Item 1A. Risk Factors.In addition to factors discussed elsewhere in this Form 10-K, the following are important factors that could cause actual results or events to differ materially from those contained in any forward-looking statement made by or on behalf of Full House.
Development of new casinos is subject to many risks, some of which we may not be able to control —The opening of our proposed gaming facilities will depend on, among other things, obtaining adequate financing, the completion of construction, hiring and training of sufficient personnel and obtaining all regulatory licenses, permits, allocations and authorizations. The number of the approvals by federal and state regulators and other authorities needed to construct and open new gaming facilities is extensive, and any delay in obtaining or the failure to obtain these approvals could prevent or delay the completion of construction or opening of all or part of the gaming facilities or otherwise adversely affect the design and features of the proposed casinos.
Even if approvals and financing are obtained, building a new casino is a major construction project that entails significant risks. These risks include, but are not limited to:
| • | | shortages of materials or skilled labor; | | | • | | unforeseen engineering, environmental and/or geological problems; | | | • | | work stoppages; | | | • | | weather interference; | | | • | | unanticipated cost increases; and | | | • | | unavailability of construction equipment.Risk Factors. |
Obtaining any of the requisite licenses, permits, allocations and authorizations from regulatory authorities could increase the total cost, delay or prevent the construction or opening of any of these planned casino developments or otherwise affect their design. In addition, once developed, we may be unable to manage these casinos on a profitable basis or to attract a sufficient number of guests, gaming customers and other visitors to make the various operations profitable independently.
We have a limited base of operations —Our principal operations currently consist of the Stockman’s Casino and the income from the management of one facility in Delaware, the Harrington Casino. These limited sources of income, combined with the potentially significant investment associated with any new managed facilities, may cause our operating results to fluctuate significantly. Additionally, delays in the opening of any future casinos or our failure to open a new casino could also significantly adversely affect our profitability. Future growth in revenues and profits will depend on our ability to increase the number of our owned and managed casinos and facilities or develop new business opportunities. We may be unable to successfully acquire, develop or manage any additional casinos or facilities.
Adverse changes in discretionary consumer spending would decrease our gaming revenues —The gaming industry is heavily dependent on discretionary consumer spending patterns. Our business is sensitive to numerous factors that affect discretionary consumer income, including adverse general economic conditions, changes in employment trends and levels of unemployment, increases in interest rates, acts of war, terrorist or political events, a significant rise in energy prices or other events or actions that may lead to a decrease in consumer confidence or a reduction in discretionary income. Declines in consumer spending within the gaming industry, especially for extended periods, could have a material adverse effect on our business, financial condition and results of operations.
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We will need additional capital to fund development projects and pursue additional gaming opportunities —We are obligated to arrange on a best efforts basis up to $16 million in financing in connection with the Northern Cheyenne Tribe project. We may be unable to arrange the required additional financing on acceptable terms or at all. An inability to raise funds when needed might require us to delay, scale back or eliminate some of our planned expansion and development goals, and might require us to cease operations entirely.
We have limited recourse against tribal assets —Development of our gaming opportunities will require us to make, arrange or guarantee substantial loans to tribes for the construction, development, equipment and operations of the relevant casino. We also make advances to tribes in connection with our development and management agreements. Our only recourse for collection of indebtedness from, and repayment of advances to, a tribe or money damages for breach or wrongful termination of such agreements is from revenues, if any, from prospective casino operations. Under our management agreements, the repayment of our loans made to a tribe and other distributions due from a tribe (including management fees) is subordinated in favor of other obligations of the tribe to other parties related to the casino operations. Accordingly, in the event of a default by a tribe under such obligations, our loans and other claims against the tribe will not be repaid until such default has been cured or the tribe’s senior casino-related creditors have been repaid in full. In addition, because we have not yet filed financing statements to perfect our security interest in the net revenues from the proposed casinos, the repayment of our loans and advances made to a tribe and other distributions due to us from a tribe may also be subordinated in favor of other creditors.
The Indian tribes have sovereign powers and we may be unable therefore to enforce remedies against them —The tribes with which we have agreements are independent governments that have rights to tax persons and enterprises conducting business on their lands. They also have the right to require licenses and to impose other forms of regulation and regulatory fees on persons and businesses operating on their tribal lands. As a sovereign power, Indian tribes are generally subject only to federal regulation. States do not have the authority to regulate them, unless such authority has been specifically granted by the U.S. Congress. Thus, state laws generally do not apply to tribes or to activities taking place on tribal lands. In the absence of a conflicting federal or properly authorized state law, tribal law governs. Unless another law is specified, contracts with the tribes are governed by tribal law (and not state or federal law). In our agreements with these tribes, we generally have agreed that state law will govern the rights and obligations under these agreements. However, such provisions may be unenforceable particularly with respect to remedies against collateral located on tribal lands and they offer no protection against third-party claims against the collateral. If such provisions are determined to be unenforceable, then we may be unable to recover any amounts loaned or advanced to the tribes.
The waiver of sovereign immunity and jurisdiction provisions in our agreements may not be enforceable and thus we may be further limited in recourse with respect to Indian tribes and their assets —Indian tribes enjoy sovereign immunity from un-consented suit similar to that of the states and the United States. In order to sue them (or one of their agencies or instrumentalities), the tribe must have clearly and explicitly waived its sovereign immunity with respect to the matter in dispute. The various Indian tribes that are parties to our management, development and related agreements have granted a limited waiver of their sovereign immunity only to the extent of providing for binding arbitration, judicial review, and enforcement of any arbitration award in any court of competent jurisdiction. In the event that the waiver of sovereign immunity is held to be ineffective, we could be precluded from judicially enforcing any rights or remedies against the tribes.
Assuming that the tribes have clearly and explicitly waived their sovereign immunity, the question remains as to the forum in which a lawsuit or other action can be brought against them, particularly with respect to the enforcement of any arbitration award generally provided for under our agreements with the tribes. Since the parties to a transaction cannot confer jurisdiction on a court which does not otherwise have jurisdiction, it is possible that neither a federal nor a state court would have jurisdiction over a case relating to them. Federal courts are courts of limited jurisdiction and generally do not have jurisdiction to hear civil cases relating to Indians. Federal courts may have jurisdiction if a federal question is raised by the suit, which is unlikely in a typical contract suit or other enforcement action. Diversity of citizenship, another common basis for federal court jurisdiction, is not generally present in a suit against an Indian tribe because the tribe would not be considered a citizen of any state. Accordingly, in most commercial disputes with Indian tribes, the jurisdiction of the federal courts, which are courts of limited jurisdiction, may be difficult or impossible to obtain. State courts may also lack jurisdiction over suits brought by us against a tribe in the states in which we operate casinos.
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The remedies available against the tribes also depend, at least in part, upon the rules of comity requiring initial exhaustion of remedies of tribal tribunals and, as to some judicial remedies, the tribe’s consent to jurisdictional provisions contained in the disputed agreements. The U.S. Supreme Court has held that where a tribal court exists, the jurisdiction in that forum must first be exhausted before any dispute can be properly heard by federal courts which would otherwise have jurisdiction. Where a dispute as to the existence of jurisdiction in the tribal forum exists, the tribal court must first rule as to the limits of its own jurisdiction. In this event, we could be subjected to substantial delay, cost and expense while seeking such remedies pursuant to the relevant tribe’s procedures of which currently there may be none and they are not obligated to create any. In addition, unless the decisions of the tribunals of the specific tribe violate applicable state or federal law, there might be no effective right to appeal such decisions in state or federal court. Many tribes have established tribal courts to hear cases relating to their tribes or arising on their reservations. Although a tribe’s constitution may permit the establishment of a tribal court system, they may not have one nor are they obligated to establish one.
The tribes with which we have agreements have agreed to binding arbitration with respect to disputes arising from our agreements with them and have consented to the enforcement of any arbitration award in any court of competent jurisdiction which, as described above, may be a tribal court, pursuant to a limited waiver of their sovereign immunity. However, enforcement of an arbitration award against the tribes could be affected by disputes over the waiver of their sovereign immunity and will be subject to limitations imposed by federal law as described above.
We are dependent on our key employees and may not find suitable replacements if our key personnel are no longer available to us —If any or all of our key employees were to terminate their relationship with us then we may be unable to find suitable replacements on a timely basis to manage our operations. We entered into employment agreements with certain key employees. We entered into two-year agreements with Andre Hilliou, Chief Executive Officer and Mark Miller, CFO; and entered into a one-year agreement with Wes Elam, Sr. VP of Operations. We also have a consulting agreement with Lee Iacocca, one of our directors. The loss of the services of any of our key personnel or our inability to hire or retain qualified personnel would make it difficult for us to implement our business plan.
The gaming industry is subject to many risks, including adverse economic and political conditions and changes in the legislative and land use regulatory climate —Similar to investment in other entertainment enterprises, adverse changes in general and local economic conditions may adversely impact investments in the gaming industry. Examples of economic conditions subject to change include, among others:
| • | | competition in the form of other gaming facilities and entertainment opportunities; | | | • | | changes in regional and local population and disposable income; | | | • | | unanticipated increases in operating costs; | | | • | | restrictive changes in zoning and similar land use laws and regulations, or in health, safety and environmental laws, rules and regulations; | | | • | | risks inherent in owning, financing and developing real estate as part of our casino operations; | | | • | | the inability to secure property and liability insurance to fully protect against all losses, or to obtain such insurance at reasonable costs; | | | • | | inability to hire trained and knowledgeable managers and supervisors; | | | • | | inability to hire a sufficient number of employees to maintain our desired level of operations; | | | • | | seasonality; | | | • | | changes or cancellations in local tourist, recreational or cultural events; and | | | • | | changes in travel patterns or preferences (which may be affected by increases in gasoline prices, changes in airline schedules and fares, strikes, weather patterns or relocation or construction of highways). |
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Our management agreements for gaming facilities are of limited duration —We currently have management agreements with two tribes — one tribe has the requisite federal approval and one management agreement is with a commercial entity to operate gaming facilities. Our management agreement for the Harrington Casino in Delaware ends in August 2011. With respect to our management agreements for the proposed Indian gaming facilities, we are prohibited by law from having an ownership interest in any casino we manage for an Indian tribe. Federal law limits the term of management agreements with Indian tribes to seven years. If a management agreement is not renewed, then we will lose the revenues from that agreement which would negatively affect our results of operations.
We may be unable to successfully compete with other gaming activities —The gaming industry is highly competitive. Gaming activities include traditional land-based casinos; river boat and dockside gaming; casino gaming on Indian land; state-sponsored lotteries and video poker in restaurants, bars and hotels; pari-mutuel betting on horse racing, dog racing and jai alai; sports bookmaking; Internet gaming; and card rooms. Our Delaware operations, Stockman’s Casino and the Indian-owned casinos that we are trying to develop and operate, compete or will compete, as the case may be, with all these forms of gaming, and any new forms of gaming that may be legalized in additional jurisdictions, as well as with other types of entertainment. Our operations may be unable to successfully compete with new or existing gaming operations within the vicinity of our operations or with gaming operations available on the Internet.
We have pledged some of our assets as collateral —In connection with our acquisition of Stockman’s Casino, we pledged all of the capital stock and assets of Stockman’s Casino to the Nevada State Bank in connection with debt financing. If we are unable to generate sufficient cash flow to make payments under this loan, then the lender will be able to foreclose on these assets, and we may be required to scale back or curtail operations. In the event of liquidation, the lenders would have priority over our stockholders.
Our current and future credit agreements impose restrictions on us which may prevent us from engaging in transactions that might benefit us, including responding to changing business and economic conditions or securing additional financing, if needed —Our reducing revolving loan agreement with Nevada State Bank contains customary events of default and restrictive covenants that require us to maintain specified levels of performance and financial ratios at our Stockman’s subsidiary and prohibit us from taking certain actions without satisfying the financial tests or obtaining the consent of the lenders. Additionally, the obligations are secured by all of the capital stock and assets of our Stockman’s subsidiary. The prohibited actions for Stockman’s include, among other things:
| • | | making investments in excess of specified amounts; | | | • | | incurring additional indebtedness in excess of a specified amount; | | | • | | paying cash dividends; | | | • | | making capital expenditures in excess of a specified amount; | | | • | | creating certain liens; | | | • | | prepaying our other indebtedness; | | | • | | engaging in certain mergers or combinations; and | | | • | | engaging in transactions that would result in a change of control of our company. |
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Any future credit agreements in connection with other projects may contain similar restrictions. Should we be unable to comply with the terms and covenants of our credit agreements, we would be required to obtain modifications of the terms of these agreements or secure another source of financing to continue to operate our business. A default could result in the acceleration of our obligations under the credit agreements. In addition, these covenants may prevent us from engaging in transactions that benefit us, including responding to changing business and economic conditions or securing additional financing, if needed. Our business is capital intensive and, to the extent we need additional financing, we may not be able to obtain such financing at all or on favorable terms, which may decrease our profitability and liquidity.
Naval Air Station Fallon is a significant part of the economy of Fallon, Nevada, the site of Stockman’s Casino —Stockman’s Casino is located in Fallon, Nevada, which is the location of Naval Air Station Fallon, the home of the Naval Strike and Air Warfare Center. The naval base is an important employer in the region and accounts for a significant part of the economy. Any decrease in operations or closure of the naval base would have a negative impact on the region’s economy, and in turn the future financial performance of Stockman’s Casino and our results of operations.
We will need to make substantial financial and manpower investments in order to assess our internal controls over financial reporting, and our internal controls over financial reporting may be found to be deficient —Section 404 of the Sarbanes-Oxley Act of 2002 requires management to assess its internal controls over financial reporting and requires auditors to attest to that assessment. Current regulations of the Securities and Exchange Commission require us to include a management assessment in our Annual Report on this Form 10-K for our fiscal year ended December 31, 2008 and an auditor attestation beginning the following fiscal year.
We have incurred costs of $0.3 million and $0.01 million in 2007 and 2008, respectively, implementing and responding to these requirements. In particular, the rules governing the standards that must be met for management to assess its internal controls over financial reporting under Section 404 are complex and require significant documentation, testing and, if necessary, possible remediation. Our process of reviewing, documenting and testing our internal controls over financial reporting may cause a significant strain on our management, information systems and resources. We may be required to hire additional personnel and to use outside legal, accounting, and advisory services as we pursue completion of this effort. In addition, we will incur additional fees from our auditors as they perform the additional services necessary for them to provide their attestation. If we are unable to favorably assess the effectiveness of our internal controls over financial reporting when we are required to, or if our independent auditors are unable to provide an unqualified attestation report on such assessment, then we may be required to change our internal controls over financial reporting to remediate deficiencies. In addition, investors may lose confidence in the reliability of our financial statements, causing our stock price to decline. We currently have five persons in our finance department. This limited number of staff will make it harder for us to comply with Section 404 and consequently a loss of any of our finance staff members may adversely affect our ability to comply with Section 404.
Inability to obtain and maintain necessary approvals from various gaming regulators will limit our expansion and our operations —Our operations and proposed expansion depend on our ability to obtain and maintain regulatory approvals with various gaming regulators. We must maintain licenses from the Nevada Gaming Commission in connection with our Stockman’s Casino. Our management agreements with the Michigan Tribe and the Northern Cheyenne Tribe and any future management agreements we enter into with Indian tribes are subject to approval by the NIGC. In addition, in order to conduct Class III Gaming, which includes typical Las Vegas style games, as defined by the Indian Gaming Regulatory Act, a tribe must have entered into a gaming compact with the state in which the casino is to operate, which has been approved by the NIGC. The Northern Cheyenne Tribe’s gaming compact with the State of Montana was set to expire in June 2007. In April 2007, the tribe extended the existing agreement with the State of Montana, while continuing negotiations on a new Class III Gaming compact, which shall continue in effect until June 3, 2017, or until a new Class III compact is signed by the State and the tribe, whichever comes first. Since the existing Compact does not apply to our site, if the Northern Cheyenne Tribe is not able to successfully negotiate a Class III Gaming compact with the State of Montana, we will be unable to develop the proposed casino and recover the expenses we have already incurred in pursuing this project.
Gaming facility ownership, management and operation is subject to many federal, state, provincial, tribal and/or local laws, regulations, and ordinances which are administered by particular regulatory agency or agencies in each jurisdiction. These laws, regulations and ordinances are different in each jurisdiction but generally deal with the responsibility, financial stability and character of the owners and managers of gaming operations and persons financially interested or involved in gaming operations. Our inability to obtain or maintain required gaming regulatory approvals and licenses, including from the Nevada Gaming Commission and the NIGC, would materially adversely affect our business and financial condition. Changes in these laws, regulations or ordinances could adversely affect our future performance.
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The proposed site for the Northern Cheyenne Tribe project requires approvals before development on the land can begin —The site for the Northern Cheyenne Tribe project was approved for gaming by the Secretary of the Interior as of October 28, 2008, however, the consent of the Governor of Montana is required which has not yet been obtained. If the Northern Cheyenne Tribe’s gaming compact with the State of Montana is not extended to include the site or a satisfactory site for the project is not approved, then we will be unable to develop the proposed casino and recover the expenses we have already incurred pursuing this project.
Our management agreements with the various tribes are subject to governmental or regulatory modification —The NIGC has the power to require modifications to Indian management agreements under some circumstances or to void such agreements or secondary agreements, including loan agreements, if we fail to obtain the required approvals or to comply with the necessary laws and regulations. While we believe that our management agreements and related secondary documents meet the applicable requirements, the NIGC has the right to review each of these agreements and has the authority to reduce the term of a management agreement or the management fee or otherwise require modification of the management agreements and secondary agreements. Such changes would negatively affect our profitability.
The rate of taxation on gaming profits may not be predictable —The legislatures in the various states in which we operate commercial casinos have the authority to set gaming tax rates. These state legislatures may revise their gaming taxes at any time and increase the tax rates applicable to our casinos. The compacts between the states and the tribes contain provisions with respect to fees due to the state from gaming facilities and these fees may be increased upon renewal of the compact. Additionally, from time to time, certain federal legislators have proposed the imposition of federal tax on gaming revenues. Any increase in tax rates or imposition of new taxes on gaming operations applicable to our casinos either at the state or federal level, or both, could materially adversely affect our financial condition or results of operations.
Our controlling stockholder has significant influence over management —Mr. Michael Paulson, our controlling stockholder, beneficially owns (individually and as trustee of the Allen E. Paulson Living Trust) approximately 18.1% of our outstanding shares of common stock and our other executive officers and directors collectively beneficially own an additional 10.7% of our outstanding shares of common stock. As a result, our controlling stockholder and our other executive officers and directors are able to exercise significant influence over our company, including, but not limited to, any stockholder approvals for the election of our directors and, indirectly, the selection of our senior management, new securities issuances, mergers and acquisitions and any amendments to our by-laws or charter. This concentration of ownership may have the effect of delaying, preventing or deterring a change in control of our company. Our stockholders may be deprived of an opportunity to receive a premium for their shares as part of a sale of our company and it may negatively affect the market price of our common stock. When voting on such matters, our controlling stockholders’ interests may conflict with that of other stockholders.
We have the right under our amended and restated charter to redeem our capital stock under certain circumstances —One of the requirements of gaming licenses in Nevada is that our directors, officers and those who own specified percentages of our capital stock must meet eligibility requirements for licenses. In order to ensure compliance with regulatory requirements in Nevada, our amended and restated certificate of incorporation allows us to repurchase shares of our capital stock from any stockholder if continued ownership of those shares by that stockholder would jeopardize any gaming license, approval, franchise, consent or management agreement held by us or any of our subsidiaries. Payment of the redemption price may be made by an unsecured promissory note. This redemption will apply even if the stockholder would not have chosen to sell the stock at such time.
There are trading risks for low priced stocks —The Securities Enforcement and Penny Stock Reform Act of 1990 requires additional disclosure, relating to the market for penny stocks, in connection with trades in any stock defined as a penny stock. The Securities and Exchange Commission has adopted regulations that generally define a penny stock to be any equity security that has a market price of less than $5.00 per share, subject to certain exceptions. Unless an exception is available, the regulations require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the risks associated therewith.
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If our common stock is delisted from the NYSE Amex Exchange, then trading in our common stock will be covered by Rules 15-g-1 through 15-g-6 promulgated under the Securities Exchange Act of 1934, as amended. Under such rules, broker-dealers who recommend such securities to persons other than established customers and accredited investors must make a special written suitability determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to this transaction. Securities are exempt from these rules if the market price of the common stock is at least $5.00 per share.
Our stock price may be volatile because of factors beyond our control and you may lose all or a part of your investment —The market price of our common stock has been volatile in recent years. The market price of our common stock could be subject to significant fluctuations after this offering and may decline below the offering price. Any of the following factors could affect the market price of our common stock:
| • | | our failure to meet financial analysts’ performance expectations; | | | • | | changes in earnings estimates and recommendations by financial analysts; | | | • | | actual or anticipated variations in our quarterly results of operations; | | | • | | changes in market valuations of similar companies; | | | • | | announcements by us or our competitors of significant contracts, acquisitions, renovations, joint ventures or capital commitments; | | | • | | regulatory action or changes; or | | | • | | general market, political and economic conditions. |
Our common stock is thinly-traded —For most of our history our common stock has been thinly-traded, both privately and on the various exchanges on which it has been listed, making it difficult for stockholders to sell shares of our common stock at a predictable price or at all. The volatility in the market price of our common stock may cause stockholders to encounter significant short term variations in the market price of the stock on account of factors beyond our control.
Item 1B. Unresolved Staff Comments
As a smaller reporting company, the Company is not required to provide the information required by this item. | | | | Item 1B. | | Unresolved Staff Comments. |
As a smaller reporting company, the Company is not required to provide the information required by this item. 15
| | | | Item 2. | | Item 2. Properties.
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On August 5, 2009, the FireKeepers Casino, which is managed by GEM on behalf of the Michigan tribe, commenced operations. FireKeepers Casino is located at Exit 104 directly off Interstate 94 in Battle Creek, Michigan. FireKeepers has a 107,000 square foot gaming floor with 2,680 slot machines, 78 table games, a 120-seat poker room and a bingo hall. In addition, the property features five restaurants, including a 70-seat fine dining signature restaurant, a 300-seat buffet and 150-seat 24-hour cafe, as well as approximately 3,000 parking spaces including an enclosed 2,080-space parking garage attached to the casino. Stockman’s, a wholly-owned subsidiary, owns the site on which Stockman’s Casino operates in Fallon, Nevada. Stockman’s has approximately 8,400 square feet of gaming space with approximately 259265 slot machines, four table games and keno. There is also a bar, a fine dining restaurant and a coffee shop. Until February 20, 2008, the facility included a Holiday Inn Express, which had 98 guest rooms, indoor and outdoor pools, sauna, and a fitness center and meeting room. The hotel was subsequently sold. Management considers Stockman’s Casino to be in good condition and well maintained. The loan agreementrevolver is guaranteed by Stockman’s and is secured by a pledge of the stock and the assets of Stockman’s. The loan from the Seller is secured byCompany owned a second interest in the real estate of Stockman’s Casino. Full House Resorts owns a twelve-acre12-acre parcel in McKinley County, New Mexico, which was previously intended to be a future gaming development site for the Navajo Nation project. Since this project has been discontinued, it is management’s intention to sell the land.land was sold on October 15, 2009. The land held for the development of this project is nowwas included in assets held for sale and valued at $45,000 as of December 31, 2008, and it is management’s intention to sell the land as soon as possible.2008.
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We lease the office space in Las Vegas, Nevada pursuant to athe amended lease which has recently been amended. Effective Aprilagreement dated November 1, 2007, we2009. We occupy approximately 2,569 square feet of office space in the same location we have occupied for the past several years. The lease agreement expires April 30, 2010.September 31, 2013. | | | | Item 3. | | Item 3. Legal Proceedings.
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An action wasOn June 19, 2009, Harrington Raceway, Inc. filed bya demand for arbitration, disputing the formula for computing the minimum payment of our share of the management fee pursuant to the Management Reorganization Agreement dated June 18, 2007. Harrington Raceway’s demand would require the Company against Ambanc, “American Federal”to refund $1.5 million in management fees. We have appeared in the matter and intend to vigorously defend the proceeding. A hearing date was held on December 13, 2005, for refundFebruary 15 and 16, 2010 and a decision is not expected until sometime in April. Management believes that it is more likely than not that the Company will prevail in the arbitration, but we cannot guarantee that the arbitrator will not rule in favor of $0.1 million depositHRI based on a loan commitment whichthe record. As of the March 23, 2010 filing date, the arbitrator’s decision was not fulfilled. On February 17, 2006, the arbitration between the Company and American Federal was stayed, pending a resolution of a lawsuit brought against American Federal by the Missouri Attorney General, seeking damages for consumer fraud. As of December 31, 2008, we were notified that the Missouri’s Attorney General’s lawsuit was settled with no money benefiting the Company and we have instructed our local counsel to reinstate the arbitration. The balance being claimed by the Company is regarded as a contingent asset and not included in our consolidated balance sheet.yet received.
On October 20, 2008, the Company was served with a complaint in the Second Judicial District Court of Nevada in and for Washoe County by RAM Entertainment, LLC and Robert A. Mathewson alleging breach of contract and other claims related to the resolution of claims by Gaming Entertainment (California) LLC (“GEC”),GEC, a consolidated investee of the Company, against the Torres-Martinez Tribe of California. Certain officers were named as individual defendants as well. The complaint alleged that the Company, and in some cases the other individual defendants (i) breached an oral promise to share with RAM the $1.1 million settlement proceeds received by GEC in 2005 following a successful arbitration against the tribe, (ii) wrongfully distributed such settlement proceeds to the Company and (iii) failed to disclose material information to RAM regarding GEC, including debts owed by GEC to the Company. Following a mediation session, held before a former Washoe County District Court Judge, the lawsuit was settled by the company agreeing to pay a total of $0.5 million to the plaintiffs with(included in impairment and settlement losses), payable $0.2 million due on execution of the settlement documents and $0.3 million within 30 days followingof the opening of the FireKeepers Casino but no later than December 15, 2009. All claims against the individuals from the GEC suit were dismissed outright and the claims against the company were dismissed pursuant to the settlement.dismissed. As of December 31, 2008, $0.22009, $0.5 million was paid to the plaintiffs in this case. From time to time, in the ordinary course of business, we receive notices of claims which are not material or are without merit. We investigate and review each claim and vigorously defend all meritless claims. | | | | Item 4. | | Item 4. Submission of Matters to a Vote of Security Holders.
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No matters were submitted to a vote of our security holders during the fourth quarter of 2008.2009. 16
PART II | | | | Item 5. | | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. |
Our stock trades on the NYSE Amex under the symbol FLL. Set forth below are the high and low sales prices of the common stock as reported on the American Stock Exchange and the NYSE Amex for the periods indicated. | | | | | | | | | | | | | | | | | | | | | | High | | Low | | | Year Ended December 31, 2009 | | | | First Quarter | | | $ | 1.22 | | $ | 0.90 | | | Second Quarter | | | 2.80 | | 1.15 | | | Third Quarter | | | 2.98 | | 2.10 | | | Fourth Quarter | | | 3.98 | | 2.25 | | | | | High | | Low | | | | Year Ended December 31, 2008 | | | | First Quarter | | $ | 2.80 | | $ | 1.26 | | | $ | 2.80 | | $ | 1.26 | | | Second Quarter | | 2.59 | | 1.44 | | | 2.59 | | 1.44 | | | Third Quarter | | 2.13 | | 1.35 | | | 2.13 | | 1.35 | | | Fourth Quarter | | 1.55 | | 0.95 | | | 1.55 | | 0.95 | | | | | | Year Ended December 31, 2007 | | | | First Quarter | | $ | 4.70 | | $ | 3.40 | | | | Second Quarter | | 4.10 | | 3.35 | | | | Third Quarter | | 4.00 | | 2.75 | | | | Fourth Quarter | | 3.21 | | 2.00 | | |
On March 25, 2008,23, 2010, the last sale price of the Common Stock as reported by the NYSE Amex Exchange was $1.19.$3.07. 22
As of December 31, 2008,2009, we had 137 holders of record of our common stock. We believe that there are over 1,000 beneficial owners. On December 18, 2006, we declared the accrued dividends on our preferred stock which were payable since issuance, and paid the dividend totaling $3.0 million in January 2007. In conjunction with the equity offering in December 2006, the holders of the outstanding shares of our Series 1992-1 Preferred Stock converted all of the shares into shares of our common stock in January 2007 on a one share-for-one share basis in accordance with their conversion right. As of December 31, 2008 and 2007 there were no preferred shares issued or outstanding.
