regulations of the jurisdiction in which it is located. These laws, rules, and regulations generally concern the responsibility, financial stability, and character of the owners, managers, and persons with financial interests in the gaming operations and include, without limitation, the following conditions and restrictions:

Violations of gaming laws in one jurisdiction could result in disciplinary action in other jurisdictions. A summary of the governmental gaming regulations to which we are subject is filed as Exhibit 99.1 and is herein incorporated by reference.

Our businesses are subject to various federal, state, and local laws and regulations, in addition to gaming regulations. These laws and regulations include, but are not limited to, restrictions and conditions concerning alcoholic beverages, smoking, environmental matters, employees, currency transactions, taxation, zoning and building codes, construction, land use, and marketing and advertising. We also deal with significant amounts of cash in our operations and are subject to various reporting and anti-money laundering regulations. Such laws and regulations could change or could be interpreted differently in the future, or new laws and regulations could be enacted. Material changes, new laws or regulations, or material differences in interpretations by courts or governmental authorities could adversely affect our operating results. See "Item“Item 1A -– Risk Factors"Factors” for additional discussion.

Costs and Effects of Compliance with Environmental Laws

 

We are subject to various federal, state and local environmental laws and regulations that govern our operations, including emissions and discharges into the environment, and the handling and disposal of hazardous and non-hazardous substances and wastes. For example, our Indiana property is subject to the Indiana Department of Environmental Management for its riverboat, ferry boat and golf club operations, and our Mississippi property is located near environmental wetlands. Failure to comply with suchapplicable laws and regulations could result in costs for corrective action, penalties or the imposition of other liabilities or restrictions. We also are subject to laws and regulations that impose liability and clean-up responsibility for releases of hazardous substances into the environment. Under certain of these laws and regulations, a current or previous owner or operator of the property may be liable for the costs of remediating contaminated soil or groundwater on or from its property, without regard to whether the owner or operator knew of, or caused, the contamination, and may also incur liability to third parties impacted by such contamination. The presence of contamination, or failure to remediate it properly, may adversely affect our ability to use, sell or rent the property. To date, none of these matters or other matters arising under environmental laws has had a material adverse effect on our business, financial condition, or results of operations; however, there can be no assurance that such matters will not have such an effect in the future.

 

 

The gaming industry is highly competitive. Gaming activities with which we compete include traditional commercial casinos and casino resorts in various states including on tribal lands and at racetracks, riverboat and dockside gaming, state-sponsored lotteries, video poker in restaurants, bars and hotels, pari-mutuel betting on horse and dog racing and jai alai, sports betting and card rooms. Furthermore, competition from internetInternet lotteries, sweepstakes, and other internetInternet wagering gaming services, which allow their customers to wager on a wide variety of sporting events and play Las Vegas-style casino games from home or in non-casino settings, could divert customers from our properties, and thus, adversely affect our business. All of our casinos, as well as other casinos that we may develop or acquire, compete with all these forms of gaming. We also will compete with any new forms or jurisdictions of gaming that may be legalized, as well as with other types of entertainment. Some of our

     

Silver Slipper Casino and Hotel

 

Silver Slipper Casino and Hotel is the western-most casino on the Mississippi Gulf Coast and competes with severaltwo larger casinos located nearby, in Hancock County and Gulfport, Mississippi, one of which is currently expanding.completed a significant expansion in mid-2018. It also competes with casinos in Biloxi, Mississippi and New Orleans and Baton Rouge, Louisiana. Biloxi is one hour east of the Silver Slipper along Interstate 10. New Orleans and Baton Rouge are one and two hours, respectively, west of Silver Slipper.

Silver Slipper is the closest casino to most of St. Tammany Parish, one of the most affluent and fastest-growing parishes in Louisiana. Louisiana law permits 15 riverboat casinos, one land-based casino, four casinos at racetracks, and in certain areas, a limited number of slot machines at qualifying truck stops. The legislation permitting riverboat and truck stop casinos requires a local referendum and, at the time such legalization occurred, it was rejected by St. Tammany Parish voters. At this time, all licenses for riverboat casinos in Louisiana have been granted and are in operation, though it is possible for an existing licensee to relocate its casino (subject to state laws and approval in a local referendum). Mississippi, which has lower gaming tax rates than Louisiana, does not have a limitation on the number of casino licenses, but requires casinos in certain southern counties to be within approximately 800 feet of the shoreline, as defined by state law. There are occasionally proposals to relocate casinos within Louisiana or to develop new casinos in Mississippi, but there are considerable political and economic constraints on such potential competition, and management does not believe such efforts will be successful in the foreseeable future.

Bronco Billy'sBilly’s Casino and Hotel

Bronco Billy'sBilly’s is located in Cripple Creek, Colorado, which is a historic gold mining town located approximately one hour southwest of Colorado Springs, on the west side of Pikes Peak. Cripple Creek receives an estimated 1.5 million visitors per year and is one of only three cities in Colorado where commercial gaming is permitted. The other two cities are near Denver. Additionally, two Native American gaming operations exist in southwestern Colorado and there are tribal casinos in Oklahoma, but these are much further from Colorado Springs than Cripple Creek. As of December 31, 2017,2018, we believe that Bronco Billy'sBilly’s was the second largest of the seven gaming facilities operating in Cripple Creek. Several of those competitors have announced their intent to expand, principally through the addition of new hotel rooms, though none of those projects have broken ground. Gaming in Colorado is “limited stakes,” which restricts any single wager to a current maximum of $100.

Rising Star Casino Resort

 

The Rising Star Casino Resort in Rising Sun, Indiana is one of three riverboat casinos located on the Ohio River in southeastern Indiana, approximately one hour from Cincinnati, Ohio, and within two hours of Indianapolis, Indiana, and also within two hours of Louisville and Lexington, Kentucky. Its closest competitors are each approximately 15 miles away, near bridges crossing the Ohio River. There is no bridge at Rising Star, but in September 2018, we intend to commencecommenced a ferry boat service connecting Rising Sun, Indiana, to the more populous Northern Kentucky region. Rising Star also competes with casinos in Ohio; a casino-resortcasinos elsewhere in French Lick, Indiana; and two racetrack casinos near Indianapolis, Indiana.

A Kentucky Supreme Court decision in 2014 may permit apermits horse racing tracktracks in northernNorthern Kentucky to install slot machine-like devices, although it has not yet done so. TheWe also compete with racetracks in Louisville and Lexington, Kentucky, that recently installed such machines. Additionally, the Indiana legislature passed legislation in 2015 to allow table games at racetracks (which are currently limited to slot machines) beginning in March 2021. Recently-proposed legislation, if passed, could allow them to have table games sooner.

 

Northern Nevada

Stockman’s Casino

 

Stockman’s Casino is the largest of several casinos in Churchill County, which has a population of approximately 25,000.25,000 residents. Churchill County is also the home of the Naval Air Station Fallon, the United States Navy'sNavy’s premier air-to-air and air-to-ground training facility, and home ofinformally referred to as the "Top Gun"“Top Gun” school. While we are not aware of any significant planned expansion to gaming capacity in the Churchill County area, additional competition may adversely affect our financial condition or results of operations. Furthermore, while the Navy appears to be currently expanding its base in Fallon, a reduction of its activities at the base would likely have an adverse effect on Stockman'sStockman’s results of operations. Fallon is approximately 30 minutes east of the new large Tesla battery factory and other developments in the Tahoe RenoTahoe-Reno Industrial Center.

 

Grand Lodge Casino is one of four casinos located within a five-mile radius in the North Lake Tahoe area.  A fifth casino, which has been closed for several years, was sold out of bankruptcy during 2017 and may re-open in the near future.

 

Grand Lodge Casino also competes with casinos in South Lake Tahoe and Reno.  There are also numerous Native American casinos in California serving the Northern California market.

Our marketing efforts are conducted through various means, including our customer loyalty programs and specialized marketing campaigns, such as our seasonal "Christmas Casino"“Christmas Casino” event at the Rising Star Casino Resort. We advertise through various channels, including radio, television, internet,Internet, billboards, newspapers and magazines, direct mail, email and social media. We also maintain websites to inform customers about our properties and utilize social media sites to promote our brands, unique events, and special deals. Our customer loyalty programs include the Silver Slipper Casino Players Club, Bronco Billy’s MVP “Most Valuable Players” Club, the Rising Star Rewards Club™, the Grand Lodge Players Advantage Club® and the Stockman’s Winner’s Club. Under these programs, customers earn points based on their volume of wagering that may be redeemed for various benefits, such as free“free play,” cash back, complimentary dining, orand hotel stays.

Our properties do not have coordinated loyalty programs. We do not currently believe that it would be economically advantageous given the disparate locations of our properties. Instead, our loyalty programs focus on providing each casino'scasino’s customers the amenities they most prefer.

