**U.S. SECURITIES AND EXCHANGECOMMISSION**

**WASHINGTON, D.C. 20549**

 

**FORM 10-QSB**

 

| **ý** | **QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE  SECURITIES EXCHANGE ACT OF 1934**                                                                                                                                                                                                                                           |
|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       | **FOR  THE QUARTERLY PERIOD ENDED MARCH 31, 2004.**                                                                                                                                                                                                                                                                              |
|       |
| **OR**     |
|       |
| **o**      | **TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE  SECURITIES EXCHANGE ACT OF 1934**                                                                                                                                                                                                                                          |
|       | **FOR  THE TRANSITION PERIOD FROM                           TO                         .** |

 

**CommissionFile No.    0-20630**

 

**FULL HOUSE RESORTS, INC.**

(Exact name of smallbusiness issuer as specified in its charter)

 

| **Delaware**                                                           |   | **13-3391527**                        |
|------------------------------------------------------------------------|--------|---------------------------------------|
| (State or other  jurisdiction of  incorporation or organization)       |   | (I.R.S. Employer  Identification No.) |
|                                                                   |   |                                  |
| **4670  S. Fort Apache Road  Suite 190  Las Vegas,  Nevada** |   | **89147**                             |
| (Address of principal  executive offices)                              |   | (zip code)                            |
|                                                                   |   |                                  |
| **(702)  221-7800**                                                    |
| (Registrant’s telephone  number)                                  |

 

Check whether the registrant: (1) filed all reports required to be filed by Section 13 or 15(d) of theExchange Act during the past 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days. Yes ý  No o

 

**APPLICABLE ONLY TO CORPORATE ISSUERS**

 

As of May 10, 2004, Registrant had 10,340,380 shares of its $.0001 parvalue common stock outstanding.

 

 

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**FULL HOUSE RESORTS, INC**

**TABLE OF CONTENTS**

 
| PART I.   | Financial Information |                                                                                                           |
|-----------|-----------------------|----------------------------------------------------------------------------------------------------------------|
|      |                  |                                                                                                           |   |
|      | Item 1.               | Condensed Consolidated Financial Statements                                                                    |   |
|      |                  |                                                                                                           |   |
|      |                  | Unaudited  Condensed Consolidated Balance Sheets  as of March 31, 2004 and December 31, 2003                   |   |
|      |                  |                                                                                                           |   |
|      |                  | Unaudited  Condensed Consolidated Statements of Operations  for the three months ended March 31, 2004 and 2003 |   |
|      |                  |                                                                                                           |   |
|      |                  | Unaudited Condensed  Consolidated Statements of Cash Flows  for the three months ended March 31, 2004 and 2003 |   |
|      |                  |                                                                                                           |   |
|      |                  | Notes  to Unaudited Condensed Consolidated Financial Statements                                                |   |
|      |                  |                                                                                                           |   |
|      | Item  2.              | Management’s  Discussion and Analysis of Financial  Condition and Results of Operations                   |   |
|      |                  |                                                                                                           |   |
|      | Item  3.              | Controls  and Procedures                                                                                       |   |
|      |                  |                                                                                                           |   |
| PART  II. | Item 1.               | Legal Proceedings                                                                                              |   |
|      |                  |                                                                                                           |   |
|      | Item 3.               | Defaults Upon  Senior Securities                                                                               |   |
|      |                  |                                                                                                           |   |
|      | Item  4.              | Submission  of Matters to a Vote of Security Holders                                                           |   |
|      |                  |                                                                                                           |   |
|      | Item 6.               | Exhibits and  Reports on Form 8 – K                                                                       |   |
|      |                  |                                                                                                           |   |
|      | Signatures            |                                                                                                           |

 

2

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**FULLHOUSE RESORTS, INC. AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATED BALANCE SHEETS**

