**U.S. SECURITIES AND EXCHANGECOMMISSION**

**WASHINGTON, D.C.20549**

 

**FORM 10-QSB**

 
| **ý**                                                                                                                                                                                                                                                                   |   | **QUARTERLY  REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                         |
| **FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2003.**                                                                                                                                                                                                                            |
|                                                                                                                                                                                                                                                                         |
| **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 in its charter)

 

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

 

**APPLICABLE ONLY TOCORPORATE ISSUERS**

 

As of August 11, 2003,Registrant had 10,340,380 shares of its $.0001 par value common stockoutstanding.

 

 

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**FULL HOUSE RESORTS, INC**

**TABLE OF CONTENTS**

** **
| PART I.  | Financial  Information |
|----------|------------------------|
|     |                   |   |
|     | Item 1.                | Condensed  Consolidated Financial Statements |
|     |                   |   |
|     |                   | Unaudited Condensed Consolidated Balance Sheets  as of June 30, 2003 and December 31, 2002 |
|     |                   |   |
|     |                   | Unaudited Condensed Consolidated Statements of Operations  for the three months ended June 30, 2003 and 2002 |
|     |                   |   |
|     |                   | Unaudited Condensed Consolidated Statements  of Operations  for the six months ended June 30, 2003 and 2002 |
|     |                   |   |
|     |                   | Unaudited Condensed Consolidated Statements of Cash Flows  for the six months ended June 30, 2003 and 2002 |
|     |                   |   |
|     |                   | Notes to Unaudited Condensed Consolidated  Financial Statements |
|     |                   |   |
|     | Item 2.                | Management’s Discussion and Analysis of  Financial Condition and Results of Operations |
|     |                   |   |
|     | Item 3.                | Controls and Procedures |
|     |                   |   |
| PART II. | Item 1.                | Legal Proceedings |
|     |                   |   |
|     | Item 3.                | Defaults Upon Senior Securities |
|     |                   |   |
|     | Item 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,  2003** |       | **DECEMBER  31,  2002** |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------|------------|-------------------------|--------|
| **ASSETS**                                                                                                                                                                         |   |               |       |                    |   |
|                                                                                                                                                                               |   |               |       |                    |   |
| CURRENT ASSETS:                                                                                                                                                                    |   |               |       |                    |   |
| Cash and cash equivalents                                                                                                                                                          |   | $                  | 3,710,878  |                    | $      | 1,164,053 |   |
| Receivables                                                                                                                                                                        |   | 125,000            |       | 186,969                 |   |
| Prepaid expenses                                                                                                                                                                   |   | 78,386             |       | 106,656                 |   |
| Total current assets                                                                                                                                                               |   | 3,914,264          |       | 1,457,678               |   |
|                                                                                                                                                                               |   |               |       |                    |   |
| NON-OPERATING LAND                                                                                                                                                                 |   | —             |       | 2,472,000               |   |
|                                                                                                                                                                               |   |               |       |                    |   |
| FIXTURES AND EQUIPMENT - net                                                                                                                                                       |   | 17,451             |       | 23,612                  |   |
|                                                                                                                                                                               |   |               |       |                    |   |
| INVESTMENTS IN JOINT VENTURES                                                                                                                                                      |   | 361,620            |       | 27,876                  |   |
|                                                                                                                                                                               |   |               |       |                    |   |
| RECEIVABLES                                                                                                                                                                        |   | 1,377,291          |       | 1,257,291               |   |
|                                                                                                                                                                               |   |               |       |                    |   |
| GAMING AND CONTRACT RIGHTS - net                                                                                                                                                   |   | 5,107,169          |       | 5,189,947               |   |
|                                                                                                                                                                               |   |               |       |                    |   |
| DEFERRED INCOME TAX ASSET                                                                                                                                                          |   | 538,314            |       | 712,418                 |   |
|                                                                                                                                                                               |   |               |       |                    |   |
| DEPOSITS AND OTHER ASSETS                                                                                                                                                          |   | 6,382              |       | 6,382                   |   |
|                                                                                                                                                                               |   |               |       |                    |   |
| TOTAL                                                                                                                                                                              |   | $                  | 11,322,491 |                    | $      | 11,147,204 |   |
|                                                                                                                                                                               |   |               |       |                    |   |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                                                      |   |               |       |                    |   |
|                                                                                                                                                                               |   |               |       |                    |   |
| CURRENT LIABILITIES:                                                                                                                                                               |   |               |       |                    |   |
| Accounts payable                                                                                                                                                                   |   | $                  | 16,667     |                    | $      | 13,426 |   |
| Payable to joint ventures                                                                                                                                                          |   | 42,201             |       | —                  |   |
| Current portion of long-term debt                                                                                                                                                  |   | 2,381,260          |       | 2,381,260               |   |
| Accrued expenses                                                                                                                                                                   |   | 114,462            |       | 172,654                 |   |
| Total current liabilities                                                                                                                                                          |   | 2,554,590          |       | 2,567,340               |   |
|                                                                                                                                                                               |   |               |       |                    |   |
| **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 $4,357,500 and $4,305,000 |   | 70                 |       | 70                      |   |
| Common stock, par value $.0001, 25,000,000  shares authorized; 10,340,380 shares issued and outstanding                                                                            |   | 1,034              |       | 1,034                   |   |
| Additional paid in capital                                                                                                                                                         |   | 17,429,889         |       | 17,429,889              |   |
| Accumulated deficit                                                                                                                                                                |   | (8,663,092         | )          | (8,851,129              | )      |
| Total stockholders’ equity                                                                                                                                                    |   | 8,767,901          |       | 8,579,864               |   |
|                                                                                                                                                                               |   |               |       |                    |   |
| TOTAL                                                                                                                                                                              |   | $                  | 11,322,491 |                    | $      | 11,147,204 |   |

 

See notes to unauditedcondensed consolidated financial statements.

