**U.S. SECURITIES AND EXCHANGECOMMISSION**

**WASHINGTON, D.C. 20549**

 

**FORM 10-QSB**

 

**ý****                                ****QUARTERLY REPORT UNDER SECTION 13OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934**

**FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2003.**

 

**OR**

 

**o****                                ****TRANSITION REPORT UNDER SECTION 13 OR15(D) OF THE SECURITIES EXCHANGE ACT OF 1934**

** **

**FOR THETRANSITION PERIOD FROM                      TO                      .**

 

**CommissionFile No.  0-20630**

 

**FULL HOUSE RESORTS, INC.**

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

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

 

**APPLICABLE ONLY TO CORPORATE ISSUERS**

 

As of November 11, 2003, Registrant had 10,340,380 shares of its $.0001par value common stock outstanding.

 

 

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**FULL HOUSE RESORTS, INC**

**TABLE OF CONTENTS**

 
| PART I.  | Financial Information |
|----------|-----------------------|
|     |                  |   |
|     | Item 1.               | Condensed Consolidated Financial Statements |
|     |                  |   |
|     |                  | Unaudited  Condensed Consolidated Balance Sheets  as of September 30, 2003 and December 31, 2002 |
|     |                  |   |
|     |                  | Unaudited  Condensed Consolidated Statements of Operations  for the three months ended September 30, 2003 and 2002 |
|     |                  |   |
|     |                  | Unaudited Condensed Consolidated  Statements of Operations  for the nine months ended September 30, 2003 and 2002 |
|     |                  |   |
|     |                  | Unaudited  Condensed Consolidated Statements of Cash Flows  for the nine months ended September 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 HOUSERESORTS, INC. AND SUBSIDIARIES**

**UNAUDITEDCONDENSED CONSOLIDATED BALANCE SHEETS**

 
|                                                                                                                                                                                |   | **SEPTEMBER  30,  2003** |       | **DECEMBER  31,  2002** |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------|------------|-------------------------|--------|
| **ASSETS**                                                                                                                                                                          |   |                     |       |                    |   |
| CURRENT ASSETS:                                                                                                                                                                     |   |                     |       |                    |   |
| Cash and cash  equivalents                                                                                                                                                          |   | $                        | 1,842,046  |                    | $      | 1,164,053 |   |
| Receivables                                                                                                                                                                         |   | 125,000                  |       | 186,969                 |   |
| Prepaid expenses                                                                                                                                                                    |   | 195,432                  |       | 106,656                 |   |
| Total current  assets                                                                                                                                                               |   | 2,162,478                |       | 1,457,678               |   |
|                                                                                                                                                                                |   |                     |       |                    |   |
| NON-OPERATING  LAND                                                                                                                                                                 |   | —                   |       | 2,472,000               |   |
| JOINT VENTURE  INTEREST IN LAND HELD FOR DEVELOPMENT                                                                                                                                |   | 1,929,415                |       | —                  |   |
| FIXTURES AND  EQUIPMENT - net                                                                                                                                                       |   | 14,820                   |       | 23,612                  |   |
| INVESTMENTS IN  JOINT VENTURES                                                                                                                                                      |   | 265,666                  |       | 27,876                  |   |
| RECEIVABLES                                                                                                                                                                         |   | 1,437,291                |       | 1,257,291               |   |
| GAMING AND  CONTRACT RIGHTS - net                                                                                                                                                   |   | 5,065,779                |       | 5,189,947               |   |
| DEFERRED INCOME  TAX ASSET                                                                                                                                                          |   | 638,714                  |       | 712,418                 |   |
| DEPOSITS AND  OTHER ASSETS                                                                                                                                                          |   | 6,382                    |       | 6,382                   |   |
| TOTAL                                                                                                                                                                               |   | $                        | 11,520,545 |                    | $      | 11,147,204 |   |
|                                                                                                                                                                                |   |                     |       |                    |   |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY**                                                                                                                                      |   |                     |       |                    |   |
| CURRENT  LIABILITIES:                                                                                                                                                               |   |                     |       |                    |   |
| Accounts payable                                                                                                                                                                    |   | $                        | 19,549     |                    | $      | 13,426 |   |
| Payable to joint  ventures                                                                                                                                                          |   | 41,192                   |       | —                  |   |
| Current portion  of long-term debt                                                                                                                                                  |   | 2,381,260                |       | 2,381,260               |   |
| Accrued expenses                                                                                                                                                                    |   | 368,423                  |       | 172,654                 |   |
| Total current  liabilities                                                                                                                                                          |   | 2,810,424                |       | 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 $4,462,500  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                                                                                                                                                                |   | (8,720,872               | )          | (8,851,129              | )      |
| Total  stockholders’ equity                                                                                                                                                    |   | 8,710,122                |       | 8,579,864               |   |
| TOTAL                                                                                                                                                                               |   | $                        | 11,520,545 |                    | $      | 11,147,204 |   |

 

See notes to unaudited condensed consolidated financial statements.

