þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Delaware | 13-3391527 | |
(State or other jurisdiction | (I.R.S. Employer | |
of incorporation or organization) | Identification No.) | |
4670 S. Fort Apache, Ste. 190 | ||
Las Vegas, Nevada | 89147 | |
(Address of principal executive offices) | (Zip Code) |
Large Accelerated Filer o | Accelerated Filer o | Non Accelerated Filer o | Smaller reporting company þ | |||
(Do not check if a smaller reporting company) |
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Exhibit 3.1 | ||||||||
Exhibit 31.1 | ||||||||
Exhibit 31.2 | ||||||||
Exhibit 32.1 | ||||||||
Exhibit 32.2 |
2
March 31, | December 31, | |||||||
2011 | 2010 | |||||||
(Unaudited) | ||||||||
ASSETS
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||||||||
Current assets
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||||||||
Cash and equivalents
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$ | 11,398,358 | $ | 13,294,496 | ||||
Accounts receivable, net of allowance for doubtful accounts of $480 and $0
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3,243,039 | 2,276,422 | ||||||
Income taxes receivable
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| 598,886 | ||||||
Prepaid expenses
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400,726 | 796,858 | ||||||
Deferred tax asset
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65,389 | 101,417 | ||||||
Deposits and other
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95,785 | 106,810 | ||||||
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15,203,297 | 17,174,889 | ||||||
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Property and equipment, net of accumulated depreciation of $7,145,618 and $6,888,958
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7,133,115 | 7,372,251 | ||||||
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Long-term assets related to tribal casino projects
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Notes receivable
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452,142 | 427,567 | ||||||
Contract rights, net of accumulated amortization of $4,713,827 and $4,120,775
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12,651,759 | 13,244,811 | ||||||
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13,103,901 | 13,672,378 | ||||||
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Other long-term assets
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Goodwill
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10,308,520 | 10,308,520 | ||||||
Long-term deposit Grand Victoria acquisition
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42,789,943 | 5,000,000 | ||||||
Other deposits
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235,697 | 166,112 | ||||||
Loan fees, net of accumulated amortization of $225,061 and $96,087
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2,605,672 | 2,088,104 | ||||||
Other assets
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796,240 | 668,532 | ||||||
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||||||||
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$ | 56,736,072 | 18,231,268 | |||||
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$ | 92,176,385 | $ | 56,450,786 | ||||
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LIABILITIES AND STOCKHOLDERS EQUITY
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Current liabilities
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Current portion of long-term debt
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$ | 6,600,000 | $ | | ||||
Accounts payable
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116,909 | 181,604 | ||||||
Income tax payable
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805,464 | 384,333 | ||||||
Accrued payroll and related
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649,591 | 750,346 | ||||||
Other accrued expenses
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1,118,116 | 229,323 | ||||||
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9,290,080 | 1,545,606 | ||||||
Long-term debt, net of current portion
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26,400,000 | | ||||||
Deferred tax liability
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1,913,885 | 2,110,333 | ||||||
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37,603,965 | 3,655,939 | ||||||
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Stockholders equity
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||||||||
Common stock, $.0001 par value, 25,000,000 shares authorized; 19,364,276 shares issued
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1,936 | 1,936 | ||||||
Additional paid-in capital
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42,699,533 | 42,699,533 | ||||||
Treasury stock, 1,356,595 common shares
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(1,654,075 | ) | (1,654,075 | ) | ||||
Retained earnings
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7,772,371 | 6,164,927 | ||||||
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48,819,765 | 47,212,321 | ||||||
Non-controlling interest in consolidated joint venture
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5,752,655 | 5,582,526 | ||||||
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54,572,420 | 52,794,847 | ||||||
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$ | 92,176,385 | $ | 56,450,786 | ||||
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3
Three months | ||||||||
ended March 31, | ||||||||
2011 | 2010 | |||||||
Revenues
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Casino
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$ | 1,541,052 | $ | 1,712,012 | ||||
Food and beverage
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412,583 | 417,191 | ||||||
Management fees
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6,364,242 | 6,162,107 | ||||||
Other
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26,350 | 19,921 | ||||||
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8,344,227 | 8,311,231 | ||||||
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Operating costs and expenses
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Casino
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522,456 | 535,907 | ||||||
