**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 MARCH 31, 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 small business issuer as specified inits 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 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  May 10, 2002, Registrant had 10,340,380shares of its $.0001 par value common stock outstanding.

 

 

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**FULLHOUSE RESORTS, INC**

**TABLE OFCONTENTS**

 
| PART I.  | Financial Information |
|----------|-----------------------|
|     |                  |
|     | Item 1.               | Condensed Consolidated  Financial Statements |
|     |                  |
|     |                  | Unaudited  Condensed Consolidated Balance Sheets as of March 31, 2002 and December 31,  2001 |
|     |                  |
|     |                  | Unaudited  Condensed Consolidated Statements of Operations for the three months ended  March 31, 2002 and 2001 |
|     |                  |
|     |                  | Unaudited  Condensed Consolidated Statements of Cash Flows for the three months ended  March 31, 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. | Other Information     |
|     |                  |
|     | Signatures            |
|          |                       |  |  |  |  |

 

2

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

**UNAUDITEDCONDENSED CONSOLIDATED BALANCE SHEETS**

 
|                                                                                                                                                                                |   | **MARCH 31,  2002** |       | **DECEMBER  31,  2001** |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------|------------|-------------------------|--------|
|                                                                                                                                                                                |   |                |       |                    |   |
| **ASSETS**                                                                                                                                                                          |   |                |       |                    |   |
|                                                                                                                                                                                |   |                |       |                    |   |
| CURRENT  ASSETS:                                                                                                                                                                    |   |                |       |                    |   |
| Cash  and cash equivalents                                                                                                                                                          |   | $                   | 465,065    |                    | $      | 867,419 |   |
| Receivables                                                                                                                                                                         |   | 291,276             |       | 209,992                 |   |
| Prepaid  expenses                                                                                                                                                                   |   | 57,265              |       | 93,878                  |   |
| Total  current assets                                                                                                                                                               |   | 813,606             |       | 1,171,289               |   |
|                                                                                                                                                                                |   |                |       |                    |   |
| LAND  HELD FOR DEVELOPMENT                                                                                                                                                          |   | 2,472,000           |       | 2,472,000               |   |
|                                                                                                                                                                                |   |                |       |                    |   |
| FIXTURES  AND EQUIPMENT - net                                                                                                                                                       |   | 34,043              |       | 23,374                  |   |
|                                                                                                                                                                                |   |                |       |                    |   |
| INVESTMENTS  IN JOINT VENTURES                                                                                                                                                      |   | 160,179             |       | —                  |   |
|                                                                                                                                                                                |   |                |       |                    |   |
| RECEIVABLES                                                                                                                                                                         |   | 1,077,291           |       | 1,017,291               |   |
|                                                                                                                                                                                |   |                |       |                    |   |
| GAMING  CONTRACT RIGHTS - net                                                                                                                                                       |   | 5,334,839           |       | 5,390,239               |   |
|                                                                                                                                                                                |   |                |       |                    |   |
| DEFERRED  TAX ASSET                                                                                                                                                                 |   | 1,342,990           |       | 1,375,949               |   |
|                                                                                                                                                                                |   |                |       |                    |   |
| DEPOSITS  AND OTHER ASSETS                                                                                                                                                          |   | 17,713              |       | 14,782                  |   |
|                                                                                                                                                                                |   |                |       |                    |   |
| TOTAL                                                                                                                                                                               |   | $                   | 11,252,661 |                    | $      | 11,464,924 |   |
|                                                                                                                                                                                |   |                |       |                    |   |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                                                                      |   |                |       |                    |   |
|                                                                                                                                                                                |   |                |       |                    |   |
| CURRENT  LIABILITIES:                                                                                                                                                               |   |                |       |                    |   |
| Accounts  payable                                                                                                                                                                   |   | $                   | 25,346     |                    | $      | 21,468 |   |
| Payable  to joint ventures                                                                                                                                                          |   | —              |       | 48,033                  |   |
| Current  portion of  long-term debt                                                                                                                                            |   | 2,381,260           |       | 3,000,000               |   |
| Accrued  expenses                                                                                                                                                                   |   | 207,859             |       | 171,316                 |   |
| Total  current liabilities                                                                                                                                                          |   | 2,614,465           |       | 3,240,817               |   |
|                                                                                                                                                                                |   |                |       |                    |   |
| LONG–TERM  DEBT, net of current portion                                                                                                                                        |   | 600,000             |       | 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 $4,147,500  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                                                                                                                                                                |   | (9,392,797          | )          | (9,806,886              | )      |
| Total  stockholders’ equity                                                                                                                                                    |   | 8,038,196           |       | 7,624,107               |   |
|                                                                                                                                                                                |   |                |       |                    |   |
| TOTAL                                                                                                                                                                               |   | $                   | 11,252,661 |                    | $      | 11,464,924 |   |