We intend to retain future earnings, if any, to provide funds for the operation of our business, retirement of our debt and pursue acquisitions and, accordingly, do not anticipate paying any cash dividends on our common stock in the near future. Issuer Purchases of Equity Securities
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Approximate | | | | | | | | | | | | | Total number | | | dollar value of | | | | | Total | | | Weighted- | | | of shares | | | shares that may | | | | | number of | | | average | | | purchased as part | | | yet be purchased | | | | | shares | | | price paid | | | of publicly | | | under the plans or | | | Period | | purchased | | | per share | | | announced plan | | | programs | | | | | 07/01/2008 – 07/31/2008 | | | — | | | | — | | | | — | | | $ | 1,000,000 | | | 08/01/2008 – 08/31/2008 | | | 8,600 | | | $ | 1.64 | | | | 8,600 | | | | 985,872 | | | 09/01/2008 – 09/30/2008 | | | 111,071 | | | | 1.48 | | | | 111,071 | | | | 821,637 | | | 10/01/2008 – 10/31/2008 | | | 690,341 | | | | 1.24 | | | | 690,341 | | | | 962,538 | | | 11/01/2008 – 11/30/2008 | | | 320,302 | | | | 1.05 | | | | 320,302 | | | | 625,230 | | | 12/01/2008 – 12/31/2008 | | | 80,100 | | | | 1.16 | | | | 80,100 | | | | 531,989 | | | | | | | | | | | | | | | | | | | | | 1,210,414 | | | $ | 1.21 | | | | 1,210,414 | | | | | | | | | | | | | | | | | | | | | |
On July 7, 2008, the Company announced a stock repurchase plan (the “Repurchase Plan”). Under the Repurchase Plan, the Company’s board of directors authorized the repurchase of up to $1.0 million of shares of our common stock in the open market or in privately negotiated transactions from time to time, in compliance with Rule 10b-18 of the Securities and Exchange Act of 1934, subject to market conditions, applicable legal requirements and other factors. On October 14, 2008, the Company’s board of directors authorized the repurchase of an additional $1.0 million of the Company’s common stock, and extended the expiration of the Repurchase Plan to April 30, 2009. Through December 31, 2008, the Company had repurchased 1,210,414 shares at a weighted average-price per share of $1.21, costing $1.5 million, (including commissions and other related transaction costs). As of March 25, 2009, the Company has repurchased an aggregate of 1,356,595 shares of treasury stock at a weighted-average price of $1.19 per share, costing $1.7 million, (including commissions and other related transaction costs). The Repurchase Plan does not obligate the Company to acquire any particular amount of common stock and may be suspended at any time at management’s discretion.
Item 6. Selected Financial Data | | | | Item 6. | | Selected Financial Data. |
As a smaller reporting company, the Company is not required to provide the information required by this item. 23
| | | | Item 7. | | Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
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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, relating to our financial condition, profitability, liquidity, resources, business outlook, market forces, corporate strategies, contractual commitments, legal matters, capital requirements and other matters. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. We note that many factors could cause our actual results and experience to change significantly from the anticipated results or expectations expressed in our forward-looking statements. When words and expressions 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 are used in this Form 10-K, as well as statements containing phrases such as “in our view,” “there can be no assurance,” “although no assurance can be given,” or “there is no way to anticipate with certainty,” forward-looking statements are being made. 17
In addition to the risks discussed in Item 1 “Factors That May Affect Our Future Performance”,Performance,” various other risks and uncertainties 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 the following factors: | • | | our growth strategies; | | | • | | our development and potential acquisition of new facilities; | | | • | | risks related to development and construction activities; | | | • | | anticipated trends in the gaming industries; | | | • | | patron demographics; | | | • | | general market and economic conditions; | | | • | | access to capital and credit, including our ability to finance future business requirements; | | | • | | the availability of adequate levels of insurance; | | | • | | changes in federal, state, and local laws and regulations, including environmental and gaming license legislation and regulations; | | | • | | regulatory approvals; | | | • | | competitive environment; | | | • | | risks, uncertainties and other factors described from time to time in this and our other SEC filings and reports. |
our growth strategies; our development and potential acquisition of new facilities; risks related to development and construction activities; anticipated trends in the gaming industries; general market and economic conditions; access to capital and credit, including our ability to finance future business requirements; the availability of adequate levels of insurance; changes in federal, state, and local laws and regulations, including environmental and gaming license legislation and regulations and taxes; risks, uncertainties and other factors described from time to time in this and our other SEC filings and reports. We undertake no obligation to publicly update or revise any forward-looking statements as a result of future developments, events or conditions. New risk factors emerge from time to time and it is not possible for us to predict all such risk factors, nor can we assess the impact of all such risk factors on its business or the extent to which any factor, or combination of factors, may cause actual results to differ significantly from those forecast in any forward-looking statements. Overview We develop,own, manage and/or invest in gaming relatedgaming-related opportunities. The Company continues to actively investigate, individually and with partners, new business opportunities. We own and operate Stockman’s Casino in Fallon, Nevada. In addition, we are a non-controlling 50%-investor in GED, a joint venture with HRI. GED has a management contract through August 2011 with Harrington Casino at the Delaware State Fairgrounds in Harrington, Delaware. We also own 50% of GEM,Gaming Entertainment Michigan, LLC (“GEM”), a joint venture with RAM thatEntertainment, LLC (“RAM”), where we controlare the primary beneficiary and, therefore, consolidate in our consolidated financial statements. RAM is a privately-held investment company. GEM has a 7-year management agreement with the Nottawaseppi Huron Band of Potawatomi Indians for the development and management of the FireKeepers Casino near Battle Creek, Michigan. The FireKeepers casino is currently being constructed,Casino commenced construction in May 2008 and it is expected to open duringopened on August 5, 2009, which triggered the third quartercommencement of 2009. In addition, the Company7-year management agreement term. We are also a non-controlling 50%-investor in Gaming Entertainment Delaware, LLC (“GED”), a joint venture with Harrington Raceway Inc. (“HRI”). GED has development anda management agreements (subject to NIGC approval),contract through August 2011 with Harrington Casino at the Northern Cheyenne Nation of Montana for the development and management of a 25,000 square foot gaming facility to be built approximately 28 miles north of Sheridan, Wyoming.Delaware State Fairgrounds in Harrington, Delaware. 24
Critical Accounting Estimates and Policies Although our financial statements necessarily make use of certain accounting estimates by management, we believe that except as discussed below, no matters that are the subject of such estimates are so highly uncertain or susceptible to change as to present a significant risk of a material impact on our financial condition or operating performance.performance, except as discussed in the following paragraphs. The significant accounting estimates inherent in the preparation of our financial statements primarily include management’s fair value estimates related to notes receivable from tribal governments, and the related evaluation of the recoverability of our investments in contract rights. Various assumptions, principally affecting the timing and, to a lesser extent, the probability of completing our various projects under development and getting them open for business with successful operations, and other factors underlie the determination of these significant estimates. The process of determining significant estimates is fact- andfact-and project-specific and takes into account factors such as historical experience and current and expected legal, regulatory and economic conditions. We regularly evaluate these estimates and assumptions, particularly in areas, if any, where changes in such estimates and assumptions could have a material impact on our results of operations, financial position and, generally to a lesser extent, cash flows. Where recoverability of these assets or planned investments are contingent upon the successful development and management of a project, we evaluate the likelihood that the project will be completed, the prospective market dynamics and how the proposed facilities should compete in that setting in order to forecast future cash flows necessary to recover the recorded value of the assets or planned investment. In most cases, we engage independent valuation consultants to assist management in preparing and periodically updating market and/or feasibility studies for use in the preparation of forecasted cash flows. We review our conclusions as warranted by changing conditions. 18
Long-term assets related to Indian casino projects We account for the advances made to tribes as in-substance structured notes at estimated fair value in accordance with the guidance contained in Emerging Issues Task Force Issue No. 96-12Financial Accounting Standards Board (“FASB”), Recognition of Interest IncomeAccounting Standards Codification™ (“ASC”) Topic 320, “Investments-Debt and Balance Sheet Classification of Structure Notes.Equity Securities” and Topic 820, “Fair Value Measurements and Disclosures.” Because our right to recover our advances and development costs with respect to Indian gaming projects is limited to, and contingent upon, the future net revenues of the proposed gaming facilities, we evaluate the financial opportunity of each potential service arrangement before entering into an agreement to provide financial support for the development of an Indian project. This process includes (1) determining the financial feasibility of the project assuming the project is built, (2) assessing the likelihood that the project will receive the necessary regulatory approvals and funding for construction and operations to commence, and (3) estimating the expected timing of the various elements of the project including commencement of operations. When we enter into a service or lending arrangement, management has concluded, based on feasibility analyses and legal reviews, that there is a high probability that the project will be completed and that the probable future economic benefit is sufficient to compensate us for our efforts in relation to the perceived financial risks. In arriving at our initial conclusion of probability, we consider both positive and negative evidence. Positive evidence ordinarily consists not only of project-specific advancement or progress, but the advancement of similar projects in the same and other jurisdictions, while negative evidence ordinarily consists primarily of unexpected, unfavorable legal, regulatory or political developments such as adverse actions by legislators, regulators or courts. Such positive and negative evidence is reconsidered at least quarterly. No asset, including notes receivable or contract rights, related to an Indian casino project is recorded on our books unless it is considered probable that the project will be built and will result in an economic benefit sufficient for us to recover the asset. In initially determining the financial feasibility of the project, we analyze the proposed facilities and their location in relation to market conditions, including customer demographics and existing and proposed competition for the project. Typically, independent consultants are also hired to prepare market and financial feasibility reports. These reports are reviewed by management and updated periodically as conditions change. 25
In assessing the probability of completing the project, we also consider the status of the regulatory approval process including whether: | • | | the federal Bureau of Indian Affairs, or BIA, recognizes the tribe; | | | • | | the tribe has the right to acquire land to be used as a casino site; | | | • | | the Department of the Interior has put the land into trust as a casino site; | | | • | | the tribe has a gaming compact with the state government; | | | • | | the NIGC has approved a proposed management agreement; and | | | • | | other legal or political obstacles exist or are likely to occur. |
the federal Bureau of Indian Affairs, or BIA, recognizes the tribe; the tribe has the right to acquire land to be used as a casino site; the Department of the Interior has put the land into trust as a casino site; the tribe has a gaming compact with the state government; the NIGC has approved a proposed management agreement; and other legal or political obstacles exist or are likely to occur. The development phase of each relationship commences with the signing of the respective agreements and continues until the casino is open for business. Thereafter, the management phase of the relationship, governed by the management contract, typically continues for a period of between five to seven years. Seven years is the maximum allowed under federal law. We make advances to the tribes, recorded as notes receivable, primarily to fund certain portions of the projects, which bear no interest or below market interest until operations commence. Repayment of the notes receivable and accrued interest is only required if the casino is successfully opened and distributable profits are available from the casino operations. Under the management agreement, we typically earn a management fee calculated as a percentage of the net income of the gaming facility. In addition, repayment of the loans and our management fees are subordinated to certain other financial obligations of the respective operations. Generally, the order of priority of payments from the casinos’ cash flows is as follows: | | • | | a certain minimum monthly priority payment to the tribe; | | | | | • | | repayment of various senior debt associated with construction and equipping of the casino with interest accrued thereon; | | | • | | repayment of various debt with interest accrued thereon due to us; | | | • | | management fee to us; | | | • | | other obligations; and | | | • | | the remaining funds distributed to the tribe. |
repayment of various debt with interest accrued thereon due to us; the remaining funds distributed to the tribe. 19
Notes receivable We account for and present our notes receivable from and management agreements with the tribes as separate assets. Under the contractual terms, the notes do not become due and payable unless and until the projects are completed and operational. However, if our development activity is terminated prior to completion, we generally would retain the right to collect on our notes receivable in the event a casino project is completed by another developer. Because we ordinarily do not consider the stated rate of interest on the notes receivable to be commensurate with the risk inherent in these projects (prior to commencement of operations), the estimated fair value of the notes receivable is generally less than the amount advanced. At the date of each advance, the difference between the estimated fair value of the note receivable and the actual amount advanced is recorded as either an intangible asset (contract rights) or if the rights were acquired in a separate, unbundled transaction, expensed as period costs of retaining such rights. Subsequent to its effective initial recording at estimated fair value using “Level 3 inputs,” which are defined in ASC Topic 820, “Fair Value Measurements and Disclosures” (“Topic 820”) as unobservable inputs that reflect management’s estimates about the assumptions that market participants would use in pricing an asset or liability, the note receivable portion of the advance is adjusted to its current estimated fair value at each balance sheet date, also using “LevelLevel 3 inputs,” which are defined in Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS No. 157”), as unobservable inputs that reflect management’s estimates about the assumptions that market participants would use in pricing an asset or liability. Financial Accounting Standards Board Staff Position FAS 157-3, Determining the Fair Value of Financial Asset when the market for that asset is not active, (“FSP FAS 157-3”) was issued in October 2008 and was retroactively effective for the quarter ended September 30, 2008. The implementation of FSP FAS 157-3 did not have a material impact on the Company’s valuation techniques, financial position, results of operations and cash flows.inputs. We do not adjust notes receivable to an estimated fair value that exceeds the face value of the note plus accrued interest, if any. Due to the uncertainties surrounding the projects, no interest income is recognized in the consolidated financial statements during the development period, but changes in estimated fair value of the notes receivable are recorded as unrealized gains or losses in our statement of operations. 26
Upon opening of the casino, the difference, if any, between the then-recorded estimated fair value of the notes receivable, subject to any appropriate impairment adjustments made pursuant to Statement of Financial Accounting Standards No. 114, Accounting by Creditors for Impairment of a Loan,ASC Topic 310, “Receivables,” and the amount contractually due under the notes would beis amortized into income using the effective interest method over the remaining term of the note. Contract rights Contract rights are recognized as intangible assets related to the acquisition of the management agreements and periodically evaluated for impairment based on the estimated cash flows from the management contract on an undiscounted basis and amortized using the straight-line method over the lesser of seven years or contractual lives of the agreements, typically beginning upon commencement of casino operations. In the event the carrying value of the intangible assets were to exceed the undiscounted cash flow, the difference between the estimated fair value and carrying value of the assets would be charged to operations. The cash flow estimates for each project were developed based upon published and other information gathered pertaining to the applicable markets. We have many years of experience in making these estimates and also utilize independent appraisers and feasibility consultants to assist management in developing our estimates. The cash flow estimates are initially prepared (and periodically updated) primarily for business planning purposes with the tribes and are secondarily used in connection with our impairment analysis of the carrying value of contract rights, land held for development, and other capitalized costs, if any, associated with our tribal casino projects. The primary assumptions used in estimating the undiscounted cash flow from the projects include the expected number of Class III gaming devices, table games, and poker tables, and the related estimated win per unit per day (“WPUD”). Generally, within reasonably possible operating ranges, our impairment decisions are not particularly sensitive to changes in these assumptions because estimated cash flows greatly exceed the carrying value of the related intangibles and other capitalized costs. We believe that the primary competitors to our Michigan project are the Four Winds Casino in southwestern Michigan, five northern Indiana riverboats and three downtown Detroit casinos. The Detroit casinos whose published WPUD has consistently averaged above the $255 used in our undiscounted cash flow analysis. In addition, our market analysis assumes the development of another Native American casino of approximately equal size by the Gun Lake Tribe approximately 75 miles1 hour to the northwest of our facility. However, the facility sometime in late 2009 or 2010.currently under development by Gun Lake is substantially smaller than originally anticipated with only 700 machines. Our Michigan project is located approximately 100 miles west of Detroit and approximately 100 driving miles northeast of Four Winds Casino, which opened in August 2007 near New Buffalo, Michigan. 20
Summary of long-term assets related to Indian casino projects At December 31, 20082009 and 2007, long-term2008, assets associated with tribal casino projects are summarized as follows, with notes receivable presented at their estimated fair value: | | | | | | | | | | | | | | | | | | | | | 2008 | | 2007 | | | 2009 | | 2008 | | | Fire Keepers: | | | | FireKeepers: | | | | | | | Notes receivable, tribal governments | | $ | 4,097,002 | | $ | 11,189,359 | | | $ | 4,682,420 | | $ | 4,097,002 | | | Contract rights, net | | 16,636,358 | | 14,625,969 | | | 15,617,016 | | 16,636,358 | | | | | | | | | | | | | | | | | 20,733,360 | | 25,815,328 | | | $ | 20,299,436 | | $ | 20,733,360 | | | | | | | | | | | | | | | | | | | Other projects: | | | | | | | Notes receivable, tribal governments | | $ | 1,017,765 | | $ | 989,122 | | | $ | 430,467 | | $ | 1,017,765 | | | Contract rights, net | | 159,194 | | 135,164 | | | — | | 159,194 | | | | | | | | | | | | | | | | | 430,467 | | 1,176,959 | | | | | 1,176,959 | | 1,124,286 | | | | | | | | | | | | | | | $ | 20,729,903 | | $ | 21,910,319 | | | | | $ | 21,910,319 | | $ | 26,939,614 | | | | | | | | | | | | | | |
27
As previously noted, the FireKeepers project comprises the majority of long-term assets related to tribalIndian casino projects. We have an approved management agreement with the FireKeepers Development Authority, (the “Authority”) for the development and operation of the FireKeepers Casino, which provides that we will receive, only from the operations and financing of the project, reimbursement for all advances we have made to the Authority and a management fee, after certain distributions to the Tribe, equal to 26% of the net revenues of the casino (defined effectively as net income prior to management fees) for a period of seven years commencing upon opening. The terms of an amended management agreement were approved by the NIGC in April 2008. In May 2008, in connection with the project financing, $9.3 million of the notes receivable was repaid, which resulted in an increase in the estimated fair value of the notes receivable of approximately $1.8 million, which was recorded as an unrealized gain in the first quarter of 2008. The remaining $5.0 million of the note receivable is expectedwas repaid in February 2010. As of December 31, 2009 GEM has earned approximately $10.0 million in management fee income related to be repaid 180 days following opening of the casino, provided there are sufficient funds remaining in the construction disbursement account. If there are insufficient funds remaining in the construction disbursement account, the balance becomes payable in 60 equal monthly installments beginning 180 days after the commencement of operations of the casino, plus interest at prime plus 1%. August through December 2009 FireKeepers Casino earnings. We are monitoring the progress of the project and the development budget and believe that sufficient funds will be leftnot obligated to fund the $5.0 million reimbursement following opening. In arrivingconstruction phase of our Northern Cheyenne project in Montana. The recent economic recession and resulting impact on credit availability has significantly decreased the likelihood that financing could be obtained on favorable terms if at the estimated opening date for the FireKeepers project, which we believe will be in the third quarter of 2009, we considered the status of the following conditions and estimated the time necessary to complete the construction:
the tribe is federally recognized;
adequate land for the proposed casino resort has been placed in trust;
the tribe has a valid gaming compact with the State of Michigan;
the NIGC approved the management agreement;
the BIA issued a record of decision approving the final environmental impact statement in September 2006;
project financing was obtained in May 2008;
construction commenced, with an anticipated construction period of approximately 15 months; and
construction to date has progressed on schedule.
The Company extended its estimated opening dateall for the Montana project in the foreseeable future. The company intends to continue working with the Northern Cheyenne Nation to pursue the development of a casino fromnear Lame Deer, Montana, however, based on current economic conditions the second quartercompany has determined that both the timing and feasibility of 2010this project has become more difficult to the third quarter of 2010. The Company had expecteddetermine. As a result, we believe that the tribe would receive key federalproject assets are impaired and state approvals during the fourth quarter of 2008 which were not receivedcollectability is doubtful and the pending change in the federal administration is expected to further delay the approval process until the second quarter of next year. The effect of the change in the estimated opening date reduced the estimated fair value of the notenotes receivable originally valued at $0.6 million and contract rights originally valued at $0.1 million related to the Montana project by $18,000were written down to zero value as of December, 31, 2008.2009, which resulted in an $0.7 million impairment loss.
On March 19, 2008, we announced that we are no longer pursuing the Nambé Pueblo project. As of December 31, 2008,2009, we have advanced $0.7 million for the development of the project, all of which is expected to be reimbursed by the Nambé TribePueblo through revenues from the revenues of their expectedfuture gaming project. In addition, the Company expects to negotiate payment from the Nambé Tribe or its new developer for the value of the exclusive gaming rights granted to the Company by the Nambé Tribe. However, in December, 2007, the Company recorded an impairment loss associated with the related contract rights of $0.2 million, pending a resolution with the Nambé Tribe.operations, if developed. The estimated fair value of the receivable from the Nambé projectPueblo is now based on the assumption that the Nambé TribePueblo will develop a smaller scope project (“Travel Center”) and will repay the advances over a five-year period after the project opens with interest at prime plus 2%. as per our agreement. However, the collectability ultimately depends on the successful development and operation of the project, which we have no influence over, and accordingly, we have discounted the payment stream using a 20%23% discount rate. The development agreement between the Company and the Nambé Tribe provides that the Company is entitled to recoup its advances from future gaming development, even if the Company does not ultimately develop the project. The Nambé Tribe has confirmed in writing that it is obligated to repay the reimbursable advances. In addition, the Nambé Tribe has informed management that it intends to develop a small gaming facility with another developer. Accordingly, management believes that the Nambé TribePueblo has the intent and will likely have the ability to repay the advances either using a portion of the project financing orfrom future cash flows of the project once open. During February 2010, we were advised that the Pueblo had located a willing financial source to fund the gaming development. Funding is expected during the first quarter of 2010 with the expected facility opening within seven months of receipt of funding. There can be no assurance that a facility will open or that we will receive all or part of the reimbursement. 21
Due to the absence of observable market quotes on our notes receivable from tribal governments, management develops inputs based on the best information available, including internally-developed data, such as estimates of future interest rates, discount rates and casino opening dates as discussed below. The estimated fair value of our notes receivable related to tribal casino projects make up approximately 11%9% of our total assets, and are the only assets in our financial statements that are reported at estimated fair value. Changes in the estimated fair value of our notes receivable are reported as unrealized gains (losses), which affect reported net income, but do not affect cash flows. 28
The following table reflects selected key assumptions and information used to estimate the fair value of the notes receivable for all projects at December 31, 2008 included a total aggregate face amount of the note receivable of $6.3 million. The estimated years until opening and 2007: | | | | | | | | | | | | | 2008 | | | 2007 | | | Aggregate face amount of the notes receivable (including interest) | | $ | 6,281,329 | | | $ | 14,084,100 | | | | | | | | | | | | | Estimated years until opening of casino: | | | | | | | | | | FireKeepers | | | .75 | | | | 1.50 | | | Montana | | | 1.75 | | | | 1.75 | | | | | | | | | | | | | Discount rate: | | | | | | | | | | FireKeepers | | | 17.0 | % | | | 17.5 | % | | Montana | | | 23.0 | % | | | 22.5 | % | | | | | | | | | | | | Estimated probability of the casino opening as expected: | | | | | | | | | | FireKeepers | | | 96 | % | | | 96 | % | | Montana | | | 70 | % | | | 80 | % |
For the portion of the notes not repaid prior to the commencement of operations, management estimates that the stated interest rates during the loan repayment terms will be commensurate with the inherent risk at that time. The estimated probability rates have been re-evaluated and modified accordingly, based on project-specific risks such as delays of regulatory approvals for the projects and review of the financing environment. The estimated casino opening dates used in the valuations take into account project-specific circumstances such as ongoing litigation, the status of required regulatory approvals, construction periods and other factors. Factors that we consider in arriving at a discount rate include discount rates typically used by gaming industry investors and appraisers to value individual casino properties outside of Nevada and discount rates produced by the widely accepted Capital Asset Pricing Model, or CAPM, using the following key assumptions: S&P 500, 10 and 15-year average benchmark investment returns (medium-term horizon risk premiums); Risk-free investment return equal to the trailing 10-year average for 90-day Treasury Bills; Investment beta factor equal to the unlevered five-year average for the hotel/gaming industry; and Project-specific adjustments based on typical size premiums for “micro-cap” and “low-cap” companies using 10 and 15-year averages, and the status of outstanding required regulatory approvals and/or litigation, if any. Management believes that under the circumstances, essentially three critical dates and events that impact the project specific discount rate adjustment when using CAPM are: (1) the date that management completes its feasibility assessment and decides to invest in the opportunity; (2) the date that construction financing has been obtained after all legal obstacles have been removed; and (3) the date that operations commence. 29
At December 31, 2008 and 2007, the sensitivityAmortizations of changes in the key assumptions (discussed in greater detail below) related to the FireKeepers project are illustrated by the following hypothetical increases (decreases) in the estimated fair value of the note receivable:
| | | | | | | | | | | | | 2008 | | | 2007 | | | Discount rate increases 2.5% | | $ | (106,972 | ) | | $ | (347,790 | ) | | Discount rate decreases 2.5% | | | 112,245 | | | | 366,793 | | | Forecasted opening date delayed one quarter | | | (157,696 | ) | | | (442,085 | ) | | Forecasted opening date accelerated one quarter | | | 164,009 | | | | 460,273 | |
Amortization of gaming and contract rights is, or is expected to be providedare on a straight-line basis over the contractual lives of the assets. The contractual lives may include, or not begin until after, a development period and/or the term of the subsequent management agreement. BecausePrior to 2007, the Company acquired an interest in contract rights, related to three joint venture projects for $1.8 million, of which $1.1 million was allocated to the Michigan project for control of the development period may vary based on evolving events,processes. Accordingly, amortization of these rights commenced immediately with revisions to the estimated contractual lives may require revision in future periods. Accordingly, we extended the development/amortization period accounted for prospectively as changes in 2007 to reflectestimates. Effective August, 2009, the revised anticipated opening date for the Michigan casino. These gaming andremaining contract rights are held by us and are to be assigned to the appropriate operating subsidiary when the related project is operational and, therefore, they are not included in the calculation of the non-controlling interest in the subsidiaries.
Advances to tribes are expected to be repaid prior to commencement of operations, or within the repayment term of typically between five and seven years, commencing 30 to 180 days after the opening of the project. As of December 31, 2008, we estimate the following potential exposure resulting from a project not reaching completion:
| | | | | | | | | | | | | | | | | | | December 31, 2008 | | FireKeepers | | | New Mexico | | | Montana | | | Total | | | Notes receivable | | $ | 4,097,002 | | | $ | 444,996 | | | $ | 572,769 | | | $ | 5,114,767 | | | Contract rights | | | 16,636,358 | | | | — | | | | 159,194 | | | | 16,795,552 | | | | | | | | | | | | | | | | | | | $ | 20,733,360 | | | $ | 444,996 | | | $ | 731,963 | | | $ | 21,910,319 | | | | | | | | | | | | | | | |
Amortization of contract rights is expected to be providedhave been amortized on a straight-line basis over the contractual lives of the assets. The contractual lives may include, or not begin until after a development period and/or theseven year term of the subsequentGEM management contract. The FireKeepers casino opened on August 5, 2009, and as a result, the $16.2 million of contract rights associated with the FireKeepers project began being amortized on August 5, 2009 on a straight-line basis over the seven year term of the GEM management agreement. Because the development period may vary based on evolving events, the estimated contractual lives may require revision in future periods. The contract rights are owned solely by us and are expected to be assignedDue to the appropriate operating subsidiary when the related project is operationalfinancing and therefore, the contract rights are not currently included in the balance of non-controlling interests.