Food and beverage
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472,773 | 487,025 | ||||||
Project development and acquisition costs
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531,809 | 67,677 | ||||||
Selling, general and administrative
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1,653,708 | 1,765,733 | ||||||
Depreciation and amortization
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851,744 | 861,343 | ||||||
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4,032,490 | 3,717,685 | ||||||
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Operating gains (losses)
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Equity in net income of unconsolidated joint venture and related guaranteed payments
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1,495,322 | 1,442,116 | ||||||
Unrealized gains (losses) on notes receivable, tribal governments
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24,575 | (10,764 | ) | |||||
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1,519,897 | 1,431,352 | ||||||
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Operating income
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5,831,634 | 6,024,898 | ||||||
Other income (expense)
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Interest and other income
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387 | 112,841 | ||||||
Interest expense, including amortization of debt costs of $128,974 and $3,655
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(210,635 | ) | (3,655 | ) | ||||
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Income before income taxes
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5,621,386 | 6,134,084 | ||||||
Income taxes
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(1,406,863 | ) | (1,538,649 | ) | ||||
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Net income
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4,214,523 | 4,595,435 | ||||||
Income attributable to non-controlling interest in consolidated joint venture
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(2,607,079 | ) | (2,586,818 | ) | ||||
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Net income attributable to the Company
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$ | 1,607,444 | $ | 2,008,617 | ||||
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Net income attributable to the Company per common share
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$ | 0.09 | $ | 0.11 | ||||
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Weighted-average number of common shares outstanding
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18,007,681 | 18,001,681 | ||||||
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4
Additional | Total | |||||||||||||||||||||||||||||||
Three months ended | Common stock | paid-in | Treasury stock | Retained | Non-controlling | stockholders | ||||||||||||||||||||||||||
March 31, 2011 | Shares | Dollars | capital | Shares | Dollars | earnings | interest | equity | ||||||||||||||||||||||||
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Beginning balances
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19,364,276 | $ | 1,936 | $ | 42,699,533 | 1,356,595 | $ | (1,654,075 | ) | $ | 6,164,927 | $ | 5,582,526 | $ | 52,794,847 | |||||||||||||||||
Distribution to non-controlling interest in consolidated joint venture
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| | | | | | (2,436,950 | ) | (2,436,950 | ) | ||||||||||||||||||||||
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Net income
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| | | | | 1,607,444 | 2,607,079 | 4,214,523 | ||||||||||||||||||||||||
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Ending balances
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19,364,276 | $ | 1,936 | $ | 42,699,533 | 1,356,595 | $ | (1,654,075 | ) | $ | 7,772,371 | $ | 5,752,655 | $ | 54,572,420 | |||||||||||||||||
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Additional | Retained | Total | ||||||||||||||||||||||||||||||
Three months ended | Common stock | paid-in | Treasury stock | earnings | Non-controlling | stockholders | ||||||||||||||||||||||||||
March 31, 2010 | Shares | Dollars | capital | Shares | Dollars | (deficit) | interest | equity | ||||||||||||||||||||||||
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Beginning balances
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19,358,276 | $ | 1,936 | $ | 42,665,390 | 1,356,595 | $ | (1,654,075 | ) | $ | (1,504,320 | ) | $ | 5,447,995 | $ | 44,956,926 | ||||||||||||||||
Previously deferred share-based compensation recognized
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| | 16,683 | | | | | 16,683 | ||||||||||||||||||||||||
Distribution to non-controlling interest in consolidated joint venture
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| | | | | | (2,978,715 | ) | (2,978,715 | ) | ||||||||||||||||||||||
Net income
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| | | | | 2,008,617 | 2,586,818 | 4,595,435 | ||||||||||||||||||||||||
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Ending balances
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19,358,276 | $ | 1,936 | $ | 42,682,073 | 1,356,595 | $ | (1,654,075 | ) | $ | 504,297 | $ | 5,056,098 | $ | 46,590,329 | |||||||||||||||||
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5
Three months | ||||||||
ended March, 31 , | ||||||||
2011 | 2010 | |||||||
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Net cash provided by operating activities
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$ | 5,430,993 | $ | 2,623,917 | ||||
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Cash flows from investing activities:
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Purchase of property and equipment
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(28,172 | ) | (74,742 | ) | ||||
Other deposits
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(50,061 | ) | | |||||
Deposits and other costs of Grand Victoria acquisition
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(19,909,899 | ) | | |||||
Proceeds from repayment of tribal advances