 

See notes tounaudited condensed consolidated financial statements.

 

3

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** **

**FULL HOUSE RESORTS, INC. ANDSUBSIDIARIES**

**UNAUDITEDCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS**

 
|                                                                     |   | **THREE  MONTHS ENDED  MARCH 31,** |    |
|--------------------------------------------------------------------------|--------|------------------------------------|---------|
|                                                                     |   | **2002**                           |    | **2001** |   |
| OPERATING  REVENUES:                                                     |   |                               |    |   |   |
| Joint  venture revenue                                                   |   | $                                  | 883,957 |   | $ | 1,004,313 |   |
| Management  fees                                                         |   | 544,035                            |    | — |   |
| Total  operating revenues                                                |   | 1,427,992                          |    | 1,004,313 |   |
|                                                                     |   |                               |    |   |   |
| OPERATING  COSTS AND EXPENSES:                                           |   |                               |    |   |   |
| Joint  venture pre-opening costs                                         |   | —                             |    | 122,441 |   |
| Development  costs                                                       |   | 215,561                            |    | 250,000 |   |
| General  and administrative                                              |   | 408,503                            |    | 398,224 |   |
| Depreciation  and amortization                                           |   | 60,457                             |    | 132,662 |   |
| Total  operating costs and expenses                                      |   | 684,521                            |    | 903,327 |   |
|                                                                     |   |                               |    |   |   |
| INCOME  FROM OPERATIONS                                                  |   | 743,471                            |    | 100,986 |   |
|                                                                     |   |                               |    |   |   |
| Interest  expense                                                        |   | (51,625                            | )       | (68,710 | ) |
| Interest  and other income                                               |   | 3,084                              |    | 3,295 |   |
|                                                                     |   |                               |    |   |   |
| INCOME  BEFORE INCOME TAXES                                              |   | 694,930                            |    | 35,571 |   |
|                                                                     |   |                               |    |   |   |
| INCOME  TAX PROVISION                                                    |   | (280,841                           | )       | (82,333 | ) |
|                                                                     |   |                               |    |   |   |
| NET  INCOME (LOSS)                                                       |   | 414,089                            |    | (46,762 | ) |
|                                                                     |   |                               |    |   |   |
| Less,  undeclared dividends on cumulative preferred stock                |   | 52,500                             |    | 52,500 |   |
|                                                                     |   |                               |    |   |   |
| NET  INCOME (LOSS) APPLICABLE TO COMMON SHARES                           |   | $                                  | 361,589 |   | $ | (99,262 | ) |
|                                                                     |   |                               |    |   |   |
| NET  INCOME (LOSS) 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**

**UNAUDITEDCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**

 
|                                                                                              |   | **THREE  MONTHS ENDED  MARCH 31,** |    |
|---------------------------------------------------------------------------------------------------|--------|------------------------------------|---------|
|                                                                                              |   | **2002**                           |    | **2001** |   |
| CASH  FLOWS FROM OPERATING ACTIVITIES:                                                            |   |                               |    |   |   |
| Net  income (loss)                                                                                |   | $                                  | 414,089 |   | $ | (46,762 | ) |
| Adjustments  to reconcile net income (loss) to net cash provided (used) by operating  activities: |   |                               |    |   |   |
| Depreciation  and amortization                                                                    |   | 60,457                             |    | 132,662 |   |
| Expired  purchase option                                                                          |   | —                             |    | 250,000 |   |
| Equity  in earnings of joint ventures                                                             |   | (883,957                           | )       | (881,872 | ) |
| Distributions  from joint ventures                                                                |   | 675,746                            |    | 851,084 |   |
| Net  advances to joint ventures                                                                   |   | —                             |    | (452,394 | ) |
| Changes  in operating assets and liabilities:                                                     |   |                               |    |   |   |
| Receivables                                                                                       |   | (81,284                            | )       | — |   |
| Prepaid  expenses                                                                                 |   | 36,613                             |    | (20,936 | ) |
| Deposits  and other assets                                                                        |   | (2,931                             | )       | (7,567 | ) |
| Deferred  taxes                                                                                   |   | 32,959                             |    | 37,333 |   |
| Accounts  payable and accrued expenses                                                            |   | 40,420                             |    | (100,858 | ) |
|                                                                                              |   |                               |    |   |   |
| Net  cash provided (used) by operating activities                                                 |   | 292,112                            |    | (239,310 | ) |
|                                                                                              |   |                               |    |   |   |
| CASH  FLOWS FROM INVESTING ACTIVITIES:                                                            |   |                               |    |   |   |
| Purchase  of 50% joint venture interests                                                          |   | —                             |    | (1,800,000 | ) |
| Advances  on receivable                                                                           |   | (60,000                            | )       | — |   |
| Purchase  of fixtures and equipment                                                               |   | (15,725                            | )       | — |   |
|                                                                                              |   |                               |    |   |   |
| Net  cash used in investing activities                                                            |   | (75,725                            | )       | (1,800,000 | ) |
|                                                                                              |   |                               |    |   |   |
| 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                                                                      |   | —                             |    | (150,000 | ) |
|                                                                                              |   |                               |    |   |   |
| Net  cash provided (used) by financing activities                                                 |   | (618,740                           | )       | 1,650,000 |   |
|                                                                                              |   |                               |    |   |   |
| NET  DECREASE IN CASH AND CASH EQUIVALENTS                                                        |   | (402,354                           | )       | (389,310 | ) |
| CASH  AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                                   |   | 867,419                            |    | 455,143 |   |
|                                                                                              |   |                               |    |   |   |
| CASH  AND CASH EQUIVALENTS, END OF PERIOD                                                         |   | $                                  | 465,065 |   | $ | 65,833 |   |

 

See notes tounaudited condensed consolidated financial statements.

 

5

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**FULL HOUSE RESORTS, INC. ANDSUBSIDIARIES**

 

**NOTES TO UNAUDITED CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS**

 

**1.             SUMMARYOF 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. Certain informationand note disclosures normally included in financial statements prepared inaccordance with accounting principles generally accepted in the United Statesof America have been omitted pursuant to the rules and regulations of theSecurities and Exchange Commission.

 

These unauditedcondensed consolidated financial statements should be read in conjunction withthe consolidated financial statements and notes thereto included in theCompany’s Annual Report on Form 10–KSB for the year ended December 31,2001.  The results of operations for theperiod ended March 31, 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 House hadfour 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.

 

***Reclassifications*********-******Certain prior period amounts have beenreclassified to conform with the current period presentation.

 

**2.             RECENTLYISSUED ACCOUNTING STANDARDS**

 

In July 2001, theFinancial Accounting Standards Board (“FASB”) issued Statement of FinancialAccounting Standard (“SFAS”) No. 141, “Business Combinations” and SFAS No. 142,“Goodwill and Other Intangible Assets.” SFAS 141 prohibits the pooling of interests method of accounting forbusiness combinations initiated after June 30, 2001.  SFAS 142, which was effective for Full House in January 2002,requires, among other things, the discontinuance of goodwill amortization.  In addition, the standard includesprovisions for the reclassification of certain existing intangibles asgoodwill, reassessment of the useful lives of existing intangibles, and ongoingassessments of potential impairment of existing goodwill.

 

In August 2001,the FASB issued SFAS No. 144 "Accounting for the Impairment or Disposal ofLong-Lived Assets" which addresses financial accounting and reporting forthe impairment or disposal of long-lived assets and supersedes FASB StatementNo. 121, "Accounting for the Impairment of Long-Lived Assets and forLong-Lived Assets to Be Disposed Of."