Due to our current financingdevelopment arrangement for the development of the Michigan project through GEM, a 50%-owned joint venture, we believe we arewere exposed to the majority of risk of economic loss from the joint venture’s development activities. Therefore, in accordance with Financial Accounting Standards Board (“FASB”) Interpretation No. 46 (Revised), ASC Topic 810,Consolidation of Variable Interest Entities (FIN 46(R)), we consider the joint venture to be a variable interest entity that requires consolidation in our financial statements.
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Recently Issued Accounting Pronouncements In September 2006,No recently issued accounting pronouncements not yet adopted are expected to have a material impact on the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 157,Fair Value Measurements. SFAS No. 157 defines fair value and establishes a framework for measuring fair value and expands disclosures about fair value measurements. Although SFAS No. 157 is effective now (and has been adopted) as amended by FASB Staff Position (“FSP”) FAS 157-3,Determining the Fair Value of Financial Asset when the Market for that Asset is not Active, issued in October 2008, for financial assets and liabilities carried at estimated fair value, it will become effective in 2009 for any nonfinancial assets and liabilities so carried, but we have none. Therefore, no future effect of the non-financial provisions of SFAS No. 157 on ourCompany’s future financial position, results of operations or cash flows is expected.
In December 2007, the FASB issued SFAS No. 160,Noncontrolling Interests in Consolidated Financial Statements-an amendment of ARB No. 51,which establishes accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS No. 160 is effective for us for 2009, and early adoption is prohibited. Among the effects of SFAS No. 160 will be the future exclusion from net income (loss) of the non-controlling interest therein and the relocation of such non-controlling interest to the stockholders’ equity section of the balance sheet. We are currently evaluating the effects, if any, that SFAS No. 160 will have on our future financial position, results of operations and operating cash flows.
In December 2007, the FASB issued SFAS No. 141 (Revised 2007),Business Combinations. SFAS No. 141R will significantly change the accounting for business combinations for which the acquisition date is in 2009 or thereafter. We are currently evaluating how SFAS 141R will impact our financial statements should we enter into any business combination transactions after 2008. However, we currently have no announced or pending business combination transactions.
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Results of Operations A significant portion of our revenue is generated from our management agreements with the Harrington Casino in Delaware and the FireKeepers Casino in Michigan. The Delaware contract ends in August 2011 and the Michigan contract ends in August 2016. There can be no assurance that either contract will be extended. Year Ended December 31, 20082009 Compared to Year Ended December 31, 20072008 Operating revenues from continuing operations.For the year ended December 31, 2008,2009, total operating revenues from continuing operations increased by $0.1$9.3 million principallyor 96.6%, as compared to 2008, primarily due to the fact that Stockman’s$10.0 million of management fees recognized in 2009, related to the operations of FireKeepers Casino, was acquired on January 31, 2007 resultingwhich opened in eleven months of operations in 2007 and twelve months of operations in 2008.August 2009. The increase in operating revenues was offset by a decrease in casino and food and beverage revenues of $0.5$0.6 million was offset by a decreaseor 6.4% We believe the decline in revenues at Stockman’s is consistent with and results primarily from the general economic weakness in Churchill County, Nevada, since our market share of $0.4 millionslot win increased from 33.9% in other operating income principally due2008 to the recognition36.9% in the second quarter of 2007, of one-time revenues of $0.3 million related to the termination of a consulting agreement with the Hard Rock casino in Biloxi.2009. Operating costs and expenses from continuing operations.For the year ended December 31, 2008,2009, total operating costs and expenses decreased $0.1increased $0.7 million, or 5.5% as compared to the prior year,2008, primarily as a resultdue to an increase in contract rights amortization of decreases$0.9 million or 72.2% related to FireKeepers beginning in project development costs and selling, general and administrative expenses (as discussed below),August 2009, offset by an increasea decrease in Stockman’s casino and food and beverage expenses of $0.5 million or 10.2% due to the fact that Stockman’s, which was acquired on January 31, 2007,decline in sales volume and was operated by the Company for only eleven months in the prior year.general cost control efforts. Project development costs.ProjectFor 2009, project development costs decreased by $0.3 millionincreased $67,233 or 65.0%44.5%, as compared to 2008, primarily due to reductions inan increase of $0.2 million related to new business development, activity and reducedoffset by lower project development expenses for the tribal projects related to GEM of $0.1 million, or 68.2% due to the discontinuanceopening of the Nambé project, reduced activity in the Northern Cheyenne project and as a result of the Michigan Tribe obtaining project financing, which enabled the Michigan Tribe to fund the majority of its project costs beginning in the second quarter of 2008.FireKeepers Casino. Selling, general and administrative expense.Selling,For 2009, selling, general and administrative expenses decreased by $0.05increased $0.2 million, or 8.1%3.4%, as compared to 2007, primarily2008 mainly due to decreasesincreased cash incentive compensation expense at the corporate level in employee related expenses related to the reduction of stock based compensation and$0.7 million, offset by increases related to the Stockman acquisition as noted above. Depreciation and amortization.Depreciationreduced stock compensation of $0.5 million. The increase in cash incentive compensation expense increased by $0.2 million from the prior year primarilyis due to the purchasesuccessful opening of propertythe FireKeepers project and equipmentsubsequent achievement of $0.5 million during 2008 and one more month of depreciation in 2008 when compared to 2007.management fee targets.
Operating gains (losses).For the year ended December 31, 2008,2009, operating gains increaseddecreased by $1.6$3.7 million, or 33.8%58.7%. The increasedecrease is primarily due to the net impact$2.1 million GEM Member agreement modification signed in October 7, 2009. In September 2009, payables due from GEM to each member were adjusted to reflect a total payable due to RAM of $8.5 million, including $2.7 million reported as equity, and a total payable due to the changeCompany of $11.9 million, including $2.7 million reported as equity, resulting in the discount rates andrecognition of a net pre-tax gain of $1.4 million. The net pre-tax gain is distributed gross on the estimated opening datesstatements of operations for the period ended December 31, 2009, as a $2.1 million charge characterized as a member agreement modification offset by a $3.5 million credit attributable to the non-controlling interest. Also operating gains decreased due to lower unrealized gain on notes receivables by $1.5 million, primarily due to a $1.6 million gain for GEM in the prior year related to the repayment of $9.3 million of the tribal projects which resulted in an increase in unrealized gains of $1.3 million or 151.1% from the prior year. This increase is primarily due to the Michigan project, which is scheduled to open in the third quarter of 2009. The increase also included an increase in our share of income from the Delaware joint venture of $0.5 million or 11.8% over the prior year due, in part, to our restructured management contract with HRI.receivable. 23
Other income (expense).For the year ended December 31, 2008,2009, other expensesincome increased by $4,896 as compared to 2007, principally due to the decrease$0.6 million, or 159.7% consisting of an increase of interest and other income of $0.6 million, offset by a decrease of interest expense of $0.7 million and increase of $0.2 million in non-controlling interest in net income of consolidated joint venture. The decrease of interest and other income is due to the absence in 2008 of non-recurring revenues of $272,138 recorded in the third quarter of 2007,or 126.2%, related to the transfer of an obligation to pay an architectural firm related toaccrued interest on the Michigan project. Originally, the Company had guaranteed the tribe’s obligation to pay the architectural firm. However, as part of the revised management agreement negotiated during the third quarter of 2007, the obligation was transferred to the Michigan tribe without recourse to the Company and, therefore, the liability was eliminated, as provided in SFAS No. 140. The decrease of interest$5.0 million receivable from FireKeepers. Interest expense isdecreased $0.4 million, or 67.4% due to the reduction in interest expense related to the reduction of outstanding debt on the Company’s revolving line of credit.credit and the pay off of the promissory note to Peters Family Trust. 31
Income taxes.For the year ended December 31, 2008,2009, the effective income tax rate wasis approximately 45%40%, compared to 40%45% for the same period in 2007.2008. The increasedecrease in the effective tax rate from the prior year2008 is primarily due to equity compensation deductions, along with a reduced proportion of state taxable income when compared to total taxable income. There is no valuation allowance on the deferred tax permanent differencesasset of $136,126 as of December 31, 2009 and management believes the deferred tax asset is fully realizable. Non-controlling interest.For 2009, the income attributable to non-controlling interest in consolidated joint venture increased by $0.5 million or 130.9%. The increase is attributable to RAM’s share of the increased net income in GEM of $1.0 million as compared to 2008. The GEM increased net income was due primarily to the approximately $10.0 million in management fee income earned, related to restricted stock grants vested in 2008.the FireKeepers Casino. Liquidity and Capital Resources The Delaware joint ventureUnited States has experienced a widespread and severe recession accompanied by, among other things, weakness in the commercial and investment banking systems resulting in reduced credit and capital financing availability, and highly curtailed gaming and other recreational activities and general discretionary consumer spending, and is also engaged in war, all of which have far-reaching effects on economic conditions in the country for an indeterminate period. The effects and duration of these conditions and related risks and uncertainties on the Company’s future operations and cash flows, including its access to capital or credit financing, cannot be estimated at this time, but may likely be significant. Harrington Raceway and Casino, FireKeepers Casino and Stockman’s Casino operation are currently our primary sources of recurring income and significant positive cash flow. Our management agreement for the Harrington Casino in Delaware ends in August 2011 and our management agreement for the FireKeepers Casino in Michigan end in August 2016. There can be no assurance that either agreement will be extended. Under the management agreement for FireKeepers Casino, certain distributions must be paid from net revenue prior to the payment of the management fee to us. In addition, although the timing of completion is currently unclear, the Gun Lake Tribe has commenced construction of a casino approximately a one hour drive northwest of FireKeepers Casino, which, when completed, may affect the revenues of FireKeepers Casino and ultimately our management fee. GEM began earning management fees from FireKeepers Casino in the third quarter of 2009, with the first payments made in September. Distributions from the Delaware operation are governed by the terms of the applicable joint venture agreement and management reorganization agreement. The total amount distributed from the Delaware operations for the year ended December 31, 2009 and 2008 to us was $4.8 million and $4.6 million, respectively, which is a 6.2% increase from prior year. We expect to continue receiving management fees as currently prescribed under the managementjoint venture agreement, with a minimum guaranteed growth factor over the prior year of 5%5.0% in years 20092010 through August 2011. The cash distributions increased 6.2% in 2009, as compared to the 5.0% minimum guaranteed growth factor as prescribed under the joint venture agreement, due to the fact that the 5.0% growth factor represents cash distributed for the year earned and the 6.2% represents the cash distributed during the year, reflecting timing differences. On a consolidated basis, for the fiscal year ended December 31, 2008,2009, cash provided by operations decreased $1.8increased $9.4 million over prior year primarily due in part to the sale of the hotel in February 2008 and higher GEM expenses.FireKeepers management fees. Cash provided by investing activities increased $23.9decreased $13.9 million from the prior year primarily due to cash proceeds generated from the sale of the Holiday Inn Express in February 2008 of $6.9$7.0 million and the repayment of tribal advances related to the FireKeepers project of $9.3 million in May 2008, partially offset by $2.1 million in cash used to acquire additional Michigan contract rights in the second quarter.2008. In the prior-year period, the primary use of cash for investing activities related to the acquisitionpurchases of Stockman’s Casino.contract rights. Cash used in financing activities increased $10.6decreased $11.1 million primarily due to repaymentdecreased repayments of long-term debt using the net proceeds received from investing activities.debt. As of December 31, 2008,2009, the Company had approximately $5.3$9.2 million in cash and availability on its revolving credit facility of $6.0$8.5 million. 24
The United States is currently experiencing a recession accompanied by, among other things, instability in the investment and commercial banking systems, reduced credit availability and highly curtailed gaming and other recreational activities, and it is also engaged in war. The effects and duration of these developments and related risks and uncertainties on the Company’s future operations and cash flows cannot be estimated at this time but may be significant.
Our future cash requirements will include funding the remaining near and long-term cash requirements of our development expenses for the Michigan and Montana projects, selling, general and administrative expenses, capital expenditures primarily at Stockman’s and debt service. Subject to the economic uncertainties discussed in the previous paragraph,above, we believe that adequate financial resources will be available to execute our current growth plan from a combination of operating cash flows and external debt and equity financing. However, continued downward pressure on cash receiptsflow from operations due to, among other reasons, the adverse effects of the current economic environment and/or the lack of available funding sources due to, among other reasons, the recent unprecedented global contraction in available credit increases uncertainty with respect to our development and growth plans. Again, subject to the foregoing uncertainty about credit availability and a significant national downward trend in casino gaming activity due to recent economic developments, we believe that our casino development projects currently in progress will likely be constructed and ultimately, will achieve profitable operations; however, no assurance can be made that this will occur or how long it will take. If our casino development projects currently in progress are not completed, or upon completion, if we fail to successfully compete within a reasonable timeframe in the highly competitive and currently declining market for gaming activities, we may lack the funds to compete for and develop future gaming or other business opportunities.
Long-term debt includes a reducing revolving loan from Nevada State Bank. The maximum committed amount under the Revolver was increased from $8.1 million to $8.9 million, based upon the amendment to the Revolver dated June 25, 2009 and the repayment terms were amended (as discussed below). The maximum amount permitted to be outstanding under the reducing revolving loanRevolver decreased $312,000 on July 1, 2009. Effective January 1, 2010, based upon the amendment to the Revolver, the maximum amount permitted to be outstanding decreases $0.3 million$329,000 semiannually on January 1 and July 1 of each year and any outstanding amounts above such reduced maximum must be repaid on each such date. The reducing revolving loan is payable over 15 years at a variable interest rate based on the five-year LIBOR/Swap rate plus 2.1%. This rate, which was 7.24% per annum as of December 31, 2009 and 7.39% per annum as of December 31, 2008, and December 31, 2007, adjusts annually based on the funded debt to EBITDA ratio of Stockman’s, with adjustments based on the five-year LIBOR/Swap rate occurring every five years. With the sale of the Holiday Inn Express in February 2008, the balance on the loan was reduced from $10.9 million to $3.9 million, and the Company’s availability under the facility increased to approximately $5.3 million. In addition, periodic payment requirements were reduced on a pro-rata basis. On October 23, 2008, the Company paid additional principal of $0.6 million and the line of credit availability as of December 31, 2008 was $6.0 million. In March, 2009, the Company made $2.3 million of voluntary principal payments on its revolving credit line, increasing the availability under the line to $7.9 million and reducing its cash balance to $3.5 million. The remaining balance of $0.2 million is not due until Januarywas paid on November 23, 2009, and the line of 2022.credit availability as of December 31, 2009 was $8.5 million. 32
The loan agreement with Nevada State Bank also contains customary financial representations and warranties and requires that Stockman’s maintain specified financial covenants, including a fixed charge coverage ratio, a funded debt to EBITDA ratio and a minimum tangible net worth. In addition, the loan agreement limits the amount of distributions from and capital expenditures by Stockman’s. The loan agreement also provides for customary events of default including payment defaults and covenant defaults. The Company is in technical default of a loan covenant that requires Stockmans to maintain a minimum tangible net worth based on an annually increasing calculation and has applied for a waiver, which management expects to be approved based on Stockman Casino’s performance, our cash balance and the fact that we have fully repaid the Nevada State Bank loan. The technical default does not affect our line of credit availability and we have access to the full credit line amount. TheOn June 30, 2009 the Company paid off the Peters Family Trust promissory note of $0.7 million plus $4,477 in accrued interest with a drawdown of the Revolver. The original amount of the promissory note was $1.25 million, payable to the seller of Stockman’s bears interest at 7.44% per annum, is payable inover 60 monthly installments of principal and interest and iswas secured by a second interestlien in the real estate of Stockman’s.
On Effective July 7, 2008,9, 2009 the Company announced a stock repurchase plan (the “Repurchase Plan”). Under the Repurchase Plan, the Company’s board of directors authorized the repurchase of up to $1.0 million of the Company’s common stocksecond lien in the open market or in privately negotiated transactions from time to time, in compliance with Rule 10b-18 of the Securities and Exchange Act of 1934, subject to market conditions, applicable legal requirements and other factors. On October 14, 2008, the Company’s board of directors authorized the repurchase of an additional $1.0 million of the Company’s common stock, and extended the expiration of the Repurchase Plan to April 30, 2009. Through December 31, 2008, the Company had repurchased 1,210,414 shares at a weighted average-price per share of $1.21, costing $1.5 million, (including commissions and other related transaction costs). The Repurchase Plan does not obligate the Company to acquire any particular amount of common stock and may be suspended at any time at management’s discretion.
As of December 31, 2008, the Company held $3.6 million in a U. S. Government money market account, included in total cash of $5.3 million. On September 29, 2008 the US Treasury announced a Temporary Guarantee Program for US Registered Money Market Funds. Under this new Treasury Department program, investments in a money market fund as of September 19, 2008, will be temporarily insured to enable shareholders to receive a net asset value of $1.00 per share if the fund is liquidated. The program is designed to address current market conditions and will initially exist only for a three-month period. The Treasury Department can extend the program for up to an additional nine months, as needed. We believe it is unlikely that the insurance will be necessary for our U.S. Government money market fund, as investments in the fund continue to adhere to strict credit quality, liquidity and diversification guidelines.
On January 31, 2007, we acquired all of the outstanding shares of capital stockreal estate of Stockman’s for $28.1 million, which included $0.7 million of capitalized costs, plus $0.7 million for the right to adjust the tax basis of the assets acquired. Stockman’s owns and operates Stockman’s Casino and, until February 20, 2008, the Holiday Inn Express in Fallon, Nevada. The transaction was financed with a portion of the net proceeds from our December 2006 stock offering, cash on hand, $16 million of debt secured by the capital stock and assets of Stockman’s and a $1.25 million promissory note to the seller of Stockman’s.released.
Effective May 15,In 2007, GEM entered into an agreement with Green Acres whereby GEM acquired all of Green Acres’ interests in the Nottawaseppi Huron Band of Potawatomi casino project in MichiganGEM for $10$10.0 million. GEM’s members equally funded an initial deposit and periodic payments of approximately $0.6 million. The repayment was funded with $9.3 million of proceeds received from a partial payment on the notes receivable related to the FireKeepers project, which was tied to the construction financing for the project. The net realizable value of the Michigan receivable has been classified as short term, as the remaining obligation$5.0 million of $9.5 million, although unsecured, was recorded as a long-term liability once the management agreement between GEM andnotes receivable from the Authority was approved in December 2007. On May 6, 2008, in conjunction withpaid from the financing of the FireKeepers Casino, the Company applied the proceeds of the $9.3 million tribal receivable reimbursement to pay off the remaining balance of the $9.5 million Green Acres liability.
In December 2007, RAM exercised its conversion optionconstruction disbursement account on its $2.4 million loan to the Company. As a result, $2.0 million of the loan was converted to a capital contribution to the Michigan joint venture, and the loan balance of $0.4 million, plus $0.6 million of accrued interest on the original loan, became a liability of GEM.February 12, 2010.
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Additional projects are considered based on their forecasted profitability, development period, regulatory and political environment and the ability to secure the funding necessary to complete the development, among other considerations. As part of our agreements for tribal developments, we typically fund costs associated with projects which may include legal, civil engineering, environmental, design, training, land acquisition and other related advances while assisting the tribes in securing financing for the construction of the project. The majority of costs are advanced to the tribes and are reimbursable to us, pursuant to management and development agreements, as part of the financing of the project’s development. While each project is unique, we forecast these costs when determining the feasibility of each opportunity. Such agreements to finance costs associated with the development and furtherance of projects are typical in this industry and have become expected of tribal gaming developers. 25
As of December 31, 2009, the Company had $9.2 million of cash. Approximately $1.0 million is on hand for operations, which is insured through Travelers Casualty & Surety Company of America for up to $1.0 million. Through Nevada State Bank, a subsidiary of Zions Bancorporation, $0.9 million is held in a non-interest bearing account, which is currently 100% FDIC-insured through June 30, 2010, and $7.4 million is held in a U. S. Government money market account. The Street.com rated Zions D+ in their January 6, 2010 report stating “the institution currently demonstrates significant weaknesses which could negatively impact depositors or creditors. In an unfavorable economic environment, these weaknesses could be magnified”. Bankrate.com rated Nevada State Bank as “below peer group” in its most recent report stating “as of September 30, 2009, this bank exhibited a below average condition, characterized by substantially lower than normal overall, sustainable profitability, questionable asset quality, but with strong capitalization and seemingly ample liquidity”. As of February 26th, 2010, the Company moved all of its cash balances held at Nevada State Bank into FDIC-insured accounts. FireKeepers project GEM, our FireKeepers Casino joint venture, has the exclusive right to arrange the financing and provide casino management services to the Michigan Tribe in exchange for a management fee, after certain other distributions are paid to the Tribe, of 26% of net revenues (defined effectively as net income before management fees) for seven years which commenced upon the opening of the FireKeepers Casino on August 5, 2009. The terms of our management agreement were approved by the NIGC in December 2007 and a revised management agreement was approved in April 2008. In 2007, GEM acquired all of Green Acres’ interests in GEM for $10.0 million. GEM’s members equally funded an initial deposit of $0.5 million in the second quarter of 2007, and the remaining balance was paid in May 2008. The repayment was funded with $9.3 million of proceeds received from a partial payment on the notes receivable related to the FireKeepers project, which was tied to the construction financing for the project. The remaining $5.0 million of notes receivable from the Authority plus interest was paid in February 2010. In 2002, in exchange for funding a portion of the development costs, RAM advanced the Company $2.4 million, which was partially convertible into a capital contribution to the GEM joint venture upon federal approval of the land into trust application and federal approval of the management agreement with the Authority. Subsequently, RAM exercised its conversion option on its $2.4 million loan to the Company. As a result, $2.0 million of the loan was converted to a capital contribution to the GEM joint venture, and the loan balance of $0.4 million, plus $0.6 million of accrued interest on the original loan, became a liability of GEM. At December 31, 2009, GEM’s total liabilities to RAM were approximately $1.5 million, which bear no interest effective September 30, 2009, and are expected to be fully repaid in the first half of 2010. For the twelve month period ending December 31, 2009, the Company had loaned $0.4 million and RAM had loaned $0.4 million to GEM to fund current operating expenses and $4.3 million has been repaid to RAM from distributable GEM income. On October 9, 2009, effective September 30, 2009, an agreement was reached between the Company and RAM (GEM Financial Resolution) clarifying the treatment of the following items: Reimbursable amounts funded by the members, due from the Michigan Tribe before the RAM buy-in as the prior agreements were silent on reimbursements to members. Non-reimbursable amounts funded by the Company, related to the Michigan Tribe, as the prior agreements were unclear if these were reimbursable by GEM to the Company. Repayments of disproportionate advances by the Company as prior agreements were unclear as to what percentages would be used regarding repayment. 26
As a result, payables due from GEM to each member were adjusted to reflect a total payable due to RAM of $8.5 million, including $2.7 million reported as equity, and a total payable due to the Company of $11.9 million, including $2.7 million reported as equity, resulting in the recognition of a net pre-tax gain $1.4 million, which was recorded in September 2009. The net pre-tax gain is distributed gross on the statements of operations for the period ended September 30, 2009, as a $2.1 million charge characterized as a member agreement modification offset by a $3.5 million credit attributable to the non-controlling interest. In addition, the GEM members agreed that distributions to the members will be made on a 50/50 basis to both members until such time RAM’s member payable has been fully repaid and thereafter 70% to the Company and 30% to RAM until such time as the remaining payable to the Company has been repaid. Thereafter, distributions to members will be made on a 50/50 basis. Also, no further interest accruals will be made on any member’ payables. As a result of the GEM member agreement, the Company has reclassified the due to joint venture affiliate of $1.5 million as current portion of long-term debt with the balance of the RAM payable classified as joint venture equity. For the twelve month period ending December 31, 2009, $4.3 million has been repaid to RAM from GEM’s approximately $10.0 million management fee income. The FireKeepers Casino commenced operations on August 5, 2009. FireKeepers Casino is located at Exit 104 directly off Interstate 94 in Battle Creek, Michigan. FireKeepers has a 107,000 square foot gaming floor with 2,680 slot machines, 78 table games, a 120-seat poker room and a bingo hall. In addition, the property features five restaurants, including a 70-seat fine dining signature restaurant, a 300-seat buffet and 150-seat 24-hour cafe, as well as approximately 3,000 parking spaces including an enclosed 2,080-space parking garage attached to the casino. Although certain distributions (including a minimum guaranteed monthly payments to the Tribe of $50,000, a preferred payment to the Tribe of $0.2 million and repayment of loan principal to be paid out of the Tribe’s share of net revenues) will be paid from net revenue prior to the payment to the Company of the management fee, the Company believes the property will generate sufficient revenues to pay the management fee equal to 26% of net revenues on a monthly basis. Other projects Since 2005, we have been party to development and management agreements with the Montana tribe for a proposed casino to be built approximately 28 miles north of Sheridan, Wyoming. The Montana tribe currently operates the Charging Horse casino in Lame Deer, Montana, consisting of 100 gaming devices, a 300-seat bingo hall and restaurant. As part of the agreements, we have committed on a best efforts basis to arrange financing for the costs associated with the development and furtherance of this project up to $15.0 million. As of December 31, 2009, our advances to the Northern Cheyenne Tribe total $0.7 million. We are not obligated to fund the construction phase of our Northern Cheyenne project in Montana. The recent economic recession and resulting impact on credit availability has significantly decreased the likelihood that financing could be obtained on favorable terms if at all for the Montana project in the foreseeable future. The company intends to continue working with the Northern Cheyenne Nation to pursue the development of a casino near Lame Deer, Montana, however, based on current economic conditions the Company has determined that both the timing and feasibility of this project have become more difficult to determine. As a result, we believe that the project assets are impaired and collectability is doubtful and the notes receivable originally valued at $0.6 million and contract rights originally valued at $0.1 million related to the project were written down to zero value as of December, 2009, which resulted in an $0.7 million impairment loss. On March 19, 2008, we announced that we are no longer pursuing the Nambé Pueblo project. As of December 31, 2009, we have advanced $0.7 million for the development of the project, all of which is expected to be reimbursed by the Pueblo through revenues from future gaming operations, if developed. The estimated fair value of the receivable from the Pueblo is now based on the assumption that the Pueblo is in the process of developing a small casino addition to their existing travel center and will likely have the ability to repay the advances from future cash flows of the project, once open, over a five-year period with interest at prime plus 2% as per our agreement. However, the collectability ultimately depends on the successful development and operation of the project, which we have no influence over, and accordingly, we have discounted the payment stream using a 23% discount rate. Accordingly, management believes that the Nambé Pueblo has the intent and will likely have the ability to repay the advances from future cash flows of the project once open. During February 2010, we were advised that the Pueblo had located a willing financial source to fund the gaming development. Funding is expected during the first quarter of 2010 with the expected facility opening within seven months of receipt of funding. There can be no assurance that a facility will open or that we will receive all or part of the reimbursement. 27
Additional projects are considered based on management’s forecasts of their profitability, development period, regulatory and political environment and the ability to secure the funding necessary to complete the development, among other considerations. As part of our agreements for tribal developments, we typically fund costs associated with projects which may include legal, civil engineering, environmental, design, training, land acquisition and other related advances while assisting the tribes in securing financing for the construction of the project. The majorities of these costs are advanced to the tribes and are reimbursable to us, pursuant to management and development agreements, as part of the financing of the project’s development. While each project is unique, we forecast these costs when determining the feasibility of each opportunity. Such agreements to finance costs associated with the development and furtherance of projects are typical in this industry and have become expected of tribal gaming developers. Our agreements with the various Indian casino projects Because we have received proposalstribes contain limited waivers of sovereign immunity and, in many cases, provide for arbitration to enforce the agreements. Generally, our only recourse for collection of funds under these agreements is from several funding sources for our Indian casino projects, we expect to successfully arrange on behalf of the tribe third party funding for the construction stage of our Indian casino projects. However, if none of these proposals result in funding on acceptable terms, we believe that we could either sell our rights to one or more projects and land held, find a partner with funding, or abandon the project and have our receivables reimbursed from future tribal gaming operations,revenues, if any, developed by another party.of prospective casino operations.