As of March 1, 2018,2019, we had 1315 full-time corporate employees, three of whom are executive officers and two additional senior management employees. Our casino properties had 1,3361,284 full-time and 330313 part-time employees as follows:

 

 

We believe that our relationship with our employees is excellent. None of our employees are currently represented by labor unions.

An investment in our securities is subject to risks inherent to our business. We have described below what we currently believe to be the material risks and uncertainties in our business. Before making an investment decision, you should carefully consider the risks and uncertainties described below, together with all of the other information included or incorporated by reference in this Annual Report on Form 10-K.

We also face other risks and uncertainties beyond what is described below. This Annual Report on Form 10-K is qualified in its entirety by these risk factors. If any of the following risks actually occur, our business, financial condition and results of operations could be materially and adversely affected. If this were to happen, the value of securities, including our common stock, could decline significantly. You could lose all or part of your investment.

These restrictions could adversely affect our ability to to:

In addition, our indenture governing the Notes requires us, among other obligations, to maintain a total leverage ratio. Our ability to comply with the covenants in our existing indebtedness to permit the incurrence of such financing;

To service our indebtedness, we will require a significant amount of cash. Our ability to generate cash depends on many factors beyond our debtcontrol.

Our ability to make payments on either attractive terms or commercially reasonable terms, or at all. Our future operating performance and to refinance our indebtedness, and to fund planned capital expenditures and expansion efforts, will depend upon our ability to service, extend or refinance our indebtedness will begenerate cash in the future. This, to a certain extent, is subject to futuregeneral economic, conditions and to financial, businesscompetitive, legislative, regulatory and other factors many of whichthat are beyond our control.

We cannot assure you that our business will generate sufficient cash flows from operations or asset sales, our anticipated growth in operations, including through our expansion efforts, will be realized, or that future borrowings will be available to us in amounts sufficient to enable us to market risk from adverse changesrepay the Notes and to fund our other liquidity needs. In addition, as we undertake substantial new developments or facility renovations or if we consummate significant acquisitions in interest rates. Interest rates, including LIBOR, have recently increasedthe future, our cash requirements may increase significantly and are expectedwe may need to continue toobtain additional equity or debt financing or joint venture partners. Any increase in future periods. If interest rates continue to increase, our debt service obligations on the variable-ratelevel of indebtedness could increase significantly even thoughimpose additional cash requirements on us in order to support interest payments. If we incur additional debt, the amount borrowed would remainrelated risks that we now face could intensify.

Under the same.

Our obligations to the holders of ourthe Notes are collateralized by a security interest in substantially all of our assets, so if we default on those obligations, the note holders of the Notes could foreclose on our assets. In addition, the existence of these security interests may adversely affect our financial flexibility.

Our obligations under the Notes and the transaction documents relating to the Notes are secured by a security interest in substantially all of our assets. As a result, if we default under our obligations under the Notes or the transaction documents, the holders of the Notes, acting through their appointed agent, could foreclose on their security interests and liquidate some or all of these assets, which would harm our business, financial condition and results of operations and could require us to reduce or cease operations.

An increase in market interest rates would increase our interest expense arising on our existing and therefore could adversely affectfuture floating rate indebtedness. Pursuant to the terms of our results of operations.

The gaming industry is characterized by an increasingly high degree of competition among a large number of participants, including riverboat casinos, dockside casinos, land-based casinos, racetrack casinos, video lottery, poker machines not located in casinos, Native American gaming, social gaming and other forms of gaming. Furthermore, competition from internetInternet lotteries, sweepstakes, and other internetInternet wagering gaming services, which allow their customers to wager on a wide variety of sporting events and play Las Vegas-style casino games from home or in non-casino settings, could divert customers from our properties and thus adversely affect our business. Such internetInternet wagering services are often illegal under federal law, but operate from overseas locations and are, nevertheless, sometimes accessible to domestic gamblers. Currently,Additionally, there are often proposals that wouldto legalize internetInternet poker and other varieties of internetInternet gaming in a number of states and at the federal level. Several states, including Nevada, New Jersey, and Delaware, have enacted legislation authorizing intrastate internetInternet gaming and internetInternet gaming operations have begun in these states. Expansion of internetInternet gaming in other jurisdictions (both legal and illegal) could further compete with our traditional operations, which could have an adverse impact on our business and results of operations.

In a broader sense, our gaming operations face competition from all manner of leisure and entertainment activities, including other non-gaming resorts and vacation destinations, shopping, athletic events, television and movies, concerts, and travel. Legalized gaming is currently permitted in various forms throughout the U.S., in several Canadian provinces and on various lands taken into trust for the benefit of certain Native Americans in the U.S. and Canada. Other jurisdictions that border our operational locations, such as Ohio, have recently legalized and implemented gaming. In addition, established gaming jurisdictions could award additional gaming licenses or permit the expansion or relocation of existing gaming operations. New, relocated or expanded operations by other persons could increase competition for our gaming operations and could have a material adverse impact on us. Gaming competition is intense in most of the markets where we operate. In most markets, we compete directly with other casino facilities operating in the immediate and surrounding market areas. In some markets, we face competition from nearby markets in addition to direct competition within our market areas. As competing properties and new markets are opened, our operating results may be negatively impacted. In addition, some of our direct competitors in certain markets may have superior facilities and/or operating conditions. We expect each existing or future market in which we participate to be highly competitive.  The competitive position of each of our casino properties is discussed in “Item 1. Business – Competition”.

The Bank Secrecy Act, enforced by the Financial Crimes Enforcement Network (“FinCEN”) of the U.S. Treasury Department, requires us to report currency transactions in excess of $10,000 occurring within a gaming day, including identification of the guest by name and social security number, to the Internal Revenue Service (“IRS”). This regulation also requires us to report certain suspicious activity, including any transaction that exceeds $5,000 that we know, suspect or have reason to believe involves funds from illegal activity or is designed to evade federal regulations or reporting requirements. Periodic audits by the IRS and our internal audit function assess compliance with the Bank Secrecy Act, and substantial penalties can be imposed against us if we fail to comply with this regulation. In recent years, the U.S. Treasury Department has increased its focus on Bank Secrecy Act compliance throughout the gaming industry. Recent public comments by FinCEN suggest that casinos should make efforts to obtain information on each customer’s sources of income. This could impact our ability to attract and retain casino guests.

Our riverboat, as well as our ferry boat operations, at Rising Star must comply with certain federal and state laws and regulations with respect to boat design, on-board facilities, equipment, personnel and safety. In addition, we are required to have third parties periodically inspect and certify our casino riverboat for safety, stability and single compartment flooding integrity. All of our casinos also must meet local fire safety standards. We would incur additional costs, if any, if our gaming facilities were not in compliance with one or more of these regulations.

Our net revenues are highly dependent upon the volume and spending levels of cash in our operations and are subject to various reporting and anti-money laundering regulations. Any violations of anti-money laundering laws or regulations by any ofcustomers at our properties could have an adverse effect onand, as such, our financial condition, results of operations or cash flows. Such lawsbusiness has been in the past, and regulations could change or could be interpreted differently in the future, or new lawsadversely impacted by economic downturns. Decreases in discretionary consumer spending brought about by weakened general economic conditions such as, but not limited to, lackluster recoveries from recessions, high unemployment levels, higher income taxes, low levels of consumer confidence, weakness in the housing market, cultural and regulations could be enacted.demographic changes, and increased stock market volatility may negatively impact our revenues and operating cash flow. Furthermore, during periods of economic contraction, our revenues may decrease while many of our costs remain fixed and some costs may increase, resulting in decreased earnings.

Legislation in various forms to ban indoor tobacco smoking has been enacted or introduced in jurisdictions in which we operate. Except for those in Colorado, the gaming areas of our properties are not currently subject to tobacco restrictions. While gaming areas have generally been exempted from these restrictions, if additional restrictions on smoking are enacted in jurisdictions in which we operate, we could experience a decrease in gaming revenue. This is particularly the case if such restrictions are not applicable to all competitive facilities in that gaming market.

The exercise of outstanding stock warrants and options may result in substantial dilution and may depress the trading price of our common stock.  

In connection with the former Second Lien Credit Facility, we have warrants outstanding, representing rights to purchase approximately 1.0 million shares of our common stock at the option of the lenders. If our outstanding warrants and other options to purchase shares of our common stock are exercised and the underlying shares of common stock are issued upon such exercise are sold, our stockholders may experience substantial dilution and the market price of our shares of common stock could decline. Further, the perception that such securities might be exercised could adversely affect the trading price of our shares of common

We are highly dependent on the services of our executive management team and other members of our senior management team. Our ability to attract and retain key personnel is affected by the competitiveness of our compensation packages and the other terms and conditions of employment, our continued ability to compete effectively against other gaming companies, and our growth prospects. The loss of the services of any members of our senior management team could have a material adverse effect on our business, financial condition and results of operations.