 

As of December 31, 2001, our goodwill, net of accumulatedamortization, and the carrying value of the Hard Rock licensing and developmentrights were reducedto zero.  Other existing intangiblesconsist of net Gaming Contract Rights of $5,334,839.

 

The Company adopted SFAS 142 and SFAS 144 as of January 1,2002, and the adoption did not have a material impact on the Company'sconsolidated financial statements.

 

In April 2002, the FASB issued SFAS No. 145 “Rescission ofSFAS No. 4, 44, and 64,  Amendment ofSFAS No. 13, and Technical Corrections.” The most significant provisions relate to the rescission of SFAS No. 4,Reporting Gains and Losses from Extinguishment of Debt.  SFAS

 

6

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145 also amends other existing authoritativepronouncements to make various technical corrections, clarify meanings, ordescribe their applicability under changed conditions.  Generally, SFAS 145 is effective for fiscalyears beginning after May 15, 2002, with early application encouraged.  The Company has not yet determined theimpact of SFAS 145 on its financial position and results of operations.

 

**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: GamingEntertainment, LLC, owner of a development 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 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 |                   |      |   |

 

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$1,052,291 from Michigan and $25,000 from California, attributable to thisfunding.  The repayment obligations aredependent on the future profitable operation of the tribes’ gaming enterprises.

 

7

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The following summary pro forma results of operationsassume that the acquisition occurred as of the beginning of the respectiveperiods ended March 31:

 
|                                  |   | **2001** |      |
|---------------------------------------|--------|----------|-----------|
| Operating  revenues                   |   | $        | 1,286,680 |   |
| Income  before income taxes           |   | 154,997  |      |
| Net  income                           |   | 32,060   |      |
| Net loss  applicable to common shares |   | (20,440  | )         |
| Net loss  per common share            |   | (0.00    | )         |
|                                       |        |          |           |  |

 

**4.             GAMINGCONTRACT RIGHTS**

 

As a result of the acquisition from GTECH, the threejoint ventures that had previously been accounted for using the equity methodare now wholly owned consolidated entities. A substantial portion of our investment in these joint ventures wascomprised of Michigan gaming rights of $4,155,213 that we acquired in 1995 andcontributed to the joint venture.  Nowthat these are wholly-owned consolidated entities, these rights are reflectedin Gaming Contract Rights, along with the rights acquired in the GTECHacquisition of $1,403,854.

 

| Contributed  Michigan gaming rights                |   | $         | 4,155,213 |   |
|----------------------------------------------------|--------|-----------|-----------|--------|
| Acquired  gaming rights                            |   | 1,403,854 |      |
| Less  accumulated amortization                     |   | (224,228  | )         |
| Gaming Contract Rights, net (as of March 31, 2002) |   | $         | 5,334,839 |   |

 

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. Thesetwo ventures have not generated any revenues, and the costs incurred to daterelate to pre-opening expenses such as payroll, legal and consulting.

 

**5.             JOINTVENTURE INVESTMENTS**

 

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 MARCH 31,

 
| **2002**                      |   | **Delaware** |      | **Oregon** |   | **Michigan** |   | **California** |   |
|-------------------------------|--------|--------------|-----------|------------|--------|--------------|--------|----------------|--------|
|                          |   |         |      |       |   |         |   |           |   |   |   |   |   |
| Revenues                      |   | $            | 4,768,676 |       | $      | —       |   | $              | — |   | $ | — |   |
| Income (loss) from operations |   | 1,767,913    |      | —     |   | —       |   | —         |   |
| Net  income                   |   | 1,767,913    |      | —     |   | —       |   | —         |   |

 
| **2001**                      |   | **Delaware** |      | **Oregon** |   | **Michigan** |   | **California** |   |
|-------------------------------|--------|--------------|-----------|------------|--------|--------------|--------|----------------|--------|
|                          |   |         |      |       |   |         |   |           |   |
| Revenues                      |   | $            | 3,964,829 |       | $      | 570,137      |   | $              | — |   | $ | — |   |
| Income (loss) from operations |   | 1,443,892    |      | 564,734    |   | (197,522     | )      | (47,360        | )      |
| Net  income                   |   | 1,443,892    |      | 564,734    |   | (197,522     | )      | (47,360        | )      |
|                               |        |              |           |            |        |              |        |                |        |  |  |  |  |