Presently, we do not generate sufficient internal cash flow to fundAt December 31, 2009, the construction phase of our Indian casino projects. If we were to discontinue development activities related to any or all of these projects, the related receivables and intangibles would then be evaluated for impairment. The December 2008 balance of notes receivable from Indian advances wastribes have been discounted approximately $1.2$0.6 million below the contractual value of the notes (including accrued interest) and the related contract rights are valued substantially below the anticipated undiscounted cash flowsflow from the management fees of the projects. Therefore, although the actual amount cannot be estimated at this time, we currently do not believe that the carrying value of our long-term assets related to tribal casinos has been impaired.
Our funding of the Michigan project and our liquidity are affected by an agreement with RAM, the non-controlling, 50% owner of our Michigan joint venture. In February 2002, in exchange for funding a portion of the development costs, RAM advanced us $2.4 million which was partially convertible into a capital contribution to the Michigan joint venture upon federal approval of the land into trust application and federal approval of the management agreement with the Michigan Tribe, both of which had occurred as of December 31, 2007. Accordingly, in December 2007, RAM exercised its conversion option and $2.0 million of the original loan was converted into a capital contribution to the Michigan joint venture, with the remaining loan balance of $0.4 million, plus $0.6 million of accrued interest becoming debt repayable solely from the Michigan joint venture.
On May 6, 2008, the Authority closed on the sale of $340$340.0 million of Senior Secured Notes and a $35$35.0 million equipment financing facility to fund the development and construction of the Tribe’stribe’s FireKeepers Casino in Michigan. On the same date, GEM received a payment of approximately $9.3 million on its notes receivable from the Authority withand the remaining $5.0 million to bewas paid 180 days following the opening of the casino, subject to there being adequate funds remaining in the construction disbursement account. If there are insufficient funds to repay the remaining balance, the Authority will be obligated to repay the balance in 60 monthly installments beginning 180 days following the opening of the casino, plus interest at prime plus 1%.February 12, 2010. On the same day,May 6, 2008, GEM funded $2.1 million in financing costs on behalf of the Authority, as required by the management agreement, which was recorded as additional gaming rights related to the Michigan project. The Company and RAM each contributed one-half of the funds to GEM for GEM to make this funding. The FireKeepers Casino commenced operations on August 5, 2009. Our Michigan joint venture has the exclusive rightThe Company continues to arrange the financingactively investigate, individually and provide casino management services to the Michigan Tribe in exchange for a management fee of 26% of net revenues (defined effectively as net income before management fees) for seven years. The terms of our management agreement were approved by the NIGC in December 2007 and an amended contract as approved in April 2008. No assurance can be given that the management fee paid by FireKeeperswith partners, new business opportunities. Management believes they will have sufficient cash and financing available to fund acquisitions and development opportunities in the future.
| | | | Item 7A. | | Quantitative and Qualitative Disclosures about Market Risk. |
As a significant impact onsmaller reporting company, the Company’s cash flow from operations.Company is not required to provide the information required by this item. | | | | Item 8. | | Financial Statements and Supplementary Data. |
34
In May 2005, we entered into development and management agreements with the Northern Cheyenne Tribe of Montana for a proposed casino to be built approximately 28 miles north of Sheridan, Wyoming. The Northern Cheyenne Tribe currently operates the Charging Horse casino in Lame Deer, Montana, consisting of 200 gaming devices, a 300 seat bingo hall and restaurant. As part of the agreements, we have committed on a best efforts basis to arrange financing for the costs associated with the development and furtherance of this project up to $16 million. Our agreements with the tribe provide for the reimbursement of these advances either from the proceeds of the financing of the development, the actual operation itself or, in the event that we do not complete the development, from the revenues of the tribal gaming operation undertaken by others. The management agreement and related contracts have been submitted to the NIGC for approval, but will be revised as necessary based on the final agreed upon size and scope of the project with the tribe.
Presently, we are not obligated to fund the construction phase of our Northern Cheyenne project in Montana. The FireKeepers casino development financing has been secured by the tribe. The recent unprecedented global contraction in available credit significantly decreases the likelihood that financing could be obtained on favorable terms if at all for the Montana project this year. We believe that credit markets will improve sufficiently in order for the Montana Tribe to fund the project when we are expected to commence construction later next year. However, if the Montana Tribe is unable to obtain funding on acceptable terms, we believe we could either sell our rights to the Montana project, find a partner with funding, or abandon the Montana project and have our receivables reimbursed from the gaming operations, if any, developed by another party. However, if we were to discontinue the Montana project, the related receivables and intangibles would then be evaluated for impairment.
In 2005, we signed gaming development and management agreements with the Nambé Tribe of New Mexico to develop a 50,000 square foot facility including gaming, restaurants, entertainment and other amenities as part of the tribe’s multi-phased master plan of economic development. In March 2008, management announced that the Company was no longer pursuing the Nambé project. Pursuant to the terms of the development agreement, the Nambé Tribe has recognized the obligation to reimburse all of the Company’s development advances for the project. Full House currently has advanced $0.7 million for the development of the project, all of which is expected to be reimbursed by the Nambé Tribe. In addition, management expects to negotiate payment from the Nambé Tribe or its new developer for the value of the exclusive gaming rights granted to the Company by the Nambé Tribe. The receivable from the Nambé Tribe is valued based on the present value of a five-year collection period and a 20% discount rate. The collectability ultimately depends on the quality and timing of the project development which we are monitoring, but have no influence over.
Our agreements with the various Indian tribes contain limited waivers of sovereign immunity and, in many cases, provide for arbitration to enforce the agreements. Generally, our only recourse for collection of funds under these agreements is from revenues, if any, of prospective casino operations.
Other
As part of the termination of our Hard Rock licensing rights in Biloxi, Mississippi, we agreed to provide consulting services to Hard Rock if and when the Biloxi facility opens, entitling us to annually receive the greater of $100,000 or 10% of licensing fees for the two year consulting period. However, due to the devastation caused by Hurricane Katrina, which caused severe damage to the Hard Rock Casino in Biloxi, the opening of the facility, which was originally scheduled for the third quarter of 2005, was postponed to the summer of 2007. Full House received a one-time cash payment of $0.3 million in the second quarter of 2007, related to the termination of a consulting agreement with the Hard Rock casino in Biloxi, Mississippi.
In 2006, we declared a dividend of $3.0 million equal to the amount of previously accrued and unpaid dividends, on the 700,000 outstanding shares of our Series 1992-1 Preferred Stock, which was paid in January 2007. Concurrent with payment of the dividends, the holders’ exercised their right to convert the preferred stock into common stock on a one-for-one basis and accordingly, as of December 31, 2007 and 2008, there are no preferred shares issued or outstanding and no future dividend payments are currently contemplated.
35
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Market risk is the risk of loss from changes in market rates or prices, such as interest rates and commodity prices. We are exposed to market risk in the form of changes in interest rates and the potential impact such changes may have on our variable rate debt. We have not invested in derivative based financial instruments.
Our cash and cash equivalents are not subject to significant interest rate risk due to the short maturities of these instruments. As of December 31, 2008, the carrying value of our cash and cash equivalents approximates fair value. However, we have cash on deposit with financial institutions substantially in excess of federally-insured limits, and the risk of losses related to such concentrations may be increasing as a result of economic developments.
Of our total outstanding debt, including accrued interest, of approximately $6.4 million at December 31, 2008, $5.6 million is subject to variable interest rates, which averaged 5.63% as of December 31, 2008. The applicable interest rates are based on the prime lending rate or the five-year LIBOR/Swap rate; and therefore, the interest rate will fluctuate as the index lending rates change. Based on our outstanding variable rate debt at December 31, 2008, a hypothetical 100 basis point (1%) change in rates would result in an annual interest expense change of approximately $56,069. At this time, we do not anticipate that either inflation or interest rate variations will have a material impact on our future operations.
36
Item 8. Financial Statements and Supplementary Data.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors
Full House Resorts, Inc.
Las Vegas, NV We have audited the accompanying consolidated balance sheets of Full House Resorts, Inc. and Subsidiaries (the “Company”) as of December 31, 20082009 and 2007,2008, and the related consolidated statements of operations, stockholders’ equity and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 20082009 and 2007,2008, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States. /s/ Piercy Bowler Taylor & Kern Piercy Bowler Taylor & Kern
Certified Public Accountants
Las Vegas, Nevada March 25, 200923, 2010 3729
FULL HOUSE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 20082009 AND 20072008 | | | | | | | | | | | | | | | | | | | | | 2008 | | 2007 | | | 2009 | | 2008 | | ASSETS | | | | Current assets | | | | Cash and equivalents | | $ | 5,304,755 | | $ | 7,975,860 | | | $ | 9,198,399 | | $ | 5,304,755 | | | Accounts receivable, net of allowance for doubtful accounts of $20,000 and $20,000 | | 597,848 | | 319,865 | | | | Notes receivable related to tribal casino project | | | 4,682,420 | | — | | | Accounts receivable, net of allowance for doubtful accounts of $1,072 and $20,000 | | | 1,802,100 | | 597,848 | | | Prepaid expenses | | 504,021 | | 351,658 | | | 372,735 | | 504,021 | | | Deposits and other current assets | | 98,209 | | 172,120 | | | | Deferred tax asset | | 293,598 | | 340,489 | | | 136,126 | | 293,598 | | | Assets held for sale | | 45,000 | | 6,960,762 | | | | Deposits and other | | | 90,685 | | 98,209 | | | Asset held for sale | | | — | | 45,000 | | | | | | | | | | | | | | | | | 6,843,431 | | 16,120,754 | | | 16,282,465 | | 6,843,431 | | | | | | | | | | | | | | | Property and equipment, net of accumulated depreciation, of $4,985,766 and $3,848,439 | | 8,630,024 | | 9,227,113 | | | | Property and equipment, net of accumulated depreciation, of $5,940,540 and $4,985,766 | | | 7,961,734 | | 8,630,024 | | | | | | | | | | | | | | | | | | | Long-term assets related to tribal casino projects | | | | Notes receivable | | 5,114,767 | | 12,178,481 | | | 430,467 | | 5,114,767 | | | Contract rights, net of accumulated amortization of $729,228 and $670,927 | | 16,795,552 | | 14,761,133 | | | | Contract rights, net of accumulated amortization of $1,748,570 and $729,228 | | | 15,617,016 | | 16,795,552 | | | | | | | | | | | | | | | | | 21,910,319 | | 26,939,614 | | | 16,047,483 | | 21,910,319 | | | | | | | | | | | | | | | | | | | Other long-term assets | | | | Other assets | | | | Goodwill | | 10,308,520 | | 10,308,520 | | | 10,308,520 | | 10,308,520 | | | Deposits and other | | 775,829 | | 868,265 | | | 985,384 | | 775,829 | | | | | | | | | | | | | | | | | 11,084,349 | | 11,176,785 | | | 11,293,904 | | 11,084,349 | | | | | | | | | | | | | | | | | $ | 48,468,123 | | $ | 63,464,266 | | | $ | 51,585,586 | | $ | 48,468,123 | | | | | | | | | | | | | | | | | | LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | Current liabilities | | | | Current portion of long-term debt | | $ | 225,224 | | $ | 259,124 | | | | Current portion of long-term debt to joint venture affiliate | | | $ | 1,450,087 | | $ | — | | | Current portion of long-term debt, other | | | — | | 225,224 | | | Accounts payable | | 239,059 | | 274,411 | | | 136,485 | | 239,059 | | | Income taxes payable | | | 2,273,777 | | 115,485 | | | Accrued expenses | | 1,021,817 | | 1,364,293 | | | 1,012,226 | | 906,332 | | | | | | | | | | | | | | | | | 1,486,100 | | 1,897,828 | | | 4,872,575 | | 1,486,100 | | | Long-term debt due to joint venture affiliate, including accrued interest of $153,610 and $17,231 net of current portion | | 3,137,600 | | 1,272,709 | | | | Other long-term debt, net of current portion | | 3,066,639 | | 21,693,314 | | | | Long-term debt due to joint venture affiliate, including accrued interest of $153,610 in 2008, net of current portion | | | — | | 3,137,600 | | | Long-term debt, other, net of current portion | | | — | | 3,066,639 | | | Deferred tax liability | | 1,594,424 | | 699,512 | | | 1,756,085 | | 1,594,424 | | | | | | | | | | | | | | | | | 9,284,763 | | 25,563,363 | | | 6,628,660 | | 9,284,763 | | | | | | | Stockholders’ equity | | | | Common stock, $.0001 par value, 25,000,000 shares authorized; 19,358,276 shares issued in 2009 and 19,350,276 shares issued in 2008 | | | 1,936 | | 1,935 | | | Additional paid-in capital | | | 42,665,390 | | 42,356,098 | | | Treasury stock, 1,356,595 and 1,210,414 common shares | | | | (1,654,075 | ) | | | (1,502,182 | ) | | Deficit | | | | (1,504,320 | ) | | | (6,272,559 | ) | | | | | | | | | | | | | | | | | 39,508,931 | | 34,583,292 | | | Non-controlling interest in consolidated joint venture | | 4,600,068 | | 4,232,775 | | | 5,447,995 | | 4,600,068 | | | | | | | | | | | | | | | | | | 44,956,926 | | 39,183,360 | | | Stockholders’ equity | | | | Common stock, $.0001 par value, 25,000,000 shares authorized; 19,350,276 shares issued and 18,139,862 shares outstanding in 2008, and 19,342,276 shares issued and outstanding in 2007 | | 1,935 | | 1,934 | | | | Additional paid-in capital | | 42,356,098 | | 41,557,043 | | | | Treasury stock,1,210,414 shares at cost | | | (1,502,182 | ) | | — | | | | Deficit | | | (6,272,559 | ) | | | (7,890,849 | ) | | | | | | | | | | | | | | | | | 34,583,292 | | 33,668,128 | | | $ | 51,585,586 | | $ | 48,468,123 | | | | | | | | | | | | | | | | | $ | 48,468,123 | | $ | 63,464,266 | | | | | | | | | | |
See notes to consolidated financial statements. 3830
FULL HOUSE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 20082009 AND 20072008 | | | | | | | | | | | | | | | | | | | | | 2008 | | 2007 | | | 2009 | | 2008 | | Revenues | | | | Casino | | $ | 7,483,644 | | $ | 7,228,181 | | | $ | 7,194,476 | | $ | 7,483,644 | | | Food and beverage | | 2,099,222 | | 1,810,047 | | | 1,775,623 | | 2,099,222 | | | Other operating income | | 89,075 | | 526,183 | | | | Management fees | | | 9,953,009 | | — | | | Other | | | 89,575 | | 89,075 | | | | | | | | | | | | | | | | | 9,671,941 | | 9,564,411 | | | 19,012,683 | | 9,671,941 | | | | | | | | | | | | | | Operating costs and expenses | | | | Casino | | 2,399,012 | | 2,312,587 | | | 2,271,337 | | 2,399,012 | | | Food and beverage | | 2,321,907 | | 1,876,532 | | | 1,970,309 | | 2,321,907 | | | Project development costs | | 151,120 | | 431,437 | | | 218,353 | | 151,120 | | | Selling, general and administrative | | 6,262,084 | | 6,811,321 | | | 6,473,117 | | 6,262,084 | | | Depreciation and amortization | | 1,213,636 | | 1,016,494 | | | 2,090,094 | | 1,213,636 | | | | | | | | | | | | | | | | | 12,347,759 | | 12,448,371 | | | 13,023,210 | | 12,347,759 | | | | | | | | | | | | | | Operating gains (losses) | | | | Equity in net income of unconsolidated joint venture and related guaranteed payments | | 4,772,248 | | 4,270,000 | | | | Equity in net income of unconsolidated joint venture, and related guaranteed payments | | | 4,929,337 | | 4,772,248 | | | Unrealized gains on notes receivable, tribal governments | | 2,103,630 | | 839,749 | | | 567,348 | | 2,103,630 | | | Member agreement modification | | | | (2,147,327 | ) | | — | | | Impairment and settlement losses | | | (585,000 | ) | | | (407,534 | ) | | | (752,899 | ) | | | (585,000 | ) | | | | | | | | | | | | | | | | 6,290,878 | | 4,702,215 | | | 2,596,459 | | 6,290,878 | | | | | | | | | | | | | | Income from continuing operations before other income (expense) and income taxes | | 3,615,060 | | 1,818,255 | | | Operating income | | | 8,585,932 | | 3,615,060 | | Other income (expense) | | | | Interest and other income | | 171,962 | | 745,656 | | | 389,008 | | 171,962 | | | Interest expense | | | (532,499 | ) | | | (1,270,857 | ) | | | Non-controlling interest in net income of consolidated joint venture | | | (367,293 | ) | | | (197,733 | ) | | | Interest expense, including amortization of debt costs of $8,395 and $12,391 | | | | (173,819 | ) | | | (532,499 | ) | | | | | | | | | | | | | Income from continuing operations before income taxes | | 2,887,230 | | 1,095,321 | | | 8,801,121 | | 3,254,523 | | | Income taxes | | | (1,307,085 | ) | | | (441,024 | ) | | | (3,184,955 | ) | | | (1,307,085 | ) | | | | | | | | | | | | | Income from continuing operations | | 1,580,145 | | 654,297 | | | | Income from discontinued operations, net of tax | | 38,145 | | 286,294 | | | Income from continuing operations net of income taxes | | | 5,616,166 | | 1,947,438 | | | Income from discontinued operations, net of income taxes in 2008 of $23,377 | | | — | | 38,145 | | | | | | | | | | | | | | Net income | | $ | 1,618,290 | | $ | 940,591 | | | 5,616,166 | | 1,985,583 | | | Income attributable to non-controlling interest in consolidated joint venture | | | | (847,927 | ) | | | (367,293 | ) | | | | | | | | | | | | | Income from continuing operations per common share | | | Net income attributable to the Company | | | $ | 4,768,239 | | $ | 1,618,290 | | | | | | | | | | Income from continuing operations per common share attributable to the Company | | | | Basic and diluted | | | $ | 0.26 | | $ | 0.08 | | Income from discontinued operations per common share attributable to the Company | | | | Basic and diluted | | $ | 0.08 | | $ | 0.03 | | | 0.00 | | 0.00 | | | | | | | | | | | | | | Income from discontinued operations per common share | | | | Basic and diluted | | $ | 0.00 | | $ | 0.02 | | | | | | | | | | | Net income per common share | | | Net income per common share attributable to the Company | | | | Basic and diluted | | $ | 0.08 | | $ | 0.05 | | | $ | 0.26 | | $ | 0.08 | | | | | | | | | | | | | | | | | | Weighted-average number of common shares outstanding | | | | Basic and diluted | | 19,116,311 | | 19,304,251 | | | 18,025,326 | | 19,116,311 | | | | | | | | | | | | | | | | | | Amounts attributable to the Company: | | | | Income from continuing operations, net of tax | | | $ | 4,768,239 | | $ | 1,580,145 | | | Income from discontinued operations, net of tax | | | — | | 38,145 | | | | | | | | | | | Net income attributable to the Company | | | $ | 4,768,239 | | $ | 1,618,290 | | | | | | | | | |
See notes to consolidated financial statements. 3931
FULL HOUSE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTSTATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 20082009 AND 20072008 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Additional | | | | | | | Total | | | | | Common stock | | | Treasury stock | | | paid-in | | | | | | | stockholders’ | | | 2008 | | Shares | | | Dollars | | | Shares | | | Dollars | | | capital | | | Deficit | | | equity | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Beginning balance | | | 19,342,276 | | | $ | 1,934 | | | | — | | | | — | | | $ | 41,557,043 | | | $ | (7,890,849 | ) | | $ | 33,668,128 | | | Previously deferred share-based compensation recognized | | | — | | | | — | | | | — | | | | — | | | | 839,753 | | | | — | | | | 839,753 | | | Issuance of common stock | | | 8,000 | | | | 1 | | | | — | | | | — | | | | 14,399 | | | | — | | | | 14,400 | | | Purchase of treasury stock | | | — | | | | — | | | | 1,210,414 | | | | (1,502,182 | ) | | | — | | | | — | | | | (1,502,182 | ) | | Income tax expense share-based compensation | | | — | | | | — | | | | — | | | | — | | | | (55,097 | ) | | | — | | | | (55,097 | ) | | Net income | | | — | | | | — | | | | — | | | | — | | | | — | | | | 1,618,290 | | | | 1,618,290 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Ending balance | | | 19,350,276 | | | $ | 1,935 | | | | 1,210,414 | | | $ | ( 1,502,182 | ) | | $ | 42,356,098 | | | $ | (6,272,559 | ) | | $ | 34,583,292 | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Additional | | | | | | | | | | | Total | | | | | Common stock | | | Treasury stock | | | paid-in | | | | | | | Non-controlling | | | stockholders’ | | | 2009 | | Shares | | | Dollars | | | Shares | | | Dollars | | | capital | | | Deficit | | | interests | | | equity | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Beginning balances | | | 19,350,276 | | | $ | 1,935 | | | | 1,210,414 | | | $ | (1,502,182 | ) | | $ | 42,356,098 | | | $ | (6,272,559 | ) | | $ | 4,600,068 | | | $ | 39,183,360 | | | Previously deferred share-based compensation recognized | | | — | | | | — | | | | — | | | | — | | | | 288,893 | | | | — | | | | — | | | | 288,893 | | | Issuances of common stock | | | 8,000 | | | | 1 | | | | — | | | | — | | | | 20,399 | | | | — | | | | — | | | | 20,400 | | | Purchase of treasury stock | | | — | | | | — | | | | 146,181 | | | | (151,893 | ) | | | — | | | | — | | | | — | | | | (151,893 | ) | | Net income | | | — | | | | — | | | | — | | | | — | | | | — | | | | 4,768,239 | | | | 847,927 | | | | 5,616,166 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Ending balances | | | 19,358,276 | | | $ | 1,936 | | | | 1,356,595 | | | $ | (1,654,075 | ) | | $ | 42,665,390 | | | $ | (1,504,320 | ) | | $ | 5,447,995 | | | $ | 44,956,926 | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Additional | | | | | | | Total | | | | | Preferred stock | | | Common stock | | | paid-In | | | | | | | stockholders’ | | | 2007 | | Shares | | | Dollars | | | Shares | | | Dollars | | | capital | | | Deficit | | | equity | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Beginning balance | | | 700,000 | | | $ | 70 | | | | 18,408,380 | | | $ | 1,841 | | | $ | 39,949,282 | | | $ | (8,831,440 | ) | | $ | 31,119,753 | | | Conversion of preferred stock | | | (700,000 | ) | | | (70 | ) | | | 700,000 | | | | 70 | | | | — | | | | — | | | | — | | | Issuance of restricted stock grants | | | — | | | | — | | | | 130,000 | | | | 13 | | | | (13 | ) | | | — | | | | — | | | Issuance of stock on options exercised | | | — | | | | — | | | | 103,896 | | | | 10 | | | | (10 | ) | | | — | | | | — | | | Previously deferred share-based compensation recognized | | | — | | | | — | | | | — | | | | — | | | | 1,576,652 | | | | — | | | | 1,576,652 | | | Income tax benefit share-based compensation | | | — | | | | — | | | | — | | | | — | | | | 31,132 | | | | — | | | | 31,132 | | | Net income | | | — | | | | — | | | | — | | | | — | | | | — | | | | 940,591 | | | | 940,591 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Ending balance | | | — | | | $ | — | | | | 19,342,276 | | | $ | 1,934 | | | $ | 41,557,043 | | | $ | (7,890,849 | ) | | $ | 33,668,128 | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Additional | | | | | | | | | | | Total | | | | | Common stock | | | Treasury stock | | | paid-in | | | | | | | Non-controlling | | | stockholders’ | | | 2008 | | Shares | | | Dollars | | | Shares | | | Dollars | | | capital | | | Deficit | | | interests | | | equity | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Beginning balances | | | 19,342,276 | | | $ | 1,934 | | | | — | | | $ | — | | | $ | 41,557,043 | | | $ | (7,890,849 | ) | | $ | 4,232,775 | | | $ | 37,900,903 | | | Previously deferred share-based compensation recognized | | | — | | | | — | | | | — | | | | — | | | | 839,753 | | | | — | | | | — | | | | 839,753 | | | Issuances of common stock | | | 8,000 | | | | 1 | | | | — | | | | — | | | | 14,399 | | | | — | | | | — | | | | 14,400 | | | Purchase of treasury stock | | | — | | | | — | | | | 1,210,414 | | | | (1,502,182 | ) | | | — | | | | — | | | | — | | | | (1,502,182 | ) | | Income tax benefit of stock options exercised | | | — | | | | — | | | | — | | | | — | | | | (55,097 | ) | | | — | | | | — | | | | (55,097 | ) | | Net income | | | — | | | | — | | | | — | | | | — | | | | — | | | | 1,618,290 | | | | 367,293 | | | | 1,985,583 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Ending balances | | | 19,350,276 | | | $ | 1,935 | | | | 1,210,414 | | | $ | (1,502,182 | ) | | $ | 42,356,098 | | | $ | (6,272,559 | ) | | $ | 4,600,068 | | | $ | 39,183,360 | | | | | | | | | | | | | | | | | | | | | | | | | | | |
See notes to consolidated financial statements.statements 4032
FULL HOUSE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 20082009 AND 20072008 | | | | | | | | | | | | | | | | | | | | | 2008 | | 2007 | | | 2009 | | 2008 | | Cash flows from operating activities: | | | | Net income | | $ | 1,618,290 | | $ | 940,591 | | | $ | 4,768,239 | | $ | 1,618,290 | | | Adjustments to reconcile net income to net cash provided by operating activities: | | | | Equity in net income of unconsolidated investee | | | (3,691,146 | ) | | | (4,270,000 | ) | | | (3,468,195 | ) | | | (3,691,146 | ) | | Distributions from unconsolidated investee | | | 3,420,469 | | 3,525,232 | | | Non-controlling interest in consolidated joint venture | | 367,293 | | 197,733 | | | 847,927 | | 367,293 | | | Distributions from unconsolidated investee and management fees | | 3,525,232 | | 4,096,698 | | | | Unrealized gain on notes receivable, tribal governments | | | (2,103,630 | ) | | | (839,749 | ) | | | (567,348 | ) | | | (2,103,630 | ) | | Depreciation, including $250,957 related to discontinued operations in 2007 | | 1,155,334 | | 1,204,268 | | | | Amortization of gaming and other rights, including $3,977 related to discontinued operations in 2007 | | 58,301 | | 66,005 | | | | Deferred tax liability | | 894,912 | | | (181,435 | ) | | | Deferred tax asset | | 46,891 | | 699,512 | | | | Impairment losses | | 85,000 | | 407,534 | | | | Depreciation | | | 1,070,752 | | 1,155,334 | | | Amortization of gaming and other rights | | | 1,019,342 | | 58,301 | | | Impairment loss adjustments | | | 752,899 | | 85,000 | | | Share-based compensation | | 799,056 | | 1,576,653 | | | 309,293 | | 799,056 | | | Other deposits | | 13,132 | | — | | | | Increases in operating (assets) and liabilities: | | | | Member agreement modification | | | 2,147,327 | | — | | | Increases and decreases in operating assets and liabilities: | | | | Accounts receivable | | | (277,983 | ) | | | (93,498 | ) | | | (1,204,252 | ) | | | (277,983 | ) | | Prepaid expenses | | | (152,362 | ) | | | (46,042 | ) | | 131,286 | | | (152,362 | ) | | Deferred tax asset | | | 157,472 | | 46,891 | | | Deposits and other current assets | | 73,909 | | 229,741 | | | 7,524 | | 73,909 | | | Other assets | | | | (156,263 | ) | | 13,132 | | | Accounts payable and accrued expenses | | | (135,344 | ) | | 362,106 | | | 98,481 | | | (250,829 | ) | | Income taxes payable | | — | | | (237,623 | ) | | 2,158,292 | | 115,485 | | | Deferred tax liability | | | 161,661 | | 894,912 | | | | | | | | | | | | | | | Net cash provided by operating activities | | 2,276,885 | | 4,112,494 | | | 11,654,906 | | 2,276,885 | | | | | | | | | | | | | | Cash flows from investing activities: | | | | Advances to tribal governments, excluding ($2,123) and $18,312 (recovered) and expensed | | | (86,123 | ) | | | (342,950 | ) | | | Deposits and other costs of the Stockman’s Casino acquisition, net | | — | | | (9,262,274 | ) | | | Advances to tribal governments | | | — | | | (86,123 | ) | | Net proceeds from sale of hotel | | 6,961,020 | | — | | | — | | 6,961,020 | | | Acquisition of contract rights and other assets | | | (2,092,720 | ) | | | (320,510 | ) | | — | | | (2,092,720 | ) | | Collection of tribal note receivable | | 9,253,467 | | — | | | — | | 9,253,467 | | | Purchase of property and equipment | | | (549,389 | ) | | | (412,218 | ) | | | (404,679 | ) | | | (549,389 | ) | | Proceeds from sale of assets | | | 20,569 | | — | | | Other | | — | | | (92,202 | ) | | 854 | | — | | | | | | | | | | | | | | | Net cash provided by (used in) investing activities | | 13,486,255 | | | (10,430,154 | ) | | | (383,256 | ) | | 13,486,255 | | | | | | | | | | | | | | Cash flows from financing activities: | | | | Repayment of long-term debt | | | (18,660,575 | ) | | | (4,794,378 | ) | | | (7,616,863 | ) | | | (18,660,575 | ) | | Preferred dividend | | — | | | (3,042,084 | ) | | | Borrowings | | 1,728,512 | | 12,500 | | | 395,000 | | 1,728,512 | | | Purchase of treasury stock | | | (1,502,182 | ) | | — | | | | (151,893 | ) | | | (1,502,182 | ) | | Loan acquisition costs | | | | (4,250 | ) | | — | | | | | | | | | | | | | | | Net cash used in financing activities | | | (18,434,245 | ) | | | (7,823,962 | ) | | | (7,378,006 | ) | | | (18,434,245 | ) | | | | | | | | | | | | | Net decrease in cash and equivalents | | | (2,671,105 | ) | | | (14,141,622 | ) | | Net increase (decrease) in cash and equivalents | | | 3,893,644 | | | (2,671,105 | ) | | Cash and equivalents, beginning of year | | 7,975,860 | | 22,117,482 | | | 5,304,755 | | 7,975,860 | | | | | | | | | | | | | | Cash and equivalents, end of year | | $ | 5,304,755 | | $ | 7,975,860 | | | $ | 9,198,399 | | $ | 5,304,755 | | | | | | | | | | | | | |