We may face certain challenges as we integrate thesethe operational and administrative systems of recently developed or acquired facilities into our business. As a result, the realization of anticipated benefits may be delayed or substantially reduced. Events outside of our control, including changes in state and federal regulations and laws as well as economic trends, also could adversely affect our ability to realize the anticipated benefits from the acquisition or future development.

We expect to continue pursuing expansion opportunities. For example, we plan to build an approximately 150-guest180-guest room hotel in Cripple Creek, Colorado, adjoining and integral with our existing Bronco Billy's.Billy’s. The expansion is expected to include a spa, parking garage, convention and entertainment space, and a high-end restaurant. In addition,two new restaurants. As part of the expansion, we may exercise our options to purchase or lease properties, includingrefurbished and reopened the Imperial Casino as the Christmas Casino and rebranded the Imperial Hotel andas the former Imperial Casino, which we are considering reopening as a part of the proposed expansion.Christmas Inn. We also regularly evaluate opportunities for acquisition and development of new properties, which evaluations may include discussions and the review of confidential information after the execution of nondisclosure agreements with potential acquisition candidates, some of which may be potentially significant in relation to our size.properties. We could face significant challenges in managing and integrating our expanded or combined operations and any other properties we may develop or acquire, particularly in new competitive markets. The integration of properties we may develop or acquire will require the dedication of management resources that may temporarily divert attention from our day-to-day business. The process of integrating properties that we may acquire also could interrupt the activities of those businesses, which could have a material adverse effect on our business, financial condition and results of operations. In addition, the development of new properties may involve construction, local opposition, regulatory, legal and competitive risks, as well as the risks attendant to partnership deals on these development opportunities. In particular, in projects where we team up with a joint venture partner, if we cannot reach agreement with such partners, or our relationships otherwise deteriorate, we could face significant increased costs and delays. Local opposition can delay or increase the anticipated cost of a project. Finally, given the competitive nature of these types of limited license opportunities, litigation is possible.

Management of new properties, especially in new geographic areas, such as our recent acquisition of Bronco Billy's, may require that we increase our management resources. We cannot assure you that we will be able to manage the combined operations effectively or realize any of the anticipated benefits of our acquisitions. We also cannot assure you that if acquisitions are completed, that the acquired businesses will generate returns consistent with our expectations.

Our ability to achieve our objectives in connection with any acquisition we may consummate may be highly dependent on, among other things, our ability to retain the senior-level property management teams of such acquisition candidates. If, for any reason, we are unable to retain these management teams following such acquisitions or if we fail to attract new capable executives, our operations after consummation of such acquisitions could be materially adversely affected.

If we make new acquisitions or new investments, we may face additional risks related to our business, results of operations, financial condition, liquidity, ability to satisfy financial covenants and comply with other restrictive covenants under our indenture, and ability to pay or refinance our indebtedness.

The occurrence of some or all of the above described events could have a material adverse effect on our business, financial condition and results of operations.

Because we derive our revenues and operating income from properties concentrated in four states, we are subject to greater risks from regional conditions than a gaming company with operating properties in a greater number of different geographies.geographic regions. A decrease in revenues from or increase in costs for one of these locations is likely to have a proportionally greater impact on our

We lease certain parcels of land at our Silver Slipper Casino and Hotel in Mississippi, both land and buildings at Bronco Billy’s Hotel and Casino in Colorado and one of the two hotels at our Rising Star Casino Resort in Indiana. We also lease casino space at our Grand Lodge Casino in Nevada. As a lessee, we have the right to use the leased land, hotel or space as applicable; however, we do not hold fee ownership. Accordingly, unless we have a purchase option and exercise such option, we will have no interest in the improvements thereon at the expiration of the leases. We have such purchase options on the leased property at the Silver Slipper, Bronco Billy’s and for the leased hotel at Rising Star, but it is either currently more advantageous for us to continue to lease rather than exercise the buyout option, or we have certain restrictions which only allow us to exercise the purchase option during certain future time periods. Under certain circumstances and at the expirations of the underlying leases, we might be forced to exercise our buyout options in order to continue to operate those properties. There is no certainty that the funds could

We are engaged from time to time in one or more construction and development projects, and many factors could prevent us from completing them as planned.

Construction of major buildings has certain inherent risks, including the risks of fire, structural collapse, human error and electrical, mechanical and plumbing malfunction. In addition, projects entail additional risks related to structural heights and the required use of cranes. Our development and expansion projects also entail significant risks, including:

The occurrence of any of the costforegoing could increase the total costs, delay or prevent the construction, development, expansion or opening of raw materials for construction, driven by demand, higher labor and construction costs and other factors, may cause price increases beyond those anticipated in the budgets for our development projects.

Construction of our development projects exposes us to risks of cost overruns due to typical construction uncertainties associated with any project or changes in the designs, plans or concepts of such projects. For these and other reasons, construction costs may exceed the estimated cost of completion, notwithstanding the existence of any guaranteed maximum price construction contracts.

We have several development and improvement projects planned in the near future. No assurance can be given that, when we endeavor to open new or upgraded facilities, the expected timetables for opening such facilities will be met in light of the uncertainties inherent in the development of the regulatory framework, construction, the licensing process, legislative action and litigation. Delays in opening new or upgraded facilities could lead to increased costs and delays in receiving anticipated revenues with respect to such facilities and could have a material adverse effect on our business, financial condition and results of operations.

We may need to access thefinancial institution sources, capital markets, private sources or otherwise obtain additional funds to complete subsequent phases of our existing projects and to fund potential enhancements we may undertake at our facilities, such as our potential hotel development at Bronco Billy's.Billy’s. We do not know when or if thefinancial institution sources, capital markets or private sources will permit us to raise additional funds for such phases and enhancements in a timely manner, on acceptable terms, or at all. Inability to access thefinancial institution sources, capital markets or private sources, or the availability of capital only on less-than-favorable terms, may force us to delay, reduce or cancel our subsequent phases and enhancement projects.

Our ability to obtain bank financing or to access thefinancial institution sources, capital markets or private source financing for future offerings may also be limited by our financial condition, results of operations or other factors, such as our credit rating or outlook at the time of any such financing or offering and the covenants in our existing debt agreements, as well as by general economic conditions and contingencies and uncertainties that are beyond our control. As we seek additional financing, we will be subject to the risks of rising interest rates and other factors affecting the financial markets.

Our properties have an ongoing need for renovations and other capital improvements to remain competitive, including replacement, from time to time, of furniture, fixtures and equipment. We may also need to make capital expenditures at our casino properties to comply with our debt covenants, lease agreements and applicable laws and regulations.

Renovations and other capital improvements at our properties require significant capital expenditures. In addition, renovations and capital improvements usually generate little or no cash flow until the projects are completed. We may not be able to fund such projects solely from existing resources and cash provided from operating activities. Consequently, we may have to rely upon the availability of debt or equity capital to fund renovations and capital improvements, and our ability to carry them out will be limited if we cannot obtain satisfactory debt or equity financing, which will depend on, among other things, market conditions. There can be no assuranceWe cannot assure you that we will be able to obtain additional equity or debt financing or that we will be able to obtain such financing on favorable terms. Our failure to renovate our properties may put us at a competitive disadvantage.

Our continued success depends upon our ability to draw customers from each of the geographic markets in which we operate. Adverse weather conditions or road construction can deter our customers from traveling to our facilities or make it difficult for them to frequent our properties. In recent years, there were severe cold temperatures that we believe adversely affected our Indiana and Mississippi properties’ financial performance and historically low snow levels in the Lake Tahoe region adversely affected visitation and financial performance at the Grand Lodge Casino. Bronco Billy'sBilly’s in recent years has beenwas adversely affected by nearby forest fires, as well as the subsequent flooding of its access roads due to lack of vegetation (from the forest fires) on hills above such roads. Moreover, gasoline shortages or fuel price increases in regions that constitute a significant source of customers for our properties could make it more difficult for potential customers to travel to our properties and deter customers from visiting. Our dockside gaming facility in Indiana, as well as any additional riverboat or dockside casino properties that might be developed or acquired, are also subject to risks, in addition to those associated with land-based casinos, which could disrupt our operations. Although our Indiana casino vessel does not leave its moorings in normal operations, there are risks associated with the movement or mooring of vessels on waterways, including risks of casualty due to river turbulence, flooding, collisions with other vessels and severe weather conditions. TheOur new ferry boat that we intend to operate at Rising Star will havehas similar risks as our Indiana casino vessel, as well as additional risks related to ferry boat operations.operations discussed above.