 
|                                                                                                                                                                                |   | **MARCH 31,  2004** |       | **DECEMBER  31,  2003** |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------|------------|-------------------------|--------|
|                                                                                                                                                                                |   | **(unaudited)**     |       |                    |   |
| **ASSETS**                                                                                                                                                                          |   |                |       |                    |   |
|                                                                                                                                                                                |   |                |       |                    |   |
| CURRENT ASSETS:                                                                                                                                                                     |   |                |       |                    |   |
| Cash and cash  equivalents                                                                                                                                                          |   | $                   | 1,922,145  |                    | $      | 1,942,430 |   |
| Receivables                                                                                                                                                                         |   | 125,000             |       | 125,000                 |   |
| Prepaid expenses                                                                                                                                                                    |   | 139,181             |       | 110,932                 |   |
| Total current  assets                                                                                                                                                               |   | 2,186,326           |       | 2,178,362               |   |
|                                                                                                                                                                                |   |                |       |                    |   |
| JOINT VENTURE  INVESTMENT IN LAND HELD FOR DEVELOPMENT                                                                                                                              |   | 1,929,415           |       | 1,929,415               |   |
| FIXTURES AND  EQUIPMENT - net                                                                                                                                                       |   | 11,351              |       | 12,610                  |   |
| INVESTMENTS IN  JOINT VENTURE                                                                                                                                                       |   | 217,497             |       | 171,403                 |   |
| RECEIVABLES                                                                                                                                                                         |   | 1,557,291           |       | 1,497,291               |   |
| GAMING AND  CONTRACT RIGHTS - net                                                                                                                                                   |   | 4,982,999           |       | 5,024,389               |   |
| DEFERRED INCOME  TAX ASSET                                                                                                                                                          |   | 580,875             |       | 626,270                 |   |
| DEPOSITS AND  OTHER ASSETS                                                                                                                                                          |   | 5,032               |       | 6,382                   |   |
| TOTAL                                                                                                                                                                               |   | $                   | 11,470,786 |                    | $      | 11,446,122 |   |
|                                                                                                                                                                                |   |                |       |                    |   |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                                                                      |   |                |       |                    |   |
|                                                                                                                                                                                |   |                |       |                    |   |
| CURRENT  LIABILITIES:                                                                                                                                                               |   |                |       |                    |   |
| Accounts payable                                                                                                                                                                    |   | $                   | 26,593     |                    | $      | 33,465 |   |
| Payable to joint  ventures                                                                                                                                                          |   | 62,916              |       | 54,328                  |   |
| Current portion  of  long-term debt                                                                                                                                            |   | 2,381,260           |       | 2,381,260               |   |
| Accrued expenses                                                                                                                                                                    |   | 138,021             |       | 204,008                 |   |
| Total current  liabilities                                                                                                                                                          |   | 2,608,790           |       | 2,673,061               |   |
|                                                                                                                                                                                |   |                |       |                    |   |
| **COMMITMENTS  AND CONTINGENCIES**                                                                                                                                                  |   |                |       |                    |   |
|                                                                                                                                                                                |   |                |       |                    |   |
| STOCKHOLDERS’  EQUITY:                                                                                                                                                         |   |                |       |                    |   |
|                                                                                                                                                                                |   |                |       |                    |   |
| Cumulative,  preferred stock, par value $.0001, 5,000,000 shares authorized; 700,000  shares issued and outstanding; aggregate liquidation preference of $4,567,500  and $4,515,000 |   | 70                  |       | 70                      |   |
| Common stock,  par value $.0001, 25,000,000 shares authorized; 10,340,380 shares issued and  outstanding                                                                            |   | 1,034               |       | 1,034                   |   |
| Additional paid  in capital                                                                                                                                                         |   | 17,429,889          |       | 17,429,889              |   |
| Accumulated  deficit                                                                                                                                                                |   | (8,568,997          | )          | (8,657,932              | )      |
| Total  stockholders’ equity                                                                                                                                                    |   | 8,861,996           |       | 8,773,061               |   |
|                                                                                                                                                                                |   |                |       |                    |   |
| TOTAL                                                                                                                                                                               |   | $                   | 11,470,786 |                    | $      | 11,446,122 |   |

 

See notes to unaudited condensed consolidated financial statements.

 

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**FULLHOUSE RESORTS, INC. AND SUBSIDIARIES**

**UNAUDITEDCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS**

 
|                                                                      |   | **THREE  MONTHS ENDED  MARCH 31,** |    |
|---------------------------------------------------------------------------|--------|------------------------------------|---------|
|                                                                      |   | **2004**                           |    | **2003** |   |
| OPERATING REVENUES:                                                       |   |                               |    |   |   |
| Joint venture  earnings                                                   |   | $                                  | 907,988 |   | $ | 803,608 |   |
|                                                                      |   |                               |    |   |   |
| Total operating  revenues                                                 |   | 907,988                            |    | 803,608 |   |
|                                                                      |   |                               |    |   |   |
| OPERATING COSTS  AND EXPENSES:                                            |   |                               |    |   |   |
| Development  costs                                                        |   | 142,628                            |    | 162,634 |   |
| General and  administrative                                               |   | 494,433                            |    | 394,313 |   |
| Depreciation and  amortization                                            |   | 42,648                             |    | 44,552 |   |
| Total operating  costs and expenses                                       |   | 679,709                            |    | 601,499 |   |
|                                                                      |   |                               |    |   |   |
| INCOME FROM  OPERATIONS                                                   |   | 228,279                            |    | 202,109 |   |
|                                                                      |   |                               |    |   |   |
| Interest expense                                                          |   | (28,180                            | )       | (24,954 | ) |
| Interest and  other income                                                |   | 231                                |    | 295 |   |
|                                                                      |   |                               |    |   |   |
| INCOME BEFORE  INCOME TAXES                                               |   | 200,330                            |    | 177,450 |   |
|                                                                      |   |                               |    |   |   |
| INCOME TAX  PROVISION                                                     |   | (111,395                           | )       | (118,300 | ) |
|                                                                      |   |                               |    |   |   |
| NET INCOME                                                                |   | 88,935                             |    | 59,150 |   |
|                                                                      |   |                               |    |   |   |
| Less, undeclared  dividends on cumulative preferred stock                 |   | 52,500                             |    | 52,500 |   |
|                                                                      |   |                               |    |   |   |
| NET INCOME  APPLICABLE TO COMMON SHARES                                   |   | $                                  | 36,435  |   | $ | 6,650 |   |
|                                                                      |   |                               |    |   |   |
| NET INCOME PER  COMMON SHARE, Basic and Diluted                           |   | $                                  | 0.00    |   | $ | 0.00 |   |
|                                                                      |   |                               |    |   |   |
| WEIGHTED AVERAGE  NUMBER OF COMMON  SHARES OUTSTANDING, Basic and Diluted |   | 10,340,380                         |    | 10,340,380 |   |