 

3

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**FULLHOUSE RESORTS, INC. AND SUBSIDIARIES**

**UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS**

 
|                                                                     |   | **THREE  MONTHS ENDED   JUNE 30,** |    |
|--------------------------------------------------------------------------|--------|------------------------------------|---------|
|                                                                     |   | **2003**                           |    | **2002** |   |
|                                                                     |   |                               |    |   |   |
| OPERATING REVENUES:                                                      |   |                               |    |   |   |
| Joint venture earnings                                                   |   | $                                  | 868,979 |   | $ | 836,598 |   |
| Management fees                                                          |   | —                             |    | 600,884 |   |
| Total operating revenues                                                 |   | 868,979                            |    | 1,437,482 |   |
|                                                                     |   |                               |    |   |   |
| OPERATING COSTS AND EXPENSES:                                            |   |                               |    |   |   |
| Development costs                                                        |   | 126,873                            |    | 177,484 |   |
| General and administrative                                               |   | 384,500                            |    | 536,379 |   |
| Depreciation and amortization                                            |   | 44,386                             |    | 59,662 |   |
| Total operating costs and expenses                                       |   | 555,759                            |    | 773,525 |   |
|                                                                     |   |                               |    |   |   |
| INCOME FROM OPERATIONS                                                   |   | 313,220                            |    | 663,957 |   |
|                                                                     |   |                               |    |   |   |
| Interest expense                                                         |   | (25,509                            | )       | (38,482 | ) |
| Interest and other income                                                |   | 28,979                             |    | 350 |   |
|                                                                     |   |                               |    |   |   |
| INCOME BEFORE INCOME TAXES                                               |   | 316,690                            |    | 625,825 |   |
|                                                                     |   |                               |    |   |   |
| INCOME TAX PROVISION                                                     |   | (187,804                           | )       | (261,883 | ) |
|                                                                     |   |                               |    |   |   |
| NET INCOME                                                               |   | 128,886                            |    | 363,942 |   |
|                                                                     |   |                               |    |   |   |
| Less, undeclared dividends on cumulative  preferred stock                |   | 52,500                             |    | 52,500 |   |
|                                                                     |   |                               |    |   |   |
| NET INCOME APPLICABLE TO COMMON SHARES                                   |   | $                                  | 76,386  |   | $ | 311,442 |   |
|                                                                     |   |                               |    |   |   |
| NET INCOME PER COMMON SHARE, Basic and  Diluted                          |   | $                                  | 0.01    |   | $ | 0.03 |   |
|                                                                     |   |                               |    |   |   |
| WEIGHTED AVERAGE NUMBER OF COMMON SHARES  OUTSTANDING, Basic and Diluted |   | 10,340,380                         |    | 10,340,380 |   |

 

See notes to unaudited condensed consolidatedfinancial statements.

 

4

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**FULLHOUSE RESORTS, INC. AND SUBSIDIARIES**

**UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS**

 
|                                                                     |   | **SIX MONTHS  ENDED  JUNE 30,** |      |
|--------------------------------------------------------------------------|--------|---------------------------------|-----------|
|                                                                     |   | **2003**                        |      | **2002** |   |
| OPERATING REVENUES:                                                      |   |                            |      |   |   |
| Joint venture earnings                                                   |   | $                               | 1,672,587 |   | $ | 1,720,555 |   |
| Management fees                                                          |   | —                          |      | 1,144,919 |   |
| Total operating revenues                                                 |   | 1,672,587                       |      | 2,865,474 |   |
|                                                                     |   |                            |      |   |   |
| OPERATING COSTS AND EXPENSES:                                            |   |                            |      |   |   |
| Development costs                                                        |   | 289,507                         |      | 393,045 |   |
| General and administrative                                               |   | 778,813                         |      | 944,882 |   |
| Depreciation and amortization                                            |   | 88,938                          |      | 120,119 |   |
| Total operating costs and expenses                                       |   | 1,157,258                       |      | 1,458,046 |   |
|                                                                     |   |                            |      |   |   |
| INCOME FROM OPERATIONS                                                   |   | 515,329                         |      | 1,407,428 |   |
|                                                                     |   |                            |      |   |   |
| Interest expense                                                         |   | (50,463                         | )         | (90,107 | ) |
| Interest and other income                                                |   | 29,274                          |      | 3,434 |   |
|                                                                     |   |                            |      |   |   |
| INCOME BEFORE INCOME TAXES                                               |   | 494,140                         |      | 1,320,755 |   |
|                                                                     |   |                            |      |   |   |
| INCOME TAX PROVISION                                                     |   | (306,104                        | )         | (542,724 | ) |
|                                                                     |   |                            |      |   |   |
| NET INCOME                                                               |   | 188,036                         |      | 778,031 |   |
|                                                                     |   |                            |      |   |   |
| Less, undeclared dividends on cumulative  preferred stock                |   | 105,000                         |      | 105,000 |   |
|                                                                     |   |                            |      |   |   |
| NET INCOME APPLICABLE TO COMMON SHARES                                   |   | $                               | 83,036    |   | $ | 673,031 |   |
|                                                                     |   |                            |      |   |   |
| NET INCOME PER COMMON SHARE, Basic and  Diluted                          |   | $                               | 0.01      |   | $ | 0.07 |   |
|                                                                     |   |                            |      |   |   |
| WEIGHTED AVERAGE NUMBER OF COMMON SHARES  OUTSTANDING, Basic and Diluted |   | 10,340,380                      |      | 10,340,380 |   |

