**U.S. SECURITIES AND EXCHANGE COMMISSION****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 JUNE 30, 2002.**                                                                                                     |
|------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |   |                                                                                                                                                                                                                                      |   |   |
|       |   | **OR**                                                                                                                                                                                                                                    |
|       |   |                                                                                                                                                                                                                                      |   |   |
| **o**      |   | **TRANSITION REPORT  UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE  TRANSITION PERIOD FROM           TO          .** |

 

**Commission File 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          |   | (I.R.S. Employer     |
| incorporation or  organization)           |   | 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 issuer(1) filed all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the past 12 months (or for such shorterperiod that the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.

 

Yes ý         No o

 

**APPLICABLEONLY TO CORPORATE ISSUERS**

 

As of August 10, 2002,Registrant had 10,340,380 shares of its $.0001 par value common stockoutstanding.

 

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                                                                            **FULL HOUSERESORTS, INC**

**TABLE OFCONTENTS**

 

 
| PART I.  | Financial Information |                                                                                                               |
|----------|-----------------------|--------------------------------------------------------------------------------------------------------------------|
|     |                  |                                                                                                               |   |
|     | Item 1.               | Condensed Consolidated  Financial Statements                                                                       |   |
|     |                  |                                                                                                               |   |
|     |                  | Unaudited  Condensed Consolidated Balance Sheets as of June 30, 2002 and December 31,  2001                        |   |
|     |                  |                                                                                                               |   |
|     |                  | Unaudited  Condensed Consolidated Statements of Operations for the three months ended  June 30, 2002 and 2001 |   |
|     |                  |                                                                                                               |   |
|     |                  | Unaudited  Condensed Consolidated Statements of Operations for the six months ended  June 30, 2002 and 2001   |   |
|     |                  |                                                                                                               |   |
|     |                  | Unaudited  Condensed Consolidated Statements of Cash Flows for the six months ended  June 30, 2002 and 2001   |   |
|     |                  |                                                                                                               |   |
|     |                  | Notes  to Unaudited Condensed Consolidated Financial Statements                                                    |   |
|     |                  |                                                                                                               |   |
|     | Item  2.              | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                        |   |
|     |                  |                                                                                                               |   |
| PART II. | Item 1.               | Legal Proceedings                                                                                                  |   |
|     |                  |                                                                                                               |   |
|     | Item 3.               | Defaults Upon  Senior Securities                                                                                   |   |
|     |                  |                                                                                                               |   |
|     | Item 6.               | Exhibits and  Reports on Form 8 – K                                                                           |   |
|     |                  |                                                                                                               |   |
|     | Signatures            |                                                                                                               |   |
|          |                       |                                                                                                                    |  |  |

 

 

2

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**FULL HOUSE RESORTS, INC. AND SUBSIDIARIES**

## **UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS**

 

 
|                                                                                                                                                                                |   | **JUNE 30,** |       | **DECEMBER 31,** |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------|------------|------------------|--------|
|                                                                                                                                                                                |   | **2002**     |       | **2001**         |   |
| **ASSETS**                                                                                                                                                                          |   |         |       |             |   |
|                                                                                                                                                                                |   |         |       |             |   |
| CURRENT ASSETS:                                                                                                                                                                     |   |         |       |             |   |
| Cash and cash  equivalents                                                                                                                                                          |   | $            | 387,144    |             | $      | 867,419 |   |
| Receivables                                                                                                                                                                         |   | 186,043      |       | 209,992          |   |
| Prepaid expenses                                                                                                                                                                    |   | 28,194       |       | 93,878           |   |
| Total current  assets                                                                                                                                                               |   | 601,381      |       | 1,171,289        |   |
|                                                                                                                                                                                |   |         |       |             |   |
| LAND HELD FOR  DEVELOPMENT                                                                                                                                                          |   | 2,472,000    |       | 2,472,000        |   |
| FIXTURES AND  EQUIPMENT - net                                                                                                                                                       |   | 30,552       |       | 23,374           |   |
| INVESTMENTS IN  JOINT VENTURES                                                                                                                                                      |   | 498,581      |       | —           |   |
| RECEIVABLES                                                                                                                                                                         |   | 1,137,291    |       | 1,017,291        |   |
| GAMING CONTRACT  RIGHTS - net                                                                                                                                                       |   | 5,279,439    |       | 5,390,239        |   |
| DEFERRED TAX  ASSET                                                                                                                                                                 |   | 1,407,234    |       | 1,375,949        |   |
|                                                                                                                                                                                |   |         |       |             |   |
| DEPOSITS AND  OTHER ASSETS                                                                                                                                                          |   | 12,403       |       | 14,782           |   |
|                                                                                                                                                                                |   |         |       |             |   |
| TOTAL                                                                                                                                                                               |   | $            | 11,438,881 |             | $      | 11,464,924 |   |
|                                                                                                                                                                                |   |         |       |             |   |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                                                                      |   |         |       |             |   |
|                                                                                                                                                                                |   |         |       |             |   |
| CURRENT  LIABILITIES:                                                                                                                                                               |   |         |       |             |   |
| Accounts payable                                                                                                                                                                    |   | $            | 18,926     |             | $      | 21,468 |   |
| Payable to joint  ventures                                                                                                                                                          |   | —       |       | 48,033           |   |
| Current portion  of  long-term debt                                                                                                                                            |   | 2,381,260    |       | 3,000,000        |   |
| Accrued expenses                                                                                                                                                                    |   | 636,557      |       | 171,316          |   |
| Total current  liabilities                                                                                                                                                          |   | 3,036,743    |       | 3,240,817        |   |
|                                                                                                                                                                                |   |         |       |             |   |
| LONG–TERM  DEBT, net of current portion                                                                                                                                        |   | —       |       | 600,000          |   |
|                                                                                                                                                                                |   |         |       |             |   |
| **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 $4,200,000  and $4,095,000 |   | 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                                                                                                                                                                |   | (9,028,855   | )          | (9,806,886       | )      |
| Total stockholders’  equity                                                                                                                                                    |   | 8,402,138    |       | 7,624,107        |   |
| TOTAL                                                                                                                                                                               |   | $            | 11,438,881 |             | $      | 11,464,924 |   |

 

 

See notes tounaudited condensed consolidated financial statements.