 

3

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**FULLHOUSE RESORTS, INC. AND SUBSIDIARIES**

**UNAUDITEDCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS**

 
|                                                                     |   | **THREE  MONTHS ENDED  SEPTEMBER 30,** |     |
|--------------------------------------------------------------------------|--------|----------------------------------------|----------|
|                                                                     |   | **2003**                               |     | **2002** |   |
| OPERATING  REVENUES:                                                     |   |                                   |     |   |   |
| Joint venture  earnings                                                  |   | $                                      | 870,292  |   | $ | 887,071 |   |
| Management fees                                                          |   | —                                 |     | 384,639 |   |
| Total operating  revenues                                                |   | 870,292                                |     | 1,271,710 |   |
|                                                                     |   |                                   |     |   |   |
| OPERATING COSTS  AND EXPENSES:                                           |   |                                   |     |   |   |
| Development  costs                                                       |   | 181,071                                |     | 291,086 |   |
| General and  administrative                                              |   | 713,147                                |     | 392,214 |   |
| Depreciation and  amortization                                           |   | 44,022                                 |     | 51,668 |   |
| Total operating  costs and expenses                                      |   | 938,240                                |     | 734,968 |   |
| (LOSS) INCOME  FROM OPERATIONS                                           |   | (67,948                                | )        | 536,742 |   |
|                                                                     |   |                                   |     |   |   |
| Interest expense                                                         |   | (24,962                                | )        | (28,999 | ) |
| Interest and  other income                                               |   | 731                                    |     | 450 |   |
|                                                                     |   |                                   |     |   |   |
| (LOSS) INCOME  BEFORE INCOME TAXES                                       |   | (92,179                                | )        | 508,193 |   |
|                                                                     |   |                                   |     |   |   |
| INCOME TAX  BENEFIT (PROVISION)                                          |   | 34,400                                 |     | (210,763 | ) |
|                                                                     |   |                                   |     |   |   |
| NET (LOSS)  INCOME                                                       |   | (57,779                                | )        | 297,430 |   |
|                                                                     |   |                                   |     |   |   |
| Less, undeclared  dividends on cumulative preferred stock                |   | 52,500                                 |     | 52,500 |   |
|                                                                     |   |                                   |     |   |   |
| NET (LOSS)  INCOME APPLICABLE TO COMMON SHARES                           |   | $                                      | (110,279 | ) | $ | 244,930 |   |
|                                                                     |   |                                   |     |   |   |
| NET (LOSS)  INCOME PER COMMON SHARE, Basic and Diluted                   |   | $                                      | (0.01    | ) | $ | 0.02 |   |
|                                                                     |   |                                   |     |   |   |
| WEIGHTED AVERAGE  NUMBER OF COMMON SHARES OUTSTANDING, Basic and Diluted |   | 10,340,380                             |     | 10,340,380 |   |

 

See notes tounaudited condensed consolidated financial statements.

 

4

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**FULLHOUSE RESORTS, INC. AND SUBSIDIARIES**

**UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS**

 
|                                                                     |   | **NINE  MONTHS ENDED  SEPTEMBER 30,** |      |
|--------------------------------------------------------------------------|--------|---------------------------------------|-----------|
|                                                                     |   | **2003**                              |      | **2002** |   |
| OPERATING  REVENUES:                                                     |   |                                  |      |   |   |
| Joint venture  earnings                                                  |   | $                                     | 2,542,879 |   | $ | 2,607,626 |   |
| Management fees                                                          |   | —                                |      | 1,529,558 |   |
| Total operating  revenues                                                |   | 2,542,879                             |      | 4,137,184 |   |
|                                                                     |   |                                  |      |   |   |
| OPERATING COSTS  AND EXPENSES:                                           |   |                                  |      |   |   |
| Development  costs                                                       |   | 470,578                               |      | 684,131 |   |
| General and  administrative                                              |   | 1,491,960                             |      | 1,337,096 |   |
| Depreciation and  amortization                                           |   | 132,960                               |      | 171,787 |   |
| Total operating  costs and expenses                                      |   | 2,095,498                             |      | 2,193,014 |   |
| INCOME FROM  OPERATIONS                                                  |   | 447,381                               |      | 1,944,170 |   |
|                                                                     |   |                                  |      |   |   |
| Interest expense                                                         |   | (75,425                               | )         | (119,106 | ) |
| Interest and other  income                                               |   | 30,005                                |      | 3,884 |   |
|                                                                     |   |                                  |      |   |   |
| INCOME BEFORE  INCOME TAXES                                              |   | 401,961                               |      | 1,828,948 |   |
|                                                                     |   |                                  |      |   |   |
| INCOME TAX  PROVISION                                                    |   | (271,704                              | )         | (753,487 | ) |
|                                                                     |   |                                  |      |   |   |
| NET INCOME                                                               |   | 130,257                               |      | 1,075,461 |   |
|                                                                     |   |                                  |      |   |   |
| Less, undeclared  dividends on cumulative preferred stock                |   | 157,500                               |      | 157,500 |   |
|                                                                     |   |                                  |      |   |   |
| NET (LOSS)  INCOME APPLICABLE TO COMMON SHARES                           |   | $                                     | (27,243   | ) | $ | 917,961 |   |
|                                                                     |   |                                  |      |   |   |
| NET (LOSS)  INCOME PER COMMON SHARE, Basic and Diluted                   |   | $                                     | (0.00     | ) | $ | 0.09 |   |
|                                                                     |   |                                  |      |   |   |
| WEIGHTED AVERAGE  NUMBER OF COMMON SHARES OUTSTANDING, Basic and Diluted |   | 10,340,380                            |      | 10,340,380 |   |

 

See notes tounaudited condensed consolidated financial statements.

 

5

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**FULLHOUSE RESORTS, INC. AND SUBSIDIARIES**

**UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**

 
|                                                                               |   | **NINE  MONTHS ENDED  SEPTEMBER 30,** |      |
|------------------------------------------------------------------------------------|--------|---------------------------------------|-----------|
|                                                                               |   | **2003**                              |      | **2002** |   |
| CASH FLOWS FROM  OPERATING ACTIVITIES:                                             |   |                                  |      |   |   |
| Net income                                                                         |   | $                                     | 130,257   |   | $ | 1,075,461 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities: |   |                                  |      |   |   |
| Depreciation and  amortization                                                     |   | 132,960                               |      | 171,787 |   |
| Equity in  earnings of joint ventures                                              |   | (2,542,879                            | )         | (2,607,626 | ) |
| Distributions  from joint ventures                                                 |   | 2,305,089                             |      | 2,224,503 |   |
| Gain on sale of  non-operating land                                                |   | (27,793                               | )         | — |   |
| Changes in  operating assets and liabilities:                                      |   |                                  |      |   |   |
| Receivables                                                                        |   | 103,161                               |      | 111,857 |   |
| Prepaid expenses                                                                   |   | (88,776                               | )         | (51,913 | ) |
| Deposits and  other assets                                                         |   | —                                |      | 2,379 |   |
| Deferred taxes                                                                     |   | 73,704                                |      | 286,120 |   |
| Accounts payable  and accrued expenses                                             |   | 201,892                               |      | 253,555 |   |
|                                                                               |   |                                  |      |   |   |
| Net cash  provided by operating activities                                         |   | 287,615                               |      | 1,466,123 |   |
|                                                                               |   |                                  |      |   |   |
| CASH FLOWS FROM  INVESTING ACTIVITIES:                                             |   |                                  |      |   |   |
| Advances on  receivable                                                            |   | (180,000                              | )         | (180,000 | ) |
| Proceeds from  sale of non-operating land                                          |   | 2,499,793                             |      | — |   |
| Joint venture  interest in purchase of land held for development                   |   | (1,929,415                            | )         | — |   |
| Purchase of  fixtures and equipment                                                |   | —                                |      | (16,496 | ) |
|                                                                               |   |                                  |      |   |   |
| Net cash  provided by (used in) investing activities                               |   | 390,378                               |      | (196,496 | ) |
|                                                                               |   |                                  |      |   |   |
| 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 IN  CASH AND CASH EQUIVALENTS                                         |   | 677,993                               |      | 50,887 |   |
| CASH AND CASH  EQUIVALENTS, BEGINNING OF PERIOD                                    |   | 1,164,053                             |      | 867,419 |   |
|                                                                               |   |                                  |      |   |   |
| CASH AND CASH  EQUIVALENTS, END OF PERIOD                                          |   | $                                     | 1,842,046 |   | $ | 918,306 |   |