 

See notes to unaudited condensed consolidatedfinancial statements.

 

5

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

**UNAUDITEDCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**

 
|                                                                               |   | **SIX MONTHS  ENDED   JUNE 30,** |      |
|------------------------------------------------------------------------------------|--------|----------------------------------|-----------|
|                                                                               |   | **2003**                         |      | **2002** |   |
| CASH FLOWS FROM OPERATING ACTIVITIES:                                              |   |                             |      |   |   |
| Net income                                                                         |   | $                                | 188,036   |   | $ | 778,031 |   |
| Adjustments to reconcile net income to net  cash provided by operating activities: |   |                             |      |   |   |
| Depreciation and amortization                                                      |   | 88,938                           |      | 120,119 |   |
| Equity in earnings of joint ventures                                               |   | (1,672,587                       | )         | (1,720,555 | ) |
| Distributions from joint ventures                                                  |   | 1,338,843                        |      | 1,173,941 |   |
| Gain on sale of non-operating land                                                 |   | (27,793                          | )         | — |   |
| Changes in operating assets and  liabilities:                                      |   |                             |      |   |   |
| Receivables                                                                        |   | 104,170                          |      | 23,949 |   |
| Prepaid expenses                                                                   |   | 28,270                           |      | 65,684 |   |
| Deposits and other assets                                                          |   | —                           |      | 2,379 |   |
| Deferred taxes                                                                     |   | 174,104                          |      | (31,285 | ) |
| Accounts payable and accrued expenses                                              |   | (54,949                          | )         | 462,698 |   |
|                                                                               |   |                             |      |   |   |
| Net cash provided by operating activities                                          |   | 167,032                          |      | 874,961 |   |
|                                                                               |   |                             |      |   |   |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                              |   |                             |      |   |   |
| Advances on receivable                                                             |   | (120,000                         | )         | (120,000 | ) |
| Proceeds from sale of non-operating land                                           |   | 2,499,793                        |      | — |   |
| Purchase of fixtures and equipment                                                 |   | —                           |      | (16,496 | ) |
|                                                                               |   |                             |      |   |   |
| Net cash provided (used) in investing  activities                                  |   | 2,379,793                        |      | (136,496 | ) |
|                                                                               |   |                             |      |   |   |
| CASH FLOWS FROM FINANCING ACTIVITIES:                                              |   |                             |      |   |   |
| Proceeds from RAM note                                                             |   | —                           |      | 2,381,260 |   |
| Repayment of GTECH note                                                            |   | —                           |      | (3,000,000 | ) |
| Repayment of line of credit                                                        |   | —                           |      | (600,000 | ) |
|                                                                               |   |                             |      |   |   |
| Net cash used in financing activities                                              |   | —                           |      | (1,218,740 | ) |
|                                                                               |   |                             |      |   |   |
| NET INCREASE (DECREASE) IN CASH AND CASH  EQUIVALENTS                              |   | 2,546,825                        |      | (480,275 | ) |
| CASH AND CASH EQUIVALENTS, BEGINNING OF  PERIOD                                    |   | 1,164,053                        |      | 867,419 |   |
|                                                                               |   |                             |      |   |   |
| CASH AND CASH EQUIVALENTS, END OF PERIOD                                           |   | $                                | 3,710,878 |   | $ | 387,144 |   |

 

See notes to unauditedcondensed consolidated financial statements.

 

6

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**FULLHOUSE RESORTS, INC. AND SUBSIDIARIES**

** **

**NOTES****TO UNAUDITED CONDENSED CONSOLIDATED FINANCIALSTATEMENTS**

 

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

 

***Interim CondensedFinancial Statements -*** The interim condensedconsolidated financial statements of Full House Resorts, Inc. (the “Company” or“Full House”) included herein reflect all adjustments which are, in the opinionof management, necessary to present fairly the financial position and resultsof operations 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.

 

Theseunaudited condensed consolidated financial statements should be read inconjunction with the consolidated financial statements and notes theretoincluded in the Company’s Annual Report on Form 10-KSB for the year endedDecember 31, 2002.  The results ofoperations for the period ended June 30, 2003 are not necessarily indicative ofthe results to be expected for the year ending December 31, 2003.