 

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**FULL HOUSE RESORTS, INC. ANDSUBSIDIARIES**

## **UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS**

 

 
|                                                                       |   | **THREE  MONTHS ENDED** |    |
|----------------------------------------------------------------------------|--------|-------------------------|---------|
|                                                                       |   | **JUNE 30,**            |    |
|                                                                       |   | **2002**                |    | **2001** |   |
| OPERATING REVENUES:                                                        |   |                    |    |   |   |
| Joint venture  revenue                                                     |   | $                       | 836,598 |   | $ | 802,452 |   |
| Management fees                                                            |   | 600,884                 |    | 593,425 |   |
| Total operating  revenues                                                  |   | 1,437,482               |    | 1,395,877 |   |
|                                                                       |   |                    |    |   |   |
| OPERATING COSTS  AND EXPENSES:                                             |   |                    |    |   |   |
| Joint venture  pre-opening costs                                           |   | —                  |    | — |   |
| Development  costs                                                         |   | 177,484                 |    | 196,933 |   |
| General and  administrative                                                |   | 536,379                 |    | 480,695 |   |
| Depreciation and  amortization                                             |   | 59,662                  |    | 182,736 |   |
| Total operating  costs and expenses                                        |   | 773,525                 |    | 860,364 |   |
| INCOME FROM  OPERATIONS                                                    |   | 663,957                 |    | 535,513 |   |
|                                                                       |   |                    |    |   |   |
| Interest expense                                                           |   | (38,482                 | )       | (90,974 | ) |
| Interest and  other income                                                 |   | 350                     |    | 2,886 |   |
|                                                                       |   |                    |    |   |   |
| INCOME BEFORE  INCOME TAXES                                                |   | 625,825                 |    | 447,425 |   |
|                                                                       |   |                    |    |   |   |
| INCOME TAX  PROVISION                                                      |   | (261,883                | )       | (254,643 | ) |
|                                                                       |   |                    |    |   |   |
| NET INCOME                                                                 |   | 363,942                 |    | 192,782 |   |
|                                                                       |   |                    |    |   |   |
| Less, undeclared  dividends on cumulative preferred stock                  |   | 52,500                  |    | 52,500 |   |
|                                                                       |   |                    |    |   |   |
| NET INCOME  APPLICABLE TO COMMON SHARES                                    |   | $                       | 311,442 |   | $ | 140,282 |   |
|                                                                       |   |                    |    |   |   |
| NET INCOME PER  COMMON SHARE, Basic and Diluted                            |   | $                       | 0.03    |   | $ | 0.01 |   |
|                                                                       |   |                    |    |   |   |
| 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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**FULL HOUSE RESORTS, INC. ANDSUBSIDIARIES**

## **UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OFOPERATIONS**

 

 
|                                                                     |   | **SIX MONTHS ENDED** |      |
|--------------------------------------------------------------------------|--------|----------------------|-----------|
|                                                                     |   | **JUNE 30,**         |      |
|                                                                     |   | **2002**             |      | **2001** |   |
| OPERATING  REVENUES:                                                     |   |                 |      |   |   |
| Joint venture  revenue                                                   |   | $                    | 1,720,555 |   | $ | 1,806,765 |   |
| Management fees                                                          |   | 1,144,919            |      | 593,425 |   |
| Total operating  revenues                                                |   | 2,865,474            |      | 2,400,190 |   |
|                                                                     |   |                 |      |   |   |
| OPERATING COSTS  AND EXPENSES:                                           |   |                 |      |   |   |
| Joint venture  pre-opening costs                                         |   | —               |      | 122,441 |   |
| Development  costs                                                       |   | 393,045              |      | 446,933 |   |
| General and  administrative                                              |   | 944,882              |      | 878,919 |   |
| Depreciation and  amortization                                           |   | 120,119              |      | 315,398 |   |
| Total operating  costs and expenses                                      |   | 1,458,046            |      | 1,763,691 |   |
| INCOME FROM  OPERATIONS                                                  |   | 1,407,428            |      | 636,499 |   |
|                                                                     |   |                 |      |   |   |
| Interest expense                                                         |   | (90,107              | )         | (159,684 | ) |
| Interest and  other income                                               |   | 3,434                |      | 6,181 |   |
|                                                                     |   |                 |      |   |   |
| INCOME BEFORE  INCOME TAXES                                              |   | 1,320,755            |      | 482,996 |   |
|                                                                     |   |                 |      |   |   |
| INCOME TAX  PROVISION                                                    |   | (542,724             | )         | (336,976 | ) |
|                                                                     |   |                 |      |   |   |
| NET INCOME                                                               |   | 778,031              |      | 146,020 |   |
|                                                                     |   |                 |      |   |   |
| Less, undeclared  dividends on cumulative preferred stock                |   | 105,000              |      | 105,000 |   |
|                                                                     |   |                 |      |   |   |
| NET INCOME  APPLICABLE TO COMMON SHARES                                  |   | $                    | 673,031   |   | $ | 41,020 |   |
|                                                                     |   |                 |      |   |   |
| NET INCOME PER  COMMON SHARE, Basic and Diluted                          |   | $                    | 0.07      |   | $ | 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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**FULL HOUSE RESORTS, INC. ANDSUBSIDIARIES**