 

8

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**6.             LONG****-****TERM DEBT**

 

On February 15, 2002, we entered into an agreement with RAMEntertainment, LLC (“RAM”), a privately held investment company, whereby RAMwill acquire a 50% interest in the California and Michigan projects uponreceipt by the Huron Potawatomi Tribe of federal approvals for its proposedcasino near Battle Creek, Michigan.  Inaddition, RAM is to provide the necessary funding for their development.  RAM advanced $2,381,260 to Full House in theform of a loan which bears interest adjustable daily at prime and requiresinterest payments monthly.  If therequired federal approvals are not received prior to February 15, 2003, and RAMdoes not waive the approval requirement, then the principal amount becomes dueand RAM shall forfeit its right to any interest in the projects.

 

The proceeds of this loan, together with cash on hand, wasused to repay the $3,000,000 GTECH note.

 

**7.             SEGMENTINFORMATION**

 

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.  The prior year amounts have beenreclassified to conform with the current year presentation.

 

SUMMARY INFORMATION FOR THE THREE MONTHS  ENDED MARCH 31,

 

**2002**

 
|                           |   | **Operations** |      | **Development** |   | **Corporate** |   | **Consolidated** |   |
|--------------------------------|--------|----------------|-----------|-----------------|--------|---------------|--------|------------------|--------|
| Revenues                       |   | $              | 1,427,992 |            | $      | —        |   | $                | — |   | $ | 1,427,992 |   |
| Development  costs             |   | —         |      | 215,561         |   | —        |   | 215,561          |   |
| Income  (loss) from operations |   | 1,413,981      |      | (256,951        | )      | (413,559      | )      | 743,471          |   |
| Net  income (loss)             |   | 868,663        |      | (183,660        | )      | (270,914      | )      | 414,089          |   |
|                                |        |                |           |                 |        |               |        |                  |        |  |  |  |  |

** **

**2001**

 
|                           |   | **Operations** |      | **Development** |   | **Corporate** |   | **Consolidated** |   |
|--------------------------------|--------|----------------|-----------|-----------------|--------|---------------|--------|------------------|--------|
| Revenues                       |   | $              | 1,004,313 |            | $      | —        |   | $                | — |   | $ | 1,004,313 |   |
| Development  costs             |   | —         |      | 372,441         |   | —        |   | 372,441          |   |
| Income  (loss) from operations |   | 962,124        |      | (456,819        | )      | (404,319      | )      | 100,986          |   |
| Net  income (loss)             |   | 505,070        |      | (287,124        | )      | (264,708      | )      | (46,762          | )      |
|                                |        |                |           |                 |        |               |        |                  |        |  |  |  |  |

 

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**Item 2.     Management’sDiscussion and Analysis of Financial Condition and Results of Operations.**

 

**Results of Operations**

 

**First Quarter Ended March 31, 2002Compared to First Quarter Ended March 31, 2001**

 

**Revenues**. As a result of the acquisition of GTECH’s interest in three jointventure projects (Oregon, Michigan and California), our classification ofrevenues is not directly comparable to prior periods. The revenues related toour Delaware contract continue to be reported as joint venture revenue, but asof March  31, 2001, the revenue related to the Oregon contract is reportedas management fees.

 

Total operating revenues increased $423,679, or 42% fromthe prior year period. This increase is due to improved performance in Delawareand the acquisition of the additional 50% interest in the Oregon joint venture.

 

***Delaware Joint Venture.*** Our share ofincome from the Delaware joint venture was $883,957 for the first quarter endedMarch 31, 2002, compared to $721,946 in the prior year.  This $162,011 increase is primarily theresult of continued market improvement coupled with an increase in gamingdevices.  Midway Slots now operatesapproximately 1,270 machines, compared to 1,150 last year.