 

***Consolidation -***The unaudited condensed consolidated financial statements include the accountsof the Company and its majority-owned subsidiaries. Prior to March 31, 2001, Full House had four joint ventureswith GTECH that were accounted for using the equity method.  On March 31, 2001 we purchased GTECH’s 50%interest in three of these joint ventures which are now wholly-owned by FullHouse, and accordingly areno longer accounted for using the equity method.  All material intercompany accounts andtransactions have been eliminated.

 

**2.****                                      RECENTLYISSUED ACCOUNTING STANDARDS**

 

In June 2001, the FASB issued SFAS No. 143 “Accounting for Asset RetirementObligations” which addresses financial accounting and reporting for obligationsassociated with the retirement of tangible long-lived assets and the associatedasset retirement costs.  This Statementapplies to legal obligations associated with the retirement of long-livedassets that result from the acquisition, construction, development and / ornormal operation, except for certain obligations of lessees.  This Statement is effective for fiscal yearsbeginning after June 15, 2002.  Theadoption of SFAS No. 143 did not have a material effect on the Company’sfinancial statements.

 

In June 2002,the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit orDisposal Activities.”  SFAS No. 146addresses financial accounting and reporting for costs associated with exit ordisposal activities and nullifies Emerging Issues Task Force (EITF) Issue 94-3,Liability Recognition for Certain Employee Termination Benefits and Other Coststo Exit an Activity. The provisions of this Statement are effective for exit ordisposal activities that are initiated after December 31, 2002, with earlyapplication encouraged. The adoption of SFAS No. 146 did not have a materialeffect on the Company’s financial statements.

 

In November2002, the FASB issued Interpretation No. 45, “Guarantor’s Accounting andDisclosure Requirements for Guarantees, Including Indirect Guarantees ofIndebtedness to 

 

7

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Others,” andinterpretation of FASB Statements No. 5, 57 and 107 and a rescission of FASBInterpretation No. 34. This Interpretation elaborates on the disclosures to bemade by a guarantor in its interim and annual financial statements about itsobligations under guarantees issued. The Interpretation also clarifies that aguarantor is required to recognize, at inception of a guarantee, a liabilityfor the fair value of the obligation undertaken. The initial recognition and measurementprovisions of the Interpretation are applicable to guarantees issued ormodified after December 31, 2002 and are not expected to have a material effecton the Company’s financial statements. The disclosure requirements areeffective for financial statements of interim and annual periods ending afterDecember 31, 2002.

 

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

 

On March 30, 2001, we acquired GTECH’s 50%interest in three joint venture projects that had been equally owned by the twocompanies: Gaming Entertainment, LLC, owner of a development agreement continuingthrough August 2002, with the Coquille Indian Tribe (“Oregon Tribe”), whichconducts gaming at The Mill Casino in Oregon; Gaming Entertainment (Michigan),LLC, owner of a Management Agreement with the Nottawaseppi Huron Band ofPotawatomi (“Michigan Tribe”) to develop and manage a gaming facility nearBattle Creek; and Gaming Entertainment (California), LLC, owner of a ManagementAgreement with the Torres-Martinez Band of Desert Cahuilla Indians (“CaliforniaTribe”) to develop and manage a gaming facility near Palm Springs.

 

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

 

In addition to the gaming and contractrights, we acquired the other 50% interest in a note receivable from theMichigan Tribe in the amount of $396,146. The excess purchase price over the fair value of assets acquired wasallocated to the gaming and contract rights acquired based on the discountedpresent value of expected future cash flows. 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 |                   |      |   |

 

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

 

As a result ofthe GTECH acquisition, 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 previously contributedMichigan gaming rights of $4,155,213 that we acquired in 1995 and whichrepresent the Company’s acquisition of a 50% ownership of the right to managethe planned facility through the management agreement held by the jointventures.  Amortization of thecontributed Michigan gaming rights will commence when the associated facilityis developed and becomes operational and will be on a

 

8

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straight-linebasis over seven years, or the term of the management contract.  Now that these are wholly-owned consolidatedentities, these rights are reflected in Gaming and Contract Rights, along withthe contract rights acquired in the GTECH acquisition of $1,403,854.  The contract rights acquired in the GTECHacquisition represent the Company’s acquisition of 100% ownership and management’sability to control the operations of these entities.  Therefore, amortization of the acquired contract rights commencedas of April 1, 2001.  Gaming andContract Rights, net, as of June 30, 2003 is comprised ofthe following: 

 
| Contributed  Michigan gaming rights |   | $         | 4,155,213 |   |
|-------------------------------------|--------|-----------|-----------|--------|
| Acquired contract  rights           |   | 1,403,854 |      |
| Less accumulated  amortization      |   | (451,899  | )         |
| Gaming Contract  Rights, net        |   | $         | 5,107,168 |   |

 

Annualamortization expense related to the acquired contract rights is $165,560through 2008, with the then remaining balance of $41,374 expensed in 2009.  As of June 30, 2003, the weighted averageamortization period for acquired contract rights is 6 years.

 

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

 

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

 

TheInvestments in Joint Venture on the balance sheet now reflects our ownershipinterest in only the Delaware LLC.  Thejoint venture revenue recorded in the statements of operation represents a 50%interest in the net income of the joint venture.