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| 5,000,000 | ||||||
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Net cash provided by (used in) investing activities
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(19,988,132 | ) | 4,925,258 | |||||
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Cash flows from financing activities:
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Payments on long-term debt to joint venture affiliate
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| (1,450,086 | ) | |||||
Proceeds from borrowing
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15,103,891 | | ||||||
Distributions to non-controlling interest in consolidated joint venture
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(2,436,950 | ) | (2,978,715 | ) | ||||
Other
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(5,940 | ) | | |||||
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Net cash provided by (used in) financing activities
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12,661,001 | (4,428,801 | ) | |||||
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Net increase (decrease) in cash and equivalents
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(1,896,138 | ) | 3,120,374 | |||||
Cash and equivalents, beginning of period
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13,294,496 | 9,198,399 | ||||||
|
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Cash and equivalents, end of period
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$ | 11,398,358 | $ | 12,318,773 | ||||
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2011 | 2010 | |||||||
SUPPLEMENTAL CASH FLOW INFORMATION:
|
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Cash paid for interest
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$ | 10,446 | $ | | ||||
|
||||||||
Cash paid for income taxes
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$ | 759,000 | $ | 2,512,000 | ||||
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NON-CASH INVESTING AND FINANCING ACTIVITIES:
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Purchases of property and equipment financed with prior year deposit
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$ | | $ | 94,185 | ||||
|
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Deposit and other costs of Grand Victoria acquisition made through term loan
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$ | 17,896,109 | $ | | ||||
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Loan Fees
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$ | 646,542 | $ | | ||||
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6
1. |
BASIS OF PRESENTATION
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The interim consolidated financial statements of Full House Resorts, Inc. and subsidiaries
(collectively, FHR or the Company) included herein reflect all adjustments (consisting
of normal recurring adjustments) that are, in the opinion of management, necessary to
present fairly the financial position and results of operations for the interim periods
presented. Certain information normally included in annual financial statements prepared in
accordance with accounting principles generally accepted in the United States of America has
been omitted pursuant to the interim financial information rules and regulations of the
United States Securities and Exchange Commission.
|
These unaudited interim consolidated financial statements should be read in conjunction with
the annual audited consolidated financial statements and notes thereto included in the
Companys Annual Report on Form 10-K filed March 7, 2011, for the year ended December 31,
2010, from which the balance sheet information as of that date was derived. Certain minor
reclassifications to amounts previously reported have been made to conform to the current
period presentation, none of which affected previously reported net income or earnings per
share attributable to the Company. The results of operations for the period ended March 31,
2011, are not necessarily indicative of results to be expected for the year ending December
31, 2011.
|
The consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiaries, including Stockmans Casino (Stockmans) and Gaming
Entertainment (Michigan), LLC (GEM), a 50%-owned investee of the Company that is jointly
owned by RAM Entertainment, LLC (RAM), has been consolidated pursuant to the relevant
portions of Financial Accounting Standards Board (FASB)
Accounting Standards Codification
(ASC) Topic 810, Consolidation. The Company accounts for its investment in Gaming
Entertainment (Delaware), LLC (GED) (Note 2) using the equity method of accounting. All
material intercompany accounts and transactions have been eliminated.
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2. |
VARIABLE INTEREST ENTITIES
|
As of the balance sheet dates presented, the Companys assets and liabilities related to its
investment in GED consisted of an amount due from HRI included in accounts receivable of
$0.8 million as of March 31, 2011 and $0.7 as of December 31, 2010. The investment in GED
was $0.3 million and $0.2 million as of March 31, 2011, and December 31, 2010, respectively,
included in other assets. In addition to FHRs share of GEDs net income, FHR also received
$0.8 million and $0.7 million as part of the Management Reorganization Agreements
guaranteed payments for the periods ending March 31, 2011 and 2010, respectively.
|
7
GED has no non-operating income or expenses, is treated as a partnership for income tax
reporting purposes and consequently recognizes no federal or state income tax provision. As
a result, income from operations for
GED is equal to its net income for each period presented, and there are no material
differences between GEDs income for financial and tax reporting purposes. An unaudited
summary for GEDs operations follows:
|
March 31, | December 31, | |||||||
2011 | 2010 | |||||||
Total assets
|
$ | 617,352 | $ | 426,449 | ||||
Total liabilities
|
48,929 | 41,487 | ||||||
Members capital
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568,423 | 384,962 |
March 31, | March 31, | |||||||
2011 | 2010 | |||||||
Revenues
|
$ | 8,144,849 | $ | 5,832,688 | ||||
Net income
|
1,422,429 | 1,610,105 |
GEM.