Natural disasters, such as major hurricanes, tornados,tornadoes, typhoons, floods, fires and earthquakes, could adversely affect our business and operating results. Hurricanes are common in the areasarea in which our Mississippi property is located and the severity of such natural disasters is unpredictable. During the fourth quarter ofIn 2017, Hurricane Nate resulted in the temporary closure of Thethe Silver Slipper Casino and Hotel. In 2005, Hurricanes Katrina and Rita caused significant damage in the Gulf Coast region and damaged a casino that previously existed at our Mississippi site. Additionally, our Indiana property is at risk of flooding due to its proximity to the Ohio River.

Catastrophic events, such as terrorist and war activities in the United States and elsewhere, when they occur, have had a negative effect on travel and leisure expenditures, including lodging, gaming and tourism. Gun violence has also occurred at casinos, including a mass shooting at a casino in Las Vegas in 2017. We cannot accurately predict the extent to which such events may affect us, directly or indirectly, in the future. There also can be no assurance that we will be able to obtain or choose to purchase any insurance coverage with respect to occurrences of terrorist and violent acts and any losses that could result from these acts. If there is a prolonged disruption at our properties due to natural disasters, terrorist attacks or other catastrophic events, our results of operations and financial condition would be materially adversely affected.

The Silver Slipper is located at the end of a dead-end road, with no other access. Bronco Billy’s is accessed by most guests via a mountain pass; if that pass is closed for any reason, the alternatives take muchalternative is longer. Rising Star’s primary access from Cincinnati is via a road alongside the Ohio River; if this road were to close, the alternative routes involve more winding roads through the rolling hills inland from the river. If access to any of these roads is blocked for any significant period, our results of operations and financial condition would be materially affected.

Although we maintain insurance that our management believes is customary and appropriate for our business, there can be no assurance that insurance will be available at reasonable costs in any given year or adequate to cover all losses and damage to which our business or our assets might be subjected. The lack of adequate insurance for certain types or levels of risk could expose us to significant losses in the event that a catastrophe occurred for which we are uninsured or under-insured. Any losses we incur that are not adequately covered by insurance may decrease our future operating income, require us to find replacements or repairs for destroyed property, and reduce the funds available for payments of our obligations. In addition, certain casualty events, such as labor strikes, nuclear events, acts of war, declines in visitation and loss of income due to fear of terrorism or other acts of violence, loss of electrical power due to catastrophic events, rolling blackouts or otherwise, deterioration or corrosion, insect or animal damage, and pollution, may not be covered at all under our policies. The occurrence of any of the foregoing could, therefore, expose us to substantial uninsured losses.

Because of significant loss experience caused by hurricanes and other natural disasters, a number of insurance companies may stop writing insurance in Class 1 hurricane areas, including Mississippi. Others may significantly limit the amount of coverage they will write in these markets and increase the premiums charged for this coverage. Additionally, uncertainty can occur as to

Our growth may be fueled, in part, by the acquisition of existing gaming and development properties. In addition to standard closing conditions, our material transactions, including but not limited to acquisitions, are often conditioned on the receipt of regulatory approvals and other hurdles that create uncertainty and could increase costs. Such delays could significantly reduce the benefits to us of such transactions and could have a material adverse effect on our business, financial condition and results of operations.

We have not yet obtained certain permits, licenses, entitlements and approvals necessary for some of our current or anticipated projects. The scope of the approvals required for expansion, development, investment or renovation projects can be extensive and may include gaming approvals, state and local land-use permits and building and zoning permits. Unexpected changes or concessions required by local, state or federal regulatory authorities could involve significant additional costs and delay the scheduled openings of the facilities. We may not obtain the necessary permits, licenses, entitlements and approvals within the anticipated time frames, or at all.

We cannot assure you that the revenues generated from our new developments and acquired properties will be sufficient to pay related expenses if and when these developments are completed; or, even if revenues are sufficient to pay expenses, that the new developments and acquired properties will yield an adequate return or any return on our significant investments. As previously discussed, the development of new properties may involve construction, regulatory, legal and competitive risks or local opposition, any of which can significantly increase the anticipated cost of a project. In addition, disagreements or deterioration of any of our joint venture relationships could lead to increased costs, delays, or litigation. Our projects, if completed, may not achieve the level of guest acceptance and patronage we anticipate and, for this or other reasons, may take significantly longer than we expect to generate returns, if any. If our new developments or acquired properties do not achieve the financial results anticipated, it could adversely affect our revenues and results of operations. Moreover, lower-than-expected results from the opening of a new facility may make it more difficult to raise capital.

While the vast majority of our employees earn more than the minimum wage in the relative jurisdictions and receive medical plan benefits from us, changes in federal and state minimum wage laws and other laws relating to employee benefits, including the Patient Protection and Affordable Care Act, have in the past, and could in the future cause us to incur additional wage and benefits costs. Increased labor costs brought about by changes in minimum wage laws, other regulations or prevailing market conditions have recently, and could in the future, further increase our expenses, which could have an adverse impact on our profitability, or decrease the number of employees we are able to employ, which could decrease customer service levels at our gaming facilities and therefore adversely impact revenues.

The operating expenses associated with our gaming properties could increase due to, among other reasons, the following factors:

If our operating expenses increase without any offsetting increase in our revenues, our results of operations would suffer.

Our gaming operations rely heavily on technology services and an uninterrupted supply of electrical power. Our security systemssystem and all of our slot machines are monitoredcontrolled by computers and are reliant on electrical power to operate.

We rely extensively on our computer systems to process customer transactions, manage customer data, manage employee data and communicate with third-party vendors and other third parties, and we may also access the internetInternet to use our computer systems. Our operations require that we collect and store customer data, including credit card numbers and other personal information, for various business purposes, including marketing and promotional purposes. We also collect and store personal information about our employees. Breaches of our security measures or information technology systems or the accidental loss, inadvertent disclosure or unapproved dissemination of proprietary information or sensitive personal information or confidential data about us, or our customers, or our employees including the potential loss or disclosure of such information as a result of hacking or other cyber-attack, computer virus, fraudulent use by customers, employees or employees of third party vendors, trickery or other forms of deception or unauthorized use, or due to system failure, could expose us, our customers, our employees or other individuals affected to a risk of loss or misuse of this information, result in litigation and potential liability for us, damage our casinoreputation or brand names and reputations or otherwise harm our business. We rely on proprietary and commercially available systems, software, tools and monitoring to provide security for processing, transmission and storage of customer information, such as

Additionally, the collection of customer and employee personal information imposes various privacy compliance related obligations on our business and increases the risks associated with a breach or failure of the integrity of our information technology systems.  The collection and use of personal information is governed by privacy laws and regulations enacted in the United States and other jurisdictions around the world. Privacy regulations continue to evolve and on occasion may be inconsistent from one jurisdiction to another. Compliance with applicable privacy laws and regulations may increase our operating costs and/or adversely impact our ability to market our products, properties and services to our customers. In addition, non-compliance with applicable privacy laws and regulations by us (or in some circumstances non-compliance by third party service providers engaged by us) may also result in damage of reputation, result in vulnerabilities that could be exploited to breach our systems and/or subject us to fines, payment of damages, lawsuits or restrictions on our use or transfer of personal information.

We are subject to various federal, state and local environmental laws and regulations that govern our operations, including emissions and discharges into the environment, and the handling and disposal of hazardous and non-hazardous substances and wastes. Failure to comply with such laws and regulations could result in costs for corrective action, penalties or the imposition of other liabilities or restrictions. We also are subject to laws and regulations that impose liability and clean-up responsibility for

A majority of our revenues are attributable to slot machines and related systems operated by us at our gaming facilities. It is important, for competitive reasons, that we offer popular and up-to-date slot machine games to our customers.

A substantial majority of the slot machines sold in the U.S. in recent years were manufactured by only a few companies, and there has been recent consolidation activity within the gaming equipment sector.

In recent years, slot machine manufacturers have frequently refused to sell slot machines featuring the most popular games, instead requiring participation lease arrangements. Participation slot machine leasing arrangements typically often require the payment of a fixed daily rental or a percentage payment of coin-in or net win. Generally, a participation lease is substantially more expensive over the long term than the cost to purchase a new machine.

For competitive reasons, we may be forced to purchase new slot machines or enter into participation lease arrangements that are more expensive than our current costs associated with the continued operation of our existing slot machines. If the newer slot machines do not result in sufficient incremental revenues to offset the increased investment and participation lease costs, it could hurt our profitability.

From time to time during the normal course of operating our businesses, we are subject to various litigation claims and legal disputes. Some of the litigation claims may not be covered under our insurance policies, or our insurance carriers may seek to deny coverage. As a result, we might also be required to incur significant legal fees, which may have a material adverse effect on our financial position. In addition, because we cannot accurately predict the outcome of any action, it is possible that, as a result of current and/or future litigation, we will be subject to adverse judgments or settlements that could significantly reduce our earnings or result in losses.