 

See notes tounaudited condensed consolidated financial statements.

 

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**FULLHOUSE RESORTS, INC. AND SUBSIDIARIES**

**UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**

 
|                                                                               |   | **THREE  MONTHS ENDED  MARCH 31,** |      |
|------------------------------------------------------------------------------------|--------|------------------------------------|-----------|
|                                                                               |   | **2004**                           |      | **2003** |   |
| CASH FLOWS FROM OPERATING ACTIVITIES:                                              |   |                               |      |   |   |
| Net income                                                                         |   | $                                  | 88,935    |   | $ | 59,150 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities: |   |                               |      |   |   |
| Depreciation and  amortization                                                     |   | 42,648                             |      | 44,552 |   |
| Equity in  earnings of joint venture                                               |   | (907,988                           | )         | (803,608 | ) |
| Distributions  from joint venture                                                  |   | 861,894                            |      | 686,267 |   |
| Changes in  operating assets and liabilities:                                      |   |                               |      |   |   |
| Receivables                                                                        |   | —                             |      | 61,969 |   |
| Prepaid expenses                                                                   |   | (28,249                            | )         | (24,865 | ) |
| Deposits and  other assets                                                         |   | 1,350                              |      | — |   |
| Deferred income  taxes                                                             |   | 45,395                             |      | 52,300 |   |
| Accounts payable  and accrued expenses                                             |   | (64,270                            | )         | (10,071 | ) |
|                                                                               |   |                               |      |   |   |
| Net cash  provided by operating activities                                         |   | 39,715                             |      | 65,694 |   |
|                                                                               |   |                               |      |   |   |
| CASH FLOWS FROM  INVESTING ACTIVITIES:                                             |   |                               |      |   |   |
| Advances on  receivable                                                            |   | (60,000                            | )         | (60,000 | ) |
|                                                                               |   |                               |      |   |   |
| Net cash used in  investing activities                                             |   | (60,000                            | )         | (60,000 | ) |
|                                                                               |   |                               |      |   |   |
| CASH FLOWS FROM  FINANCING ACTIVITIES:                                             |   |                               |      |   |   |
|                                                                               |   | —                             |      | — |   |
|                                                                               |   |                               |      |   |   |
| Net cash used by  financing activities                                             |   | —                             |      | — |   |
|                                                                               |   |                               |      |   |   |
| NET (DECREASE) INCREASE  IN CASH AND CASH EQUIVALENTS                              |   | (20,285                            | )         | 5,694 |   |
| CASH AND CASH  EQUIVALENTS, BEGINNING OF PERIOD                                    |   | 1,942,430                          |      | 1,164,053 |   |
|                                                                               |   |                               |      |   |   |
| CASH AND CASH  EQUIVALENTS, END OF PERIOD                                          |   | $                                  | 1,922,145 |   | $ | 1,169,747 |   |

 

See notes to unaudited condensed consolidated financial statements.

 

5

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**FULLHOUSE RESORTS, INC. AND SUBSIDIARIES**

 

# **NOTES TO UNAUDITEDCONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

 

**1.****                                      SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES**

 

***Interim Condensed Financial Statements -***The interim condensed consolidated financial statements of Full House Resorts,Inc. (the “Company” or “Full House”) included herein reflect all adjustmentswhich are, in the opinion of management, necessary to present fairly thefinancial position and results of operations for the interim periodspresented.  All such adjustments are ofa normal recurring nature. Certain information and note disclosures normallyincluded in financial statements prepared in accordance with accountingprinciples generally accepted in the United States of America have been omittedpursuant to the rules and regulations of the Securities and ExchangeCommission.

 

These unaudited condensed consolidated financialstatements should be read in conjunction with the consolidated financialstatements and notes thereto included in the Company’s Annual Report on Form 10-KSBfor the year ended December 31, 2003. The results of operations for the period ended March 31, 2004 are notnecessarily indicative of the results to be expected for the year endingDecember 31, 2004.