The Company directs the day to day operational activities of GEM that significantly
impact GEMs economic performance and therefore, considers itself to be the primary
beneficiary. As such, the joint venture is a variable interest entity that is consolidated
in our financial statements.
|
Management believes the maximum exposure to loss from the Companys investment in GEM is
$9.4 million (before tax impact), which is composed of contract rights and the Companys
equity investment that is eliminated in consolidation. GEM has no debt or long-term
liabilities. GEMs current assets include the FireKeepers management fee receivable for
both dates presented. Long-term assets include $9.2 million and $9.6 million in contract
rights as of March 31, 2011 and December 31, 2010, respectively.
|
An unaudited summary of GEMs operations follows:
|
March 31, | December 31, | |||||||
2011 | 2010 | |||||||
Current assets
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$ | 2,613,266 | $ | 1,985,419 | ||||
Long-term assets
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9,195,288 | 9,626,458 | ||||||
Current liabilities
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303,243 | 446,825 |
March 31, | March 31, | |||||||
2011 | 2010 | |||||||
Revenues
|
$ | 6,364,242 | $ | 6,162,107 | ||||
Net income
|
5,214,159 | 5,173,633 |
3. |
FAIR VALUE MEASUREMENTS
|
The carrying value of the Companys cash and cash equivalents and accounts payable
approximate fair value because of the short maturity of those instruments. The estimated
fair values of the Companys debt approximate their recorded values as of the balance sheet
dates presented, based on level 2 inputs consisting of interest rates offered to the Company
for loans of the same or similar remaining maturities and bearing similar risks.
|
8
Due to the absence of observable market quotes on the Companys notes receivable from tribal
governments (Note 4), tribal notes receivable are recorded and subsequently re-measured and
adjusted periodically to estimated fair value based only on level 3 inputs as defined in ASC
Topic 820. These level 3 inputs are based primarily on managements estimates of expected
cash flow streams, based on factors such as future interest rates, casino opening dates and
discount rates.
|
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 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);
|
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Risk free investment return equal to the trailing 10-year average for 90-day
treasury bills;
|
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Investment beta factor equal to the average of a peer group of similar entities
in the hotel and gaming industry;
|
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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.
|
4. |
NOTES RECEIVABLE, TRIBAL GOVERNMENTS
|
The Company has a note receivable related to advances made to, or on behalf of, the tribe to
fund tribal operations and development expenses related to a potential casino project.
Repayment of this note is conditioned upon the development of the project, and ultimately,
the successful operation of the casino. Subject to such condition, the Companys agreements
with the Pueblo provide for the reimbursement of these advances plus applicable interest, if
any, either from the proceeds of any outside financing of the development, and the actual
operation itself.
|
As of March 31, 2011, and December 31, 2010, note receivable from tribal governments were as
follows:
|
March 31, | December 31, | |||||||
2011 | 2010 | |||||||
Contractual (stated) amount of Nambé Pueblo note receivable
|
$ | 661,600 | $ | 661,600 | ||||
|
||||||||
Estimated fair value of Nambé Pueblo note receivable
|
$ | 452,142 | $ | 427,567 | ||||
|
In the first quarter of 2008, the Company received notice that the Nambé tribal council had
effectively terminated the business relationship with Full House. The development agreement
between the Company and the Nambé Pueblo 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 Company is in discussions with the Nambé Pueblo and the developer to determine
the method and timing of the reimbursement of our advances to date of $0.7 million.
Management is currently engaged in assisting the Nambé Pueblo in the process of obtaining
financing to develop a small casino or slot parlor addition to their existing travel center
which will likely have the ability to repay the advances from future cash flows of the
project once open. Funding is expected during the second quarter of 2011 with the expected
facility opening during the fourth quarter of 2011. There can be no assurance that a
facility will ever open or that the Company will receive all or any reimbursement. With due
consideration to the foregoing factors, management has estimated the fair value of the note
receivable from the Nambé Pueblo at $0.5 million as of March 31, 2011.
|
9
The following table summarizes changes in the estimated fair value of notes receivable from
tribal governments, determined using level 3 estimated fair value inputs, from January 1,
2011 to March 31, 2011:
|
Nambé Pueblo | ||||
Balances, January 1, 2011
|
$ | 427,567 | ||
Unrealized gains
|
24,575 | |||
|
||||
Balances, March 31, 2011
|
$ | 452,142 | ||
|
5. |
GOODWILL
|
Goodwill represents the excess of the purchase price over fair market value of net assets
acquired in connection with the Stockmans casino operation. The Companys review of
goodwill as of March 31, 2011, resulted in approximately a 3% excess estimated fair value
over the carrying amount of Stockmans goodwill and related assets using a market approach
considering an earnings multiple of 6.5 times. The calculation, which is subject to change
as a result of future economic uncertainty, contemplates changes for both current year and
future year estimates in earnings and the impact of these changes to the fair value of
Stockmans, although there is always some uncertainty in key assumptions including projected
future earnings growth. Management believes Stockmans could sustain a minimal decline in
projected earnings or earnings growth without impairment.