## **UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASHFLOWS**

 

 
|                                                                                |   | **SIX MONTHS  ENDED** |    |
|-------------------------------------------------------------------------------------|--------|-----------------------|---------|
|                                                                                |   | **JUNE 30,**          |    |
|                                                                                |   | **2002**              |    | **2001** |   |
| CASH FLOWS FROM  OPERATING ACTIVITIES:                                              |   |                  |    |   |   |
| Net income                                                                          |   | $                     | 778,031 |   | $ | 146,020 |   |
| Adjustments to  reconcile net income to net cash  provided by operating activities: |   |                  |    |   |   |
| Depreciation and  amortization                                                      |   | 120,119               |    | 315,398 |   |
| Expired purchase  option                                                            |   | —                |    | 250,000 |   |
| Equity in  earnings of joint ventures                                               |   | (1,720,555            | )       | (1,684,324 | ) |
| Distributions  from joint ventures                                                  |   | 1,173,941             |    | 1,529,462 |   |
| Changes in  operating assets and liabilities:                                       |   |                  |    |   |   |
| Receivables                                                                         |   | 23,949                |    | (194,395 | ) |
| Prepaid expenses                                                                    |   | 65,684                |    | 14,918 |   |
| Deposits and  other assets                                                          |   | 2,379                 |    | (7,567 | ) |
| Deferred taxes                                                                      |   | (31,285               | )       | 221,976 |   |
| Accounts payable  and accrued expenses                                              |   | 462,698               |    | (31,853 | ) |
|                                                                                |   |                  |    |   |   |
| Net cash  provided by operating activities                                          |   | 874,961               |    | 559,635 |   |
|                                                                                |   |                  |    |   |   |
| CASH FLOWS FROM  INVESTING ACTIVITIES:                                              |   |                  |    |   |   |
| Purchase of 50%  joint venture interests                                            |   | —                |    | (1,800,000 | ) |
| Advances on  receivable                                                             |   | (120,000              | )       | (80,000 | ) |
| Purchase of  fixtures and equipment                                                 |   | (16,496               | )       | — |   |
|                                                                                |   |                  |    |   |   |
| Net cash used in  investing activities                                              |   | (136,496              | )       | (1,880,000 | ) |
|                                                                                |   |                  |    |   |   |
| CASH FLOWS FROM  FINANCING ACTIVITIES:                                              |   |                  |    |   |   |
| Proceeds from  RAM note                                                             |   | 2,381,260             |    | — |   |
| Repayment  of  GTECH note                                                      |   | (3,000,000            | )       | — |   |
| Proceeds from  line of credit                                                       |   | —                |    | 1,800,000 |   |
| Repayment of  line of credit                                                        |   | (600,000              | )       | (450,000 | ) |
|                                                                                |   |                  |    |   |   |
| Net cash (used)  provided by financing activities                                   |   | (1,218,740            | )       | 1,350,000 |   |
|                                                                                |   |                  |    |   |   |
| NET (DECREASE)  INCREASE IN CASH AND CASH EQUIVALENTS                               |   | (480,275              | )       | 29,635 |   |
| CASH AND CASH  EQUIVALENTS, BEGINNING OF PERIOD                                     |   | 867,419               |    | 455,143 |   |
|                                                                                |   |                  |    |   |   |
| CASH AND CASH  EQUIVALENTS, END OF PERIOD                                           |   | $                     | 387,144 |   | $ | 484,778 |   |

 

 

See notes tounaudited condensed consolidated financial statements.

 

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**FULL HOUSE RESORTS, INC. ANDSUBSIDIARIES**

 

# **NOTES TO UNAUDITEDCONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

 

 

**1.****                                     ****SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

 

***Interim Condensed Financial Statements -*** The interim condensed consolidatedfinancial statements of Full House Resorts, Inc. (the “Company” or “FullHouse”) included herein reflect all adjustments which are, in the opinion ofmanagement, necessary to present fairly the financial position and results ofoperations for the interim periods presented. All such adjustments are of a normal recurring nature. Certaininformation and note disclosures normally included in financial statementsprepared in accordance with accounting principles generally accepted in theUnited States of America have been omitted pursuant to the rules andregulations of the Securities and Exchange Commission.

 

These unaudited condensedconsolidated financial statements should be read in conjunction with theconsolidated financial statements and notes thereto included in the Company’sAnnual Report on Form 10–KSB for the year ended December 31, 2001.  The results of operations for the periodsended June 30, 2002 are not necessarily indicative of the results to beexpected for the year ending December 31, 2002.

 

***Consolidation -*** The unaudited condensed consolidated financialstatements include the accounts of the Company and all its majority–ownedsubsidiaries. Prior to March 31, 2001, Full Househad four joint ventures with GTECH that were accounted for using the equitymethod.  On March 31, 2001 we purchasedGTECH’s 50% interest in three of these joint ventures which are nowwholly-owned by Full House, and accordingly are no longer accounted for usingthe equity method.  All material intercompany accounts andtransactions have been eliminated.