 

SUMMARYINFORMATION FOR THE DELAWARE LLC FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE30, is as follows:

 
|                   |   | **Three  Months** |      | **Six Months** |   |
|------------------------|--------|-------------------|-----------|----------------|--------|
|                   |   | **2003**          |      | **2002**       |   | **2003** |   | **2002** |   |
|                   |   |              |      |           |   |   |   |   |   |
| Revenues               |   | $                 | 5,061,590 |           | $      | 5,003,137 |   | $ | 9,751,159 |   | $ | 9,771,813 |   |
| Income from operations |   | 1,737,958         |      | 1,673,196      |   | 3,345,174 |   | 3,441,109 |   |
| Net income             |   | 1,737,958         |      | 1,679,196      |   | 3,345,174 |   | 3,441,109 |   |
|                        |        |                   |           |                |        |  |  |  |  |  |  |  |  |

 

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

 

On February 15, 2002, we entered into anagreement with RAM Entertainment, LLC (“RAM”), a privately held investmentcompany, whereby RAM will acquire a 50% interest in the California and Michiganprojects and provide the necessary funding for their development.  RAM advanced $2,381,260 to Full House in theform of a loan, to be forgiven upon receipt by the Huron Potawatomi Tribe offederal approvals for its proposed casino near Battle Creek, Michigan.  The loan bears interest adjustable daily atprime and requires interest payments monthly. The principal was originally due on February 15, 2003 unless earlierforgiven pursuant to the terms.

 

9

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On February 15, 2003 we entered into anagreement with RAM to extend the due date until August 15, 2003 for receipt ofregulatory approvals, or the repayment of the note. The loan continues to bearinterest adjustable daily at prime and requires interest payments monthly.

 

The legal challenge preventing the land frombeing taken into trust is pending in Federal District Court.  A status conference was held on this matteron June 5, 2003 and final pleadings were filed July 18, 2003.  Oral arguments are scheduled for August 28,2003.

 

**7.****                                      SEGMENTINFORMATION**

 

Since the joint venture acquisition fromGTECH, we now view our business in three primary business segments.  The Operations segment includes theperformance of the Delaware and Oregon projects.  The Development segment includes costs associated with ouractivities in Michigan, California, and Mississippi.  The Corporate segment reflects the management and administrativeexpenses of the business.

 

SUMMARYINFORMATION FOR THE THREE MONTHS ENDED JUNE 30,

 

**2003**

 
|                           |   | **Operations** |    | **Development** |   | **Corporate** |   | **Consolidated** |   |
|--------------------------------|--------|----------------|---------|-----------------|--------|---------------|--------|------------------|--------|
| Revenues                       |   | $              | 868,979 |            | $      | —        |   | $                | — |   | $ | 868,979 |   |
| Development costs              |   | —         |    | 126,873         |   | —        |   | 126,873          |   |
| Income (loss)  from operations |   | 868,979        |    | (168,263        | )      | (387,495      | )      | 313,221          |   |
| Net income (loss)              |   | 476,561        |    | (92,710         | )      | (254,964      | )      | 128,887          |   |
|                                |        |                |         |                 |        |               |        |                  |        |  |  |  |  |

 

**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      |      | (343,784        | )      | (415,640      | )      | 663,957          |   |
| Net income (loss)              |   | 879,063        |      | (241,030        | )      | (274,091      | )      | 363,942          |   |
|                                |        |                |           |                 |        |               |        |                  |        |  |  |  |  |

 

SUMMARYINFORMATION FOR THE SIX MONTHS ENDED JUNE 30,

 

**2003**

** **
|                           |   | **Operations** |      | **Development** |   | **Corporate** |   | **Consolidated** |   |
|--------------------------------|--------|----------------|-----------|-----------------|--------|---------------|--------|------------------|--------|
| Revenues                       |   | $              | 1,672,587 |            | $      | —        |   | $                | — |   | $ | 1,672,587 |   |
| Development costs              |   | —         |      | 289,507         |   | —        |   | 289,507          |   |
| Income (loss)  from operations |   | 1,672,587      |      | (372,286        | )      | (784,972      | )      | 515,329          |   |
| Net income (loss)              |   | 946,578        |      | (241,438        | )      | (517,104      | )      | 188,036          |   |
|                                |        |                |           |                 |        |               |        |                  |        |  |  |  |  |

 

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**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          |   |
|                                |        |                |           |                 |        |               |        |                  |        |  |  |  |  |

 

**8.****                                      SUBSEQUENTEVENT**

 

On July 29, 2003 wesigned a definitive merger agreement with the Morongo Band ofMission Indians, a federally-recognized California Indian tribe, pursuant towhich a subsidiary of the Morongo tribe will acquire Full House Resorts.  In the merger, each Full House Resortscommon shareholder will receive $1.30 for each share of Full House Resortscommon stock and each holder of its Series 1992-1 Preferred Stock will receive$6.15 per share of preferred stock.  Thetransaction values Full House Resorts at $20.1 million, including theassumption of $2.4 million of debt.