|
6. |
LONG-TERM DEBT
|
At March 31, 2011 and 2010, long-term debt consists of the following:
|
2011 | 2010 | |||||||
|
||||||||
Long-term debt, net of current portion:
|
||||||||
Term loan
|
$ | 33,000,000 | $ | | ||||
Less current portion
|
(6,600,000 | ) | | |||||
|
||||||||
|
$ | 26,400,000 | $ | | ||||
|
Nevada State Bank Reducing revolving loan (the Revolver
). The covenants in the Wells Fargo
Credit Agreement (described below) required the Company to terminate the Revolver at least
two business days prior to the loan initial funding date of the Credit Agreement, and
therefore, the Revolver was terminated on March 23, 2011. Until the termination, the Company
had the ability to make draws on the Revolver which was payable over 15 years at a variable
interest rate based on the five year LIBOR/Swap rate plus 2.1%. The rate adjusted annually
based on the funded debt to EBITDA ratio of Stockmans with adjustments based on the
five-year LIBOR/Swap rates. Stockmans assets were pledged as collateral for the loan.
|
Credit Agreement with Wells Fargo Bank.
In 2010, the Company, as borrower, entered into a
Credit Agreement, as amended, (the Credit Agreement) with the financial institutions
listed therein (the Lenders) and Wells Fargo Bank, National Association as administrative
agent for the Lenders, as collateral agent for the Secured Parties (as defined in the Credit
Agreement), as security trustee for the Lenders, as Letters of Credit Issuer and as Swing
Line Lender. The funds available under the Credit Agreement as of March 31, 2011 were $38.0
million, consisting of a $33.0 million term loan and a revolving line of credit of $5.0
million.
|
The initial funding date of the Credit Agreement occurred March 31, 2011, when the Company
borrowed $33.0 million on the term loan which was used to fund the Companys previously
announced acquisition of the
Grand Victoria Casino & Resort in Rising Sun, Indiana (Grand Victoria), which became
effective April 1, 2011. The final maturity of the Credit Agreement is March 31, 2016.
|
10
The revolving line of credit has no outstanding balance of as of March 31, 2011 and
therefore, the Company had $5.0 million available and unused. The availability of the line
decreases every three months by $250,000 until maturity on March 31, 2016.
|
The Company pays interest under the Credit Agreement at either the Base Rate or the LIBOR
Rate set forth in the Credit Agreement which calculates a rate and then applies an
applicable margin based on a leverage ratio. The leverage ratio is defined as the ratio of
total funded debt as of such date to adjusted EBITDA for the four consecutive fiscal quarter
periods most recently ended for which Financial Statements are available. The Base Rate
means, on any day, the greatest of (a) Wells Fargos prime rate in effect on such day, (b)
the Federal Funds Rate in effect on the business day prior to such day plus one and one half
percent (1.50%) and (c) the One Month LIBOR Rate for such day (determined on a daily basis
as set forth in the Credit Agreement) plus one and one-half percent (1.50%). The applicable
margin on the Base Rate calculation ranges from 3.5% to 4.5%. LIBOR Rate means a rate per
annum equal to the quotient (rounded upward if necessary to the nearest 1/16 of one percent)
of (a) the greater of (1) 1.50% and (2) the rate per annum referred to as the BBA (British
Bankers Association) LIBOR RATE divided by (b) one minus the reserve requirement set forth
in the Credit Agreement for such loan in effect from time to time. The applicable margin on
the LIBOR Rate calculation ranges from 4.5% to 5.5%. The Company has elected to use the
LIBOR rate and at March 31, 2011 the rate charged was 7.0%.
|
The Company is also required to pay a commitment fee on the last business day of each March,
June, September and December. This is calculated as a percentage of all indebtedness of or
attributable to the Company which ranges from 0.5% to 0.75% based on the leverage ratio. At
March 31, 2011 the rate charged was 0.5%. The Credit Agreement is secured by substantially
all of the Companys assets. The Companys wholly-owned subsidiaries, including Stockmans
Casino, guarantee the obligations of the Company under the Credit Agreement.
|
The Credit Agreement contains customary negative covenants for transactions of this type,
including, but not limited to, restrictions on the Companys and its subsidiaries ability
to: incur indebtedness, grant liens, pay dividends and make other restricted payments, make
investments, make fundamental changes, dispose of assets, and change the nature of their
business. The negative covenants are subject to certain exceptions as specified in the
Credit Agreement. The Credit Agreement requires that the Company maintain specified
financial covenants, including a total leverage ratio, a fixed charge coverage ratio and a
minimum adjusted EBITDA. The Credit Agreement also includes customary events of default,
including, among other things: non-payment, breach of covenant, breach of representation or
warranty, cross-default under certain other indebtedness or guarantees, commencement of
insolvency proceedings, inability to pay debts, entry of certain material judgments against
the Company or its subsidiaries, occurrence of certain ERISA events and certain changes of
control.