Many factors could cause the market price of our common stock to rise and fall, including:

In addition, the stock market in general has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to companies’ operating performance. Broad market and industry factors may materially harm the market price of our common stock, regardless of our operating performance. In the past, following periods of volatility in the market price of a company’s securities, shareholder derivative lawsuits and/or securities class-action litigation has sometimes been instituted against that company. Such litigation, if instituted against us, could result in substantial costs and a diversion of management’s attention and resources.    

 

Silver Slipper Casino and Hotel

Bronco Billy'sBilly’s Casino and Hotel

Bronco Billy'sBilly’s Casino and Hotel is located on or near approximately 2.483.6 acres of owned land and 2.152.4 acres of leased land that we control in Cripple Creek, Colorado. The property includes approximately 17,000 square feet of gaming space, 2436 hotel rooms and several acres of surface parking. A portion of the casino fourteen of the property's 24 hotel rooms and a portion of the parking lots are subject to a long-term lease that includes renewal options in three-year increments to 2035 and a purchase option that can be exercised at any time. We acquired landtime during the lease term. The purchase price under such option remains at $7.6 million throughout the lease. Base rent paid in 2018 was $300,000, and optionssuch rent escalates through the term of the lease according to purchase or lease land and other facilities surrounding Bronco Billy's, including the freestanding and closed Imperial Casino;a defined schedule. During 2018, we purchased the operating historic Imperial Hotel which offers 12and other nearby parcels of land. In August 2018, we commenced a lease of the freestanding Imperial Casino. As part of our planned expansion of Bronco Billy’s, we refurbished guest rooms; and approximately four acresrebranded both the Imperial Hotel and Imperial Casino together as the Christmas Casino & Inn in November 2018. In terms of vacant or underutilized land.gaming devices located throughout our property, the Christmas Casino accounted for 16% of our slot machines at year-end, with the remaining 84% of slot machines at Bronco Billy’s Casino. Combined, our Cripple Creek operations currently offer 885 slot machines and 10 table games as of year-end.

Rising Star Casino Resort

 

Grand Lodge Casino

Included as part of our Northern Nevada segment, the Grand Lodge Casino has 18,900 square feet of gaming spaceat year-end offered 270 slot machines and 17 table games, and is integrated into the Hyatt Regency Lake Tahoe Resort, Spa and Casino in Incline Village, Nevada on the north shore of Lake Tahoe.  We operate the Grand Lodge Casino pursuant to a lease with Hyatt expiring on August 31, 2023 and own the personal property, including slot machines. The lease is secured by our interests under thesuch lease, consisting of certain collateral (as defined and described in a security agreement), and is subordinate to our Notes due 2024. Beginning on January 1, 2019, the LessorHyatt has an option to purchase our leasehold interest and operating assets of the Grand Lodge Casino.Casino at a defined price based partially on earnings.

    

Additionally, we have an agreementagreements with Hyatt for exclusive usage of certain hotelthat allow us to provide rooms, as well as other amenities and suites byservices, to our casino guests.guests at mutually agreeable rates to support our operations.

Corporate

PART II

 

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

 

Our common stock is traded on the Nasdaq Capital Market under the symbol “FLL.”  The following table sets forth, for the calendar quarters indicated, the high and low sale prices of our common stock.

 

On March 5, 2018, the last sale price of our common stock as reported by the Nasdaq Capital Market was $3.11 and11, 2019, we had 86 registered holders83 “registered holders” of record of our common stock. AWe believe that a substantial portionnumber of holders of ourshareholders hold their common stock in “street name” or are "street name" orotherwise beneficial holders whose shares of record are held by banks, brokers, and other financial institutions. Such holders are not taken into considerationincluded in the number of "registered holders"“registered holders” above.

 

 

We have not paid any dividends on our common stock to date. The payment of dividends in the future will be contingent upon our revenues and earnings, if any; the terms of our indebtedness; our capital requirements; growth opportunities; and general financial condition. Our debt covenants restrict the payment of dividends and it is the present intention of our board of directors to retain all earnings, if any, for use in our business operations, debt reduction and growth initiatives.initiatives, reinvesting such earnings on behalf of shareholders. Accordingly, we do not anticipate paying any dividends in the foreseeable future.

 

 

As a smaller reporting company, as defined by Rule 12b-2 of the Exchange Act, we are not required to provide the information required by this Item.

 

The following discussion of our results of operations and financial condition should be read together with the other financial information and consolidated financial statements included in this Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from the results anticipated in the forward-looking statements as a result of a variety of factors, including those discussed in Item 1A. "Risk Factors"“Risk Factors” and elsewhere in this report. The results of operations for the periods reflected herein are not necessarily indicative of results that may be expected for future periods. Full House Resorts, Inc., together with its subsidiaries, may be referred to as “Full House”,House,” the “Company”, “we”,“Company,” “we,” “our” or “us”.

Our primary business is the ownership and/or operation of casino and related hospitality and entertainment facilities, which includes offering casino gambling, hotel accommodations, dining, golfing, RV camping, sports betting, entertainment and retail outlets, among other amenities. We own or operate five casino properties in four states -– Mississippi, Colorado, Indiana and Nevada. We view our Mississippi, Colorado and Indiana properties as distinct operating segments and both of our Nevada properties as one operating segment.

Our portfolio consists of the following:

Our financial results are dependent upon the number of patrons that we attract to our properties and the amounts those guests spend per visit. While we provide credit at some of our casinos where we are permitted to by gaming regulations, most of our revenues are cash-based, through customers wagering with cash or paying for non-gaming services with cash or credit cards. Our revenues are primarily derived from slot machines, but also include other gaming activities, which include slot machines,along with table games, keno and keno.sports betting. In addition, we derive a significant amount of revenue from our hotels and our food and beverage outlets. We also derive revenues from our golf course (atand ferry boat service at Rising Star, Casino Resort),our RV parks as owned at Rising Star and managed at Silver Slipper, and retail outlets and entertainment, and expect to derive additional revenues from our newly constructed projects as further described herein. Promotional allowances consist primarily ofentertainment.

We often provide hotel rooms and food and beverages furnished to customers on a complimentary basis. ThePrior to 2018, the retail value of such services iswas included in the respective revenue classifications and is then deducted as promotional allowances to calculate net revenues. With the adoption of the new revenue recognition standard discussed below, amounts historically included in the promotional allowances line have been eliminated as they are now included as a contra-revenue, primarily reducing our casino revenues. Hence, beginning in 2018, our hotel, food and beverage revenues reflect the retail value of such services, including such services provided on a complimentary basis, while our casino revenues are net of the retail value of services provided to casino customers on a complimentary basis.

We may experience significant fluctuations in our quarterly operating results due to seasonality, variations in gaming hold percentages and other factors. Consequently, our operating results for any quarter or year are not necessarily comparable and may not be indicative of results in future periods’ results.periods. 

Our market environment is highly competitive and capital-intensive. We rely on the ability of our properties to generate operating cash flow to pay interest, repay debt, and fund maintenance and certain growth-related capital expenditures. We continuously focus on improving the operating margins of our existing properties through a combination of revenue growth and expense management. We also assess growth and development opportunities, which include capital investments at our existing properties, the development of new properties, and the acquisition of existing properties.

Recent Developments

Key Performance Indicators

We use several key performance indicators to evaluate the operations of our properties. These key performance indicators include the following:

Slot coin-in is the gross dollar amount wagered in slot machines and table game drop is the total amount of cash or credit exchanged into chips at table games for use by our customers. Slot coin-in and table game drop are indicators of volume.

Slot win is the difference between customer wagers and customer winnings on slot machines. Table game hold is the difference between the amount of money or markers exchanged into chips at the tables and chips redeemed.customer winnings paid. Slot win and table game hold percentages represent the relationship between slot win and coin-in and table game win and drop.

Hotel occupancy rate is an indicator of the utilization of our available rooms. Complimentary room sales, or the retail value of accommodations gratuitously furnished to customers free of charge, are included in the calculation of the hotel occupancy rate.

Adjusted EBITDA, Adjusted Property EBITDA and Adjusted Property EBITDA Margin:

Management uses Adjusted EBITDA as a measure of our performance. For a description of Adjusted EBITDA see "Non-GAAP Measure".“Non-GAAP Measure.” We utilize Adjusted Property EBITDA as the measure of segment profit in assessing performance and allocating resources at the reportable segment level. For information regarding our operating segments, see Note 1413 to the consolidated financial statements set forth in "Item“Item 8. Financial Statements and Supplementary Data”.Data.” Additionally, we use Adjusted Property EBITDA Margin, which is calculated by dividing Adjusted Property EBITDA by the property'sproperty’s net revenues.