 

***Oregon.***  Ourmanagement fees from the Oregon contract were $544,035 compared to jointventure revenue of $282,367 in the prior year period.  This increase primarily reflects the increase in our ownershippercentage.  A slight increase in gamingrevenues at the property was more than offset by 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’s interest in three jointventure projects, our classification of expenses is not directly comparable toprior periods.  The expenses related toour California and Michigan projects, which had been reported as joint venturepre-opening costs, as of March  31, 2001, are reported as developmentcosts.

 

**Pre-opening and Development**.  Total development related costs (jointventure pre-opening costs and development costs) for the California andMichigan projects were $215,561 during the first quarter of 2002, compared to$122,441 for the prior year.  Themajority of these costs were due to increased activities related to theMichigan venture with the Huron Potawatomi Tribe in Battle Creek.  These costs were primarily for legal andconsulting fees to assist the Tribe in obtaining suitable land and complyingwith the requirements of the Indian Gaming Regulatory Act, as well as landoption payments

 

We expensed $250,000 in the first quarter of 2001 relatedto the expiration of a land purchase option in Biloxi, Mississippi that wechose not to exercise or renew.

 

**General and Administrative Expenses*.***  Expenses for the three months ended March 31, 2002 increased $10,279 ascompared to the comparable period in 2001. This increase is primarily due to increased payroll expenses resultingfrom staffing changes to accommodate the increased ownership of our developmentprojects.

 

**Depreciation****and Amortization**.  The $60,457 expense is comprised ofdepreciation of fixtures and equipment in the amount of $5,056 and amortizationof the Gaming Rights acquired in the GTECH acquisition in the amount of$55,401.  The prior year amount included$6,095 of depreciation and $126,567 of goodwill amortization.  This goodwill was fully amortized as ofSeptember  30, 2001.

 

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**Interest Expense*.*** Interest expense decreased by $17,085 primarily as a result of lower interest rates.

 

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

 

**Income Tax Provision*.***  Income tax expense was $280,841. The effective tax rate reflects statetaxes on joint venture earnings combined with the tax effect of non-deductibleamortization expenses.  As a result ofincreased earnings and the elimination of goodwill, the effective tax rate forthe current quarter was approximately 40%.

 

**Liquidity and Capital Resources**

 

At March 31, 2002,we had cash and cash equivalents of $465,065. For the three months ended March 31, 2002, cash of $292,112 was providedby operating activities, as compared to $239,310 used by operations in theprior year period.  This change isprimarily due to advances and distributions from the joint ventures, coupledwith the change in our ownership percentage in the Oregon LLC.  Net cash used in investing activities was$75,725, primarily for advances to the Michigan tribe, compared to using$1,800,000 for the GTECH acquisition transaction in the prior year.  Financing activities used $618,740 duringthe current quarter reflecting the $3,000,000 repayment of the GTECH note andthe receipt of a $2,381,260 advance under the RAM note. In the prior period, a$1,800,000 bank line draw was used to close the GTECH acquisition.  There was a net decrease in cash and cashequivalents of $402,354 during the first quarter of 2002.

 

In 1998, we obtained a $2,000,000 line of credit with CoastCommunity Bank of Mississippi with an initial maturity date of February 25, 1999.  We have renewed thisline on an annual basis, and in February 2002, the renewal also reduced theavailability to $1,000,000.  The linebears interest adjustable daily at one-half percent above prime (5.25% atMarch 31, 2002) and requires interest payments monthly on the outstandingbalance with all principal and accrued interest due at maturity on February 25, 2003.  At March  31,2002, $600,000 was outstanding on the bank line.

 

Full House was a party to a series of agreements with GTECHCorporation, a leading supplier of computerized systems and services forgovernment-authorized lotteries, to jointly pursue certain gamingopportunities.  Pursuant to theagreements, joint venture companies equally owned by GTECH and Full House wereformed.  Full House contributed itsrights to the North Bend, Oregon facility and the rights to develop the TorresMartinez, Nottawaseppi Huron Band of Potawatomi and Delaware State Fairprojects to the joint venture companies.  GTECH contributed cash and otherintangible assets and agreed to loan the joint venture entities up to $16.4 millionto complete the North Bend, Oregon and Delaware facilities.  Full House agreed to guarantee one-half ofthe obligations of the joint venture companies to GTECH under these loans, allof which have been repaid. GTECH also provided project management, technologyand other expertise to analyze and develop/manage the implementation ofopportunities 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.