|
The Company has the ability to make optional prepayments under the term loan but may not
re-borrow the principal of the term loan after payment. The Company is also required to make
mandatory prepayments under the Credit Facility if certain events occur. These include: GEM
receives any buy-out, termination fee or similar payment related to FireKeepers; or the
Company sells or otherwise disposes of certain prohibited assets in any single transaction
or series of related transactions and the net proceeds of such sale or other disposition
which exceed $100,000; the Company issues or incurs any indebtedness for borrowed money,
including indebtedness evidenced by notes, bonds, debentures or other similar instruments,
issues or sells any equity securities or receives any capital contribution from any other
source; or the Company receives any net insurance proceeds or net condemnation proceeds
which exceed $250,000. The mandatory repayments are subject to certain exceptions as
specified in the Credit Agreement.
|
11
Scheduled maturities of long-term debt as of the most recent balance sheet presented are as
follows:
|
Year one
|
$ | 6,600,000 | ||
Year two
|
6,600,000 | |||
Year three
|
6,600,000 | |||
Year four
|
6,600,000 | |||
Year five
|
6,600,000 |
The Company is subject to interest rate risk to the extent we borrow against credit
facilities with variable interest rates as described above. The Company has potential
interest rate exposure with respect to the $33.0 million outstanding balance on our variable
rate term loan as of March 31, 2011. During January 2011, the Company reduced its exposure
to changes in interest rates by entering into an interest rate swap agreement (Swap) with
Wells Fargo Bank, N.A. The Swap contract exchanges a floating rate for fixed interest
payments periodically over the life of the swap agreement without exchange of the underlying
$20.0 million notional amount. The interest payments under the Swap will be settled on a
net basis. The notional amount of the swap is used to measure interest to be paid or
received and does not represent the amount of exposure to credit loss. Our credit risk
related to the Swap is considered low because the swap agreement is with a creditworthy
financial institution. The Company does not hold or issue derivative financial instruments
for trading purposes.
|
The Swap became effective April 1, 2011 and continues through April 1, 2016. The Company
will pay interest at a fixed rate of 1.9% on the notional amount of $20.0 million, which
will be reduced by $1.0 million quarterly in July, October, January and April of each year.
The terms of the interest rate swap agreement also require Wells Fargo Bank to pay based
upon the variable LIBOR rate. The net interest payments, based on the notional amount, will
match the timing of the related liabilities. The Swap is designated as a cash flow hedge
beginning April 1, 2011, under ASC Topic 815,
Derivatives and Hedging
and the Company
expects to account for this interest rate swap agreement at its fair value, beginning April
1, 2011.
|
7. |
SEGMENT REPORTING
|
The Companys operations are composed of three primary business segments. The following
tables reflect selected segment information for the three months ended March 31, 2011 and
2010. The casino operations segment includes the Stockmans Casino operation in Fallon,
Nevada. The development/management segment includes costs associated with tribal casino
development and management projects and the Michigan and Delaware joint ventures. The
Corporate segment includes general and administrative expenses of the Company.
|
12
Selected statement of operations data for the three months ended March 31:
|
Development/ | ||||||||||||||||
Casino Operations | Management | Corporate | Consolidated | |||||||||||||
2011
|
||||||||||||||||
Revenues
|
$ | 1,979,985 | $ | 6,364,242 | $ | | $ | 8,344,227 | ||||||||
Selling, general and administrative expense
|
461,963 | 152,240 | 1,039,505 | 1,653,708 | ||||||||||||
Depreciation and amortization
|
238,815 | 593,196 | 19,733 | 851,744 | ||||||||||||
Operating gains
|
| 1,519,897 | | 1,519,897 | ||||||||||||
Operating income (loss)
|
283,978 | 7,138,702 | (1,591,046 | ) | 5,831,634 | |||||||||||
Net income (loss) attributable to Company
|
187,507 | 2,608,873 | (1,188,936 | ) | 1,607,444 | |||||||||||
|
||||||||||||||||
2010
|
||||||||||||||||
Revenues
|