 

**2.****                                     ****RECENTLY ISSUED ACCOUNTING STANDARDS**

 

In June 2002, the Financial Accounting Standards Board(“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 146,“Accounting for Costs Associated with Exit or Disposal Activities.”  SFAS No. 146 addresses financial accountingand reporting for costs associated with the exit or disposal activities andnullifies Emerging Issues Task Force Issue No. 94-3, “Liability Recognition forCertain Employee Termination Benefits and Other Costs to Exit an Activity(including Certain Costs Incurred in a Restructuring)”.  SFAS No. 146 requires that a liability for acost associated with an exit or disposal activity be recognized when theliability is incurred.  A fundamentalconclusion reached by the FASB in this statement is that an entity’s commitmentto a plan, by itself, does not create a present obligation to others that meetsthe definition of a liability.  SFAS 146also establishes that fair value is the objective for initial measurement ofthe liability.  The provisions of thisstatement are effective for exit or disposal activities that are initiatedafter December 31, 2002, with early implementation encouraged.  The Company has not determined the impact ofSFAS No. 146 on its financial position and results of operations, if any.

 

**3.****                                     ****JOINT VENTURE 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 a development agreement continuing throughAugust 2002, with the Coquille Indian Tribe (“Oregon Tribe”), 

 

 

7

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which conducts gaming at The Mill Casino in Oregon; GamingEntertainment (Michigan), LLC, owner of a Management Agreement with theNottawaseppi Huron Band of Potawatomi (“Michigan Tribe”) to develop and managea gaming facility near Battle Creek; and Gaming Entertainment (California),LLC, owner of a Management Agreement with the Torres-Martinez Band of DesertCahuilla Indians (“California Tribe”) to develop and manage a gaming facilitynear Palm Springs.

 

The purchase price was $1,800,000, and was funded throughour existing credit facility.  As partof this transaction, GTECH extended the due date of our $3,000,000 promissorynote from January 25, 2001 until January 25, 2002, with interest at prime.  The note was paid in February 2002.  Also as part of this transaction, GTECH isno longer required to provide the necessary financing for the two developmentprojects (Michigan and California) that we acquired.  This transaction did not include our other joint venture withGTECH, Gaming Entertainment (Delaware), LLC, owner of a management agreementcontinuing through 2011, to manage Midway Slots & Simulcast in Harrington,Delaware.

 

In addition to the gaming contract rights, we acquired theother 50% interest in a note receivable from the Michigan Tribe in the amountof $396,146.  The excess purchase priceover the fair value of assets acquired was allocated to the gaming contractrights acquired based on the discounted present value of expected future cashflows.  The excess purchase 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 following summary pro forma results of operationsassume that the acquisition occurred as of January 1, 2001:

 

|                                   |   | **Six Months Ended** |      |
|----------------------------------------|--------|----------------------|-----------|
|                                   |   | **June 30, 2001**    |      |
| Operating revenues                     |   | $                    | 2,682,557 |   |
| Income before taxes                    |   | 602,422              |      |
| Net income                             |   | 224,842              |      |
| Net income applicable to common shares |   | 119,842              |      |
| Net income per  common share           |   | 0.01                 |      |
|                                        |        |                      |           |  |

 

**4.****                                     ****RECEIVABLES**

 

As part of the Michigan and California managementagreements with the tribes, the Company has advanced funds for tribaloperations and the construction of a tribal community center.  The Company has recorded receivables of$1,112,291 from Michigan and $25,000 from California, attributable to thisfunding.  The repayment obligations aredependent on the future profitable operation of the tribes’ gaming enterprises.

 

**5.****             ****       GAMING CONTRACT RIGHTS**

 

As a result of theacquisition from GTECH, the three joint ventures that had previously beenaccounted for using the equity method are now wholly owned consolidatedentities.  A substantial portion of ourinvestment in these joint ventures was comprised of Michigan gaming rights of$4,155,213 that we acquired in 1995 and contributed to the joint venture.  Now that these are

 

 

8

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wholly-ownedconsolidated entities, these rights are reflected in Gaming Contract Rights,along with the rights acquired in the GTECH acquisition of $1,403,854.

 

| Contributed Michigan gaming rights                |   | $         | 4,155,213 |   |
|---------------------------------------------------|--------|-----------|-----------|--------|
| Acquired gaming rights                            |   | 1,403,854 |      |
| Less accumulated amortization                     |   | (279,628  | )         |
| Gaming Contract Rights, net (as of June 30, 2002) |   | $         | 5,279,439 |   |

 

The Michigan and California ventures are in the developmentstage.  Successfully developing, andultimately, sustaining profitable operations is dependent on future events,including appropriate regulatory approvals and adequate market demand.  These two ventures have not generated anyrevenues, and the costs incurred to date relate to pre-opening expenses such aspayroll, legal and consulting.  TheCompany adopted SFAS 142, “Goodwill and Other Intangible Assets” as of January1, 2002, and the adoption did not have a material impact on the Company’sconsolidated financial statements.  Inaccordance with SFAS 142, the Company amortizes acquired gaming rights over thelife of the contract.

 

**6.****             ****       JOINT VENTUREINVESTMENTS**

 

Through March 30,2001 the Company had four joint ventures with GTECH. The Investments in JointVentures on the balance sheet now reflects our ownership interest in only theDelaware LLC.