| | | | | | | | | | | | | 2008 | | | 2007 | | SUPPLEMENTAL CASH FLOW INFORMATION: | | | | | | | | | | Cash paid for interest | | $ | 440,561 | | | $ | 959,546 | | | | | | | | | | | Cash paid for income taxes | | $ | 815,210 | | | $ | 680,777 | | | | | | | | | | | NON-CASH INVESTING AND FINANCING ACTIVITIES: | | | | | | | | | | Capital expenditures financed with accounts payable | | $ | 8,856 | | | $ | 157,751 | | | | | | | | | | | Capitalized share-based compensation costs | | | — | | | $ | 476,000 | | | | | | | | | | | | Contract rights acquired with long-term debt | | | — | | | $ | 9,500,000 | | | | | | | | | | | | Conversion of long-term debt to capital contribution in consolidated joint venture | | | — | | | $ | 2,000,000 | | | | | | | | | | | | Transfer of land previously held for development to other assets | | | — | | | $ | 130,000 | | | | | | | | | | | | Transfer of land, property, equipment and goodwill, net to assets held for sale | | | — | | | $ | 6,960,762 | | | | | | | | | | | | Acquisition of Stockman’s Casino: | | | | | | | | | | Net cash paid (including capitalized loan costs of $214,295 and cash incentive of $730,812) | | | — | | | $ | 9,262,274 | | | | | | | | | | | | Fair value of non-cash assets acquired | | | — | | | $ | 17,806,346 | | | | | | | | | | | | Liabilities assumed | | | — | | | $ | 407,071 | | | | | | | | | | |
| | | | | | | | | | | | | 2009 | | | 2008 | | SUPPLEMENTAL CASH FLOW INFORMATION: | | | | | | | | | | Cash paid for interest | | $ | 102,764 | | | $ | 440,561 | | | | | | | | | | | Cash paid for income taxes | | $ | 671,485 | | | $ | 815,210 | | | | | | | | | | | NON-CASH INVESTING AND FINANCING ACTIVITIES: | | | | | | | | | | Capital expenditures financed with accounts payable | | | — | | | $ | 8,856 | | | | | | | | | | | | Debt refinanced through line of credit | | $ | 705,989 | | | | — | | | | | | | | | | |
See notes to consolidated financial statements. 4133
FULL HOUSE RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION, NATURE AND HISTORY OF OPERATIONS Nature of operations and key relationshipsrelationships.. Full House Resorts, Inc. (“we,” “us,” “our,” “Full House” or the “Company”), develops, manages and/or invests in gaming related opportunities. The Company continues to actively investigate, individually and with partners, new business opportunities including commercial and tribal gaming operations. The Company seeks to expand through acquiring, managing, or developing casinos in profitable markets. GED.We are currently a noncontrolling 50% investor in Gaming Entertainment (Delaware), LLC (“GED”), a joint venture with Harrington Raceway, Inc. (“HRI”). GED has a management contract through August 2011 with Harrington Raceway and Casino, at the Delaware State Fairgrounds in Harrington, Delaware (“Harrington Casino”). Harrington Casino has approximately 2,100 gaming devices, a 450-seat buffet, a 50-seat diner, a gourmet steakhouse and an entertainment lounge area. Under the terms of thea restructured management agreement with HRI, the Company is to receive the greater of 50% of GED’s 2008prior year management fees as currently prescribed under the management agreement or an 8%a 5% increase in itsour share of GED’s management fees receivedpaid in 2007.the prior year. The 8% guaranteed growth factor takes into account the expansion at Harrington Casino that was completed in February 2008, and the guaranteed annual growth rate will be 5% in 2009 through the expiration of the GED management contract in August 2011(Note 4)2011 is 5% per year. (Note 3). GEM.We also own 50% of Gaming Entertainment (Michigan),Michigan, LLC (“GEM”), a joint venture with RAM Entertainment, LLC (“RAM”), whichwhere we control (andare the primary beneficiary and, therefore, consolidate in our consolidated financial statements).statements. RAM is a privately-held investment company. GEM has a management agreement with the Nottawaseppi Huron Band of Potawatomi Indians (the “Michigan Tribe”), for the development and management of the FireKeepers Casino near Battle Creek, Michigan. More specifically, our joint venture has the exclusive right to arrange the financing and provide casino management services to the Michigan tribe in exchange for 26% of net profits for seven years and certain other specified consideration from any future gaming or related activities conducted by the Michigan tribe.Tribe. The governing management agreement was approved by the National Indian Gaming Commission (“NIGC”) on December 14,in 2007 and an amended version containing provisions required by the project financing investors was approved by the NIGC on April 21, 2008. Construction at FireKeepers Casino has progressed on schedule and garage construction has been completed. In addition,connection with the FireKeepers Development Authority has approved an increase(the “Authority”) financing of the FireKeepers Casino development, GEM funded its portion of the financing costs totaling $2.1 million which was recorded as additional contract rights related to the FireKeepers project in slot machines to approximately 2,680 from 2,500. Table games units will be reduced from 90 to 78the second quarter of 2008. The financing costs were funded equally by the Company and poker units will decrease fromRAM. On August 5, 2009, the planned 20 to 12. The project remains on budget andFireKeepers Casino commenced operations. FireKeepers Casino is still expected to openlocated at Exit 104 directly off Interstate 94 in the summer of 2009. The FireKeepers Casino will target potential customers in the Battle Creek, Kalamazoo,Michigan. FireKeepers has a 107,000 square foot gaming floor with 2,680 slot machines, 78 table games, a 120-seat poker room and Lansing, Michigan metropolitan areas,a bingo hall. In addition, the property features five restaurants — including a 70-seat fine dining signature restaurant — a 300-seat buffet and 150-seat 24-hour cafe, as well as approximately 3,000 parking spaces including an enclosed 2,080-space parking garage attached to the Ft. Wayne, Indiana area.casino. In February 2002, the Company entered into an investora joint venture membership agreement with RAM, a privately held investment company, whereby RAM was admitted as a 50% member in GEM and Gaming Entertainment (California), LLC, (GEC), consolidated investee of the Company, in exchange for providing a portion of the necessary funding for the development of planned projects in Michigan and California. Accordingly, RAM loaned Full House $2.4 million to fund the projects. In 2005, the Company and RAM amended the 2002 agreement to extend the maturity date of the note payable and the related accrued interest to July 1, 2007 and subsequently extended until December 31, 2007. Pursuant to the investorjoint venture membership agreement, effective December 14,in 2007, RAM exercised its right to convert the loan into a $2.0 million capital contribution in, and a $0.4 million loan to GEM. In addition, accrued interest payable in the amount of $0.6 million, previously due on the original promissory note, was also converted into a loan to GEM which will mature no sooner than two years after the opening of the Michigan project. 34
On October 9, 2009 (effective on September 30, 2009), a joint venture membership agreement modification (Note 8) was reached between the Company and RAM (GEM Financial Resolution) clarifying the treatment of the following items: Reimbursable amounts funded by the members, due from the Michigan Tribe before the RAM buy-in as the prior agreements were silent on reimbursements to members. Non-reimbursable amounts funded by the Company, related to the Michigan Tribe, as the prior agreements were unclear if these were reimbursable by GEM to the Company. Repayments of disproportionate advances by the Company since prior versions of the agreement were unclear as to what percentages would be used regarding repayment. Stockman’sStockman’s.. On January 31, In 2007, we acquired all of the outstanding shares of capital stock of Stockman’s Casino (Stockman’s) which operates Stockman’s Casino (Note 3) and until February 20, 2008, the Holiday Inn Express in Fallon, Nevada, when we sold itsthe Holiday Inn Express assets. (Note 7). Stockman’s has approximately 8,400 square feet of gaming space with approximately 259265 slot machines, four table games and keno. There isThe property also has a bar, a fine dining restaurant and a coffee shop.
42
Other.The Company also has development and management agreements with the Northern Cheyenne Nation of Montana (the “Montana Tribe”) for the development and management of a 25,000 square foot gaming facility to be built approximately 28 miles north of Sheridan, Wyoming. The management agreement provides for a management fee of 30% of revenues net of prizes and operating expenses and is subject to approval by the NIGC, while the development agreement obligates the Montana Tribe to reimburse any development advances from future gaming revenue in the event the management agreement is not approved. On October 28, 2008, the Tribe was notified that the Secretary of the Interior had approved the use of the planned site for gaming, subject to concurrence of the State Governor. We are awaiting the Governor’s concurrence. In addition, any management contract must be approved by the NIGC. We previously requested NIGC approval of the management agreement, but have withheld further submission pending agreement with the Tribe on the scope and extent of the project. In November 2008, the Tribe conducted elections for its tribal council, which resulted in an entirely new council being seated. In January 2009, we forwarded to the new council a revised proposal for the casino development taking into account the current status and availability of financing for the development project. We are waiting for the council’s reviewThe previously estimated fair value of the proposalnotes receivable and further discussions withcontract rights related to the new council. During 2007, two projectsproject were discontinued resultingwritten down to zero value as of December, 2009, which resulted in $0.7 million impairment losses of approximately $0.2 million each based upon Management’s decision to discontinue these projects.loss (Note 4).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of presentation.presentation and accounting.The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, including Stockman’s Casino (“Stockman’s”). GEM, a 50%-owned investee of the Company that is jointly owned by RAM, (Note 6), has been consolidated pursuant to the guidance in Financial Accounting Standards Board (“FASB”) Interpretation No. 46R,Consolidation of Variable Interest EntitiesAccounting Standards Codification (“ASC”) Topic 810, “Consolidation”. The Company accounts for its investment in GED (Note 4)3) using the equity method of accounting. All material intercompany accounts and transactions have been eliminated. In addition, on January 1, 2009, the Company retroactively adopted the requirements of ASC Topic 810 for the non-controlling or minority interest in a subsidiary. The adoption of Topic 810 did not have any effect on the Company’s consolidated net income or net income per share for the periods presented. Events through March 23, 2010, the date the financial statements were issued, were evaluated by management to determine if adjustments to or disclosure in these interim consolidated financial statements were necessary (Note 15). The Company has not elected to adopt the option available under ASC Topic 825, “Financial Instruments”, to measure any of its eligible financial instruments or other items. Accordingly, the Company continues to measure all of its assets and liabilities on the historical cost basis of accounting except where carried at estimated fair value under other generally accepted accounting principles and disclosed herein. Use of estimates.The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect reported amounts. Accordingly, actual results could differ from those estimates. Estimated fair value of notes receivable and the recoverability of the Company’s investment in other long-term assets related to Indian casino projects (Note 4) are particularly vulnerable to variation and could change materially in the next year based on evolving developments. Cash equivalents.Cash in excess of daily requirements is invested in highly liquid short-term investments with initial maturities of three months or less when purchased. Such investmentspurchased and are reported as cash equivalents in the consolidated financial statements. 35
Concentrations and economic risks and uncertainties.The United States is currently experiencing a widespread and severe recession accompanied by, among other things, weakness in the commercial and investment banking systems resulting in reduced credit and capital financing availability, and highly curtailed gaming and other recreational activities and general discretionary consumer spending, and is also engaged in war, all of which are likely to continue to have far-reaching effects on economic conditions in the country for an indeterminate period. The Company’s operations are currently concentrated in northern Nevada, Delaware and Delaware.Michigan. Accordingly, future operations could be affected by adverse economic conditions particularly in those areas and their key feeder markets in neighboring states. Except as discussed in the following paragraph, The effects and duration of these conditions and related risks and uncertainties on the Company’s credit risk (or market risk) is concentrated in long-term notes receivable from tribal governments (Note 5). Advances to tribal governments are primarily related to the Michigan projectfuture operations and represent pre-construction advances made to the tribe to fund its operations. The advances, including contractual accrued interest, if any, are collateralized solely by the future cash flows, generated by the operations of the gaming facility and, although there canincluding its access to capital or credit financing, cannot be no assurance that a facility willestimated at this time, but may likely be opened, management does not believe that there is significant risk of loss associated with such investment, but considers its assessment of such risk in its fair value estimates (See Long-term assets related to Indian casino projects, below). However, the maximum loss that could be sustained if such advances prove to be uncollectible is limited to the recorded amount of the receivable and the related contract rights, less any impairment or other allowances that may be provided.
Accounts receivable are uncollateralized and carried, net of an appropriate allowance, at their estimated collectible value. Since credit is extended on a short-term basis, accounts receivables do not normally bear interest. Management is required to make judgments, based on historical experience and future expectations, as to the collectability of accounts receivable. The allowances for doubtful accounts represent allowances for accounts receivable that are estimated to be partially or entirely uncollectible. These allowances are used to reduce gross accounts receivable to their estimated net realizable value. The Company records these allowances as a charge to selling, general and administrative expenses based on estimates of customers past credit history and current financial condition and on current general economic conditions.significant.
The Company frequently has cash on deposit substantially in excess of federally-insured limits, and the risk of losses related to such concentrations may be increasing as a result of recent economic developments. However, the extent of loss, if any, to be sustained as a result of the Company’s uninsured depositsany future failure of a bank or other financial institution is not subject to estimation at this time. 43
The United States is currently experiencing a recession accompanied by, among other things, instabilityExcept as discussed in the investment and commercial banking systems, reduced credit availability and highly curtailed gaming and other recreational activities, and it is engaged in a war on terrorism. The effects and duration of these developments and related risks and uncertainties onfollowing paragraph, the Company’s credit risk (or market risk) is concentrated in short-term notes receivable from tribal governments (Note 4). Advances to tribal governments, including contractual accrued interest, if any, are recoverable solely from the future operations and cash flows cannot be estimated at this time but may be significant.
Discontinued operations and assets held for sale.On October 1, 2007,generated by the Company entered into an agreement to sell the assets of the Holiday Inn Express in Fallon, Nevada (the “Hotel”), formerly owned and operated by Stockman’s (Note 7), which sale was completed in February 2008. Accordingly, as of October 1, 2007, depreciation ceased on the assets of the Hotel, and the net book value of the Hotel’s assets at the time the sale agreement was executed (approximately $6.9 million) was reclassified as assets held for sale. The operations of the Hotelgaming facility and, although there can be no assurance that a facility will be opened, management does not believe that there currently is significant risk of loss associated with such investment, but considers its assessment of such risk in its fair value estimates. However, the maximum loss that could be sustained if such advances prove to be uncollectible is limited to the recorded amount of the receivable and the related contract rights, less any allowances that may be provided.
Accounts receivable are reporteduncollateralized and carried, net of an appropriate allowance, at their estimated collectible value based on customers’ past credit history and current financial condition and on current general economic conditions. Since credit is extended on a short-term basis, accounts receivables do not normally bear interest. The allowances for doubtful accounts represent allowances for accounts receivable that are estimated by management to be partially or entirely uncollectible. The Company records uncollectible allowances over 90 days old as discontinued operations in the accompanying consolidated financial statements (Note 8).a charge to selling, general and administrative expenses. Property and equipment.Property and equipment (Note 9) are7) is stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Debt issuance costs.Costs incurred in obtaining long-term financing are amortizedincluded in other assets, net of amortization over the life of the related debt using the effective interest rate method.debt. At December 31, 2008,2009, accumulated amortization of debt issuance costs was $0.05 million consisting solely$41,864. The amount of 2008 expense.expected amortization over each of the next five years will be approximately $15,000 per year. Investment in unconsolidated joint venture.The Company accounts for its investment in GED using the equity method of accounting (Note 4)3). AtThe investment in GED was $0.1 million and $59,809 December 31, 2007,2009 and 2008, respectively, included in deposits and other. The amounts due to a management fee rebate accrual, cash distributions from GED exceeded the Company’s equityHRI of $0.6 million and $0.4 million December 31, 2009 and 2008, respectively, are included in the net income of GED, resulting in a negative investment balance. Since the Company is required to fund the excess, in 2007 the negative investment balances of $0.1 million was included as liabilities (in accrued expenses) in the accompanying consolidated financial statements.accounts receivable. Long-term assetsAssets related to Indian casino projects.The Company evaluates the financial opportunity of each potential service arrangement before entering into an agreement to provide financial support for the development of and subsequent management services for an Indian casino project. The Company accounts for its notes receivable from and management contracts with the tribes as separate assets.
On January 1, 2008, the Company adopted the methods of fair value accounting described in Statement of Financial Accounting Standards (“SFAS”) No. 157,FairASC Topic 820, “Fair Value Measurements and Disclosures”, to value its financial assets that were previously carried at estimated fair value.value under other generally accepted accounting principles. The adoption of SFAS No. 157ASC Topic 820 in the first quarter of 2008 did not have any effect on the Company’s previously used fair value estimation methodology or on net income. Financial Accounting Standards Board (“FASB”) Staff Position FAS 157-3,Determining the Fair Value of Financial Asset when the market for that asset is not active, was issued in October 2008 and was retroactively effective for the quarter ended September 30, 2008. The implementation of FSP FAS 157-3 did not have a material impact on the Company’s valuation techniques, financial position, results of operations and cash flows. To date, the Company has chosen not to elect the fair value option as offered by SFAS No. 159,The Fair Value Option for Financial Assets and Financial Liabilitiesfor its financial assets and liabilities or other items that had not been previously carried at fair value. Therefore, material financial assets and liabilities not carried at fair value are still reported on a historical cost basis.
The Company’s financial assets that are measured at estimated fair value use inputs from among the three levels of the fair value hierarchy set forth in SFAS No. 157 as follows:
Level 1 inputs: Unadjusted quoted prices in active markets for identical assets or liabilities, which prices are available at the measurement date.
Level 2 inputs: Include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e. interest rates, yield curves,etc.) and inputs that are derived principally from or corroborated by observable market data by correlation or other means (marked corroborated inputs).
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Level 3 inputs: Unobservable inputs that reflect management’s estimates about the assumptions that market participants would use in pricing the asset or liability. Management develops these inputs based on the best information available, including internally-developed data.
The Company has no financial assets that are measured using level 1 or 2 inputs. Due to the absence of observable market quotes on the Company’s notes receivable from tribal governments (Note 5)4), the Company utilizes valuation modelsCompany’s financial assets that rely exclusivelyare recorded and subsequently measured at estimated fair value based only on level 3 inputs from among the three levels of the fair value hierarchy set forth in ASC Topic 820. Level 3 inputs including those that are based primarily on management’s estimates of expected cash flow streams, future interest rates, casino opening dates and discount rates.
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The estimated casino opening dates used in the valuations take into account project-specific circumstances such as ongoing litigation, the status of required regulatory approvals, construction periods and other factors. Factors considered in the determination of an appropriate discount rate include discount rates typically used by gaming industry investors and appraisers to value individual casino properties outside of Nevada,in the appropriate regions, and discount rates produced by the widely-accepted Capital Asset Pricing Model (“CAPM”). The following key assumptions are used in the CAPM: S&P 500, average benchmark investment returns (medium-term horizon risk premiums); Risk free investment return equal to the trailing 10-year average for 90-day treasury bills; Investment beta factor equal to the average of a peer group of similar entities in the hotel and gaming industry; | • | | S&P 500, average benchmark investment returns (medium-term horizon risk premiums); | | | • | | Risk free investment return equal to the trailing 10-year average for 90-day treasury bills; | | | • | | Investment beta factor equal to the average of a peer group of similar entities in the hotel and gaming industry; | | | | • | | Project-specific adjustments based on the status of the project (i.e., litigation, regulatory approvals, tribal politics,etc.), and typical size premiums for “micro-cap” and “low-cap” companies. |
A tabular summary of the current period activity related to notes receivable from tribal governments, is presented in Note 5.4. Upon opening of the casino, any difference between the then estimated fair value of the notes receivable and the amount contractually due under the notes will beis amortized into income using the effective interest method over the remaining term of the note. Such notes are then evaluated for impairment pursuant to SFAS No. 114,Accounting by Creditors for Impairment of a Loan.ASC Topic 310, “Receivables”. Intangible assets consisting of contract rights related to the acquisition of the management contracts (contract rights) are periodically evaluated for impairment based on the estimated cash flows from the management contract on an undiscounted basis. In the event the carrying value of the intangible assets were to exceed the estimated undiscounted cash flow, the difference between the estimated fair value and carrying value of the assets would be charged to operations as an impairment loss. The Company expects to amortize the contract rights using the straight-line method over seven years, or the term of the related management contract, whichever is shorter, typically beginning upon commencement of casino operations. Goodwill.Goodwill represents the excess of the purchase price over fair market value of net assets acquired in the Stockman’s transaction and relates to its casino operation. The Company performs an annuala quarterly review of goodwill in the fourth quarter of each fiscal year and whenever there might be an impairment “triggering” event. No impairments were identifiedevent as a result of these impairment reviews. Fair value of financial instruments.The carrying value of the Company’s cash and cash equivalents, and accounts payable, approximates fair value because of the short maturity of those instruments. As discussed above, substantially all of the Company’s receivables are carried at estimated fair value. The estimated fair values of the Company’s debt approximate their recorded values at December 31, 2008, based on the current interest rates offered to the Company for loans of the same remaining maturities.described in ASC Topic 360.
Revenue recognition and promotional allowances.Casino revenue is the aggregate net difference between gaming wins and losses, with liabilities recognized for funds deposited by customers before gaming play occurs (casino(commonly called “casino front money)money”) and for chips and tokens in the customers’ possession (outstanding chip and token liability). Hotel, (see Discontinued Operations), food and beverage, entertainment and other operating revenues are recognized as services are performed, net of revenue-based taxes. Advance deposits on rooms and advance ticket sales are recorded as deferred revenue until services are provided to the customer. Revenues are recognized net of certain sales incentives, and accordingly, cash incentives to customers for gambling activity, including the cash value of points redeemed by Players Club members, totaling $0.4 million have been recognized as a direct reduction of casino revenue in 2009. Sales and similar revenue-linked taxes collected from customers are excluded from revenue but rather are recorded as a liability payable to the appropriate taxing authority and included in accrued expenses. 45
Revenues are recognized net of certain sales incentives in accordance with Emerging Issues Task Force (EITF) Issue No. 01-9,Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor’s Products.)Accordingly, cash incentives to customers for gambling activity, including the cash value of points redeemed by Players Club members, totaling $0.6 million have been recognized as a direct reduction of casino revenue in 2008.
Revenue also does not include the retail value of accommodations, food and beverage, and other services gratuitously furnished to customers totaling $0.3 million in both 20082009 and 2007. 2008. The estimated cost of providing such gratuities is included primarily in casino expenses as follows: | | | | | | | | | | | | | | | | | | | | | 2008 | | 2007 | | | 2009 | | 2008 | | | | | | | Food and beverage | | $ | 137,360 | | $ | 164,272 | | | $ | 222,294 | | $ | 137,360 | | | Cash incentives | | 586,582 | | 577,615 | | | 414,813 | | 586,582 | | | Other incentives | | 1,251 | | 17,423 | | | 909 | | 1,251 | | | | | | | | | | | | | | | | | $ | 725,193 | | $ | 759,310 | | | $ | 638,016 | | $ | 725,193 | | | | | | | | | | | | | |
GEM receives a management fee of 26% of net profits from FireKeepers Casino, which is recorded monthly as earned on an accrual basis. Typically, the payment is received in the following month. 37
Share-based compensationcompensation.. In 2006, the Company adopted SFAS No. 123R,Share-Based Payments, to account for its share-based compensation, For 2009 and elected the modified prospective method of transition. Accordingly, for 2008, and 2007, share-based compensation expense of approximately $0.9$0.3 million and $1.6$0.9 million respectively, from stock awards (Note 14)12) is included in general and administrative expense. Unvested stock grants made in connection with the Company’s 2006 Incentive Compensation Plan and a consulting agreement with a director are viewed as a series of individual awards and the related share-based compensation expense has initially been deferred and recorded as unearned stock-based compensation, shown as a reduction of stockholders’ equity, and will subsequently be amortized into operations as compensation expense as services are provided on a straight-line basis over the vesting period. The value of the restricted stock at the date of grant is amortized through expense over the requisite service period using the straight-line method. The Company believes the probability of forfeitures for granted shares of restricted stock to be extremely remote and, therefore, currently estimates zero forfeitures in future periods for the following reasons. The Company grants shares of restricted stock, rather than options, to key members of management and the Board of Directors. Since SFAS No. 123R was implemented,2006, there have been no forfeitures of such restricted shares granted and none are likely for the foreseeable future since currently, there are only unvested stock grants to a director and the Company’s Chief Financial Officerdirector, CFO and COO that fully vestvested in May 2009 and February 2010, respectively. At December 31, 2008, the Company had deferred share-based compensation of $0.3 million, which is expected to be amortized through February 2010 using the straight-line method, by employee, as mentioned above. Specifically, the Company expects to recognize share-based compensation expense of approximately $0.28 million in 2009 and $0.02 million in 2010.
Legal defense costs.The Company does not accrue for estimated future legal and related defense costs, if any, to be incurred in connection with outstanding or threatened litigation and other disputed matters but rather, records such as period costs when the related services are rendered. EarningsIncome taxes.Income tax-related interest and penalties, if any, are treated as part of income tax expense (benefit).