 

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On March  30, 2001, we acquired GTECH’s 50% interestin three joint venture projects that had been equally owned by the twocompanies: Gaming Entertainment, LLC, Gaming Entertainment (Michigan), LLC, andGaming Entertainment (California), LLC. The purchase 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.

 

On February 15, 2002, we entered into an agreement with RAMEntertainment, LLC (“RAM”), a privately held investment company, whereby RAMwill acquire a 50% interest in the California and Michigan projects uponreceipt by the Huron Potawatomi Tribe of federal approvals for its proposedcasino near Battle Creek, Michigan.  Inaddition, RAM is to provide the necessary funding for their development.  RAM advanced $2,381,260 to Full House in theform of a loan which bears interest adjustable daily at prime and requiresinterest payments monthly (4.75% at March 31, 2002.).  If the required federal approvals are not received prior toFebruary 15, 2003, and RAM does not waive the approval requirement, then theprincipal amount becomes due and RAM shall forfeit its right to any interest inthe projects.

 

As a result of our agreement with GTECH, receipt by FullHouse of revenues from the Delaware venture is governed by the terms of thejoint venture agreement.  The contractprovides that net cash flow (after certain deductions) is to be distributedmonthly to Full House and GTECH.  WhileFull House does not believe that this arrangement will adversely impact its liquidity,our continuing cash flow is dependent on the operating performance of thisjoint venture, and the ability to receive monthly distributions.

 

As a result of the agreement with RAM, development fundingcash needs for the Michigan project will be primarily provided by RAM.Therefore, our future cash needs will primarily be to fund general andadministrative expenses.  The Oregoncontract will expire in August of 2002, leaving the Delaware joint venture asour sole source of operating cash thereafter.  We believe that adequate financial resources will be available toexecute our current business plans.

 

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 is attributable to this funding, and the repaymentobligation is dependent on the future profitable operation of the tribes’gaming enterprises.  In August 2001, wereceived a notice from the Torres-Martinez Tribe in California purporting tosever our relationship.  We are in theprocess of discussing an appropriate resolution of this matter that includesreimbursement for costs that we incurred on their behalf.  The Receivable on the balance sheet includesa $25,000 advance due from Torres-Martinez Tribe, and Gaming Contract Rightsincludes approximately $170,000 attributable to this contact.  We have incurred an aggregate ofapproximately $1 million, including interest, on behalf of Torres-MartinezTribe.  We believe that the balancesheet amounts are recoverable based upon the expressed intentions ofTorres-Martinez Tribe, as well as the contractual rights that we continue tohold.

 

In November 1998, we executed a series of agreements withHard Rock related to the proposed development project in Biloxi,Mississippi.  Pursuant to a licensingagreement, Full House has the right to develop and operate a Hard Rock Casinoin Biloxi.  We paid a territory fee of$2,000,000.  In September 1998, FullHouse and Allen  E. Paulson formed a limited liability company, equallyowned, for the purpose of developing this project.  Mr. Paulson agreed to contribute a gaming vessel (the formerTreasure Bay barge in Tunica, MS.), and we agreed to contribute our rights tothe Hard Rock agreements.  In June 2001,we agreed to dissolve this company with each party retaining their respectiverights and assets.

 

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In September 2001, our discussions with potential partnersconcluded with no agreements.  Basedupon the timing requirements in our agreements with Hard Rock, and the currentconditions in the tourism industry we do not reasonably expect to be able todevelop this project as planned.  As aresult of these circumstances, we have reviewed the carrying values of ourMississippi investments and recorded an Impairment provision of $4,593,800.