 

SUMMARYINFORMATION FOR THE THREE MONTH PERIODS ENDED JUNE 30,

 

| **2002**                |   | **Delaware** |      | **Oregon** |   | **Michigan** |   | **California** |   |
|-------------------------|--------|--------------|-----------|------------|--------|--------------|--------|----------------|--------|
| Revenues                |   | $            | 5,003,137 |       | $      | —       |   | $              | — |   | $ | — |   |
| Income from  operations |   | 1,673,196    |      | —     |   | —       |   | —         |   |
| Net income              |   | 1,673,196    |      | —     |   | —       |   | —         |   |
|                         |        |              |           |            |        |              |        |                |        |  |  |  |  |

 

| **2001**                |   | **Delaware** |      | **Oregon** |   | **Michigan** |   | **California** |   |
|-------------------------|--------|--------------|-----------|------------|--------|--------------|--------|----------------|--------|
| Revenues                |   | $            | 4,605,502 |       | $      | —       |   | $              | — |   | $ | — |   |
| Income from  operations |   | 1,604,905    |      | —     |   | —       |   | —         |   |
| Net income              |   | 1,604,905    |      | —     |   | —       |   | —         |   |
|                         |        |              |           |            |        |              |        |                |        |  |  |  |  |

 

 

                SUMMARY INFORMATION FOR THE SIX MONTH PERIODS ENDEDJUNE 30,

 

| **2002**                |   | **Delaware** |      | **Oregon** |   | **Michigan** |   | **California** |   |
|-------------------------|--------|--------------|-----------|------------|--------|--------------|--------|----------------|--------|
| Revenues                |   | $            | 9,771,813 |       | $      | —       |   | $              | — |   | $ | — |   |
| Income from  operations |   | 3,441,109    |      | —     |   | —       |   | —         |   |
| Net income              |   | 3,441,109    |      | —     |   | —       |   | —         |   |
|                         |        |              |           |            |        |              |        |                |        |  |  |  |  |

 

| **2001**                       |   | **Delaware** |      | **Oregon** |   | **Michigan** |   | **California** |   |
|--------------------------------|--------|--------------|-----------|------------|--------|--------------|--------|----------------|--------|
| Revenues                       |   | $            | 8,570,331 |       | $      | 570,137      |   | $              | — |   | $ | — |   |
| Income (loss)  from operations |   | 3,048,797    |      | 564,734    |   | (197,522     | )      | (47,360        | )      |
| Net income  (loss)             |   | 3,048,797    |      | 564,734    |   | (197,522     | )      | (47,360        | )      |
|                                |        |              |           |            |        |              |        |                |        |  |  |  |  |

 

 

 

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**7.****                                     ****LONG — TERM DEBT**

 

On February15, 2002, we entered into an agreement with RAM Entertainment, LLC (“RAM”), aprivately held investment company, whereby RAM will acquire a 50% interest inthe California and Michigan projects upon receipt by the Huron Potawatomi Tribeof federal approvals for its proposed casino near Battle Creek, Michigan.  In addition, RAM is to provide the necessaryfunding for their development.  RAMadvanced $2,381,260 to Full House in the form of a loan which bears interestadjustable daily at prime and requires interest payments monthly.  If the required federal approvals are notreceived prior to February 15, 2003, and RAM does not waive the approvalrequirement, then the principal amount becomes due and RAM shall forfeit itsright to any interest in the projects.

 

Theproceeds of this loan, together with cash on hand, was used to repay the$3,000,000 GTECH note.

 

**8.****                                     ****SEGMENT INFORMATION**

 

Since the joint venture acquisition from GTECH, we now viewour business in three primary business segments.  The Operations segment includes the performance of the Delawareand Oregon projects.  The Developmentsegment includes costs associated with our activities in Michigan, California,and Mississippi.  The Corporate segmentreflects the management and administrative expenses of the business.

 

SUMMARY INFORMATION FOR THE THREE MONTHS  ENDED JUNE 30,

 

** **

| **2002**                      |   | **Operations** | ** ** | **Development** | ** ** | **Corporate** | ** ** | **Consolidated** | ** ** |
|-------------------------------|--------|----------------|------------|-----------------|------------|---------------|------------|------------------|------------|
| Revenues                      |   | $              | 1,437,482  |            | $          | —        |       | $                | —     |   | $ | 1,437,482 |   |
| Development costs             |   | —         |       | 177,484         |       | —        |       | 177,484          |       |
| Income (loss) from operations |   | 1,423,471      |       | (343,874        | )          | (415,640      | )          | 663,957          |       |
| Net income (loss)             |   | 879,063        |       | (241,030        | )          | (274,091      | )          | 363,942          |       |
|                               |        |                |            |                 |            |               |            |                  |            |  |  |  |  |

 

** **

| **2001**                      |   | **Operations** |      | **Development** |   | **Corporate** |   | **Consolidated** |   |
|-------------------------------|--------|----------------|-----------|-----------------|--------|---------------|--------|------------------|--------|
| Revenues                      |   | $              | 1,395,877 |            | $      | —        |   | $                | — |   | $ | 1,395,877 |   |
| Development costs             |   | —         |      | 196,933         |   | —        |   | 196,933          |   |
| Income (loss) from operations |   | 1,339,678      |      | (376,960        | )      | (427,205      | )      | 535,513          |   |
| Net income (loss)             |   | 744,238        |      | (271,406        | )      | (280,050      | )      | 192,782          |   |
|                               |        |                |           |                 |        |               |        |                  |        |  |  |  |  |

 

 