$ | 2,149,124 | $ | 6,162,107 | $ | | $ | 8,311,231 | ||||||||
Selling, general and administrative expense
|
446,277 | 245,410 | 1,074,046 | 1,765,733 | ||||||||||||
Depreciation and amortization
|
245,083 | 593,195 | 23,065 | 861,343 | ||||||||||||
Operating gains
|
| 1,431,352 | | 1,431,352 | ||||||||||||
Operating income (loss)
|
434,833 | 6,754,456 | (1,164,391 | ) | 6,024,898 | |||||||||||
Net income (loss) attributable to Company
|
287,114 | 2,486,120 | (764,617 | ) | 2,008,617 |
Selected balance sheet data as of March 31, 2011 and December 31, 2010:
|
Development/ | ||||||||||||||||
Casino Operations | Management | Corporate | Consolidated | |||||||||||||
2011
|
||||||||||||||||
Total assets
|
$ | 19,251,720 | $ | 16,819,389 | $ | 56,105,276 | $ | 92,176,385 | ||||||||
Property and equipment, net
|
7,106,594 | 96 | 26,425 | 7,133,115 | ||||||||||||
Goodwill
|
10,308,520 | | | 10,308,520 | ||||||||||||
Liabilities
|
1,347,355 | 1,441,869 | 34,814,741 | 37,603,965 | ||||||||||||
|
||||||||||||||||
2010
|
||||||||||||||||
|
||||||||||||||||
Total assets
|
$ | 19,949,159 | $ | 16,705,051 | $ | 19,796,576 | $ | 56,450,786 | ||||||||
Property and equipment, net
|
7,325,852 | 241 | 46,158 | 7,372,251 | ||||||||||||
Goodwill
|
10,308,520 | | | 10,308,520 | ||||||||||||
Liabilities
|
1,319,064 | 1,621,394 | 715,481 | 3,655,939 |
8. |
ACQUISITION OF GRAND VICTORIA CASINO
|
On September 10, 2010, the Company entered into definitive agreements with Grand Victoria
Casino and Resort L.P. to acquire all of the operating assets of the property, located in
Rising Sun, Indiana on the Ohio River. The purchase price was $43.0 million, exclusive of
working capital adjustment, property cash and fees, as of March 31, 2011. The Company
entered into the Credit Agreement with Wells Fargo Bank on October 29, 2010, as discussed in
Note 6, and regulatory approvals were obtained to accommodate a closing effective April 1,
2011.
|
13
Through March 31, 2011 and December 31, 2010, the Company had incurred $0.5 million and $0.2
million in acquisition related expenses, respectively, which are included in project
development and acquisition expense.
In conjunction with closing on the financing commitment, the Company has incurred $2.6
million in financing related fees.
|
The initial accounting for this purchase is incomplete. The amounts below are provisional
amounts based on drafts of valuations for these assets and estimated purchase adjustments.
The purchase price is expected to be allocated in the second quarter of 2011 as follows (in
millions):
|
Land and land improvements
|
$ | 8.1 | ||
Buildings and building improvements
|
16.8 | |||
Equipment and boat related assets
|
5.9 | |||
Gaming license
|
9.9 | |||
Player loyalty program
|
1.7 | |||
Goodwill
|
2.4 | |||
Working capital estimate
|
(2.0 | ) | ||
|
||||
|
$ | 42.8 | ||
|
The fair values of these acquired identifiable assets are expected to be finalized upon
receipt of the final valuations and adjustments. The goodwill is the excess purchase price
over the assets purchased and includes the assembled workforce of the Grand Victoria. The
valuation above estimates a negative net working capital amount of $2.0 million, although
the purchase agreement states the purchaser will have up to 60 days to review the closing
net working capital and therefore, changes in the working capital may be made.
|
The following unaudited, condensed consolidated pro forma data summarizes the Companys
results of operations for the periods indicated as if the acquisition had occurred as of
January 1, 2010. This unaudited pro forma consolidated financial information is not
necessarily indicative of what the Companys actual results would have been had the
acquisition been completed on that date, or of future financial results.
|
Three months ended March 31, | ||||||||
2011 | 2010 | |||||||
Net revenues
|
$ | 30,902,425 | $ | 30,848,010 | ||||
Depreciation and amortization
|
2,353,301 | 2,684,290 | ||||||
Operating income
|
7,110,598 | 6,504,156 | ||||||
Net income attributable to the Company
|
2,132,238 | 2,043,050 | ||||||
Net income per share
|
$ | 0.12 | $ | 0.11 |
14
15
16
17
18
19
20
21
22
23
24
Item 2.
Table of Contents
Table of Contents
Table of Contents
Table of Contents
Table of Contents
Table of Contents
Table of Contents
Item 4.
Table of Contents
Item 6.
3.1
31.1
31.2
32.1
32.2
*
Table of Contents
FULL HOUSE RESORTS, INC.