Income per common share.Basic income or earnings per share (“EPS”) is computed based upon the weighted-average number of common shares outstanding during the year. Diluted EPS is ordinarily computed based upon the weighted average number of common and common equivalent shares if their effect upon exercise would have been dilutive using the treasury stock method. Approximately 17,000 common stock equivalents were not included in the calculation as diluted EPS asAs of December 31, 2007, as they2009 and 2008, there were no common equivalent shares which would have been anti-dilutive. Use of estimates.The preparation of financial statements in conformity with accounting principles generally accepted indilutive and therefore the United States of America requires management to make estimatescalculations for basic EPS and assumptions that affect reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Accordingly, actual results could differ from those estimates. Estimated fair value of notes receivable and the recoverability of the Company’s investment in other long-term assets related to Indian casino projects (Note 5)diluted EPS are particularly vulnerable to variation and could change materially in the next year based on evolving developments.equal.
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Reclassifications.Certain minor reclassifications in prior year balances have been made to conform to the current presentation, which had no effect on previously reported net income. 3. ACQUISITION OF STOCKMAN’S CASINO On January 31, 2007, the Company acquired Stockman’s in Fallon, Nevada for approximately $28.1 million, which includes acquisition costs of $0.7 million and an additional $0.7 million payment to the seller related to the tax treatment of the assets acquired. The purchase price was funded by an equity offering effected during 2006 (Note 11), a $16 million reducing revolving loan from a bank, and a promissory note to the seller in the approximate amount of $1.2 million (Note 9).
Goodwill represents the excess of the purchase price over fair market value of net assets acquired in the Stockman’s transaction and relates to its casino operation. Specifically, the Company acquired older fixed assets via a stock purchase based on a modest earnings multiple, which took into account Stockman’s stable historical cash flow. Stockman’s is an otherwise unaffiliated, small casino in northern Nevada with patrons coming from the local community, travelers and military personnel temporarily working at a nearby naval base. No trade names, relationships, contracts or other material intangibles were identified.
The purchase price was allocated as of the acquisition date as follows:
| | | | | | | Land | | $ | 2,723,406 | | | Improvements | | | 9,960,000 | | | Personal property | | | 3,980,000 | | | Goodwill | | | 10,331,128 | | | Other | | | 1,142,940 | | | | | | | | | | $ | 28,137,474 | | | | | | |
The following unaudited, condensed consolidated pro forma data summarizes the Company’s results of operations for the periods indicated as if the acquisition had occurred as of January 1, 2007. This unaudited pro forma consolidated financial information is not necessarily indicative of what the Company’s actual results would have been had the acquisition been completed on that date, or of future financial results.
| | | | | | | | | 2007 | | | Net revenues | | $ | 17,608,642 | | | Net income | | | 1,004,410 | | | Earnings per share, basic and diluted | | $ | 0.06 | |
4. INVESTMENT IN UNCONSOLIDATED JOINT VENTURES
The Company’s investment in unconsolidated joint venture is comprised of a 50% ownership interest in GED, a joint venture.venture between the Company and Harrington Raceway Inc. (“HRI”). GED has a management agreement with Harrington Raceway and Casino (“Harrington”) (formerly known as Midway Slots and Simulcast), which is located in Harrington, Delaware. GED has no non-operating income or expenses, and is treated as a partnership for income tax purposes and consequently recordsrecognizes no federal or state income tax provision. As a result, income from operations for GED is equal to net income for each period presented, and there are no material differences between its income for financial and for tax reporting purposes. As a resultUnder the terms of the restructured joint venture agreement, as restructured in 2007, the Company has receivedreceives the greater of 50% of GED’s member distribution as currently prescribed under the joint venture agreement, or accrued additional guaranteed paymentsa 5% growth rate in its 50% share of $1.1GED’s prior year member distribution through the expiration of the GED management contract in August 2011.
As of the balance sheet dates presented, the Company’s assets and $0.3liabilities related to its investment in GED consisted of an account receivable from HRI of $0.6 million as of December 31, 2009 and $0.4 million as of December 31, 2008. The investment in GED was $0.1 million and $59,809 December 31, 2009 and December 31, 2008, respectively, included in deposits and other. On June 19, 2009, HRI filed a demand for 2008, and 2007 respectively, which is combinedarbitration with the equity in net income of GED and related guaranteed paymentsAmerican Arbitration Association disputing the formula used for computing the minimum annual increase in the accompanying consolidated financial statements.Company’s share of the management fee. 4738
Summary financial information for GED as of and for the years ended December 31, 20082009 and 20072008 is as follows: CONDENSED BALANCE SHEET INFORMATION | | | | | | | | | | | | | | | | | | | | | 2008 | | 2007 | | | 2009 | | 2008 | | | Total assets | | $ | 636,553 | | $ | 665,493 | | | $ | 420,907 | | $ | 636,553 | | | Total liabilities | | 516,936 | | 877,704 | | | 205,838 | | 516,936 | | | Members’ capital (deficiency) | | 119,617 | | | (212,211 | ) | | | Members’ capital | | | 215,069 | | 119,617 | |
CONDENSED STATEMENT OF INCOME INFORMATION | | | | | | | | | | | | | | | | | | | | | 2008 | | 2007 | | | 2009 | | 2008 | | | Revenues | | $ | 24,816,268 | | $ | 23,131,588 | | | $ | 24,255,490 | | $ | 24,816,268 | | | Net income | | 7,382,290 | | 7,944,170 | | | 6,936,391 | | 7,382,290 | |
5.4. NOTES RECEIVABLE, TRIBAL GOVERNMENTS
The Company has notes receivable related to advances made to, or on behalf of, tribes to fund tribal operations and development expenses related to potential casino projects. Repayment of these notes is contingentconditioned upon the development of the projects, and ultimately, the successful operation of the facilities. TheSubject to such condition, the Company’s agreements with the tribes provide for the reimbursement of these advances plus applicable interest, if any, either from the proceeds of any outside financing of the development, the actual operation itself or in the event that the Company does not complete the development, from the revenues of theany tribal gaming operation following completion of development activities undertaken by others. As of December 31, 20082009 and 2007, Full House has2008, notes receivable from tribal governments totaling approximately $6.3 million and $14.1 million, respectively,were as follows: | | | | | | | | | | | | | 2008 | | | 2007 | | | Contractual (stated) amount ( including interest) | | | | | | | | | | FireKeepers Development Authority | | $ | 5,000,000 | | | $ | 12,857,593 | | | Others | | | 1,281,329 | | | | 1,226,507 | | | | | | | | | | | | | $ | 6,281,329 | | | $ | 14,084,100 | | | | | | | | | | | | | | | | | | | | | Estimated fair value of notes receivable related to tribal casino projects | | | | | | | | | | FireKeepers Development Authority | | $ | 4,097,002 | | | $ | 11,189,358 | | | Others | | | 1,017,765 | | | | 989,123 | | | | | | | | | | | | | $ | 5,114,767 | | | $ | 12,178,481 | | | | | | | | | |
| | | | | | | | | | | | | 2009 | | | 2008 | | | Contractual (stated) amount: | | | | | | | | | | FireKeepers Development Authority | | $ | 5,000,000 | | | $ | 5,000,000 | | | Other | | | 1,280,475 | | | | 1,281,329 | | | | | | | | | | | | | $ | 6,280,475 | | | $ | 6,281,329 | | | | | | | | | | | Estimated fair value of notes receivable: | | | | | | | | | | FireKeepers Development Authority | | $ | 4,682,420 | | | $ | 4,097,002 | | | Other | | | 430,467 | | | | 1,017,765 | | | | | | | | | | | | | $ | 5,112,887 | | | $ | 5,114,767 | | | | | | | | | |
On May 6, 2008, the FireKeepers Development Authority (the “Authority”) closed on the sale of $340$340.0 million of Senior Secured Notes and a $35$35.0 million equipment financing facility to fund the development and construction of the Authority’s FireKeepers Casino in Michigan. On the same date, GEM received a payment of approximately $9.3 million on its notes receivable from the Authority which resulted in an increase in the estimated fair value of the notes receivable of approximately $1.8 million recorded as an unrealized gain in the first quarter of 2008. The estimated net realizable value of the Michigan receivable was classified as short term as of December 31, 2008, as the remaining $5.0 million iswas paid February 12, 2010. The FireKeepers Casino opened on August 5, 2009. Although certain distributions (including a minimum guaranteed monthly payments to the Tribe of $50,000, a preferred payment to the Tribe of $0.2 million and repayment of loan principal to be paid 180 days following the openingout of the casino, subjectTribe’s share of net revenues) will be paid from net revenue prior to there being adequate funds remaining inthe payment to the Company of the management fee, the Company believes the property will generate sufficient revenues to pay the management fee equal to 26% of net revenues monthly. While we are not obligated to fund the construction disbursement account. If there are insufficient fundsphase of our Northern Cheyenne project in Montana, our agreements with the tribe require us to repayarrange on a best efforts basis up to $15.0 million in tribal financing for the remaining balance, the Authority will be obligated to repay the balance in 60 monthly installments beginning 180 days following the opening of the casino, with interest at prime plus 1%. project. As of December 31, 2008, management extended its estimate of the opening date for the Montana casino from the second quarter of 20102009, our advances to the third quarter of 2010. Management had previously expected that the tribe would receive key federal and state approvals during the fourth quarter of 2008 which have not yet been received. Management also expects that the recent change in the federal administration will further delay the approval process until the second quarter of 2009. The effect of the change in the estimated opening date reduced the estimated fair value of the note receivable related to the Montana project by approximately $18,000 as of December 31, 2008.Northern Cheyenne Tribe total $0.7 million. 4839
The recent economic recession and resulting impact on credit availability has significantly decreased the likelihood that financing could be obtained on favorable terms if at all for the Montana project in the foreseeable future. The company intends to continue working with the Northern Cheyenne Nation to pursue the development of a casino near Lame Deer, Montana, however, based on current economic conditions management has determined that both the timing and feasibility of this project have become more difficult to determine. As a result, we believe that the project assets are impaired and collectability is doubtful and the fair value of the notes receivable originally valued at $0.6 million and contract rights originally valued at $0.1 million related to the project were written down to zero value as of December 2009, which resulted in a $0.7 million impairment loss. In March 2008, management formally decided to discontinueannounced that the Company was no longer pursuing the Nambé Pueblo project. However, the Nambé TribePueblo tribe has affirmedacknowledged its responsibilityobligation to repay reimbursable development advances of approximately $0.7 million plus interest at prime plus 2%, out of any future gaming revenues, if any. Management currently believes that the Nambé TribePueblo intends to develop a slot machine operation with approximately 200 devices, which would be attached to its travel center and provide the Nambé TribePueblo tribe with the financial wherewithal to repay the amounts owed to the Company. Accordingly,The tribe has restated its intent to repay the development advances from the gaming revenue once the slot machine operation commences operations. During February 2010, we were advised that the Pueblo had located a willing financial source to fund the gaming development. Funding is expected during the first quarter of 2010 with the expected facility opening within seven months of receipt of funding. With due consideration to the foregoing factors, management has estimated the fair value of the note receivable from the Nambé TribePueblo at approximately $0.4 million$430,467 as of December 31, 2009. During the second quarter of 2008, management formally approved and began executing a plan to sell land purchased for the development of the Manuelito project. As a result, as of June 30, 2008, the land was classified as a current asset characterized as held for sale and adjusted to its then estimated net realizable value of $45,000, resulting in an impairment loss of $85,000 recognized in the second quarter of 2008. During 2009, the Company recognized an additional $25,331 impairment loss prior to the October 15, 2009, sale of the Manuelito land to an unrelated third party for $24,500 less closing costs of $4,831 (Note 6). The following table summarizes the changes in the estimated fair value of notes receivable from tribal governments, determined using Levelbased on level 3 fair value inputs, from January 1, 2008,2009, to December 31, 2008:2009: | | | | | | | | | | | | | | | | | 2008 | | | | | | | | | Michigan Tribe | | | | | | | | Total | | | Authority | | | Other tribes | | | Balances, January 1, 2008 | | $ | 12,178,481 | | | $ | 11,189,358 | | | $ | 989,123 | | | Total advances | | | 108,029 | | | | — | | | | 108,029 | | | Advances allocated to contract rights | | | (24,030 | ) | | | — | | | | (24,030 | ) | | Advances expensed as period costs | | | 2,124 | | | | 2,124 | | | | — | | | Repayment of notes receivable | | | (9,253,467 | ) | | | (9,253,467 | ) | | | — | | | Unrealized gains | | | 2,103,630 | | | | 2,158,987 | | | | (55,357 | ) | | | | | | | | | | | | | Balances, December 31, 2008 | | $ | 5,114,767 | | | $ | 4,097,002 | | | | 1,017,765 | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | 2009 | | | | | | | | | FireKeepers | | | | | | | | | | | | Development | | | | | | | | Total | | | Authority | | | Other tribes | | | Balances, January 1, 2009 | | $ | 5,114,767 | | | $ | 4,097,002 | | | $ | 1,017,765 | | | Other | | | (854 | ) | | | — | | | | (854 | ) | | Impairment loss | | | (568,374 | ) | | | — | | | | (568,374 | ) | | Unrealized gains | | | 567,348 | | | | 585,418 | | | | (18,070 | ) | | | | | | | | | | | | | Balances, December 31, 2009 | | $ | 5,112,887 | | | $ | 4,682,420 | | | $ | 430,467 | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2007 | | | 2008 | | | | | Michigan Tribe | | | | | FireKeepers | | | | | | | Total | | Authority | | Other tribes | | | Development | | | | | Balances, January 1, 2007 | | $ | 10,995,782 | | $ | 10,258,202 | | $ | 737,580 | | | | | | | Total | | Authority | | Other tribes | | | Balances, January 1, 2008 | | | $ | 12,178,481 | | $ | 11,189,358 | | $ | 989,123 | | | Total advances | | 431,772 | | 129,164 | | 302,608 | | | 108,029 | | — | | 108,029 | | | Advances allocated to contract rights | | | (70,510 | ) | | — | | | (70,510 | ) | | | (24,030 | ) | | — | | | (24,030 | ) | | Advances expensed as period costs | | | (18,312 | ) | | | (18,312 | ) | | — | | | 2,124 | | 2,124 | | — | | | Unrealized gains (losses) included in earnings | | 839,749 | | 820,304 | | 19,445 | | | | Repayment of notes receivable | | | | (9,253,467 | ) | | | (9,253,467 | ) | | — | | | Unrealized gains | | | 2,103,630 | | 2,158,987 | | | (55,357 | ) | | | | | | | | | | | | | | | | | | Balances, December 31, 2007 | | $ | 12,178,481 | | $ | 11,189,358 | | $ | 989,123 | | | | Balances, December 31, 2008 | | | $ | 5,114,767 | | $ | 4,097,002 | | $ | 1,017,765 | | | | | | | | | | | | | | | | | |
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6.5. CONTRACT RIGHTS
Contract rights are comprised of the following as of December 31, 20082009 and 2007:2008: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Accumulated | | | | | Accumulated | | | | | 2008 | | Cost | | amortization | | Net | | | | 2009 | | | Cost | | amortization | | Net | | | FireKeepers project, initial cost | | $ | 4,155,213 | | $ | — | | $ | 4,155,213 | | | $ | 4,155,213 | | $ | (247,334 | ) | | $ | 3,907,879 | | | | | | | Firekeepers project, additional | | 13,210,373 | | | (729,228 | ) | | 12,481,145 | | | 13,210,373 | | | (1,501,236 | ) | | 11,709,137 | | | Other projects | | 159,194 | | — | | 159,194 | | | | | | | | | | | | | | | | | | | | | | $ | 17,524,780 | | $ | (729,228 | ) | | $ | 16,795,552 | | | $ | 17,365,586 | | | (1,748,570 | ) | | $ | 15,617,016 | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | Accumulated | | | | | Accumulated | | | | | 2007 | | Cost | | amortization | | Net | | | | 2008 | | | Cost | | amortization | | Net | | | Firekeepers project, initial cost | | $ | 4,155,213 | | $ | — | | $ | 4,155,213 | | | $ | 4,155,213 | | $ | — | | $ | 4,155,213 | | | Firekeepers project, additional | | 11,141,683 | | | (670,927 | ) | | 10,470,756 | | | 13,210,373 | | | (729,228 | ) | | 12,481,145 | | | Other projects | | 135,164 | | — | | 135,164 | | | 159,194 | | — | | 159,194 | | | | | | | | | | | | | | | | | | | | | $ | 15,432,060 | | $ | (670,927 | ) | | $ | 14,761,133 | | | $ | 17,524,780 | | $ | (729,228 | ) | | $ | 16,795,552 | | | | | | | | | | | | | | | | | |
Prior to 2007, the Company acquired the remaining 50% interest in three joint venture projects for $1.8 million, $1.1 million allocated to the Michigan project for control of the development processes. Accordingly, amortization of these rights commenced immediately with revisions to the development/amortization period accounted for prospectively as changes in estimates. Effective August, 2009, the remaining contract rights have been amortized on a straight-line basis over the seven year term of the GEM management contract. The initial cost of the Michigan contract rights were the result of a 1995 merger agreement whereby LA Associates, Inc. (“LAI”), (then owned 100% by a current director in the Company, Lee A. Iacocca) and Omega Properties, Inc. (then owned 30% by former director, William P. McComas) merged into a wholly-owned subsidiary of Full House. Pursuant to the merger, the Company issued a $0.4 million promissory note and 1,750,000 shares of common stock in return for contract rights primarily related to the Michigan project. An independent valuation consultant was retained to assist in the valuation of the merger and the contributed rights. The initial contract rights relate to the management of the Michigan project and amortization will begin once operations commence, at which timewas begun effective August, 2009, the rights will be contributed to GEM. 49
Prior to 2007, the Company acquired the remaining 50% interest in three joint venture projects for $1.8 million, $1.1 million allocated to the Michigan project for control of the development processes. Accordingly, amortization of these rights commenced immediately with revisions to the development/amortization period accounted for prospectively as changes in estimates.
In connection with the Authority’s financingopening date of the FireKeepers Casino, development in the second quarter of 2008, GEM funded $2.1 million of financing costs on behalf of the Authority, as required by the management agreement, which was recorded as additional contract rights related to the FireKeepers project. The financing costs will be amortized over the seven-year management contract period (7 years) commencing upon the opening of the casino, which is expected in the summer of 2009.period.
During 2007, the Company executed an agreement to purchase contractual rights related to the Michigan casino from Green Acres (“Green Acres”) for $10$10.0 million, which was contingent upon the opening of the Michigan casino project. At the time the agreement was entered into, there were two main contingencies regarding the Michigan project. Firstly, the amended management agreement had not yet been approved by the NIGC, and secondly, the construction financing had not been obtained. The management agreement was approved by the NIGC in December 2007, and at the time of the Company’s 10-KSB filing, the Michigan project financing was likely to be obtained (the financing was obtained early in May 2008). Accordingly, with the two primary contingencies likely to be overcome, the obligation to pay Green Acres was triggered, and the contract rights and a liability were recognized per SFAS No. 5. The additional contract rights will beare amortized over the management contract period (seven years) commencing uponeffective August, 2009, the opening date of the casino, which is expected inFireKeepers Casino. In connection with the summerAuthority’s financing of 2009. 7. ASSETS HELD FOR SALE
On October 1, 2007, the Company entered into an agreement to sellFireKeepers Casino development, GEM funded its portion of the Hotel (Holiday Inn Express),financing costs totaling $2.1 million which was acquiredrecorded as part of the Stockman’s stock purchase. The sale was consummated February 20, 2008, resulting in net cash proceeds of approximately $7.0 million, which were used to repay long-term debt. Operations of the Hotel have been accounted for in the Company’s consolidated financial statements as discontinued operations (Note 8).
At December 31, 2007, assets held for sale consisted primarily of $6.9 millionadditional contract rights related to the Holiday Inn Express (the Hotel), which was sold on February 20, 2008, for a gross sales price of $7.2 million. The Company received net cash proceeds at closing approximating the carrying value, and accordingly, no estimated loss on disposal was accrued at December 31, 2007.
Assets held for sale consist of the following at December 31, 2008 and 2007:
| | | | | | | | | | | | | 2008 | | | 2007 | | | Land | | $ | 45,000 | | | $ | 1,078,661 | | | Buildings and improvements | | | — | | | | 6,414,273 | | | Furniture and equipment | | | — | | | | 1,848,712 | | | Goodwill | | | — | | | | 22,608 | | | Other | | | — | | | | 89,500 | | | | | | | | | | | | | | 45,000 | | | | 9,453,754 | | | Less accumulated depreciation | | | — | | | | (2,492,992 | ) | | | | | | | | | | | | $ | 45,000 | | | $ | 6,960,762 | | | | | | | | | |
In the fourth quarter of 2007, the Company recorded impairment losses related to the Navajo Nation (“Manuelito”) and Nambé Tribe contract rights of $0.2 million and $0.2 million, respectively, based on management’s decision to discontinue pursuing these projects. DuringFireKeepers project in the second quarter of 2008 management formally approved and began executing a plan to sell land purchased for the developmentas it is considered part of the Manuelito project. As a result, ascost of June 30, 2008,acquiring the land was classified as a current asset heldmanagement contract. The financing costs were funded equally by the Company and RAM. The additional contract rights are amortized over the management contract period (seven years) commencing effective August, 2009, the opening date of the FireKeepers Casino. The estimated amortization expense of contract rights for sale and adjustedeach of the next five years is expected to its estimated net realizablebe $2.4 million per year.
6. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying value of $45,000, resultingthe Company’s cash and equivalents and accounts payable approximate fair value because of the short maturity of those instruments. Substantially all of the Company’s receivables are carried at estimated fair value determined based on level 3 inputs. As discussed in an additional impairment lossNotes 2 and 4, above. The estimated values of $85,000 recognized in the second quarterCompany’s debt approximate their recorded values at December 31, 2009, based on level 2 inputs consisting of 2008.interest rates offered to the Company for loans of the same or similar remaining maturities and bearing similar risks. 5041
8. SUMMARY FINANCIAL INFORMATION FOR DISCONTINUED OPERATIONS
The operating results of the Hotel for the year ended December 31, 2008 and 2007, is presented as income from discontinued operations. Summary operating results for the discontinued operations are as follows:
| | | | | | | | | | | | | 2008 | | | 2007 | | | Net revenues | | $ | 251,337 | | | $ | 1,938,532 | | | Operating expenses | | | (189,815 | ) | | | (1,249,819 | ) | | Depreciation and amortization | | | — | | | | (254,935 | ) | | Income taxes | | | (23,377 | ) | | | (147,484 | ) | | | | | | | | | | Income from discontinued operations | | $ | 38,145 | | | $ | 286,294 | | | | | | | | | |
9.7. PROPERTY AND EQUIPMENT
At December 31, 20082009 and 2007,2008, property and equipment consistconsists of the following: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Estimated | | | | | | | Estimated | | | | | | | | | useful | | | | | | | useful | | | | | | | | | life | | 2008 | | 2007 | | | lives | | 2009 | | 2008 | | | Land | | $ | 1,885,400 | | $ | 1,885,400 | | | $ | 1,885,400 | | $ | 1,885,400 | | | Buildings and improvements | | 10–39 | | 5,580,045 | | 5,543,233 | | | 10-39 | | 5,580,045 | | 5,580,045 | | | Furniture and equipment | | 5–7 | | 6,150,345 | | 5,518,197 | | | 5-7 | | 6,436,829 | | 6,150,345 | | | Construction in progress | | — | | 128,722 | | | | | | | | | | | | | | | | | | 13,615,790 | | 13,075,552 | | | 13,902,274 | | 13,615,790 | | | Less accumulated depreciation | | | (4,985,766 | ) | | | (3,848,439 | ) | | | (5,940,540 | ) | | | (4,985,766 | ) | | | | | | | | | | | | | | | | $ | 8,630,024 | | $ | 9,227,113 | | | $ | 7,961,734 | | $ | 8,630,024 | | | | | | | | | | | | | |
10.8. LONG-TERM DEBT
At December 31, 20082009 and 2007,2008, long-term debt consists of the following: | | | | | | | | | | | | | | | | | | | | | 2008 | | 2007 | | | 2009 | | 2008 | | | | | Long-term debt, due to co-venturer (RAM): | | | | Promissory notes, currently expected to be due in 2010, (no interest at December 31, 2009, and interest at 4.25% at December 31, 2008) | | | $ | 1,450,087 | | $ | 3,137,600 | | | Less current portion | | | | (1,450,087 | ) | | — | | | | | | | | | | Promissory notes, expected to be due in 2011, interest at 1% above the prime rate (4.25% at December 31, 2008 and 8.35% at December 31, 2007) (including accrued interest of $153,610 and $17,231) | | $ | 3,137,600 | | $ | 1,272,709 | | | | | | | | | | | | | | | $ | — | | $ | 3,137,600 | | | | | | | | | | | | | | Other: | | | | Reducing revolving loan, initial $16.0 million limit on January 31, 2007, due January 31, 2022, interest at 2.1% above the five-year LIBOR/swap rate, adjusted annually (7.24% at December 31, 2009, and 7.39% at December 31, 2008) | | | $ | 2,469,275 | | | Promissory note to Peter’s Family Trust, $1.25 million on January 31, 2007, paid in full as of June 30, 2009, interest at a fixed annual rate of 7.44% | | | 822,588 | | | | | | | | | | | | 3,291,863 | | | Less current portion | | | | (225,224 | ) | | | | | | | | | | | | | | $ | 3,066,639 | | | | | | | |
RAMLong-term debt, conversion.In December 2007, RAM exercised its conversion option on its $2.4 million loandue to the Company. co-venturer (RAM).As a result $2.0 million of the loan was converted to a capital contribution to the joint venture membership agreement modification discussed in Note 1, payables due from GEM to each member were adjusted to reflect a total payable due to RAM of $8.5 million, including $2.7 million reported as equity, and a total payable due to FHR of $11.9 million, including $2.7 million reported as equity, resulting in the loanrecognition of a net pre-tax gain of $1.4 million in September 2009. The GEM members agreed that distributions to the members will be made on a 50/50 basis to both members until such time RAM’s member payable has been fully repaid and thereafter 70% to the Company and 30% to RAM until such time as the remaining payable to the Company has been repaid. Thereafter, distributions to members will be made on a 50/50 basis. Also, no further interest accruals will be made on any member’ payables. As a result of the GEM Financial Resolution, the Company has reclassified the debt to joint venture affiliate of $1.5 million as current portion of long-term debt with the balance of approximately $0.4 million, plus approximately $0.6 million of accrued interest on the original loan, became a liability of GEM. Interest expense incurred on related party obligations was approximately $0.1 million and $0.2 million in 2008 and 2007, respectively.