 

AWARDS OF STOCK-BASED COMPENSATION - Full House hasadopted SFAS No. 123, *“Accounting for Awards of Stock-Based Compensation”*whichestablishes financial accounting and reporting standards for stock-based employeecompensation plans and for transactions where equity securities are issued forgoods and services.  This statementdefines a fair value based method of accounting for an employee stock option orsimilar equity instrument and encourages all entities to adopt that method ofaccounting for all of their employee stock compensation plans.  However, it also allows an entity tocontinue to measure compensation cost for those plans using the intrinsic valuebased method of accounting prescribed by APB Opinion No. 25, *“Accountingfor Stock Issued to Employees.”* Full House continues to apply APB Opinion No. 25 to its stock basedcompensation awards to employees and discloses the required pro forma effect onnet income and net income per common share.

 

The Company had three stock-based employeecompensation plans.  The ability toissue options under these plans expired in 2002, but outstanding options maystill be exercised in accordance with their terms.  The Company accounts for these plans under the recognition andmeasurement principles of APB No. 25 and related Interpretations.  No stock-based employee compensation cost isreflected in net income, as all options granted under those plans has anexercise price equal to the market value of the underlying common stock on thedate of the grant.

 

All options that are outstanding as of March 31, 2004have vested and applying the fair value recognition provisions of SFAS No. 123results in pro forma net income that is the same as historical net income forthe periods presented.

 

**2**.                                   **JOINTVENTURE INVESTMENT IN LAND HELD FOR DEVELOPMENT**

 

On September 9, 2003 a joint venture between theCompany and RAM Entertainment, LLC, purchased approximately 80 acres of land located at the intersection ofI-94 and 11 Mile Road in

 

6

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Emmett Township, just outside Battle Creek,Michigan.  The purchase price of$3,858,830 was funded equally by the two parties.  The land is intended to be used as the site for a casino projectfor the Nottawaseppi Band of Huron Potawatomi Indians.

 

**3.****                                      JOINTVENTURE ACQUISITION**

 

On March 30, 2001, we acquired GTECH’s 50% interest inthree joint venture projects that had been equally owned by the two companies:Gaming Entertainment, LLC, owner of an agreement continuing through August2002, with the Coquille Indian Tribe (“Oregon Tribe”), which conducts gaming atThe Mill Casino in Oregon; Gaming Entertainment (Michigan), LLC, owner of aManagement Agreement with the Nottawaseppi Huron Band of Potawatomi (“MichiganTribe”) to develop and manage a gaming facility near Battle Creek; and GamingEntertainment (California), LLC owner of a Management Agreement with theTorres-Martinez Band of Desert Cahuilla Indians (“California Tribe”) to developand manage a gaming facility near Palm Springs.

 

The purchase price was $1,800,000, and was fundedthrough our existing credit facility. As part of this transaction, GTECH extended the due date of our$3,000,000 promissory note from January 25, 2001 until January 25, 2002, withinterest at prime.  The note was paid inFebruary 2002.  Also as part of thistransaction, GTECH is no longer required to provide the necessary financing forthe two development projects (Michigan and California) that we acquired.

 

In addition to the gaming and contract rights, weacquired the other 50% interest in a note receivable from the Michigan Tribe inthe amount of $396,146.  The excesspurchase price over the fair value of assets acquired was allocated to thegaming and contract rights acquired based on the discounted present value ofexpected future cash flows.  The excesspurchase price of $1,403,854 was allocated as follows:

 
|                |   | **Value** |      | **Amortization  Term** |      |
|---------------------|--------|-----------|-----------|------------------------|-----------|
| Michigan contract   |   | $         | 1,141,682 |                   | 8.0 years |   |
| California contract |   | 182,776   |      | 8.0 years              |      |
| Oregon Contract     |   | 79,396    |      | 1.4 years              |      |
|                |   | $         | 1,403,854 |                   |      |   |

 

The valueof the Oregon contract was amortized over the remaining term.  The Michigan and California contracts arebeing amortized over an eight year period which reflects a seven year contract termand an initial expectation of development being one year in the future.