The following discussion is based on our consolidated financial statements for the years ended December 31, 20172018 and 2016,2017, unless otherwise described. Results for Bronco Billy's are included beginning with its acquisition date, May 13, 2016.For further discussions, refer to “Operating results – reportable segments” below.

Our other properties achieved gains from improved marketing and a full period. Excluding Bronco Billy's segment net revenues, our consolidated net revenues increased 4.1%, led by an 8.4% increase at Silver Slipper.year’s worth of new amenities and other improvements, as well as significantly improved weather in the fourth quarter of 2018. Net revenues at Rising StarBronco Billy’s increased due to the acquisition of the Imperial Hotel in June 2018 and Northern Nevada were approximately flat. See further information within our reportable segmentsdescribed below.Imperial Casino in August 2018 (collectively rebranded in November 2018 as the Christmas Casino & Inn), a full year of the Crippled Cow restaurant (which opened in mid-2017), and increased covers at other venues. At Silver Slipper, new marketing initiatives helped increase net revenues in both gaming and non-gaming operations, as did a full year of operations at the property’s new Beach Club and Oyster Bar.

Apart from the new revenue recognition standard, project development and acquisition costs increased 4.1%, primarilyby $0.6 million during 2018, reflecting our participation in the competitive process to develop a racetrack casino in New Mexico, our development efforts in Terre Haute, and elsewhere. Preopening costs increased by $0.3 million and were related to Silver Slipper and Northern Nevada, whileour new ferry boat operations at Rising Star was flat. The increase in costs was partially offset byand the resolution of the Silver Slipper parking garage litigation, which resulted in us receiving legal settlement proceeds. We also had significant acquisition costs in 2016, but not 2017, related to the purchase ofChristmas Casino & Inn launch at Bronco Billy's in May 2016. See further information within our reportable segmentsdescribed below.Billy’s.

Interest Expense

Interest expense increaseddecreased primarily due to $35 millionthe refinancing of additional borrowings related to the acquisitionour debt in February 2018, which resulted in a lower effective interest rate than our prior credit facilities, and increased capitalization of Bronco Billy's on May 13, 2016.interest expense during 2018 from our growth projects.

Other non-operating expense, net    

During 2017,2018, we incurred $1.4$1.0 million of other non-operating expense due primarily to the February 2018 refinancing of our prior credit facilities, which resulted in a $2.7 million loss on extinguishment of debt. This expense was partly offset by a $1.7 million gain from the change innon-cash fair value adjustment of our common stock warrant liability. This amount compares to $1.2 million of non-operating expense during 2016, which resulted from $0.6 million of debt modification costs in conjunction with our debt refinancing in May 2016 and a change in the fair value of our common stock warrant liability of $0.6 million. The common stock warrant liability is adjusted to fair value each quarter, withquarter. During 2017, other non-operating expense was $1.4 million, due to the increasefair value adjustments to our warrants. The decrease in fair value during 20172018 primarily related to the increasedecrease in our share price.price during that period.

Additionally, Staff Accounting Bulletin No. 118 (“SAB 118”) was issued to address the application of GAAP in situations when a company does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for 2017.certain income tax effects of the Tax Act. December 22, 2018 marked the end of the measurement period for purposes of SAB 118. As such, we have completed our analysis based on legislative updates relating to the Tax Act currently available. This resulted in no additional SAB 118 tax benefit or cost for the year ended December 31, 2018.

See Note 98 to the consolidated financial statements set forth in "Item“Item 8. Financial Statements and Supplementary Data”, for a more detailed discussion. 

We manage our casinos based on geographic regions within the United States. Accordingly, Stockman’s Casino and Grand Lodge Casino comprise our Northern Nevada business segment, while Silver Slipper, Casino and Hotel, Bronco Billy's Casino and HotelBilly’s and Rising Star Casino Resort are currently distinct segments. With the addition of ferry boat operations in September 2018, our Rising Star segment now includes ferry boat operations between Indiana and Kentucky. In November 2018, we opened the Christmas Casino & Inn in Cripple Creek, Colorado, which is included in the Bronco Billy’s segment.

 

The following table presents detail by segment of our consolidated net revenue Adjusted Property EBITDA and Adjusted EBITDA. Management uses Adjusted Property EBITDA as theits measure of segment profit. The comparability of the information for the periods presented was not materially affected by the implementation of the new revenue recognition standard.

 

    

Net revenues increased during 2018 due to successful marketing initiatives, the addition of sports book operations in August 2018, the ramp-up of new amenities that opened in mid-2017, and food and beverage promotions that resulted in increases in both customer counts and gaming volumes. Slot revenues, which accounted for approximately 89% of our casino revenue, increased 7.7%, with both slot coin-in and slot hold percentage rising during 2017. Table games revenue decreased 1%. Non-gaming net revenues (principally food and beverage revenues) grew 23.7% duringimproved weather versus the prior year, and hotel occupancy was 88.3% compared to 87.8% in the prior-year. Growth in 2017 was achieved despite an unusually cold and icy December and an active hurricane season, including the passage of Hurricane Nate. Hurricane Nate did not cause any meaningful damage to the property, but it disrupted our business for several daysparticularly in the fourth quarter.

Adjusted Property EBITDA increased by 13.0% to $12.1 million in 2018, primarily from the growth in net revenue described above, along withabove. Of note, Adjusted Property EBITDA in September 2017 included settlement proceeds of $675,000 related to the legal settlement related toconclusion of litigation for construction defects at our parking garage, litigation described below,of which helped offset an increasethere was no comparable non-recurring credit or charge in selling, general and administrative costs. Our casino expenses and food and beverage costs also increased, primarily due to increased volume and promotions.2018. Adjusted Property EBITDA margin was 17.5% in 2018 compared to 16.8% in 2017 compared to 16.9% in 2016.2017.

Net revenues increased modestlydecreased during 2018 due to adverse weather conditions, most notably during the first quarter from approximately 21 days of heavy snowfall, as well as two days when the casino was closed due to the flooding of nearby access roads. This affected guest volumes, as reflected in a 3.6% decrease of slot coin-in during the year.

Absent the accounting change, slot revenues were flat,decreased by 2.7% and table games revenues increased 3.2%, anddecreased by 10.3% due to lower volumes, while promotional allowances decreased 8.7%by 7.9%. Non-gaming net revenues increased 5.8%decreased by 2.0% during 2017 and2018, in part reflecting a temporary reduction in the number of available room-nights due to hotel improvements during the year. Average daily room rate remained flat.

Though our hotel occupancynet revenues decreased compared to prior year, Adjusted Property EBITDA increased to 87.5%$2.8 million from 85.6%$2.7 million due to improved efficiencies driven by new management, a focus on cost controls, and savings from streamlining labor.

During the second half of 2018, we completed certain maintenance and growth-related capital expenditure projects, which were designed to improve the guest experience and to drive visitation, revenue and income growth. In July 2018, we completed improvements made to the entry pavilion and the adjoining hotel’s lobby and hallways. In September 2018, we completed the new access roads to the ferry landing sites and commenced implementation of a 10-vehicle ferry boat service to Kentucky as mentioned above, which significantly shortened the distance for customers traveling from the more populous Boone County, Kentucky to Rising Star. We invested a total of approximately $4.9 million with respect to the foregoing improvements at Rising Star in 2018.

Higher gaming volumes, new restaurant outlets, and the prior-year.opening of the rebranded Christmas Casino & Inn resulted in increases to both our casino revenues and non-gaming revenues in 2018, as discussed in more detail below.

Adjusted Property EBITDA decreased by 17.6% due to increased food and beveragerising operational costs. These costs and, duringincluded higher promotional expenses related to changes in the fourth quarter of 2017, significant snowfall that adverselyaccruals for the property’s loyalty marketing program. Operational costs were also affected guest visitation. Additionally, there was heightened promotional activity by Rising Star and its competitors duringan increase in the fourth quarter of 2017. Adjusted Property EBITDA Margin declined to 5.4% in 2017 compared to 5.9% during 2016.state’s minimum wage, as well as the additional labor needed for the Christmas Casino & Inn.

We opened our 56-space RV ParkAs discussed in the third quarter“Executive Overview” and “Liquidity & Capital Resources” sections, progress continues on our planned expansion of 2017.Bronco Billy’s Casino and Hotel.