Other long-term debt:
| | | | | | | | | | | Reducing revolving loan, due January 31, 2022, interest at 2.1% above the five year LIBOR/Swap rate, adjusted annually (7.39% at December 31, 2008 and 2007) | | $ | 2,469,275 | | | $ | 11,401,000 | | | | | | | | | | | | | Long-term obligation related to the acquisition of contract rights from Green Acres | | | — | | | | 9,500,000 | | | Promissory note to Peter’s Family Trust, , payable in 60 monthly installments of principal and interest (7.44% per anum, through February 2012, and is secured by a second lien in the Stockman’s real property | | | 822,588 | | | | 1,051,438 | | | | | | | | | | | | | | 3,291,863 | | | | 21,952,438 | | | | | | | | | | | | | Less current portion | | | (225,224 | ) | | | (259,124 | ) | | | | | | | | | | | | | | | | | | | | | | $ | 3,066,639 | | | $ | 21,693,314 | | | | | | | | | |
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Reducing revolving loan (the “Revolver”).The maximum committed amount under the Revolver was increased from $8.1 million to $8.9 million, based upon the amendment to the Revolver dated June 25, 2009, and the repayment terms were amended (as discussed below). The maximum amount permitted to be outstanding under the Revolver (originally $16.0 million)decreased $312,000 on July 1, 2009, and any outstanding amounts above such reduced maximum must be repaid. Effective January 1, 2010, based upon the amendment to the Revolver, the maximum amount permitted to be outstanding decreases $312,000$329,000 semiannually on January 1 and July 1 of each year and any outstanding amounts above such reduced maximum must be repaid on each such date. Draws on the Revolver are payable over 15 years at a variable interest rate based on the five year LIBOR/Swap rate plus 2.1%. This rate adjusts annually based on the funded debt to EBITDA ratio of Stockman’s with adjustments based on the five yearfive-year LIBOR/Swap rates. Stockman’s assets are pledged as collateral for the loan (see next paragraph).loan. The loan agreementRevolver also contains certain customary financial representations and warranties and requires that Stockman’s maintain specified financial covenants, including a fixed charge coverage ratio, a funded debt to EBITDA ratio and a minimum tangible net worth. In addition, the Revolver provides restrictions on certainloan agreement limits the amount of distributions from and capital expenditures by Stockman’s, andStockman’s. The loan agreement also provides for customary events of default including payment defaults and covenant defaults. Management believes theThe Company is in compliance withtechnical default of a loan covenant that requires Stockmans to maintain a minimum tangible net worth based on an annually increasing calculation and has applied for a waiver, which management expects to be approved based on Stockman Casino’s performance, our cash balance and the covenants throughfact that we have fully repaid the dateNevada State Bank loan. The technical default does not affect our line of this filing.credit availability and we have access to the full credit line amount. During the first quarter of 2008, proceeds from the sale of the Hotel in Fallon, Nevada, were applied against outstanding balances payable on the Revolver. The outstanding balance was reduced from $10.9 million to $3.9 million and the Company’s availability under the Revolver increased to approximately $4.8 million. In addition, periodic payment requirements were reduced on a pro-rata basis. As of December 31, 2008, there are no additional required principal paymentsJune 30, 2009, the Company funded $0.7 million from the Revolver to pay off the amount due on the Peters’ Family Trust Promissory Note (see below). As of November 23, 2009, the Revolver until July, 2018. Thewas paid in full. As of December 31, 2009, the Company had $6.0$8.5 million of availabilityavailable and unused under its revolving credit line asline. Peters Family Trust Promissory Note. On June 30, 2009, the Company paid off the Peters Family Trust promissory note of December 31, 2008. See Subsequent Events (note 17). Green Acres.This was classified as long-term debt$0.7 million plus $4,477 in 2007 since it was due to be repaidaccrued interest with collection of long-term notes receivable.
Scheduled maturities of long-term debt asa drawdown of the most recent balance sheet presented (including obligationsRevolver. The original amount of the promissory note was $1.25 million and was payable to joint venture affiliate) are as follows:
| | | | | | | 2009 | | $ | 225,224 | | | 2010 | | $ | 263,809 | | | 2011 | | $ | 3,268,109 | | | 2012 | | $ | 49,436 | | | 2013 | | | — | | | Thereafter | | $ | 2,469,275 | |
11.9. STOCKHOLDERS’ EQUITY
In January 2007, the then outstanding preferred shares were converted to common shares on a one-for-one basis.
On July 7, 2008, the Company announced a stock repurchase plan (the “Repurchase Plan”). The Repurchase Plan did not obligate the Company to acquire any particular amount of common stock and could have been suspended at any time at management’s discretion. The Repurchase Plan expired April 30, 2009 and is no longer in effect. Under the Repurchase Plan, the Company’s board of directors authorized the repurchase of up to $1.0 million of the Company’s common stock in the open market or in privately negotiated transactions from time to time, in compliance with Rule 10b-18 of the Securities and Exchange Act of 1934, subject to market conditions, applicable legal requirements and other factors. On October 14, 2008, the Company’s board of directors authorized the repurchase of an additional $1.0 million of the Company’s common stock, and extended the expiration of the Repurchase Plan to April 30, 2009. Through December 31, 2008,2009, the Company had repurchased 1,210,4141,356,595 shares at a weighted average-price per share of $1.21$1.22 ($1.51.6 million, including commissions and other related transaction costs). 10. INCOME TAXES The Repurchase Plan does not obligateincome tax provision consists of the Company to acquire any particular amount of common stock and may be suspended at any time at management’s discretion.following: | | | | | | | | | | | | | 2009 | | | 2008 | | | Current: | | | | | | | | | | Federal | | $ | 2,255,965 | | | $ | 241,907 | | | State | | | 609,857 | | | | 396,695 | | | | | | | | | | | | | | 2,865,822 | | | | 638,602 | | | | | | | | | | | Deferred: | | | | | | | | | | Federal | | | 223,572 | | | | 691,860 | | | State | | | 95,561 | | | | | | | | | | | | | | | | | | 319,133 | | | | 691,860 | | | | | | | | | | | | | | 3,184,955 | | | | 1,330,462 | | | Less discontinued operations | | | | | | | (23,377 | ) | | | | | | | | | | Continuing operations | | $ | 3,184,955 | | | $ | 1,307,085 | | | | | | | | | |
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12. INCOME TAXES
FASB Interpretation (“FIN”) No. 48,Accounting for Uncertainty in Income Taxes, was adopted by the Company in the first quarter of 2007. Based on management’s assessment of its tax positions in accordance with FIN No. 48, there was no effect of adopting FIN No. 48 on its opening retained earnings or 2007 results of operations.
The income tax provision from continuing operations recognized in the consolidated financial statements consists of the following:
| | | | | | | | | | | | | | | | | | | | | 2008 | | | 2007 | | | Current: | | Federal | | $ | 241,907 | | | $ | (202,801 | ) | | | | | | State | | | 396,695 | | | | 273,368 | | | | | | | | | | | | | | | | | | | | | | 638,602 | | | | 70,567 | | | | | | | | | | | | | | | Deferred: | | Federal | | | 691,860 | | | | 517,941 | | | | | | | State | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | | 691,860 | | | | 517,941 | | | | | | | | | | | | | | | | | | | | | | 1,330,462 | | | | 588,508 | | | | | | | Less discontinued operations | | | (23,377 | ) | | | (147,484 | ) | | | | | | | | | | | | | | | | | | Continuing operations | | $ | 1,307,085 | | | $ | 441,024 | | | | | | | | | | | | | |
A reconciliation of the income tax provision relative to continuing operations with amounts determined by applying the statutory U.S. Federal income tax rate of 34% to consolidated income before income taxes is as follows: | | | | | | | | | | | | | | | | | | | | | 2008 | | 2007 | | | 2009 | | 2008 | | | Tax provision at U.S. statutory rate | | $ | 981,658 | | $ | 372,410 | | | $ | 2,704,086 | | $ | 981,658 | | | State taxes, net of federal benefit | | 262,469 | | 181,065 | | | 519,203 | | 262,469 | | | Other (benefit) | | 62,958 | | | (112,451 | ) | | | (38,334 | ) | | 62,958 | | | | | | | | | | | | | | | | | $ | 1,307,085 | | $ | 441,024 | | | $ | 3,184,955 | | $ | 1,307,085 | | | | | | | | | | | | | |
At December 31, 20082009 and 2007,2008, the Company’s deferred tax assets (liabilities) consist of the following: | | | | | | | | | | | | | | | | | | | | | 2008 | | 2007 | | | 2009 | | 2008 | | | Deferred tax assets: | | | | Deferred compensation | | $ | 161,146 | | $ | 233,339 | | | $ | 37,186 | | $ | 161,146 | | | Accrued bonuses | | 84,280 | | 57,850 | | | | Prepaid expenses and accruals | | | 84,479 | | 84,280 | | | Allowance for doubtful accounts | | 6,800 | | 49,300 | | | 364 | | 6,800 | | | Depreciation | | 20,224 | | 87,171 | | | | Depreciation of fixed assets | | | 36,931 | | 20,224 | | | Other | | 41,371 | | — | | | 53,487 | | 41,371 | | | | | | | | | | | | | | | | | 313,821 | | 427,660 | | | 212,447 | | 313,821 | | | | | | | | | | | | | | | | | | | Deferred tax liabilities: | | | | Income related to Indian casino projects | | | (1,153,989 | ) | | | (572,025 | ) | | | Goodwill | | | (460,658 | ) | | | (214,658 | ) | | | Interest in partnerships | | | | (74,743 | ) | | — | | | Amortization of gaming rights and unrealized gain on tribal receivables | | | | (946,274 | ) | | | (1,153,989 | ) | | Amortization of goodwill | | | | (694,830 | ) | | | (460,658 | ) | | Other | | | | (116,559 | ) | | — | | | | | | | | | | | | | | | | | | (1,614,647 | ) | | | (786,683 | ) | | | (1,832,406 | ) | | | (1,614,647 | ) | | | | | | | | | | | | | | Net deferred tax liability | | $ | (1,300,826 | ) | | $ | (359,023 | ) | | $ | (1,619,959 | ) | | $ | (1,300,826 | ) | | | | | | | | | | | | |
Management has made an analysis of its state and federal tax returns that remain subject to examination by major authorities (consisting of tax years 2006 through 2008) and concluded that the Company has no recordable liability for unrecognized tax benefits as a result of uncertain tax positions taken. 13.11. COMMITMENTS
Operating leases.In March 2007,November 2009, the Company entered into an agreement to lease other office space in the current office complex for three years, with an option to renew for an additional three years.as lessee through September 31, 2013. Effective SeptemberFebruary 1, 2007,2009, Stockman’s entered into a lease agreement as lessee for its primary outdoor casino sign which expires on Augustuntil February 1, 2012.2014. The total rent expense for all operating leases as of December 31, 2009 and 2008 was $133,978 and $139,815. Future minimum lease payments are as follows: | | | | | | | | | | | 2009 | | $ | 142,419 | | | | 2010 | | 91,567 | | | $ | 112,679 | | | 2011 | | 65,472 | | | 119,782 | | | 2012 | | 43,648 | | | 116,178 | | | 2013 | | | 95,177 | | | 2014 | | | 4,602 | | | | | | | | | | | | | $ | 343,106 | | | $ | 448,418 | | | | | | | | | |
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Financing of Indian gaming projects.Through our management or development agreements, we have agreedare obligated to use our best efforts to arrange financing for the Montana Tribe on a best efforts basis based on the project’s planned size and costs. Currently, it is estimated that the Montana project will require approximately $16$15.0 million in financing. 44
GEM distributions to member.Non-interest bearingNoninterest-bearing advances of $2.8 million in years prior yearsto 2008 by RAM to GEM have been accounted for in the accompanying financial statements as capital contributions to the joint venture due to the uncertainty of repayment and the inability of GEMas to GEM’s ability to repay the advances. It is the intent of GEMGEM’s management to distribute these amounts upon the commencement of receipt of management fee receipts.fees. The $2.8 million is comprisedcomposed of RAM’s funding of 50% the cost of acquiring the land for the Michigan project in the amount of $1.9 million and additional advances of $0.9 million to fund GEM development expenditures. Employment agreements.The Company has entered intois obligated under employment agreements with certain key employees. The agreementsemployees that provide forthe employee with a base salary, bonus, restricted stock optionsgrants and other customary benefits toand severance in the employee as well as severance ifevent the employee is terminated without cause or due to a “change of control”control,” as defined in the agreements. The severance amounts depend uponvary with the term of the agreement and can be up to two year’syears’ base salary and an average bonus calculated as the average bonus earned in the previous twothree years. If such termination occurs within two years of a change of control, as defined in the agreements, or by the Company without cause, the employee will receive a lump sum payment equal to no less than one year’s annual base salary, a lump sum cash payment equal the average bonus earned in the previous three years, and the acceleration and vesting of all unvested shares and stock-based grants awarded upon the date of change of control, along with insurance costs, 401(k) matching contributions and certain other benefits.benefits total ranging from $1.4 million to $1.7 million, in the aggregate. In the event the employee’s employment terminates due to illness, incapacity or death, the Company will payseverance amounts vary with the employee theirterm of the agreement and can be up to two years’ base salary, to date of termination, an amount equal to the prior year bonus on a pro-rata basis to date of termination, reimbursement of expenses incurred prior to date of termination, and applicable insurance and other group benefit proceeds, including those due under any Company long-term disability plan.plan with an expected cost ranging from $0.1 million to $0.7 million per employee. In the event that the employee terminates his employment, with a minimum notice, the employee will receive base salary, benefits and reimbursable expense that have been accrued and unpaid at the termination date; and any earned, unpaid annual bonus declared by the Board.Board at an expected cost of less than $50,000 per employee. If the Company properly terminates the executive’s employment for cause, the Company will be without further liability to the employee, except for payment of all base salary and benefits accrued but not paid through the date of such termination.termination at an expected cost of less than $50,000 per employee. 14.Defined Contribution Pension Plan.The Company sponsors a defined contribution pension plan for all eligible employees providing for voluntary contributions by eligible employees and matching contributions by the Company. Matching contributions made by the Company were $107,083 and $93,488 for 2009 and 2008, respectively, excluding nominal administrative expenses assumed by the Company.
12. SHARE-BASED COMPENSATION PLANS On May 31,In 2006, (the “Grant Date”), the Company’s stockholders approved the 2006 Incentive Compensation Plan (the “Plan”), authorizing the issuance of up to 1,100,000 restricted shares of the Company’s common stock as incentive compensation to officers, directors and consultants. Also on the Grant Date,At that time, the Company’s compensation committee also approved the issuance of 668,000 shares of restricted stock pursuant to the Plan, then valued at the closing price of the Company’s stock ($3.25), with no discount. Of the total shares granted, 145,500 immediately vested on the Grant Date and the remaining 522,500 are expected to vestvested through February 2010, upon certain conditions including continuous service of the recipient. The unvested grants are viewed as a series of individual awards and the related share-based compensation expense has initially been recorded as deferred compensation expense, reported as a reduction of stockholder’s equity, and will subsequently be amortized into compensation expense on a straight-line basis as services are provided over the vesting period.
On September 25,Also in 2006, the Company entered into a consulting agreement with Lee Iacocca, one of its directors, under the terms of which Mr. Iacocca willwas to provide consulting services to the Company related to marketing and advertising for a period of three years.through 2009. In consideration of these services, on December 26, 2006, the Company granted Mr. Iacocca 300,000 restricted shares of the Company’s common stock in 2006 valued at the closing price on the grant date with no discount, which vestvested in equal amounts over the three-year term of the agreement or immediately upon death.agreement. Based upon the closing price of $3.73, the Company expects thatamortized $1.1 million of share-based compensation expense will be amortized over the term of the consulting agreement.though 2009. In addition, as part of the agreement, in 2008, Mr. Iacocca forfeited 250,000 options to purchase the Company’s common stock at an exercise price of $3.69 per share that had previously been granted and vested. The restricted stock grant was recorded as deferred compensation expense, reported as a reduction of stockholders’ equity and will subsequently behas been amortized into compensation expense on a straight-line basis as services arewere provided, over the vesting period. The forfeiture of the 250,000 of options had no effect on the financial statements, since the options were fully vested. (See Note 15 for additional related party transactions.)
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On March 13,In 2007, the Company’s issued 110,000 shares of restricted stock, valued at the closing price of the Company’s stock ($3.64), with no discount. The shares vest annually through February 19, 2010, upon certain conditions including continuous service of the recipient. The unvested grants are viewed as a series of individual awards and the related share-based compensation expense of $0.4 million has initially been recorded as deferred compensation, reported as a reduction of stockholder’s equity, and will subsequently be recognized as compensation expense on a straight-line basis as services are provided over the vesting period.
On June 25, 2007, the Company issued 20,000 shares of unrestricted stock in conjunction with director compensation, which was valued at $0.08 million based on the closing price of the Company’s stock ($3.78), with no discount. Since the shares were fully vested at the date of grant, the Company recognized share-based compensation expense of $0.08 million related to this grant during the second quarter of 2007. In June 2007, the Company recognized additional expense of $0.3 million as a result of the vesting of 137,500 shares of restricted stock held by a former employee. On May 29, 2008, the shareholders approved an additional allocation of 100,000 shares to the 2006 Incentive Compensation Plan. On July 11, 2008, the Company issued 8,000 shares of unrestricted stock in conjunction with director compensation, which was valued at $0.01 million$14,400 based on the closing price of the Company’s stock ($1.80), with no discount. Since the shares were fully vested at the date of grant, the Company recognized share-based compensation expense of $0.01 million$14,400 related to this grant during the third quarter of 2008.
Share-basedOn May 29, 2009, the Company issued 8,000 shares of unrestricted stock in conjunction with director compensation, which was valued at $20,400 based on the closing price of the Company’s stock ($2.55), with no discount. Since the shares were fully vested at the date of grant, the Company recognized share-based compensation expense for 2008 and 2007 was $0.9 million and $1.6 million respectively. of $20,400 related to this grant during the second quarter of 2009.
Included in 20072008 share-based compensation expense is the amortization of $0.3 million and $0.02 million for shares in 2008 not vested upon termination of employees and affiliates. At December 31, 2008,2009, the Company has recorded deferred share-based compensation of $0.3 million,$16,683, which is expected to be amortized through February 2010. The following table summarizes the Company’s restricted stock activity for the 20082009 and 2007:2008: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2009 | | 2008 | | | | | 2008 | | 2007 | | | Weighted | | Weighted | | | | | Weighted | | Weighted | | | average | | average | | | | | average | | average | | | grant date | | grant date | | | | | grant date | | grant date | | | value (per | | value (per | | | | | value (per | | value (per | | | Shares | | share) | | Shares | | share) | | | | | Shares | | share) | | Shares | | share) | | | | Unvested at beginning of year | | 514,169 | | $ | 3.52 | | 822,500 | | $ | 3.43 | | | 275,419 | | $ | 3.53 | | 514,169 | | $ | 3.52 | | | | | | Granted | | — | | — | | 130,000 | | 3.66 | | | | Vested | | | (238,750 | ) | | 3.51 | | | (438,331 | ) | | 3.38 | | | | (238,752 | ) | | 3.51 | | | (238,750 | ) | | 3.51 | | | Forfeited | | — | | — | | — | | — | | | | | | | | | | | | | | | | | | | | Unvested at end of year | | 275,419 | | $ | 3.53 | | 514,169 | | $ | 3.52 | | | 36,667 | | $ | 3.64 | | 275,419 | | $ | 3.53 | | | | | | | | | | | | | | | | | |
The Company’s ability to issue options under its earlier plans expired on June 30, 2002, and all options granted were fully vested prior to 2006. A summary of the status of Full House’s stock option plan as of December 31, 2008, and 2007, and changes during the yearsyear then ended are presented below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2008 | | 2007 | | | 2008 | | | | | Weighted average | | Weighted-average | | | Weighted-average | | | | | exercise | | exercise | | | exercise | | | | | Options | | Price | | Options | | Price | | | Options | | Price | | | Outstanding at beginning of year | | 75,000 | | $ | 2.25 | | 325,000 | | $ | 2.25 | | | 75,000 | | $ | 2.25 | | | Exercised | | — | | — | | | (250,000 | ) | | 2.25 | | | — | | — | | | Forfeited | | | (75,000 | ) | | 2.25 | | — | | — | | | | (75,000 | ) | | 2.25 | | | | | | | | | | | | | | | Outstanding at end of year | | — | | — | | 75,000 | | 2.25 | | | — | | — | | | | | | | | | | | | | | | Exercisable at year-end | | — | | — | | 75,000 | | $ | 2.25 | | | — | | — | | | | | | | | | | | | | |
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15. RELATED PARTY TRANSACTIONS13. CONTINGENCIES
DuringOn June 19, 2009, Harrington Raceway, Inc. filed a demand for arbitration, disputing the second quarter of 2007, management wrote-off a receivable from a related party, Allen E. Paulson Living Trust, of which J. Michael Paulson, chairmanformula for computing the minimum payment of our board, is trustee, which receivable was previously fully provided for with an allowance. The receivable originated in 2001, whenshare of the management fee pursuant to the Management Reorganization Agreement dated June 18, 2007. Harrington Raceway’s demand would require the Company madeto refund $1.5 million in management fees. We have appeared in the matter and intend to vigorously defend the proceeding. A hearing date was held on February 15 and 16, 2010 and a $0.1 million payment for architectural drawings relating to a development projectdecision is not expected until sometime in Mississippi.April. Management believes that it is more likely than not that the Company will prevail in the arbitration, but we cannot guarantee that the arbitrator will not rule in favor of HRI based on the record. As of the March 23, 2010 filing date, the arbitrator’s decision was not yet received.
On October 20, 2008, the Company was served with a complaint in the Second Judicial District Court of Nevada in and for Washoe County by RAM and Robert A. Mathewson alleging breach of contract and other claims related to the resolution of claims by GEC, a consolidated investee of the Company, against the Torres-Martinez Tribe of California. Certain officers were named as individual defendants as well. The complaint alleges that the Company, and in some cases the other individual defendants (i)breached an oral promise to share with RAM the $1.1 million settlement proceeds received by GEC in 2005 following a successful arbitration against the tribe. (ii) wrongfully distributed such settlement proceeds to the Company and (iii) failed to disclose material information to RAM regarding GEC, including debts owed by GEC to the Company. Following a mediation session, held before former Washoe County District Court Judge Jerry Whitehead, the lawsuit was settled by the company agreeing to pay a total of $0.5 million to the plaintiffs (included in impairment and settlement losses), payable $0.2 million payable on execution of the settlement documents and $0.3 million payable within 30 days of the opening of the FireKeepers Casino but no later than December 15, 2009. All claims against the individuals were dismissed outright and the claims against the company were dismissed. As of December 31, 2008, $0.22009, $0.5 million was paid to the plaintiffs in this case. From time to time, in the ordinary course of business, we receive notices of claims which are not material or are without merit. We investigate and review each claim and vigorously defend all meritless claims. 16.14. SEGMENT REPORTING
Following the acquisition of Stockman’s in January 2007, the Company is comprisedThe Company’s operations are composed of three primary business segments. The casino operations segment includes the Stockman’s Casino operation in Fallon, Nevada. Accordingly, the operating results of the hotel are reported as discontinued operations in the accompanying statements of operations, and are therefore excluded from the table below. The development/management segment includes costs associated with tribal casino development and management projects and the Michigan and Delaware joint venture.ventures and includes the current year impairment loss on Montana’s receivable and contract rights of approximately $0.7 million. The corporateCorporate segment includes general and administrative expenses of the Company and one-time revenues of $0.3 million in the second quarter of 2007, related to the termination of a consulting agreement with the Hard Rock casino in Biloxi, Mississippi.Company.
Selected statementsstatement of operations data (for continuing operations)(excluding discontinued operations of $38,145, net of tax, in 2008) as of and for the years ended December 31, 20082009 and 20072008 is as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Development/ | | | | | | | Development/ | | | | | | | | | Casino operations | | management | | Corporate | | Consolidated | | | 2008 | | | | 2009 | | | Casino operations | | management | | Corporate | | Consolidated | | | Revenues | | $ | 9,670,541 | | $ | — | | $ | 1,400 | | $ | 9,671,941 | | | $ | 9,048,686 | | $ | 9,953,009 | | $ | 10,988 | | $ | 19,012,683 | | | Selling, general and administrative expense | | 1,899,791 | | 465,589 | | 3,896,704 | | 6,262,084 | | | 1,757,923 | | 586,291 | | 4,128,903 | | 6,473,117 | | | Depreciation and amortization | | 1,086,323 | | 58,637 | | 68,676 | | 1,213,636 | | | 984,824 | | 1,019,919 | | 85,351 | | 2,090,094 | | | Operating gains | | — | | 6,290,878 | | — | | 6,290,878 | | | — | | 2,596,459 | | — | | 2,596,459 | | | Income (loss) from continuing operations before other income (expense) and income taxes | | 1,963,511 | | 5,620,319 | | | (3,968,770 | ) | | 3,615,060 | | | | Income (loss) from continuing operations | | 1,971,729 | | 4,720,528 | | | (5,112,112 | ) | | 1,580,145 | | | | | | | 2007 | | | | Revenues | | $ | 9,280,857 | | $ | — | | $ | 283,554 | | $ | 9,564,411 | | | | Selling, general and administrative expense | | 1,562,807 | | 22,700 | | 5,225,814 | | 6,811,321 | | | | Depreciation and amortization | | 946,253 | | 62,028 | | 8,213 | | 1,016,494 | | | | Operating gains | | — | | 4,702,215 | | — | | 4,702,215 | | | | Income (loss) from continuing operations before other income (expense) and income taxes | | 2,582,677 | | 4,499,104 | | | (5,263,526 | ) | | 1,818,255 | | | | Income (loss) from continuing operations | | 2,755,644 | | 4,243,320 | | | (6,344,667 | ) | | 654,297 | | | | Operating income | | | 2,064,293 | | 10,892,130 | | | (4,370,491 | ) | | 8,585,932 | | | Income (loss) attributable to Company | | | 1,365,673 | | 6,301,194 | | | (2,898,628 | ) | | 4,768,239 | |
| | | | | | | | | | | | | | | | | | | | | | | | | Development/ | | | | | | | | | 2008 | | Casino operations | | | management | | | Corporate | | | Consolidated | | | Revenues | | $ | 9,670,541 | | | $ | — | | | $ | 1,400 | | | $ | 9,671,941 | | | Selling, general and administrative expense | | | 1,899,791 | | | | 465,589 | | | | 3,896,704 | | | | 6,262,084 | | | Depreciation and amortization | | | 1,086,323 | | | | 58,637 | | | | 68,676 | | | | 1,213,636 | | | Operating gains | | | — | | | | 6,290,878 | | | | — | | | | 6,290,878 | | | Operating income | | | 1,963,511 | | | | 5,620,319 | | | | (3,968,770 | ) | | | 3,615,060 | | | Income (loss) attributable to Company | | | 1,316,264 | | | | 3,051,940 | | | | (2,788,059 | ) | | | 1,580,145 | |
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Selected Balance Sheetbalance sheet data (for continuing operations) for the years ended December 31, 2009 and 2008 is as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Development/ | | Discontinued | | | | | Development/ | | | | | | | 2008 | | Casino operations | | management | | Corporate | | operations | | Consolidated | | | | Assets | | $ | 20,468,311 | | $ | 22,550,532 | | $ | 5,449,280 | | $ | — | | $ | 48,468,123 | | | | 2009 | | | Casino operations | | management | | Corporate | | Consolidated | | | Total assets | | | $ | 19,800,305 | | $ | 22,790,171 | | $ | 8,995,110 | | $ | 51,585,586 | | | Property and equipment, net | | 8,443,650 | | 1,394 | | 184,980 | | — | | 8,630,024 | | | 7,834,951 | | 818 | | 125,965 | | 7,961,734 | | | Goodwill | | 10,308,520 | | — | | — | | — | | 10,308,520 | | | 10,308,520 | | — | | — | | 10,308,520 | | | Liabilities | | 515,366 | | 5,620,785 | | 3,148,612 | | — | | 9,284,763 | | | 1,125,099 | | 2,871,553 | | 2,632,008 | | 6,628,660 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Development/ | | Discontinued | | | | | Development/ | | | | | | | 2007 | | Casino operations | | management | | Corporate | | operations | | Consolidated | | | | Assets | | $ | 21,247,805 | | $ | 27,174,172 | | $ | 8,081,527 | | $ | 6,960,762 | | $ | 63,464,266 | | | | 2008 | | | Casino operations | | management | | Corporate | | Consolidated | | | Total assets | | | $ | 20,468,311 | | $ | 22,550,532 | | $ | 5,449,280 | | $ | 48,468,123 | | | Property and equipment, net | | 9,081,356 | | — | | 145,757 | | — | | 9,227,113 | | | 8,443,650 | | 1,394 | | 184,980 | | 8,630,024 | | | Goodwill | | 10,308,520 | | — | | — | | — | | 10,308,520 | | | 10,308,520 | | — | | — | | 10,308,520 | | | Liabilities | | 631,425 | | 13,178,507 | | 11,753,431 | | — | | 25,563,363 | | | 955,801 | | 4,475,884 | | 3,853,078 | | 9,284,763 | |
17.15. SUBSEQUENT EVENTS
In March,February 2010, GEM received $5.0 million from FireKeepers Casino for payment on the note receivable related to tribal casino project plus interest. The funds were evenly distributed between the members, eliminating the Company’s December 2009 the Company made $2.3 million of voluntary principal payments on its revolving credit line, increasing the availability under the line to $7.9 million and reducing its cash balance to $3.1 million.debt balance. 48
| | | | Item 9. | | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
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None. | | | | Item 9A(T). | | Item 9A (T). Controls and Procedures.