 

The Morongo tribe intends to fund the consideration from cash reservesand existing credit facilities.  Thetransaction, which is expected to close in the fourth quarter of 2003, issubject to shareholder approval by Full House Resorts, approval by the generalmembership of the Morongo tribe, the gaming and other necessary regulatoryapproval and other customary closing conditions.

 

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

 

### **RecentDevelopments**

 

On July 29, 2003 we signed a definitivemerger agreement with the Morongo Band of Mission Indians, afederally-recognized California Indian tribe, pursuant to which a subsidiary ofthe Morongo tribe will acquire Full House Resorts.  In the merger, each Full House Resorts common shareholder willreceive $1.30 for each share of Full House Resorts common stock and each holderof its Series 1992-1 Preferred Stock will receive $6.15 per share of preferredstock.  The transaction values FullHouse Resorts at $20.1 million, including the assumption of $2.4 million ofdebt.

 

The Morongotribe intends to fund the consideration from cash reserves and existing creditfacilities.  The transaction, which isexpected to close in the fourth quarter of 2003, is subject to shareholderapproval by Full House Resorts, approval by the general membership of theMorongo tribe, the gaming and other necessary regulatory approval and othercustomary closing conditions.

 

### **AccountingPolicies**

 

The preparation of financial statements inconformity with generally accepted accounting principles requires management tomake estimates and assumptions about future events that affect the amountsreported in the financial statements and accompanying notes.  Future events and their effects cannot bedetermined with absolute certainty. Therefore, the determination of estimates requires the exercise ofjudgment.  Actual results inevitablywill differ from those estimates and those differences may be material to thefinancial statements. Our accounting policies are more fully described inNote 2 of Notes 

 

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to Consolidated Financial Statements included in our Form 10-KSB forthe period ended December 31, 2002.

 

The most significant accounting estimatesinherent in the preparation of our financial statements include estimatesassociated with management’s evaluation of the recoverability ofintangibles.  Various assumptions andother factors underlie the determination of these significant estimates.  The process of determining significantestimates is fact specific and takes into account factors such as historicalexperience, current and expected economic conditions.  We constantly re-evaluate these significant factors and makeadjustments where facts and circumstances dictate.  Historically, actual results have not significantly deviated fromthose determined using the estimates described above.

 

**Results of Operations****for theThree and Six Months Ended June 30, 2003 Compared to the Three and Six MonthsEnded June 30, 2002**

 

**Revenues**.  As a result of the expiration of the Oregon contract in August2002 pursuant to its terms, our Delaware joint venture contract represents ouronly current revenue source.  Revenuerelated to the Oregon contract for 2002 is reported as management fees.

 

***Delaware JointVenture.*** Our share of income from the Delaware joint venture was $868,979in 2003, an increase of $32,381, or 4% for the three month period, and$1,672,587, a decrease of $47,968, or 3% for the six month period.  The increase during the three month periodresulted from decreased expenses.  Forthe six month period, adverse weather conditions and a statewide smoking bancontributed to the decline.

 

In lateNovember 2002, a statewide smoking ban took effect in Delaware that prohibitssmoking in the casino facilities. Additionally, adverse weather conditions in January and February of2003, which caused the facility to be closed for two days of President’s Dayweekend, had a significant impact on operations. We are unable to accuratelydetermine the relative impact attributable to each factor, however, we believethe smoking ban, which is expected to be permanent, may be responsible formonthly revenue declines approximating 10%.

 

***Oregon.***  This agreement expired in August 2002pursuant to its terms, and no further fees will be paid.  Our management fees from the Oregon contractwere $600,884 and $1,144,919 for the respective prior year three and six monthperiods.

 

**Development Costs**.  Total development costs were $126,873 compared to $177,484 forthe three month period, and $289,507 compared to $393,045 for the six monthperiod.  All of these costs were relatedto the Michigan 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.  The reduced spending levels in the currentyear are primarily a result of completion of the environmental work associatedwith the property.

 

**General andAdministrative Expenses*.*** General andadministrative expenses decreased by $151,879 and $166,069 for the respectivethree and six month periods. During the second quarter of 2002 we recorded anaccrual of $125,000 for litigation settlement which represents the majority ofthese decreases. The additional decrease reflects reduced legal and rentexpenses.

 

**Depreciation and Amortization**.  Amortization of our contract rights with respect to ourmanagement agreements in Michigan, Oregon and California was $41,390 for thequarter and $82,779 for the six month period, compared to $55,400 ad $110,800for the prior year.  These reductionsare due to the 

 

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expiration of the Oregon contract, and the related amortizationexpense. Depreciation expense was $2,996 and $6,159 for the three and six monthperiods compared to $4,262 and $9,319 in the respective prior year periods.

 

**Interest Expense*.***  Interest expense decreased by $12,973 and$39,644 for the three and six months ended June 30, 2003, compared to therespective prior year periods.  For thethree month period the decrease is attributable to a decrease in interestrates.  For the six month period thedecrease is due to lower outstanding borrowings coupled with a decrease ininterest rates.

 

**Interest and OtherIncome*.***  Interest income declined slightly from priorperiods due to reduced interest rates earned on invested cash balances.  In May 2003, we sold our land parcel inBiloxi, Mississippi for $2,500,000 and recognized a gain on the sale of$27,793.