Date: May 6, 2011
By:
/s/ MARK MILLER
Mark Miller
Chief Financial Officer and Chief Operating Officer
(on behalf of the Registrant and
as principal financial officer)
(i) |
with respect to which such Person or any of its
Affiliates and Associates, pursuant to any agreement, arrangement or
understanding, or otherwise, has or shares, directly or indirectly,
voting power, including the power to vote or direct the voting of such
shares, or investment power, including the power to dispose or to
direct the disposition of such shares, or both;
|
||
(ii) |
that such Person or any of its Affiliates or
Associates has the right to acquire (whether such right is exercisable
immediately or only after the passage of time), pursuant to any
agreement, arrangement or understanding or upon the exercise of
conversion rights, exchange rights, warrants or options, or otherwise;
or
|
||
(iii) |
that are beneficially owned, directly or
indirectly, by any other Person with which such first-mentioned Person
or any of its Affiliates or Associates has any agreement, arrangement
or understanding for the purpose of acquiring, holding, voting or
|
2
disposing of any shares of capital stock of the Corporation, as the
case may be.
|
3
4
5
6
By: | /s/ Barth F. Aaron | |||
Name: | Barth F. Aaron | |||
Title: | Secretary | |||
7
FULL HOUSE RESORTS, INC.
|
||||
By: | ||||
Barth F. Aaron | ||||
Secretary | ||||
1. |
I have reviewed this Quarterly Report on Form 10-Q of Full House Resorts, Inc.;
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the
period covered by this report;
|
3. |
Based on my knowledge, the financial statements, and other financial information included
in this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the small business issuer as of, and for, the periods presented
in this report;
|
4. |
The small business issuers other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f)) for the small business issuer and have:
|
a) |
Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that material
information relating to the small business issuer, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during
the period in which this report is being prepared;
|
b) |
Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
|
c) |
Evaluated the effectiveness of the small business issuers disclosure controls
and procedures and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
|
d) |
Disclosed in this report any change in the small business issuers internal
control over financial reporting that occurred during the small business issuers most
recent quarter (the small business issuers fourth quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially effect the
small business issuers internal control over financial reporting; and
|
5. |
The small business issuers other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the small
business issuers auditors and the audit committee of the small business issuers board of
directors (or persons performing the equivalent function):
|
a) |
All significant deficiencies and material weaknesses in the design or operation
of internal controls over financial reporting which are reasonably likely to adversely
affect the small business issuers ability to record, process, summarize and report
financial information; and
|
b) |
Any fraud, whether or not material, that involves management of other employees
who have a significant role in the small business issuers internal controls over
financial reporting.
|
Dated: May 6, 2011 | By: | /s/ ANDRE M. HILLIOU | ||
Andre M. Hilliou | ||||
Chief Executive Officer and Chairman of the Board |
1. |
I have reviewed this Quarterly Report on Form 10-Q of Full House Resorts, Inc.;
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the
period covered by this report;
|
3. |
Based on my knowledge, the financial statements, and other financial information included
in this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the small business issuer as of, and for, the periods presented
in this report;
|
4. |
The small business issuers other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f)) for the small business issuer and have:
|
a) |
Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that material
information relating to the small business issuer, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during
the period in which this report is being prepared;
|
b) |
Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
|
c) |
Evaluated the effectiveness of the small business issuers disclosure controls
and procedures and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
|
d) |
Disclosed in this report any change in the small business issuers internal
control over financial reporting that occurred during the small business issuers most
recent quarter (the small business issuers fourth quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially effect the
small business issuers internal control over financial reporting; and
|
5. |
The small business issuers other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the small
business issuers auditors and the audit committee of the small business issuers board of
directors (or persons performing the equivalent function):
|
a) |
All significant deficiencies and material weaknesses in the design or operation
of internal controls over financial reporting which are reasonably likely to adversely
affect the small business issuers ability to record, process, summarize and report
financial information; and
|
b) |
Any fraud, whether or not material, that involves management of other employees
who have a significant role in the small business issuers internal controls over
financial reporting.
|
Dated: May 6, 2011 | By: | /s/ MARK MILLER | ||
Mark Miller | ||||
Chief Financial Officer and Chief Operating Officer |
(1) |
The Report fully complies with the requirements of section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and
|
(2) |
The information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of Full House Resorts, Inc.
|
Dated: May 6, 2011 | By: | /s/ ANDRE M. HILLIOU | ||
Andre M. Hilliou | ||||
Chief Executive Officer and Chairman of the Board |
(1) |
The Report fully complies with the requirements of section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and
|
(2) |
The information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of Full House Resorts, Inc.
|
Dated: May 6, 2011 | By: | /s/ MARK MILLER | ||
Mark Miller | ||||
Chief Financial Officer and Chief Operating Officer |