Our Northern Nevada operations have historically been seasonal, with the summer months accounting for a disproportionate share of its annual revenues. The winter ski season is also important andAdditionally, snowfall levels during the winter months also frequently have a positive or negative effect. Grand Lodge Casino is located near several ski resorts, including Alpine Meadows, Northstar and Squaw Valley. Normally, we benefit from a "good"“good” snow year, resulting in extended periods of operation at the nearby ski areas. During

Net revenues decreased in 2018 primarily due to the first quarter of 2017, however, the snowfall was exceptional (oneimpact of the highest in recorded Lake Tahoe history), resulting in extended periods of road closures and power outages. Nevertheless, we believe that the favorable ski season helped offset partnew revenue recognition standard. The impact is different here than at our other properties, as many of the construction disruptioncomplimentary services we provide to our customers are paid for by us, but are actually provided by our landlord, Hyatt. During 2018, promotional allowances provided by third-parties (principally Hyatt) were directly netted against casino revenues at Grand Lodge Casino, fromwhile in 2017, they were charged to operating expenses under the prior revenue recognition standards. A similar reclassification was related to the use of hotel rooms at the Hyatt Lake Tahoe, which we provided to gaming customers on a complimentary basis.

Absent the accounting change, slot revenues in our Northern Nevada division increased, with both slot coin-in and win increasing and slot hold percentage remaining relatively flat. Though table games revenue decreased slightly, our overall casino revenue increased during the year by 1.6%.

Adjusted Property EBITDA in Northern Nevada increased by 21.0%, reflecting the completion of a significant renovation discussed above. Conversely, duringof Grand Lodge Casino in mid-2017, as well as exterior improvements, improved parking access at Stockman’s Casino, and a focus on controlling costs. Additionally, an improved ski season at Grand Lodge Casino in the fourth quarter of 2017, a lack of snowfall in the Lake Tahoe area adversely affected visitation to the area's ski resorts and, accordingly, to Grand Lodge Casino.2018 benefited results.

Corporate expenses increased slightly by 1.9% in 2018 due primarily due to increases in legal and professional fees, and salaries and benefits.

The following table presents a reconciliation of net loss to Adjusted EBITDA:

The following tables present reconciliations of operating income (loss) to Adjusted Property EBITDA and Adjusted EBITDA:

 

 

Operating expenses deducted to arrive at operating income (loss) in the above tables include facility rents related to: (i) Silver Slipper of $1.6 million in 2018 and $1.5 million in 2017, and $1.3 million in 2016, (ii) Northern Nevada segment of $1.9 million in 2017both 2018 and 2016,2017, and (iii) Bronco Billy'sBilly’s of $0.4 million in 2018 and $0.3 million during 2017 and $0.2 million from May 13, 2016 through December 31, 2016.in 2017. Capital lease payments of $0.7 million during 2017both 2018 and $0.6 million during 20162017 related to Rising Star’s smaller hotel are not deducted, as such payments are accounted for as interest expense and amortization of debt related to the capitalized-lease-related debt.capitalized lease.

    

 

As of December 31, 2017,2018, we had $19.9$20.6 million of unrestricted cash and equivalents and our $2 million Revolving Loan under our First Lien Credit Facility was undrawn and fully available.equivalents. Management currently estimates that approximately $12$10 million of cash and equivalents is currently required for our day-to-day operations.

Our casinos are our primary sources of income and operating cash flows. There can be no assurance that our business will generate sufficient cash flow from operations or that future borrowings will be available in amounts sufficient to enable us to pay our indebtedness or fund our other liquidity needs. Subject to the effects of the economic uncertainties discussed herein, we believe that adequate financial resources (including from operating cash flows and external debt and equity financing) will be available to fund ongoing operating requirements over the next 12 months; however, there can be no assurances of our ability to obtain additional financing to fund our growth efforts.

We have significant outstanding debt and contractual obligations in addition to planned capital expenditures. We expect to continue to generate sufficient cash flow to meet these obligationsour interest requirements and maintain our properties. Our debt matures in February 2024 and we anticipate needing to refinance our debt prior to its maturity, as we are unlikely to generate sufficient cash flow in the interim and be debt-free by such date. Our planned capital expenditure requirements primarily through future anticipated operating cash flows,

We evaluate projects based on a number of factors, including profitability forecasts, length of the development period, the regulatory and political environment, and the ability to secure the funding necessary to complete the development or acquisition, among other considerations. No assurance can be given that any additional projects will be pursued or completed or that any completed projects will be successful.     

As discussed above, onOn February 2, 2018, we refinanced our existingamounts previously outstanding of $41 million under the First Lien Credit Facility and $55 million under the Second Lien Credit FacilitiesFacility with $100 million of new senior secured notes due 2024.Notes, which we sold to qualified institutional buyers. The Notes are securedcollateralized by liens on substantially all of our assets and are guaranteed by all of our restrictedmaterial subsidiaries.

The Notes incurbear interest at the greater of the three-month LIBOR or 1%1.0%, plus 700 basis points (increasing to 750 basis points under circumstances, as discussed below) payable quarterly, require quarterly principal paymentsa margin rate of $0.25 million, additional annual principal payments based on excess cash flows (as defined and beginning after the 2018 calendar year), and the payment of unpaid interest and principal due February 2, 2024.7.0%. The indenture governing the Notes provides for a 50 basis point interest premium if Mr. Lee reduces his equity interests by 50% or more while serving as the Company'sour CEO. Mr. Lee has no current intention to sell any shares. During the fourth quarter, he purchased 15,000 shares on the open market. Interest on the Notes is payable quarterly in arrears, on March 31, June 30, September 30 and December 31 of each year until the Notes mature in February 2024. On each interest payment date, we are required to make principal payments of $250,000 with a balloon payment for the remaining $94 million due upon maturity.

Mandatory prepayments of the Notes will be required upon the occurrence of certain events, including sales of certain assets. We may redeem the Notes, in whole or in part, at any time at the applicable redemption price plus accrued and unpaid interest. The redemption price through February 1, 2019 is the greater of 101% of the outstanding principal or a "make whole" provision, as defined in the Notes. Thereafter, the Notes may be prepaid at 102% of par through February 1, 2020,2020; 101.5% through February 1, 2021,2021; 100.5% through February 1, 20222022; and 100% thereafter.

The First Lien and Second Lien Credit Facilities containedindenture governing the Notes contains customary representations and warranties, events of default, and positive and negative covenants, including limits on capital expenditures andfinancial covenants. As defined in the maintenance of specified financial covenants.

As of December 31, 2017,2018, we were in compliance with our covenants; however, there can be no assurances that we will remain in compliance with all covenants in the future. See Note 76 to the consolidated financial statements set forth in "Item“Item 8. Financial Statements and Supplementary Data” for more information about our First Lien and Second Lien Credit Facilities and Notes due 2024.

 

We have no off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Securities and Exchange Commission Regulation S-K, that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

Critical Accounting Estimates and Policies

 

Our consolidated financial statements were prepared in conformity with accounting principles generally accepted in the United States of America. Certain of our accounting policies require that we apply significant judgment in defining the appropriate assumptions for calculating estimates that affect reported amounts and disclosures. By their nature, judgments are subject to an inherent degree of uncertainty, and therefore, actual results may differ from our estimates. We believe the following critical accounting policies affect the most significant judgments and estimates used in the preparation of our consolidated financial statements.

Our long-lived assets include property and equipment, goodwill, and indefinite-lived intangibles, and are evaluated at least annually (and more frequently when circumstances warrant) to determine if events or changes in circumstances indicate that the carrying value may not be recoverable. Examples of such events or changes in circumstances that might indicate impairment testing is warranted might include, as applicable, an adverse change in the legal, regulatory or business climate relative to gaming nationally or in the jurisdictions in which we operate, or a significant long-term decline in historical or forecasted earnings or cash flows or the fair value of our property or business, possibly as a result of competitive or other economic or political factors. In evaluating whether a loss in value is other than temporary, we consider: (i) the length of time and the extent to which the fair value or market value has been less than cost; (ii) the financial condition and near-term prospects of the casino property, including any specific events which may influence the operations; (iii) our intent related to the asset and ability to retain it for a period of time

We review the carrying value of our property and equipment used in our operations whenever events or circumstances indicate that the carrying value of an asset may not be recoverable from estimated future undiscounted cash flows expected to result from its use and eventual disposition. If the undiscounted cash flows exceed the carrying value, no impairment is indicated. If the undiscounted cash flows do not exceed the carrying value, then an impairment is recorded based on the fair value of the asset. Fair value is typically measured using a discounted cash flow model whereby future cash flows are discounted using a weighted-average cost of capital, developed using a standard capital-asset pricing model, based on guideline companies in our industry. 

We test our goodwill and indefinite-lived intangible assets for impairment annually during the fourth quarter or when a triggering event occurs. For our 20172018 and 20162017 annual impairment tests, we utilized the option to perform a qualitative analysis for our goodwill and indefinite-lived intangibles and concluded it was more likely than not that the fair values of such intangibles exceeded their carrying values. Any impairment charges incurred are not reversed if a subsequent evaluation concludes a higher valuation than the carrying value.