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SUMMARY INFORMATION FOR THE SIX MONTHS  ENDED JUNE 30,

 

| **2002**                      |   | **Operations** |      | **Development** |   | **Corporate** |   | **Consolidated** |   |
|-------------------------------|--------|----------------|-----------|-----------------|--------|---------------|--------|------------------|--------|
| Revenues                      |   | $              | 2,865,474 |            | $      | —        |   | $                | — |   | $ | 2,865,474 |   |
| Development costs             |   | —         |      | 393,045         |   | —        |   | 393,045          |   |
| Income (loss) from operations |   | 2,837,452      |      | (600,825        | )      | (829,199      | )      | 1,407,428        |   |
| Net income (loss)             |   | 1,747,726      |      | (424,690        | )      | (545,005      | )      | 778,031          |   |
|                               |        |                |           |                 |        |               |        |                  |        |  |  |  |  |

 

 

| **2001**                      |   | **Operations** |      | **Development** |   | **Corporate** |   | **Consolidated** |   |
|-------------------------------|--------|----------------|-----------|-----------------|--------|---------------|--------|------------------|--------|
| Revenues                      |   | $              | 2,400,190 |            | $      | —        |   | $                | — |   | $ | 2,400,190 |   |
| Development costs             |   | —         |      | 569,384         |   | —        |   | 569,384          |   |
| Income (loss) from operations |   | 2,301,802      |      | (833,779        | )      | (831,524      | )      | 636,499          |   |
| Net income (loss)             |   | 1,249,308      |      | (558,530        | )      | (544,758      | )      | 146,020          |   |
|                               |        |                |           |                 |        |               |        |                  |        |  |  |  |  |

 

 

**Item2.****          ****Management’s Discussion and Analysis of Financial Condition and Results ofOperations.**

 

**Results of Operations****for the Three and Six Months Ended June 30, 2002Compared to the Three and Six Months Ended June 30, 2001**

 

**Revenues**.  As a result of the acquisition of GTECH’sinterest in three joint venture projects (Oregon, Michigan and California), ourclassification of revenues is not directly comparable to prior periods. Therevenues related to our Delaware contract continue to be reported as jointventure revenue, but as of March  31, 2001, the revenue related to theOregon contract is reported as management fees.

 

Totaloperating revenues increased $41,605, or 3% for the three month period and$465,284, or 19% for the six month period. This increase is due to improvedperformance in Delaware and the acquisition of the additional 50% interest inthe Oregon joint venture.

 

***Delaware Joint Venture.*** Our share ofincome from the Delaware joint venture was $836,598 in 2002, an increase of$34,146, or 4% for the three month period, and $1,720,555, an increase of$196,157, or 13% for the six month period. These increases are primarily the result of continued market improvementcoupled with stringent cost controls.

 

***Oregon.***  Ourmanagement fees from the Oregon contract were $600,884 and $1,144,919 for therespective three and six month periods, compared to Oregon related revenues of$593,425 and $875,792 in the respective prior year periods.  The increase in the six month periodprimarily reflects the increase in our

 

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ownershippercentage.  A slight increase in gamingrevenues during the three month period offset the reduction in the managementfee structure from 11% of revenue to 10%, in accordance with the managementagreement.  This agreement will expirein August 2002, and no further fees will be paid.

 

**Cost and Expenses**.  As a result of our acquisition of GTECH’sinterest in three joint venture projects, our classification of expenses is notdirectly comparable to prior periods. The expenses related to our California and Michigan projects, which hadbeen reported as joint venture pre-opening costs, as of March  31, 2001,are reported as development costs.

 

**Pre-opening andDevelopment**. Total development related costs (joint venture pre-opening costs anddevelopment costs) for the California and Michigan projects were $177,484compared to $196,933 for the three month period, and $393,045 compared to$319,374 for the six month period.  Themajority of these costs were related to the Michigan venture with the HuronPotawatomi Tribe in Battle Creek.  Thesecosts were primarily for legal and consulting fees to assist the Tribe inobtaining suitable land and complying with the requirements of the Indian GamingRegulatory Act.

 

We expensed$250,000 in the first quarter of 2001 related to the expiration of a landpurchase option in Biloxi, Mississippi that we chose not to exercise or renew.

 

**                Generaland Administrative Expenses*.*** General and Administrative Expenses increased by$55,684 and $65,963 for the respective three and six month periods. Theseincreases reflect an increase in payroll expenses resulting from staffingchanges to accommodate the increased ownership of our development projects, anaccrual of $125,000 for litigation settlement, and a reduction in rent expense.

 

**Depreciation andAmortization**. Amortization of Gaming Contract Rights was $55,400 for the quarter and$110,800 for the six month period.  Theprior year only included this amortization beginning April 1, 2001 as a resultof the GTECH transaction. The prior year also included goodwill amortization of$126,567 and $253,134 for the respective three and six month periods.  This goodwill was fully amortized as ofSeptember  30, 2001.  Depreciationexpense was $4,262 and $9,319 for the three and six month periods compared to$6,096 and $12,191 in the respective prior year periods.

 

**Interest Expense*.*** Interest expense decreased by $52,492 and $69,577 for the three and sixmonths ended June 30, 2002, compared to the respective prior year periods, dueto lower outstanding borrowings coupled with a decrease in interest rates.

 

**Interest and Other Income*.*** Interest and other income was comparable to the prior year periods andresults primarily from interest on invested cash balances.

 

**Income Tax Provision*.***  Income tax expense increased by $7,240 and $205,748 for the respectivethree and six month periods.  Theincreases primarily reflect the increase in earnings. The effective tax ratereflects state taxes on joint venture earnings combined with the tax effect ofnon-deductible amortization expenses. As a result of increased earnings and the elimination of goodwill, theeffective tax rate for the current year was approximately 40%.  The Company expects that its net operatingloss carryforward will be fully utilized in the current year and the Accruedexpenses on the balance sheet include approximately $400,000 in taxes payable.