 

**Contractual Obligations**

 

The followingtable summarizes our contractual obligations as of March 31, 2002:

 
|             |   |      |      | **Payments  Due by Period** |   |      |   |
|------------------|--------|-----------|-----------|-----------------------------|--------|-----------|--------|
|             |   | **Total** |      | **2002**                    |   | **2003**  |   | **2004** |   | **Thereafter** |   |
| Long term debt   |   | $         | 2,981,260 |                        | $      | 2,981,260 |   | $ | — |   | $ | — |   | $ | — |   |
| Operating leases |   | 175,890   |      | 26,383                      |   | 35,178    |   | 35,178 |   | 79,151 |   |
| Total            |   | $         | 3,157,150 |                        | $      | 3,007,643 |   | $ | 35,178 |   | $ | 35,178 |   | $ | 79,151 |   |

 

As of March 31, 2002, we had cumulative undeclared andunpaid dividends in the amount of $2,047,500 on the 700,000 outstanding sharesof our 1992–1Preferred Stock.  Such dividends arecumulative whether or not declared, and are currently in arrears.

 

**Quantitative Disclosure 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 July 2001, the Financial AccountingStandards Board (“FASB”) issued Statement of Financial Accounting Standard(“SFAS”) No.  141, “Business Combinations” and SFAS No.  142,“Goodwill and Other Intangible Assets.” SFAS  141 prohibits the pooling of interests method of accountingfor business combinations initiated after June  30, 2001.  SFAS 142, which was effective for Full Housein January 2002, requires, among other things, the discontinuance of goodwillamortization.  In addition, the standardincludes provisions for the reclassification of certain existing intangibles asgoodwill, reassessment of the useful lives of existing intangibles, and ongoingassessments of potential impairment of existing goodwill.

 

In August 2001, the FASB issued SFAS No. 144"Accounting for the Impairment or Disposal of Long-Lived Assets"which addresses financial accounting and reporting for the impairment ordisposal of long-lived assets and supersedes FASB Statement No. 121,"Accounting for the Impairment of Long-Lived Assets and for Long-LivedAssets to Be Disposed Of."

 

As of December  31, 2001, our goodwill, net ofaccumulated amortization, and the carrying value of the Hard Rock licensing anddevelopment rights were reduced to zero. Other existing intangibles consist of net Gaming Contract Rights of$5,334,839.

 

The Company adopted SFAS 142 and SFAS 144 as of January 1,2002, and the adoption did not have a material impact on the Company'sconsolidated financial statements.

 

In April 2002, the FASB issued SFAS No. 145 “Rescission ofSFAS No. 4, 44, and 64, Amendment of SFAS No. 13, and TechnicalCorrections.”  The most significantprovisions relate to the rescission of SFAS No. 4, Reporting Gains and Lossesfrom Extinguishment of Debt.  SFAS 145also amends other existing authoritative pronouncements to make varioustechnical corrections, clarify meanings, or describe their applicability underchanged conditions.  Generally, SFAS 145is effective for fiscal years beginning after May 15, 2002, with earlyapplication encouraged.  The Company hasnot yet determined the impact of SFAS 145 on its financial position and resultsof operations.

 

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**PART II – OTHER INFORMATION**

 

**Item 1.  Legal Proceedings**

 

The SecuritiesExchange Commission staff has decided not to recommend to the Commission thatany charges be filed against Gregg Giuffria, a former president of Full House,in connection with their investigation of his ownership and trading in thestock of the Company.  It is ourunderstanding that the investigation has been concluded without the filing ofany charges and without any settlement of charges.

 

**Item 3.  Defaults upon Senior Securities**

 

As of March 31,2002, cumulative dividends were $2,047,500, 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 to dividendand liquidation rights.

 

**Item 6.  Exhibits and Reports on Form 8-K**

 

(a)           Exhibits.

 

10.56                     Investor Agreement by and between Full House Resorts,Inc. and RAM Entertainment, LLC, dated February 15, 2002.

 

(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:  May 11, 2002 |                                                                       |
|                     |
|                     | By:                                                                        | /s/  MICHAEL P. SHAUNNESSY |
|                     | Michael P. Shaunnessy,  Executive V. P.  and  Chief Financial Officer |
|                     |

 

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