 

**4.****                                   GAMINGAND CONTRACT RIGHTS**

 

As a result of the GTECH acquisition, the three jointventures that had previously been accounted for using the equity method are nowwholly-owned consolidated entities.  Asubstantial portion of our investment in these joint ventures was comprised ofpreviously contributed Michigan gaming rights of $4,155,213 that we acquired in1995 and which represent the Company’s acquisition of a 50% ownership of theright to manage the planned facility through the management agreement held bythe joint ventures.  Amortization of thecontributed Michigan gaming rights asset will commence when the associatedfacility is developed and becomes operational and will be on a straight-linebasis over seven years, or the term of the related management contract.  Now that these are wholly-owned consolidatedentities, these previously contributed rights are reflected in

 

7

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Gaming and Contract Rights, along with the contractrights acquired in the GTECH acquisition of $1,403,854.  The contract rights acquired in the GTECHacquisition represent the Company’s acquisition of 100% ownership andmanagement’s ability to control the operations of these three entities.  Therefore, amortization of the acquiredcontract rights commenced as of April 1, 2001. Gaming and contract rights, net, as of March 31, 2004 is comprised ofthe following:

 
| Contributed Michigan gaming rights |   | $         | 4,155,213 |   |
|------------------------------------|--------|-----------|-----------|--------|
| Acquired contract rights           |   | 1,403,854 |      |
| Less accumulated amortization      |   | (576,068  | )         |
| Gaming and Contract Rights, net    |   | $         | 4,982,999 |   |

 

The annual amortization expense wil1 be $165,557through 2008, with the then remaining balance of $41,391 expensed in 2009.    As of March 31, 2004, the weighted averageamortization period for acquired contract rights is 5 years.

 

The Michigan and California ventures are in thedevelopment stage.  Successfuldevelopment and, ultimately, sustaining profitable operations is dependent onfuture events, including appropriate regulatory approvals and adequate marketdemand.  These two ventures have notgenerated any revenues, and the costs incurred to date relate to pre-openingexpenses such as payroll, legal and consulting.

 

**5.****                                      JOINTVENTURE INVESTMENTS**

 

The Investments in Joint Venture on the balance sheetnow reflects our ownership interest in only the Delaware LLC.  The joint venture revenue recorded in thestatements of operation represents a 50% interest in the net income of thejoint venture.

 

SUMMARY INFORMATION FOR THE DELAWARE LLC FOR THE THREEMONTH PERIODS ENDED MARCH 31, is as follows:

 
|                    |   | **2004**  |      | **2003**  |   |
|-------------------------|--------|-----------|-----------|-----------|--------|
|                    |   |      |      |      |   |
| Revenues                |   | $         | 5,110,417 |      | $      | 4,689,569 |   |
| Income from  operations |   | 1,815,975 |      | 1,607,216 |   |
| Net income              |   | 1,815,975 |      | 1,607,216 |   |
|                         |        |           |           |           |        |  |  |

 

**6.****                                      LONG– TERM DEBT**

 

On February 15, 2002, we entered into an agreementwith RAM Entertainment, LLC (“RAM”), a privately held investment company,whereby RAM will acquire a 50% interest in the California and Michigan projectsand provide the necessary funding for their development.  RAM advanced $2,381,260 to us in the form ofa loan, to be forgiven upon receipt by the Huron Potawatomi Tribe of federalapprovals for its proposed casino near Battle Creek, Michigan.  The loan bears interest adjustable daily atprime and requires interest payments monthly. The principal was due at maturity on February 15, 2003.  On February 15, 2003, we entered into anagreement with RAM Entertainment, LLC to extend the due date until February 15,2004.

 

On February 12, 2004, we received notice from RAMEntertainment, LLC that they desired to extend the maturity date of the$2,381,260 loan to November 15, 2004 unless they are required to convert theloan into a 50% equity ownership position in Gaming Entertainment (Michigan),LLC,

 

8

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the subsidiary which is party to the Development andManagement Agreement with the Michigan Tribe. Pursuant to the agreement with RAM, the loan is convertible into equityon the occurrence of two events, (a) federal approval of the land into trustapplication and (b) federal approval of the Management Agreement with theTribe.  Neither event has occurred as ofMarch 31, 2004, but RAM may waive either or both conditions and convert theloan into equity.

 

**7.****                                      SEGMENTINFORMATION**

 

We view ourbusiness in three primary business segments. The Operations segment includes the performance of our Delawareproject.  The Development segmentincludes costs associated with our activities in Michigan and California.  The Corporate segment reflects themanagement and administrative expenses of the business.

 

SUMMARYINFORMATION FOR THE THREE MONTHS  ENDEDMARCH 31,

 

**2004**

 
|                          |   | **Operations** |    | **Development** |   | **Corporate** |   | **Consolidated** |   |
|-------------------------------|--------|----------------|---------|-----------------|--------|---------------|--------|------------------|--------|
| Revenues                      |   | $              | 907,988 |            | $      | —        |   | $                | — |   | $ | 907,988 |   |
| Development costs             |   | —         |    | 142,628         |   | —        |   | 142,628          |   |
| Income (loss) from operations |   | 907,988        |    | (184,017        | )      | (495,692      | )      | 228,279          |   |
| Net income (loss)             |   | 551,463        |    | (135,523        | )      | (327,005      | )      | 88,935           |   |
|                               |        |                |         |                 |        |               |        |                  |        |  |  |  |  |

 