 

 

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**Liquidity and Capital Resources**

 

At June 30, 2002,we had cash and cash equivalents of $387,144. For the six months ended June 30, 2002, cash of $874,961 was provided byoperating activities, as compared to $559,635 in the prior year period.  This change is primarily due to improvedearnings resulting primarily from the change in our ownership percentage in theOregon LLC.  Net cash used in investingactivities was $136,496, primarily for $120,000 in advances to the Michigantribe, compared to using $1,880,000 in the prior year primarily for the GTECHacquisition transaction.  Financingactivities used $1,218,740 during the current period reflecting the $3,000,000repayment of the GTECH note, the receipt of a $2,381,260 advance under the RAMnote, and a $600,000 reduction in bank borrowings.  In the prior period, a $1,800,000 bank line draw was used toclose the GTECH acquisition and $450,000 was repaid.  There was a net decrease in cash and cash equivalents of $480,275during the first six months of 2002.

 

On February15, 2002, we entered into an agreement with RAM Entertainment, LLC (“RAM”), aprivately held investment company, whereby RAM will acquire a 50% interest inthe California and Michigan projects upon receipt by the Huron Potawatomi Tribeof federal approvals for its proposed casino near Battle Creek, Michigan.  In addition, RAM is to provide the necessaryfunding for their development.  RAMadvanced $2,381,260 to Full House in the form of a loan which bears interestadjustable daily at prime and requires interest payments monthly (4.75% at June30, 2002.).  If the required federalapprovals are not received prior to February 15, 2003, and RAM does not waivethe approval requirement, then the principal amount becomes due and RAM shallforfeit its right to any interest in the projects.

 

As a resultof the agreement with RAM, development funding cash needs for the Michiganproject will be primarily provided by RAM. Therefore, our future cash needswill primarily be to fund general and administrative expenses.  The Oregon contract will expire in August of2002, leaving the Delaware joint venture as our sole source of operating cashthereafter.  We believe that adequatefinancial resources will be available to execute our current business plans.

 

                On April 15, 2002 we announced the intent to hire aninvestment advisor to assist in enhancing shareholder value through theexploration of various strategic alternatives. Although the process is ongoing, there can be no assurance that any substantiveresults will be achieved.

 

In 1998, weobtained a $2,000,000 line of credit with Coast Community Bank of Mississippiwith an initial maturity date of February  25, 1999.  We have renewed this line on an annualbasis, and in February 2002, the renewal also reduced the availability to $1,000,000.  The line bears interest adjustable daily atone-half percent above prime (5.25% at June 30, 2002) and requiresinterest payments monthly on the outstanding balance with all principal andaccrued interest due at maturity on February  25, 2003.  At June 30, 2002, there was nothingoutstanding on the bank line.

 

Full Housewas a party to a series of agreements with GTECH Corporation, a leadingsupplier of computerized systems and services for government-authorizedlotteries, to jointly pursue certain gaming opportunities.  Pursuant to the agreements, joint venturecompanies equally owned by GTECH and Full House were formed.  Full House contributed its rights to theNorth Bend, Oregon facility and the rights to develop the Torres Martinez,Nottawaseppi Huron Band of Potawatomi and Delaware State Fair projects to thejoint venture companies.  GTECH contributed cash and other intangibleassets and agreed to loan the joint venture entities up to $16.4 million tocomplete the North Bend, Oregon and Delaware facilities.  Full 

 

 

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House agreed to guaranteeone-half of the obligations of the joint venture companies to GTECH under theseloans, all of which have been repaid. GTECH also provided project management,technology and other expertise to analyze and develop/manage the implementationof opportunities developed by the joint venture entities.  GTECH also loaned Full House $3.0 million,which loan was convertible into 600,000 shares of Full House Common Stock.  The loan conversion clause expired withoutexercise.  In addition, Full House hasbeen reimbursed by one of the joint venture companies for certain advances andexpenditures made by Full House relating to the gaming development agreements. As part of this transaction, Allen  E. Paulson, William  P.McComas and Lee Iacocca granted to GTECH an option, which expired December 29, 2000, to purchase their shares should they propose to transfer them.   The parties are no longerrequired to present gaming opportunities to the other for joint development.

 

On March 30, 2001, we acquired GTECH’s 50% interest in three joint ventureprojects that had been equally owned by the two companies: GamingEntertainment, LLC, Gaming Entertainment (Michigan), LLC, and GamingEntertainment (California), LLC.  Thepurchase price was $1.8 million, and was funded through Full House’s existingcredit facility.  As part of thistransaction, GTECH extended the due date of our $3.0 million promissory noteuntil January  25, 2002, with interest at prime.  This note was paid in February 2002.

 

As a resultof our agreement with GTECH, receipt by Full House of revenues from theDelaware venture is governed by the terms of the joint venture agreement.  The contract provides that net cash flow(after certain deductions) is to be distributed monthly to Full House andGTECH.  While Full House does notbelieve that this arrangement will adversely impact its liquidity, ourcontinuing cash flow is dependent on the operating performance of this jointventure, and the ability to receive monthly distributions.