 

**Income Tax Provision*.***  Income tax expense decreasedsignificantly for both the three and six month periods primarily reflecting thedecrease in earnings. The effective tax rate reflects Delaware state taxes onjoint venture earnings determined on a separate return basis, combined with thetax effect of non-deductible amortization expenses.  Although consolidated earnings before taxes decreasedsignificantly, the state tax provision only reflects a decrease related to theDelaware joint venture earnings.

 

**Liquidity and CapitalResources**

 

At June 30,2003, we had cash and cash equivalents of $3,710,878.  For the six months ended June 30, 2003, cash of $167,032 wasprovided by operating activities, as compared to $874,961 in the prior year period.  This change is primarily due to reducedearnings resulting from the termination of our Oregon contract.  Net cash provided by investing activitieswas $2,379,793, representing the net proceeds of $2,499,793 from the sale ofland in Biloxi, Mississippi and the use of $120,000 for advances to theMichigan tribe, compared to using $136,496 in the prior year primarily foradvances of $120,000 to the Michigan Tribe. There were no cash financingactivities in the current year.  In theprior year period financing activities used $1,218,740 reflecting the$3,000,000 repayment of the GTECH note, the receipt of a $2,381,260 advanceunder the RAM note, and a $600,000 reduction in bank borrowings.  There was a net increase in cash and cashequivalents of $2,546,825 during the first six months of 2003.

 

In 1998, we obtained a $2,000,000 line ofcredit with Coast Community Bank of Mississippi with an initial maturity dateof February 25, 1999.  We hadrenewed this line on an annual basis. In February 2002, the renewal reduced the availability to $1,000,000 andextended the maturity date to May 12, 2003.

This credit facility has not been renewed or extended.  The sale of our Mississippi property hasprovided adequate liquidity, and also ended any business association inMississippi.

 

On April 4, 2003, weentered into an agreement to sell our one-acre parcel of land located inBiloxi, Mississippi for $2,500,000.  Thetransaction closed on May 16, 2003.

 

On February 15, 2002, we entered into anagreement with RAM Entertainment, LLC, a privately held investment company,whereby RAM may acquire a 50% interest in the California and Michigan projectsand provide the necessary funding for their development.  RAM advanced $2,381,260 to us in the form ofa loan, to be forgiven upon receipt by the Huron Potawatomi Tribe of federalapprovals for its proposed casino near Battle Creek, Michigan.  The loan bears interest adjustable daily atprime and requires interest payments monthly. The principal was due at maturity on February 15, 2003 unlessearlier forgiven pursuant to its terms. The anticipated approvals have not yet been received, and the partieshave extended the maturity date to August 15, 2003.  The legal challenge preventing the land from being taken intotrust is pending in Federal District Court.

 

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As a result of our agreement with RAM,development funding cash needs for the Michigan project may be primarilyprovided by RAM.  Therefore, our futurecash requirements will primarily be to fund general and administrativeexpenses.  Our Oregon contract expiredin August 2002, leaving the Delaware joint venture as our sole source ofoperating cash flow.  We believe thatadequate financial resources will be available to execute our current businessplan.

 

As a result of our agreement with GTECH,receipt by Full House of revenues from the Delaware venture is governed by theterms of the joint venture agreement. The contract provides that net cash flow (after certain deductions) isto be distributed monthly to Full House and GTECH.  While Full House does not believe that this arrangement willadversely impact its liquidity, our continuing cash flow is dependent on theoperating performance of this joint venture, and the ability to receive monthlydistributions.

 

As part of the Michigan and Californiamanagement agreements with the tribes, we have advanced funds for tribaloperations and the construction of a tribal community center.  The Receivable is attributable to this funding,and the repayment obligation is dependent on the future profitable operation ofthe tribes’ gaming enterprises.  InAugust 2001, we received a notice from the Torres-Martinez Tribe in Californiapurporting to sever our relationship. Our balance sheet includes as a receivable a $25,000 advance due fromTorres-Martinez Tribe, and included in Gaming and Contract Rights isapproximately $130,000 attributable to this contact.  We have incurred aggregate expenses of approximately $1 million,including interest, on behalf of Torres-Martinez Tribe.  In June 2002, the Triberequested additional documentation concerning these costs, which we haveprovided.  We are discussing anappropriate resolution of this matter including reimbursement for costs that weincurred.  We believe that theseamounts are recoverable based upon the expressed intentions of Torres-MartinezTribe, as well as our contractual rights.

 

In November 2002, we executed atermination agreement with respect to our Hard Rock licensing rights in Biloxi,Mississippi in exchange for a $100,000 termination fee.  Additionally, if Hard Rock executes a newlicensing agreement for Biloxi within one year of the termination agreement, weagreed to provide consulting services to Hard Rock for a two year period.