**2003**

 
|                          |   | **Operations** |    | **Development** |   | **Corporate** |   | **Consolidated** |   |
|-------------------------------|--------|----------------|---------|-----------------|--------|---------------|--------|------------------|--------|
| Revenues                      |   | $              | 803,608 |            | $      | —        |   | $                | — |   | $ | 803,608 |   |
| Development costs             |   | —         |    | 162,634         |   | —        |   | 162,634          |   |
| Income (loss) from operations |   | 803,608        |    | (204,023        | )      | (397,476      | )      | 202,109          |   |
| Net income (loss)             |   | 470,017        |    | (148,727        | )      | (262,140      | )      | 59,150           |   |
|                               |        |                |         |                 |        |               |        |                  |        |  |  |  |  |

 

**8.****                                      SUBSEQUENTEVENTS**

 

On April 9,2004, the 50% interest in GamingEntertainment (Delaware) LLC held by GTECH was acquired by Harrington Raceway,Inc., the owner of Midway Slots and Simulcast. There have been no changes to the Limited Liability Company OperatingAgreement based on the change in membership of the Limited Liability Company.

 

On April 12, 2004, management of Full House met withrepresentatives of the Torres-Martinez Tribe to discuss the planned developmentof a casino by the Tribe.  The Companyhas made one final offer to the Tribe to resolve the differences which haveexisted.  Representatives of the Tribehave not responded to that offer, the terms of which required a response beforeApril 23, 2004.

 

On April 23, 2004, the United States District Courtfor the District of Columbia entered a ruling in the case of CETAC vs.Norton.  This case was an objection by acitizens group opposed to the casino gaming development of the Huron PotawatomiTribe for which Full House has a management contract.  The court ruled in favor of the Tribe and the government’sdetermination

 

9

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on three of the four issues.  On the question of the validity of the basis of the Secretary ofthe Interior’s Finding of No Significant Impact (FONSI) pursuant to theNational Environmental Protection Act (NEPA), the Court found the environmental assessment lacking in threeareas.  The Court directed the Secretaryof the Interior to further elaborate the environmental assessment in theparticulars noted or in the alternative to prepare an Environmental ImpactStatement.  The government is notallowed to take land into trust for the casino development until these issuesare resolved.

 

10

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**Item 2****.****           Management’s Discussion and Analysis of Financial Condition and Results ofOperations.**

 

### **AccountingPolicies**

 

Thepreparation of financial statements in conformity with generally acceptedaccounting principles requires management to make estimates and assumptionsabout future events that affect the amounts reported in the financialstatements and accompanying notes. Future events and their effects cannot be determined with absolutecertainty.  Therefore, the determinationof estimates requires the exercise of judgment.  Actual results inevitably will differ from those estimates andsuch differences may be material to the financial statements. Our accountingpolicies are more fully described in Note 2 of Notes to ConsolidatedFinancial Statements included in our Form 10-KSB dated December 31, 2003.

 

The mostsignificant accounting estimates inherent in the preparation of our financialstatements include estimates associated with management’s evaluation of therecoverability of intangibles.  Variousassumptions and other factors underlie the determination of these significantestimates.  The process of determiningsignificant estimates is fact specific and takes into account factors such ashistorical experience, current and expected economic conditions.  We continually re-evaluate these significantfactors and make adjustments where facts and circumstances dictate.  Historically, actual results have notsignificantly deviated from those determined using the estimates describedabove.

 

**Resultsof Operations**

 

**First QuarterEnded March 31, 2004 Compared to First Quarter Ended March 31, 2003**

 

**Revenues**.  As a result of the expiration of the Oregon contract in August2002 pursuant to its terms, our Delaware joint venture contract represents ouronly current revenue source.

 

***Delaware Joint Venture.*** Our share of income from the Delaware jointventure was $907,988 for the first quarter ended March 31, 2004, compared to$803,608 in the prior year.  Thisincrease is primarily attributable to milder weather conditions.

 

Adverse weather conditions in January and February2003, which caused the facility to be closed for two days of President’s Dayweekend, had a significant impact on the prior year’s performance.  The statewide smoking ban that took effectin late November 2002, has now lapsed a full year and the performance in thefirst quarters of 2003 and 2004 are both effected by the continuing impact.

 

**Development Costs**.  Total development related costs for the Michigan project were$142,628 during the first quarter of 2004, compared to $162,634 for the prioryear.  These costs were primarily forlegal and consulting fees to assist the Tribe in obtaining suitable land andcomplying with the requirements of the Indian Gaming Regulatory Act.

 

**General and Administrative Expenses*.***   Expenses for the three months ended March31, 2004 were $494,433, an increase of $100,120 from the comparable period in2003.  This increase is due to severancepayments of approximately $115,000 made to former executives.