 

 

We define a fixed asset as a unit of property that (i) has an economic useful life that extends beyond 12 months and (ii) was acquired or produced for a cost greater than $2,500 for a single asset or greater than $5,000 for a group of assets. Property and equipment are stated at cost. For the majority of our property and equipment, cost was determined at the acquisition date based on estimated fair values. We acquired Bronco Billy'sBilly’s in May 2016, Silver Slipper in October 2012, Rising Star in April 2011 and Stockman'sStockman’s in January 2007. Project development costs, which are amounts expended on the pursuit of new business opportunities, and acquisition-related costs are expensed as incurred. Maintenance and repairs that neither materially add to the value of the property nor appreciably prolong its life are charged to expensealso expensed as incurred. Depreciation and amortization are provided on a straight-line basis over the estimated useful lives of the assets. When we construct assets, we capitalize direct costs of the project, including fees paid to architects and contractors and property taxes. Salaries are capitalized only for employees working directly on the project. In addition, interest cost associated with major development and construction projects is capitalized as part of the cost of the project. Interest is typically capitalized on amounts expended on the project using the weighted-average cost of our outstanding borrowings. Capitalization of interest starts when construction activities begin and ceases when construction is substantially complete or development activity is suspended for more than a brief period.

 

 

Goodwill represents the excess of the purchase price over fair value of net tangible and other intangible assets acquired in connection with business combinations. We accounted for our acquisitionacquisitions of casino properties most recentlyfor Bronco Billy's Casino and Hotel, along with the prior acquisitions ofBilly’s, Silver Slipper Casino and Hotel and Rising Star Casino Resort, as business combinations. In a business combination, we determine the fair value of acquired assets, including identifiable intangible assets, assumed liabilities, and non-controlling interests, if any. The fair value of the acquired business is allocated to the acquired assets, assumed liabilities, and non-controlling interests based on their fair value, with any remaining fair value allocated to goodwill. This allocation process requires use of estimates and assumptions, including estimates of future cash flows to be generated by the acquired assets.

 

Our indefinite-lived intangible assets primarily include the cost of gaming licenses and trade names. Gaming licenses represent the rights to conduct gaming in certain jurisdictions, and trade names represent the fair value of the casino name'sname’s brand recognition. The value of our gaming licenses were primarily estimated using a derivation of the income approach to valuation. The value of the Bronco Billy'sBilly’s trade names utilized the "relief“relief from royalty"royalty” method, which primarily utilizes comparable royalty agreements to determine value. Indefinite-lived intangible assets are not amortized, unless it is determined that their useful life is no longer indefinite. We periodically review our indefinite-lived assets to determine whether events and circumstances continue

 

Our finite-lived intangible assets include customer loyalty programs, land leases, payments for a lease option and water rights. Finite-lived intangible assets are amortized over the shorter of their contractual or economic useful lives.

 

Customer loyalty programs represent the value of repeat business associated with the casinos’ loyalty programs when we acquired the properties. Such values were determined using a derivation of the income approach to valuation. The valuation analyses for the active-rated players were based on estimated revenues and attrition rates. The Silver Slipper Casino and Hotel and Rising Star Casino Resort maintain historical information for the proportion of revenues attributable to the rated play.play, which acquisition costs were allocated to such customer loyalty programs. The combined value of the customer loyalty programs are amortizedhave since been fully-amortized over three years, their assumed economic useful life.  life, but remains a component of gross intangible assets other than goodwill, and comprises a majority of the related accumulated amortization. See Note 4 to the consolidated financial statements set forth in “Item 8. Financial Statements and Supplementary Data” for more information.

 

 

Our revenue recognition policies follow casino industry practices. Casino revenue is the aggregate net difference between gaming wins and losses, with certain liabilities recognized, including progressive jackpots, earned customer loyalty incentives, funds deposited by customers before gaming play occurs, and for certain chips and tokens in the customers’ possession. Key performance indicators related to gaming revenue are slot coin-in and table game drop (volume indicators) and “win” or “hold” percentage.

Hotel rooms,Revenue for food and beverage, hotel, and other services provided by us on a complimentary basis are recorded at estimated retail value, then subtracted as promotional allowances (a contra-revenue item) to calculaterevenue transactions is typically the net revenues. The actual estimated cost of providingamount collected from the customer for such goods and services, plus the retail value of (i) discretionary comps and (ii) comps provided in return for redemption of loyalty points. We record such revenue as the good or service is then charged as a casino operating expense.

 

We have separate customer loyalty programs at each of our properties – Silver Slipper Casino Players Club, Bronco Billy’s MVP “Most Valuable Players” Club, Rising Star Rewards Club™, Grand Lodge Players Advantage Club® and the Stockman’s Winner’s Club. Under these programs, customers earn points based on their volume of wagering that may be redeemed for various benefits, such as free play, cash back, complimentary dining, or hotel stays, among others, depending on each property’s specific offers. We also occasionally offer sweepstakes and other promotions for tracked customers that do not require redemption of points.  The cost

As points are accrued, we defer a portion of points redeemed for cash is recorded as a reduction ofour gaming revenue based on the estimated standalone value of loyalty points being earned by the customer. The standalone value of loyalty points is derived from the retail value of food, beverages, hotel rooms, and the cost of points redeemed for complimentaryother goods or services for which such points may be redeemed. A liability related to these customer loyalty points is recorded, as an operating expensenet of estimated breakage and other factors, until the gaming department.customer redeems these points, primarily for “free casino play/cash back,” complimentary dining, or hotel stays. Upon redemption, the related revenue is recognized at retail value within the department providing the goods or services. Unredeemed points are forfeited if the customer becomes and remains inactive for a specified period of time.

Loyalty programs are a part of the total marketing program. The amount of marketing reinvestment (complimentaries to players, promotional awards, entertainment, etc.) is based on the specific property and competitive assumptions. We track the percentage of promotional and marketing costs, compared to gaming revenue, for an efficient use and return on our marketing investment. Our properties areoperate in highly-competitive promotional environments due to the high amounts of incentives offered by our competition.

Accounts receivable consist primarily of casino, hotel and other receivables, are typically non-interest bearing, and are carried net of an appropriate collection allowance to approximate fair value. The allowances for doubtful accounts are estimated based on specific review of customer accounts, as well as, historical collection experience and current economic and business

We are subject to federal and state taxes in the United States. Significant judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities, and any valuation allowance recorded against our net deferred tax assets. We make these estimates and judgments about our future taxable income that are based on assumptions that are consistent with our future plans. Tax laws, regulations, and administrative practices may be subject to change due to economic or political conditions, including fundamental changes to the applicable tax laws. As of December 31, 2017, we had recorded a full valuation allowance on our net deferred tax assets because we were unable to determine that it is more likely than not that our deferred tax assets will be realized within the foreseeable future. Should the actual amounts differ from our estimates, the amount of our valuation allowance could be materially impacted.

Our income tax returns are subject to examination by the IRS and other tax authorities. Positions taken in tax returns are sometimes subject to uncertainty in the tax laws and may not ultimately be accepted by the IRS or other tax authorities. We assess our tax positions using a two-step process. A tax position is recognized if it meets a “more likely than not” threshold. It is then measured at the largest amount of benefit that is greater than fifty percent likely of being realized. Additionally, we recognize accrued interest and penalties, if any, related to unrecognized tax benefits in income tax expense.

We measure the fair value of our common stock warrants at each reporting period based on Level 3 inputs as determined by GAAP. Due to the variable terms regarding the timing of the settlement of the warrants, the Company utilizes a "Monte Carlo"“Monte Carlo” simulation approach, a mathematical technique used to model the probability of different outcomes, to measure the fair value of the warrants. The simulation included certain estimates by Company management regarding the estimated timing of the settlement of the warrants. Significant increases or decreases in those management estimates would result in a significantly higher or lower fair value measurement. Changes in the fair value measurement of our warrant liability are measured quarterly, including changes caused by increases or decreases in our stock price, and are expensed or credited to income during the measurement period.

We have granted shares of common stock and stock options to key members of management and the board of directors. Accounting standards require us to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award and recognize that cost over the service period. Share-based compensation expense from stock awards is included in general and administrative expense. Vesting is contingent upon certain conditions, including continuous service of the individual recipients. We use the Black-Scholes valuation model to determine the estimated fair value for each option grant issued. The Black-Scholes-determined fair value, net of actual forfeitures, is amortized as compensation cost on a straight-line basis over the service period.

See Note 2 as set forth in “Item 8. Financial Statements and Supplementary Data” for a discussion of recently issued accounting pronouncements not yet adopted.

As a smaller reporting company, as defined by Rule 12b-2 of the Exchange Act, we are not required to provide the information required by this Item.

Item 8. Financial Statements and Supplementary Data.

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

ON CONSOLIDATED FINANCIAL STATEMENTS

FULL HOUSE RESORTS, INC. AND SUBSIDIARIES

 

FULL HOUSE RESORTS, INC. AND SUBSIDIARIES