 

As part ofthe Michigan and California management agreements with the tribes, we haveadvanced funds for tribal operations and the construction of a tribal communitycenter.  The Receivable is attributableto this funding, and the repayment obligation is dependent on the futureprofitable operation of the tribes’ gaming enterprises.  In August 2001, we received a notice fromthe Torres-Martinez Tribe in California purporting to sever our relationship.  We are in the process of discussing anappropriate resolution of this matter that includes reimbursement for coststhat we incurred on their behalf.  TheReceivable on the balance sheet includes a $25,000 advance due fromTorres-Martinez Tribe, and Gaming Contract Rights includes approximately$170,000 attributable to this contact. We have incurred an aggregate of approximately $1 million in expenses,including interest, on behalf of Torres-Martinez Tribe.  We believe that the balance sheet amountsare recoverable based upon the expressed intentions of Torres-Martinez Tribe,as well as the contractual rights that we continue to hold.

 

In November1998, we executed a series of agreements with Hard Rock related to the proposeddevelopment project in Biloxi, Mississippi. Pursuant to a licensing agreement, Full House has the right to developand operate a Hard Rock Casino in Biloxi. We paid a territory fee of $2,000,000. In September 1998, Full House and Allen  E. Paulson formed alimited liability company, equally owned, for the purpose of developing thisproject.  Mr. Paulson agreed tocontribute a gaming vessel (the former Treasure Bay barge in Tunica, MS.), andwe agreed to contribute our rights to the Hard Rock agreements.  In June 2001, we agreed to dissolve thiscompany with each party retaining their respective rights and assets.

 

InSeptember 2001, our discussions with potential partners concluded with noagreements.  Based upon the timingrequirements in our agreements with Hard Rock, and the current conditions inthe tourism industry we do not reasonably expect to be able to develop thisproject as planned.  As a result ofthese circumstances, we reviewed the carrying values of our Mississippi investmentsand recorded an Impairment provision of $4,593,800, in the third quarter of2001.

 

 

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**ContractualObligations.**

 

                The following table summarizes our contractualobligations as of June 30, 2002:

 

|             |   | **Payments  Due by Period** |      |
|------------------|--------|-----------------------------|-----------|
|             |   | **Total**                   |      | **2002** |   | **2003** |   | **2004** |   | **Thereafter** |   |
| Long term debt   |   | $                           | 2,381,260 |   | $ |   | $ | 2,381,260 |   | $ | — |   | $ | — |   |
| Operating leases |   | 167,096                     |      | 17,589 |   | 35,178 |   | 35,178 |   | 79,151 |   |
| Total            |   | $                           | 2,548,356 |   | $ | 17,589 |   | $ | 2,416,438 |   | $ | 35,178 |   | $ | 79,151 |   |
|                  |        |                             |           |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

As ofJune 30, 2002, we had cumulative undeclared and unpaid dividends in theamount of $2,100,000 on the 700,000 outstanding shares of our 1992–1 PreferredStock.  Such dividends are cumulativewhether or not declared, and are currently in arrears.

 

**QuantitativeDisclosure About Market Risk**.  Market risk is the risk of loss from changesin market rates or prices, such as interest rates and commodity prices.  We are exposed to market risk in the form ofchanges in interest rates and the potential impact such changes may have on ourvariable rate debt.  We have notinvested in derivative based financial instruments.

 

**Recent Accounting Pronouncements**. In June 2002, the Financial AccountingStandards Board (“FASB”) issued Statement of Financial Accounting Standard(“SFAS”) No. 146, “Accounting for Costs Associated with Exit or DisposalActivities.”  SFAS No. 146 addressesfinancial accounting and reporting for costs associated with the exit ordisposal activities and nullifies Emerging Issues Task Force Issue No. 94-3,“Liability Recognition for Certain Employee Termination Benefits and OtherCosts to Exit an Activity (including Certain Costs Incurred in aRestructuring).”  SFAS No. 146 requiresthat a liability for a cost associated with an exit or disposal activity berecognized when the liability is incurred. A fundamental conclusion reached by the FASB in this statement is thatan entity’s commitment to a plan, by itself, does not create a presentobligation to others that meets the definition of a liability. SFAS 146 alsoestablishes that fair value is the objective for initial measurement of theliability.  The provisions of thisstatement are effective for exit or disposal activities that are initiatedafter December 31, 2002, with early implementation encouraged.  The Company has not determined the impact ofSFAS No. 146 on its financial position and results of operations, if any.

 

 

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                                                                        **PART II –OTHER INFORMATION**

 

**Item1.  Legal Proceedings**

 

In the PaulSteelman Ltd. vs Full House Resorts, Inc. litigation filed in Harrison CountyCourt in Mississippi, case #A2402-2001-183, the parties reached a settlement onJuly 31, 2002.   The Company agreed topay $250,000 (half of which will be paid by the Allen E. Paulson Living Trust)in settlement of all claims.   In thesecond quarter of 2002, the Company recorded a $125,000 litigation settlement.

 

**Item 3.  Defaults UponSenior Securities**

 

As of June 30,2002, cumulative dividends were $2,100,000, which were undeclared, unpaid andwere in arrears, with respect to the Company’s Series 1992–1 PreferredStock, which class ranks prior to the Company’s Common Stock with regard todividend and liquidation rights.

 

**Item 6.  Exhibits andReports on Form 8-K**

 
| (a)    | Exhibits.                 |
|--------|---------------------------|
|   | 99.1                      | Certification of principal executive and financial  officers   pursuant to 18 U.S.C. section 1350 |
|   |                      |   |
| (b)    | Reports on 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:  August 12, 2002

 

By: /s/  MICHAEL P. SHAUNNESSY                               

Michael P.Shaunnessy, Executive V. P.

and  Chief Financial Officer

 

 

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