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Evaluation of Disclosure Controls and Procedures— As of December 31, 2008,2009, we completed an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer/Chief Operating Officer of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rule 13a-15(e) and 15d-15(e)). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer/Chief Operating Officer concluded that our disclosure controls and procedures are effective at a reasonable assurance level in timely alerting them to material information relating to us which is required to be included in our periodic Securities and Exchange Commission filings. Evaluation of Internal Control Over Financial Reporting— Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control system was designed to provide reasonable assurance to the Company’s management and board of directors regarding the preparation and fair presentation of published financial statements. Management assessed the effectiveness of the Company’s internal control over financial reporting (as defined in the Securities Exchange Act of 1934 Rule 13a-15(f) and 15d-15(f)) as of December 31, 2008.2009. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on our assessment we believe that, as of December 31, 2008,2009, the Company’s internal control over financial reporting is effective based on those criteria. This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the company to provide only management’s report in this annual report. | | | | Item 9B. | | Item 9B. Other Information.
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None. 57
PART III | | | | Item 10. | | Item 10. Directors, Executive Officers and Corporate Governance.
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The information required by this Item will be set forth under the captions “Proposal No. 1. Election of Directors” and “Section 16(a) Beneficial Ownership Reporting Compliance” in the definitive Proxy Statement for our 20092010 Annual Meeting of Stockholders (our “Proxy Statement”) to be filed with the Securities and Exchange Commission on or before April 30, 20092010 and is incorporated herein by this reference. | | | | Item 11. | | Item 11. Executive Compensation.
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The information required by this Item will be set forth under the caption “Executive Compensation” in our Proxy Statement and is incorporated herein by this reference. 49
| | | | Item 12. | | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. |
The information required by this Item will be set forth under the captions “Proposal No. 1. Election of Directors — Security Ownership of Certain Beneficial Owners and Management” and “Executive Compensation — Equity Compensation Plan Information” in our Proxy Statement and is incorporated herein by this reference. | | | | Item 13. | | Item 13. Certain Relationships and Related Transactions, and Director Independence.
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The information required by this Item will be set forth under the caption “Certain Transactions” in our Proxy Statement and is incorporated herein by this reference. | | | | Item 14. | | Item 14. Principal Accountants’ Fees and Services.
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The information required by this Item will be set forth under the caption “Independent Registered Public Accounting Firm” in our Proxy Statement and is incorporated herein by this reference. 5850
Item 15. Exhibits, Financial Statement Schedules. | (a)1. | | Financial statements of the Company (including related notes to consolidated financial statements) filed as part of this report are listed below: |
Report of Independent Registered Public Accounting Firm; Consolidated Balance Sheets as of December 31, 2009 and 2008; Consolidated Statements of Operations for the years ended December 31, 2009 and 2008; Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2009 and 2008; Consolidated Statements of Cash Flows for the years ended December 31, 2009 and 2008; Notes to Consolidated Financial Statements. | | •(b) | | Report of Independent Registered Public Accounting Firm; | | | • | | Consolidated Balance Sheets as of December 31, 2008 and 2007; | | | • | | Consolidated Statements of Operations for the years ended December 31, 2008 and 2007; | | | • | | Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2008 and 2007; | | | • | | Consolidated Statements of Cash Flows for the years ended December 31, 2008 and 2007; | | | • | | Notes to Consolidated Financial Statements. | | | | | 2. Exhibits |
| | | | | | | Exhibit | | | | Number | | Exhibit Description | | | | | | | | | 2.1 | | | Assignment and Sale Agreement dated March 30, 2001 by and among GTECH Corporation, Dreamport, Inc., GTECH Gaming Subsidiary 2 Corporation, Full House Resorts, Inc., and Full House Subsidiary, Inc. (Incorporated by reference to Full House’s Current Report on Form 8-K as filed with the Securities and Exchange Commission on April 12, 2001) | | | | | | | | | 2.2 | | | Stock Purchase Agreement, dated April 6, 2006, between Full House Resorts, Inc. and the James R. Peters Family Trust. (Incorporated by reference to Exhibit 2.1 to Full House’s Current Report on Form 8-K as filed with the Securities and Exchange Commission on April 10, 2006) | | | | | | | | | 3.1 | | | Certificate of Incorporation as amended to date (Incorporated by reference to Exhibit 3.1 to Full House’s registration statement on Form SB-2 (#333-136341) filed on August 4, 2006) | | | | | | | | | 3.2 | | | Amended and Restated Bylaws of Full House Resorts Inc. (As amended by Resolutions dated July 28, 1995, September 29, 1995, and November 24, 1997) (Incorporated by reference to Exhibit 3.33.1 to Full House’s AnnualCurrent Report on Form 10-KSB for8-K as filed with the fiscal ended December 31, 2005)Securities and Exchange Commission on June 4, 2008) | | | | | | | | | 10.1 | | | Amended and Restated Class III Management Agreement dated November 18, 1996 between Nottawaseppi Huron Band of Potawatomi and Gaming Entertainment (Michigan) LLC (Incorporated by reference to Full House’s Annual Report on Form 10-KSB for the fiscal ended December 31, 1996) | | | | | | | | | 10.2 | | | Investor Agreement by and between Full House Resorts, Inc. and RAM Entertainment, LLC, dated February 15, 2002 (Incorporated by reference to Full House’s Quarterly Report on Form 10-QSB for the quarter ended March 31, 2002) | | | | | | | | | 10.3 | | | Management Agreement by and between Gaming Entertainment (Delaware), LLC and Harrington Raceway, Inc. dated January 31,1996 (Incorporated by reference to Full House’s Quarterly Report on Form 10-QSB for the quarter ended September 30, 2002) | | | | | | | | | 10.4 | | | Amendment to Management Agreement by and between Gaming Entertainment (Delaware), LLC and Harrington Raceway, Inc. dated March 18, 1998 (Incorporated by reference to Full House’s Quarterly Report on Form 10-QSB for the quarter ended September 30, 2002) | | | | | | | | | 10.5 | | | Amendment to Management Agreement by and between Gaming Entertainment (Delaware), LLC and Harrington Raceway, Inc. dated July 1, 1999 (Incorporated by reference to Full House’s Quarterly Report on Form 10-QSB for the quarter ended September 30, 2002) | | | | | | | | | 10.6 | | | Amendment to Management Agreement by and between Gaming Entertainment (Delaware), LLC and Harrington Raceway, Inc. dated February 4, 2002 (Incorporated by reference to Full House’s Quarterly Report on Form 10-QSB for the quarter ended September 30, 2002) | | | | | | | | | 10.7 | | | Amendment to Investor Agreement by and between Full House Resorts, Inc. and RAM Entertainment, LLC, dated May 31, 2005 (Incorporated by reference to Exhibit 10.62 to Full House’s Annual Report on Form 10-KSB for the fiscal ended December 31, 2005) |
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| | | | | | | Exhibit | | | | Number | | Exhibit Description | | | | | | | | 10.8 | | | Economic Development Agreement between Full House Resorts, Inc. and Northern Cheyenne Tribe dated May 24, 2005 (Incorporated by reference to Exhibit 10.63 to Full House’s Annual Report on Form 10-KSB for the fiscal ended December 31, 2005) | | | | | | | | | 10.9 | | | Development Agreement by and among Pueblo of Nambé, Nambé Pueblo Gaming Enterprise Board and Gaming Entertainment (Santa Fe), LLC dated as of September 20, 2005 (Incorporated by reference to Exhibit 10.64 to Full House’s Annual Report on Form 10-KSB for the fiscal ended December 31, 2005) | | | | | | | | | 10.10 | | | Security and Reimbursement Agreement by and among the Nambé Pueblo Gaming Enterprise Board, Gaming Entertainment (Santa Fe), LLC and the Pueblo of Nambé dated as of September 20, 2005 (Incorporated by reference to Exhibit 10.65 to Full House’s Annual Report on Form 10-KSB for the fiscal ended December 31, 2005) | | | | | | | | | 10.11 | | | Class III Gaming Management Agreement between the Northern Cheyenne Tribe and Gaming Entertainment (Montana), LLC dated January 20, 2006 2005 (Incorporated by reference to Exhibit 10.67 to Full House’s Annual Report on Form 10-KSB for the fiscal ended December 31, 2005) | | | | | | | | | 10.12 | | | Development Agreement by and between the Northern Cheyenne Tribe and Full House Resorts, Inc. dated May 24, 2005. (Incorporated by reference to Exhibit 10.68 to Full House’s Quarterly Report on Form 10-QSB for the quarter ended March 31, 2006) | | | | | | | | | 10.13 | | | Security and Reimbursement Agreement by and between the Northern Cheyenne Tribe and Full House Resorts, Inc. dated August 23, 2005. (Incorporated by reference to Exhibit 10.69 to Full House’s Quarterly Report on Form 10-QSB for the quarter ended March 31, 2006) | | | | | | | | | 10.14 | | | Management Agreement between Nottawaseppi Huron Band of Potawatomi and Gaming Entertainment (Michigan), LLC dated June 12, 2006. (Incorporated by reference to Exhibit 10.70 to Full House’s Current Report on Form 8-K as filed with the Securities and Exchange Commission on June 16, 2006) | | | | | | | | | 10.15 | | | Loan Agreement between Nottawaseppi Huron Band of Potawatomi and Gaming Entertainment (Michigan), LLC dated November 3, 2002. (Incorporated by reference to Exhibit 10.71 to Full House’s Registration Statement on Form SB-2 (#333-136341) filed on August 4, 2006) | | | | | | | | | 10.16 | | | Security Agreement between Nottawaseppi Huron Band of Potawatomi and Gaming Entertainment (Michigan), LLC dated November 3, 2002. (Incorporated by reference to Exhibit 10.72 to Full House’s Registration Statement on Form SB-2 (#333-136341) filed on August 4, 2006) | | | | | | | | | 10.17 | | | Promissory Note by the Nottawaseppi Huron Band of Potawatomi dated November 3, 2002. (Incorporated by reference to Exhibit 10.73 to Full House’s Registration Statement on Form SB-2 (#333-136341) filed on August 4, 2006) | | | | | | | | | 10.18 | | | 2006 Incentive Compensation Plan (Incorporated by reference to Appendix E to Full House’s Definitive Proxy Statement as filed with the Securities and Exchange Commission on May 1, 2006) | | | | | | | | | 10.19 | | | Form of Restricted Stock Agreement. (Incorporated by reference to Exhibit 10.75 to Full House’s Quarterly Report on Form 10-QSB as filed with the Commission on August 14, 2006) | | | | | | | | | 10.20 | | | Consulting Agreement dated September 25, 2006 between Full House and Lee Iacocca. (Incorporated by reference to Exhibit 10.66 to Full House’s Amendment No. 1 to Registration Statement on Form SB-2 (#333-136341) filed on September 27, 2006) | | | | | | | | | 10.21 | | | Reducing Revolving Loan Agreement, dated January 31, 2007 between Full House Resorts, Inc. and Nevada State Bank. (Incorporated by reference to Exhibit 10.80 to Full House’s Current Report on Form 8-K as filed with the Securities and Exchange Commission on February 5, 2007) | | | | | | | | | 10.22 | | | Reducing Revolving Promissory Note, dated January 31, 2007 by Full House Resorts in favor of Nevada State Bank. (Incorporated by reference to Exhibit 10.81 to Full House’s Current Report on Form 8-K as filed with the Securities and Exchange Commission on February 5, 2007) | | | | | | | | | 10.23 | | | Promissory Note, dated January 31, 2007 by Full House Resorts in favor of The James R. Peters Family Trust Dated October 18, 2002. (Incorporated by reference to Exhibit 10.82 to Full House’s Current Report on Form 8-K as filed with the Securities and Exchange Commission on February 5, 2007) |
6052
| | | | | | | Exhibit | | | | Number | | Exhibit Description | | | | | | | | 10.24 | | | Purchase and Sale Agreement, dated May 15, 2007, between Gaming Entertainment (Michigan), LLC and Green Acres Casino Management, Inc. (Incorporated by reference to Exhibit 10.1 to Full House’s Current Report on Form 8-K as filed with the Securities and Exchange Commission on May 31, 2007) | | | | | | | | | 10.25 | | | Termination of Consulting Agreement, dated June 4, 2007, between Full House Resort, Inc., and Hard Rock Cafe International (USA), Inc. (Incorporated by reference to Exhibit 10.2 to Full House’s Current Report on Form 8-K as filed with the Securities and Exchange Commission on May 31, 2007) | | | | | | | | | 10.26 | | | Management Reorganization Agreement, dated June 18, 2007 by Gaming Entertainment (Delaware), LLC and Harrington Raceway, Inc. (Incorporated by reference to Exhibit 10.1 to Full House’s Current Report on Form 8-K as filed with the Securities and Exchange Commission on June 21, 2007) | | | | | | | | | 10.27 | | | Employment Agreement, dated July 17, 2007, between Full House Resorts, Inc. and Andre Hilliou. (Incorporated by reference to Exhibit 10.1 to Full House’s Current Report on Form 8-K as filed with the Securities and Exchange Commission on July 20, 2007) + | | | | | | | | | 10.28 | | | Employment Agreement, dated July 17, 2007, between Full House Resorts, Inc. and Mark J. Miller. (Incorporated by reference to Exhibit 10.2 to Full House’s Current Report on Form 8-K as filed with the Securities and Exchange Commission on July 20, 2007) + | | | | | | | | | 10.29 | | | Employment Agreement, dated April 10, 2007, between Full House Resorts, Inc. and Wes Elam (Incorporated by reference to Exhibit 10.3 to Full House’s Current Report on Form 8-K as filed with the Securities and Exchange Commission on April 26, 2007) + | | | | | | | | | 10.30 | | | Agreement of Sale and Purchase, dated October 1, 2007 between Stockman’s Casino, Inc. and Dhillon Hospitality Management Inc. (Incorporated by reference to Exhibit 10.1 to Full House’s Current Report on Form 8-K as filed with the Securities and Exchange Commission on October 5, 2007) | | | | | | | | | 21 | | | List of Subsidiaries of Full House Resorts, Inc. * | | | | | | | 23 | | | Consent of Piercy Bowler Taylor & Kern Certified Public Accountants* | | | | | | | 31.1 | | | Certification of principal executive officer pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 * | | | | | | | 31.2 | | | Certification of principal financial officer pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 * | | | | | | | 32.1 | | | Certification of principal executive and financial officers pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 * |
| | | * | | Filed herewith. | | + | | Executive compensation plan or arrangement |
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SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | | FULL HOUSE RESORTS, INC.
| | Date: March 26, 2009 | By: | /s/ ANDRE M. HILLIOU | | | | Andre M. Hilliou, Chief Executive Officer | |
In accordance with the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
| | | Name and Capacity | | Date | | | | /s/ J. MICHAEL PAULSONJ. Michael Paulson, | | March 26, 2009 | Chairman of the Board | | | | | | /s/ ANDRE M. HILLIOUAndre M. Hilliou, | | March 26, 2009 | Chief Executive Officer and Director | | | (Principal Executive Officer) | | | | | | /s/ LEE A. IACOCCALee A. Iacocca, Director | | March 26, 2009 | | | | /s/ KEN ADAMSKen Adams, Director | | March 26, 2009 | | | | /s/ CARL G. BRAUNLICHCarl G. Braunlich, Director | | March 26, 2009 | | | | /s/ KATHLEEN CARACCIOLOKathleen Caracciolo, Director | | March 26, 2009 | | | | /s/ MARK J. MILLERMark J. Miller, | | March 26, 2009 | Chief Financial Officer | | | (Principal Financial and Accounting Officer) | | |
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EXHIBIT INDEX
| | | | | Exhibit | | | Number | | Exhibit Description | | | | | | | 2.1 | | | Assignment and Sale Agreement dated March 30, 2001 by and among GTECH Corporation, Dreamport, Inc., GTECH Gaming Subsidiary 2 Corporation, Full House Resorts, Inc., and Full House Subsidiary, Inc. (Incorporated by reference to Full House’s Current Report on Form 8-K as filed with the Securities and Exchange Commission on April 12, 2001) | | | | | | | 2.2 | | | Stock Purchase Agreement, dated April 6, 2006, between Full House Resorts, Inc. and the James R. Peters Family Trust. (Incorporated by reference to Exhibit 2.1 to Full House’s Current Report on Form 8-K as filed with the Securities and Exchange Commission on April 10, 2006) | | | | | | | 3.1 | | | Certificate of Incorporation as amended to date (Incorporated by reference to Exhibit 3.1 to Full House’s registration statement on Form SB-2 (#333-136341) filed on August 4, 2006) | | | | | | | 3.2 | | | Bylaws of Full House Resorts Inc. (As amended by Resolutions dated July 28, 1995, September 29, 1995, and November 24, 1997) (Incorporated by reference to Exhibit 3.3 to Full House’s Annual Report on Form 10-KSB for the fiscal ended December 31, 2005) | | | | | | | 10.1 | | | Amended and Restated Class III Management Agreement dated November 18, 1996 between Nottawaseppi Huron Band of Potawatomi and Gaming Entertainment (Michigan) LLC (Incorporated by reference to Full House’s Annual Report on Form 10-KSB for the fiscal ended December 31, 1996) | | | | | | | 10.2 | | | Investor Agreement by and between Full House Resorts, Inc. and RAM Entertainment, LLC, dated February 15, 2002 (Incorporated by reference to Full House’s Quarterly Report on Form 10-QSB for the quarter ended March 31, 2002) | | | | | | | 10.3 | | | Management Agreement by and between Gaming Entertainment (Delaware), LLC and Harrington Raceway, Inc. dated January 31,1996 (Incorporated by reference to Full House’s Quarterly Report on Form 10-QSB for the quarter ended September 30, 2002) | | | | | | | 10.410.31 | | | Amendment to Management Agreement by and between Gaming Entertainment (Delaware), LLC and Harrington Raceway, Inc. dated March 18, 1998 (Incorporated by reference to Full House’s Quarterly Report on Form 10-QSB for the quarter ended September 30, 2002) | | | | | | | 10.5 | | | Amendment to Management Agreement by and between Gaming Entertainment (Delaware), LLC and Harrington Raceway, Inc. dated July 1, 1999 (Incorporated by reference to Full House’s Quarterly Report on Form 10-QSB for the quarter ended September 30, 2002) | | | | | | | 10.6 | | | Amendment to Management Agreement by and between Gaming Entertainment (Delaware), LLC and Harrington Raceway, Inc. dated February 4, 2002 (Incorporated by reference to Full House’s Quarterly Report on Form 10-QSB for the quarter ended September 30, 2002) | | | | | | | 10.7 | | | Amendment to Investor Agreement by and between Full House Resorts, Inc. and RAM Entertainment, LLC, dated May 31, 2005 (Incorporated by reference to Exhibit 10.62 to Full House’s Annual Report on Form 10-KSB for the fiscal ended December 31, 2005) | | | | | | | 10.08 | | | Economic Development Agreement between Full House Resorts, Inc. and Northern Cheyenne Tribe dated May 24, 2005 (Incorporated by reference to Exhibit 10.63 to Full House’s Annual Report on Form 10-KSB for the fiscal ended December 31, 2005) | | | | | | | 10.09 | | | Development Agreement by and among Pueblo of Nambé, Nambé Pueblo Gaming Enterprise Board and Gaming Entertainment (Santa Fe), LLC dated as of September 20, 2005 (Incorporated by reference to Exhibit 10.64 to Full House’s Annual Report on Form 10-KSB for the fiscal ended December 31, 2005) | | | | | | | 10.10 | | | Security and Reimbursement Agreement by and among the Nambé Pueblo Gaming Enterprise Board, Gaming Entertainment (Santa Fe), LLC and the Pueblo of Nambé dated as of September 20, 2005 (Incorporated by reference to Exhibit 10.65 to Full House’s Annual Report on Form 10-KSB for the fiscal ended December 31, 2005) |
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| | | | | Exhibit | | | Number | | Exhibit Description | | | | | | | 10.11 | | | Class III Gaming Management Agreement between the Northern Cheyenne Tribe and Gaming Entertainment (Montana), LLC dated January 20, 2006 2005 (Incorporated by reference to Exhibit 10.67 to Full House’s Annual Report on Form 10-KSB for the fiscal ended December 31, 2005) | | | | | | | 10.12 | | | Development Agreement by and between the Northern Cheyenne Tribe and Full House Resorts, Inc. dated May 24, 2005. (Incorporated by reference to Exhibit 10.68 to Full House’s Quarterly Report on Form 10-QSB for the quarter ended March 31, 2006) | | | | | | | 10.13 | | | Security and Reimbursement Agreement by and between the Northern Cheyenne Tribe and Full House Resorts, Inc. dated August 23, 2005. (Incorporated by reference to Exhibit 10.69 to Full House’s Quarterly Report on Form 10-QSB for the quarter ended March 31, 2006) | | | | | | | 10.14 | | | Management Agreement between Nottawaseppi Huron Band of Potawatomi and Gaming Entertainment (Michigan), LLC dated June 12, 2006. (Incorporated by reference to Exhibit 10.70 to Full House’s Current Report on Form 8-K as filed with the Securities and Exchange Commission on June 16, 2006) | | | | | | | 10.15 | | | Loan Agreement between Nottawaseppi Huron Band of Potawatomi and Gaming Entertainment (Michigan), LLC dated November 3, 2002. (Incorporated by reference to Exhibit 10.71 to Full House’s Registration Statement on Form SB-2 (#333-136341) filed on August 4, 2006) | | | | | | | 10.16 | | | Security Agreement between Nottawaseppi Huron Band of Potawatomi and Gaming Entertainment (Michigan), LLC dated November 3, 2002. (Incorporated by reference to Exhibit 10.72 to Full House’s Registration Statement on Form SB-2 (#333-136341) filed on August 4, 2006) | | | | | | | 10.17 | | | Promissory Note by the Nottawaseppi Huron Band of Potawatomi dated November 3, 2002. (Incorporated by reference to Exhibit 10.73 to Full House’s Registration Statement on Form SB-2 (#333-136341) filed on August 4, 2006) | | | | | | | 10.18 | | | 2006 Incentive Compensation Plan (Incorporated by reference to Appendix E to Full House’s Definitive Proxy Statement as filed with the Securities and Exchange Commission on May 1, 2006) | | | | | | | 10.19 | | | Form of Restricted Stock Agreement. (Incorporated by reference to Exhibit 10.75 to Full House’s Quarterly Report on Form 10-QSB as filed with the Commission on August 14, 2006) | | | | | | | 10.20 | | | Consulting Agreement dated September 25, 2006 between Full House and Lee Iacocca. (Incorporated by reference to Exhibit 10.66 to Full House’s Amendment No. 1 to Registration Statement on Form SB-2 (#333-136341) filed on September 27, 2006) | | | | | | | 10.21 | | | Reducing Revolving Loan Agreement dated January 31, 2007as of the 25th day of June, 2009, by and between Full House Resorts, Inc.the Company and Nevada State Bank. (Incorporated by reference to Exhibit 10.80 to Full House’s Current Report on Form 8-K as filed with the Securities and Exchange Commission on February 5, 2007) | | | | | | | 10.22 | | | Reducing Revolving Promissory Note, dated January 31, 2007 by Full House Resorts in favor of Nevada State Bank. (Incorporated by reference to Exhibit 10.81 to Full House’s Current Report on Form 8-K as filed with the Securities and Exchange Commission on February 5, 2007) | | | | | | | 10.23 | | | Promissory Note, dated January 31, 2007 by Full House Resorts in favor of The James R. Peters Family Trust Dated October 18, 2002. (Incorporated by reference to Exhibit 10.82 to Full House’s Current Report on Form 8-K as filed with the Securities and Exchange Commission on February 5, 2007) | | | | | | | 10.24 | | | Purchase and Sale Agreement, dated May 15, 2007, between Gaming Entertainment (Michigan), LLC and Green Acres Casino Management, Inc. (Incorporated by reference to Exhibit 10.1 to Full House’s Current Report on Form 8-K as filed with the Securities and Exchange Commission on May 31, 2007) | | | | | | | 10.25 | | | Termination of Consulting Agreement, dated June 4, 2007, between Full House Resort, Inc., and Hard Rock Cafe International (USA), Inc. (Incorporated by reference to Exhibit 10.2 to Full House’s Current Report on Form 8-K as filed with the Securities and Exchange Commission on May 31, 2007) |
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| | | | | Exhibit | | | Number | | Exhibit Description | | | | | | | 10.26 | | | Management Reorganization Agreement, dated June 18, 2007 by Gaming Entertainment (Delaware), LLC and Harrington Raceway, Inc. (Incorporated by reference to Exhibit 10.1 to Full House’s Current Report on Form 8-K as filed with the Securities and Exchange Commission on June 21, 2007) | | | | | | | 10.27 | | | Employment Agreement, dated July 17, 2007, between Full House Resorts, Inc. and Andre Hilliou. (Incorporated by reference to Exhibit 10.1 to Full House’s Current Report on Form 8-K as filed with the Securities and Exchange Commission on July 20, 2007) +1, 2009) | | | | | | | | | 10.2810.32 | | | Employment Agreement,Amendment to Reducing Revolving Promissory Note dated July 17, 2007,as of the 25th day of June, 2009, by and between Full House Resorts, Inc.the Company and Mark J. Miller.Nevada State Bank. (Incorporated by reference to Exhibit 10.2 to Full House’s Current Report on Form 8-K as filed with the Securities and Exchange Commission on July 20, 2007) + | | | | | | | 10.29 | | | Employment Agreement, dated April 10, 2007, between Full House Resorts, Inc. and Wes Elam (Incorporated by reference to Exhibit 10.3 to Full House’s Current Report on Form 8-K as filed with the Securities and Exchange Commission on April 26, 2007) + | | | | | | | 10.30 | | | Agreement of Sale and Purchase, dated October 1, 2007 between Stockman’s Casino, Inc. and Dhillon Hospitality Management Inc. (Incorporated by reference to Exhibit 10.1 to Full House’s Current Report on Form 8-K as filed with the Securities and Exchange Commission on October 5, 2007)2009) | | | | | | | | | 21 | | | List of Subsidiaries of Full House Resorts, Inc. * | | | | | | | | | 23 | | | Consent of Piercy Bowler Taylor & Kern Certified Public Accountants* | | | | | | | | | 31.1 | | | Certification of principal executive officer pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 * | | | | | | | | | 31.2 | | | Certification of principal financial officer pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 * | | | | | | | | | 32.1 | | | Certification of principal executive and financial officers pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 * |
| | | | | * | | Filed herewith. | | | | + | | Executive compensation plan or arrangementarrangement. |
6553
SIGNATURES In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has caused this Report to be signed on its behalf by the undersigned thereunto duly authorized. | | | | | | FULL HOUSE RESORTS, INC.
| | | Date: March 23, 2010 | By: | /s/ ANDRE M. HILLIOU | | | | Andre M. Hilliou, Chief Executive Officer | |
In accordance with the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. | | | | Name and Capacity | | Date | | | | /s/ J. MICHAEL PAULSONJ. Michael Paulson, Director | | March 23, 2010 | | | | /s/ ANDRE M. HILLIOUAndre M. Hilliou, Chief Executive Officer and Director Chairman of the Board(Principal Executive Officer) | | March 23, 2010 | | | | /s/ LEE A. IACOCCALee A. Iacocca, Director | | March 23, 2010 | | | | /s/ KEN ADAMSKen Adams, Director | | March 23, 2010 | | | | /s/ CARL G. BRAUNLICHCarl G. Braunlich, Director | | March 23, 2010 | | | | /s/ KATHLEEN CARACCIOLOKathleen Caracciolo, | | March 23, 2010 | | Director | | | | | | /s/ MARK J. MILLERMark J. Miller, Chief Financial Officer and COO (Principal Financial and Accounting Officer) | | March 23, 2010 |
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