 

**Contractual Obligations.**

 

The followingtable summarizes our contractual obligations as of June 30, 2003:

 
|             |   |      |      | **Payments  Due by Period** |   |      |   |
|------------------|--------|-----------|-----------|-----------------------------|--------|-----------|--------|
|             |   | **Total** |      | **2003**                    |   | **2004**  |   | **2005** |   | **Thereafter** |   |
| Long term debt   |   | $         | 2,381,260 |                        | $      | 2,381,260 |   | $ | — |   | $ | — |   | $ | — |   |
| Operating leases |   | 146,322   |      | 18,114                      |   | 37,677    |   | 39,184 |   | 51,347 |   |
| Total            |   | $         | 2,527,582 |                        | $      | 2,399,374 |   | $ | 37,677 |   | $ | 39,184 |   | $ | 51,347 |   |

 

As of June 30, 2003, we had cumulativeundeclared and unpaid dividends in the amount of $2,310,000 on the 700,000outstanding shares of our 1992-1 Preferred Stock.  Such dividends are cumulative whether or not declared, and arecurrently in arrears.

 

**Recent Accounting Pronouncements**.  In June 2001, the FASB issued SFAS No.  143 “Accounting forAsset Retirement Obligations” which addresses financial accounting andreporting for obligations associated with the retirement of tangible long-livedassets and the associated asset retirement costs.  This Statement applies to legal obligations associated with theretirement of long-lived assets that result from the acquisition, construction,development and / or normal operation, except for certain 

 

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obligations of lessees. This Statement is effective for fiscal yearsbeginning after June 15, 2002.  Theadoption of SFAS No. 143 did not have a material effect on the Company’sfinancial statements.

 

In June 2002,the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit orDisposal Activities.”  SFAS No. 146addresses financial accounting and reporting for costs associated with exit ordisposal activities and nullifies Emerging Issues Task Force (EITF) Issue 94-3,Liability Recognition for Certain Employee Termination Benefits and Other Coststo Exit an Activity. The provisions of this Statement are effective for exit ordisposal activities that are initiatedafter December 31, 2002, with early application encouraged.The adoption of SFAS No. 146 did not have a material effect on the Company’sfinancial statements.

 

In November2002, the FASB issued Interpretation No. 45, “Guarantor’s Accounting andDisclosure Requirements for Guarantees, Including Indirect Guarantees ofIndebtedness to Others,” and interpretation of FASB Statements No. 5, 57 and107 and a rescission of FASB Interpretation No. 34. This Interpretationelaborates on the disclosures to be made by a guarantor in its interim andannual financial statements about its obligations under guarantees issued. TheInterpretation also clarifies that a guarantor is required to recognize, atinception of a guarantee, a liability for the fair value of the obligationundertaken. The initial recognition and measurement provisions of theInterpretation are applicable to guarantees issued or modified after December31, 2002 and are not expected to have a material effect on the Company’sfinancial statements. The disclosure requirements are effective for financialstatements of interim and annual periods ending after December 31, 2002.

 

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

 

Evaluation ofDisclosure Controls and Procedures. Full House’s chief executive and financialofficers, after evaluating the effectiveness of our disclosure controls andprocedures (as defined in Sections 13a-14(c) and 15d-14(c) of the SecuritiesExchange Act of 1934) as of an evaluation date within 90 days before the filingof this quarterly report, have concluded that as of the evaluation date, ourdisclosure controls and procedures were effective and designed to ensure thatmaterial information relating to us would be made known to them to allow timelydecisions regarding disclosures.

 

Changes inInternal Controls.  Full House does notbelieve that there are significant deficiencies in the design or operation ofits internal controls that could adversely effect its ability to record, process,summarize and report financial data. There were no significant changes in our internal controls or in otherfactors that could significantly affect those controls subsequent to theEvaluation Date.

 

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**PART II - OTHER INFORMATION**

 

**Item1****.****           Legal Proceedings**

 

None.

 

**Item3****.****           Defaults Upon SeniorSecurities**

 

As of June 30,2003, cumulative dividends were $2,310,000, which were undeclared, unpaid andwere in arrears, with respect to the Company’s Series 1992-1 Preferred Stock,which class ranks prior to the Company’s Common Stock with regard to dividendand liquidation rights.

 

**Item6****.****           Exhibits and Reports onForm 8-K**

 

(a)                                  Exhibits.

31.1                 Certification of principal executiveofficer pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 302of the Sarbanes-Oxley Act of 2002

 

31.2                 Certification of principal financialofficer pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 302of the Sarbanes-Oxley Act of 2002

 

32.1                 Certification of principal executiveand financial officers pursuant to 18 U.S.C. section 1350, as adopted pursuantto Section 906 of the Sarbanes-Oxley Act of 2002

 

(b)                                 Reportson Form 8-K;

On July 31, 2003, we filed a Current Reporton Form 8-K on concerning the execution of a Merger Agreement dated July 29,2003 with the Morongo Band of Missiion Indians

 

 

**SIGNATURES**

 

Pursuant tothe requirements of the Securities Exchange Act of 1934, as amended, theCompany has duly caused this report to be signed on its behalf by theundersigned, thereunto duly authorized.

 
|                        | **FULL HOUSE RESORTS, INC.**                                         |
|-----------------------------|----------------------------------------------------------------------|
|                        |
| Date:  August 11, 2003 |
|                        |
|                        | By:                                                                  | /s/  MICHAEL P. SHAUNNESSY |
|                        | Michael P.  Shaunnessy, Executive V. P.  and Chief Financial Officer |

 

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