 

**Depreciation andAmortization**.  The $42,648 expense is comprised ofdepreciation of fixtures and equipment in the amount of $1,259 and amortizationof the Contract Rights acquired in the GTECH acquisition in the amount of$41,389.  The prior year amount included$3,163 of depreciation and $41,389 of amortization.

 

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**Interest Expense*.***  Interest expense of $28,180 is attributableto the RAM note and is comparable to the prior year period.

 

**Interest and Other Income*.***  Interest and other income was comparable tothe prior year period and results primarily from interest on invested cashbalances.

 

**Income Tax Provision*.***   Income tax expense was $111,395. Theeffective tax rate reflects Delaware state taxes on joint venture earningsdetermined on a separate return basis, combined with the tax effect ofnon-deductible amortization expenses.

 

**Liquidityand Capital Resources**

 

At March 31, 2004, we had cash and cash equivalents of$1,922,145.  For the three months endedMarch 31, 2004, cash of $39,715 was provided by operating activities, ascompared to $65,694 in the prior year period. Net cash used in investing activities was $60,000 in both periods, andwas for advances to the Michigan tribe. There were no financing activities in either period.

 

On February 15, 2002, we entered into an agreementwith RAM Entertainment, LLC, a privately held investment company, whereby RAMmay acquire a 50% interest in the California and Michigan projects and providethe necessary funding for their development. RAM advanced $2,381,260 to us in the form of a loan, to be convertedinto equity upon receipt by the Huron Potawatomi Tribe of federal approvals forits proposed casino near Battle Creek, Michigan.  The loan bears interest adjustable daily at prime and requiresinterest payments monthly.  The originalFebruary 15, 2003 maturity date was extended to February 15, 2004 and extendedagain at the option of RAM until November 15, 2004 unless it is required toconvert the loan into equity.  The legalchallenge preventing the land from being taken into trust is pending in FederalDistrict Court in Washington, D.C.

 

On September 9, 2003 we, together with RAMEntertainment, LLC, our joint venture partner, purchased approximately 80 acresof land located at the intersection of I-94 and 11 Mile Road in EmmettTownship, just outside Battle Creek, Michigan. The purchase price of $3,858,830 was funded equally by the twoparties.  The land is intended to beused as the site for a casino project for the Nottawaseppi Band of HuronPotawatomi Indians

 

As a result of our agreement with RAM, development fundingcash needs for the Michigan project may be substantially provided by RAM.  Our future cash requirements will primarilybe to fund the balance of development expense and general and administrativeexpenses.  Our Oregon contract expiredin August 2002, leaving the Delaware joint venture as our sole source ofoperating cash flow.  We believe that adequatefinancial resources will be available to execute our current business plan,which is to concentrate on the Michigan project and select development andmanagement opportunities.

 

Receipt by Full House of revenues from the Delaware ventureis governed by the terms of the applicable joint venture agreement.  The contract provides that net cash flow(after certain deductions) is to be distributed monthly to the members of theLLC.  Our continuing cash flow isdependent on the operating performance of this joint venture, and the abilityto receive monthly distributions.

 

As part of the Michigan and California managementagreements with the tribes, we have advanced funds for tribal operations andthe construction of a tribal community center. The receivable on our balance sheet is attributable to this funding, andthe repayment obligation is dependent on the future profitable operation of thetribes’ gaming enterprises.  Additionaladvanced costs, which we have expensed

 

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as period development costs may also be recovered if wesuccessfully develop and operate a gaming enterprise for the tribe.

 

In August 2001, we received a notice from theTorres-Martinez Tribe in California purporting to sever our relationship.  Our balance sheet includes as a receivable a$25,000 advance due from Torres-Martinez Tribe, and included in Gaming andContract Rights is approximately $114,000 attributable to this contact.  We have incurred aggregate expenses ofapproximately $1 million, including interest, on behalf of Torres-MartinezTribe.  In June 2002, the Triberequested additional documentation concerning these costs, which we haveprovided.   On April 12, 2004, we metwith representatives of the Torres-Martinez Tribe to discuss the planneddevelopment of a casino by the Tribe. We have made one final offer to the Tribe to resolve the differenceswhich have existed.  Representatives ofthe Tribe have not responded to that offer, the terms of which required aresponse before April 23, 2004.  We believe that theseamounts are recoverable based upon the expressed intentions of Torres-MartinezTribe, as well as our contractual rights.

 

In November 2002,we executed a termination agreement with respect to our Hard Rock licensingrights in Biloxi, Mississippi in exchange for a $100,000 termination fee.  Additionally, if Hard Rock executed a newlicensing agreement for Biloxi within one year of the termination agreement, weagreed to provide consulting services to Hard Rock for a two-year periodbeginning with the opening of a Biloxi facility, entitling us to receiveannually, for the two year consulting period, $100,000, or 10% of licensingfees, as defined, whichever is greater. During 2003, Hard Rock executed a new licensing agreement for Biloxi.

 

**Contractual Obligations. **The following tablesummarizes our contractual obligations as of March 31, 2004:

 
|             |   |      |      | **Payments  Due by Period** |   |
|------------------|--------|-----------|-----------|-----------------------------|--------|
|             |   | **Total** |      | **Less than  1 year**       |   | **1 to 3  years** |   | **3 to 5  years** |   | **Thereafter** |   |
| Long term debt   |   | $         | 2,381,260 |                        | $      | 2,381,260 |   | $ | — |   | $ | — |   | $ | — |   |
| Operating leases |   | 117,660   |      | 37,693                      |   | 79,967 |   | — |   | — |   |
| Total            |   | $         | 2,498,920 |                        | $      | 2,418,953 |   | $ | 79,967 |   | $ | — |   | $ | — |   |

 

As of March 31, 2004, we had cumulative undeclared andunpaid dividends in the amount of $2,467,500 on the 700,000 outstanding sharesof our 1992-1Preferred Stock.  Such dividends arecumulative whether or not declared, and are currently in arrears.

 

**Quantitative and Qualitative Disclosures about Market Risk**.  Market risk is the risk of loss from changes in market rates orprices, such as interest rates and commodity prices.  We are exposed to market risk in the form of changes in interestrates and the potential impact such changes may have on our variable ratedebt.  We have not invested inderivative based financial instruments.

 

Our totaloutstanding short-term debt of $2.4 million at March 31, 2004 is subject tovariable interest rates, which averaged 4.0% during the current quarter.  Our variable rate debt is based on the Primelending rate and therefore, our interest rates on this variable rate debt willchange as the Prime rate changes.  Basedon our $2.4 million of outstanding variable rate debt at March 31, 2004, ahypothetical 100 basis point (1%) change in rates would result in an annualinterest expense change of approximately $24,000.

 

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**Recent AccountingPronouncements. **Adescription of significant accounting policies and estimates can be found inNote 2 of the Annual Report on Form 10-KSB for the year ended December 31,2003.  There have been no materialchanges to these policies or estimates****as of March 31, 2004.

 

**Item 3****.****           Controlsand Procedures**

 

Evaluation ofDisclosure Controls and Procedures. Full House’s chief executive and financial officers, after evaluatingthe effectiveness of our disclosure controls and procedures (as defined inSections 13a-14(c) and 15d-14(c) of the Securities Exchange Act of 1934) as ofMarch 31, 2004 have concluded that as of such date, our disclosure controls andprocedures were effective and designed to ensure that information required tobe disclosed in reports filed under the Exchange Act is accumulated andcommunicated to them to allow timely decisions regarding required disclosures.

 

Changes inInternal Control Over Financial Reporting. Full House does not believe that there are have been any changes ininternal controls during the last fiscal quarter that had materially affected,or are reasonably likely to materially affect its internal control overfinancial reporting.

 

**PART II****-OTHER INFORMATION**

 

**Item 1.****           LegalProceedings**

 

None

 

**Item3.  Defaults upon Senior Securities**

 

As of March 31, 2004, cumulative dividends were$2,467,500, which were undeclared, unpaid and were in arrears, with respect tothe Company’s Series 1992-1 Preferred Stock, which class ranks prior tothe Company’s Common Stock with regard to dividend and liquidation rights.

 

**Item4.****           Submissionof Matters to a Vote of Security Holders**

 

We held our Annual Meeting of Stockholders on February13, 2004.  A total of 10,198,513 commonshares and 350,000 preferred shares (95% of all eligible shares) wererepresented by proxy or in person, and cast their votes on the followingmatter:

 
| **Election of Directors** |   | **FOR**    |   | **AGAINST** |   |
|---------------------------|--------|------------|--------|-------------|--------|
|                      |   |       |   |        |   |
| Lee A. Iacocca            |   | 10,526,503 |   | 22,010      |   |
| J. Michael  Paulson       |   | 10,526,503 |   | 22,010      |   |
| William P.  McComas       |   | 10,058,503 |   | 490,010     |   |

 

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**Item6.****           Exhibitsand Reports on Form 8-K**

 

(a)                                  Exhibits.
| 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 |

 

(b)                                 Reportson Form 8-K;

None

 

**SIGNATURES**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, as amended, the Companyhas duly caused this report to be signed on its behalf by the undersigned,thereunto duly authorized.

 

 
|                      | **FULL  HOUSE RESORTS, INC.**                                      |
|---------------------------|--------------------------------------------------------------------|
|                      |                                                               |
|                      |                                                               |
| Date:  May  12, 2004 |                                                               |
|                      |                                                               |
|                      | By                                                                 | : /s/  GREG  VIOLETTE |
|                      | Greg Violette                                                      |
|                      | Chief Financial Officer                                            |
|                      | (on behalf of the  Registrant and  as principal financial officer) |

 

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