 

See notes to unaudited condensed 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 Condensed Financial Statements -***The interim condensed consolidated financial statements of Full House Resorts,Inc. (the “Company” or “Full House”) included herein reflect all adjustmentswhich are, in the opinion of management, necessary to present fairly thefinancial position and results of operations for the interim periods presented.  All such adjustments are of a normalrecurring nature. Certain information and note disclosures normally included infinancial statements prepared in accordance with accounting principlesgenerally accepted in the United States of America have been omitted pursuantto the rules and regulations of the Securities and Exchange Commission.

 

These unaudited condensed consolidated financialstatements should be read in conjunction with the consolidated financialstatements and notes thereto included in the Company’s Annual Report on Form10-KSB for the year ended December 31, 2002. The results of operations for the period ended September 30, 2003 arenot necessarily indicative of the results to be expected for the year endingDecember 31, 2003.

 

***Consolidation -*** The unauditedcondensed consolidated financial statements include the accounts of the Companyand its majority-owned subsidiaries. Priorto March 31, 2001, Full House had four joint ventures with GTECH that wereaccounted for using the equity method. On March 31, 2001 we purchased GTECH’s 50% interest in three of thesejoint ventures which are now wholly-owned by Full House, and accordingly are nolonger accounted for using the equity method.  All material intercompany accounts and transactions have beeneliminated.

 

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

 

In May 2003, the Financial Accounting Standards Boardissued Statement of Financial Accounting Standard (“SFAS”) No. 150, “Accountingfor Certain Financial Instruments with Characteristics of Both Liabilities andEquity.”  SFAS No. 150 establishesstandards for how an issuer clarifies and measures certain financialinstruments with characteristics of both liabilities and equity and requiresthat an issuer classify a financial instrument that is within its scope as aliability (or an asset in some circumstances). The Company has determined that SFAS No. 150 will not have a materialimpact on its financial position and results of operations.

 

**3.****                                     ****JOINT VENTURE INTEREST IN LAND HELD FOR DEVELOPMENT**

 

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

 

7

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**4.             JOINT VENTURE ACQUISITION**

 

On March30, 2001, we acquired GTECH’s 50% interest in three joint venture projects thathad been equally owned by the two companies: Gaming Entertainment, LLC, ownerof a development agreement continuing through August 2002, with the CoquilleIndian Tribe (“Oregon Tribe”), which conducts gaming at The Mill Casino inOregon; Gaming Entertainment (Michigan), LLC, owner of a Management Agreementwith the Nottawaseppi Huron Band of Potawatomi (“Michigan Tribe”) to developand manage a gaming facility near Battle Creek; and Gaming Entertainment(California), LLC, owner of a Management Agreement with the Torres-MartinezBand of Desert Cahuilla Indians (“California Tribe”) to develop and manage agaming facility near Palm Springs.

 

Thepurchase price was $1,800,000, and was funded through our existing creditfacility.  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, with interest at prime.  The note was paid in February 2002.  Also as part of this transaction, GTECH is no longer required toprovide the necessary financing for the two development projects (Michigan andCalifornia) that we acquired.

 

In additionto the gaming and contract rights, we acquired the other 50% interest in a notereceivable from the Michigan Tribe in the amount of $396,146.  The excess purchase price over the fairvalue of assets acquired was allocated to the gaming and contract rightsacquired 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 |                   |      |   |

 

**5.****                                      GAMINGAND CONTRACT RIGHTS**

 

As a result of the GTECH acquisition, the three jointventures that had previously been accounted for using the equity method are nowwholly owned consolidated entities.  Asubstantial portion of our investment in these joint ventures was comprised of previouslycontributed Michigan gaming rights of $4,155,213 that we acquired in 1995 andwhich represent the Company’s acquisition of a 50% ownership of the right tomanage the 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 straight-line basis overseven years, or the term of the management contract.  Now that these are wholly-owned consolidated entities, theserights are reflected in Gaming and Contract Rights, along with the contractrights acquired in the GTECH acquisition of $1,403,854.  The contract rights acquired in the GTECHacquisition represent the Company’s acquisition of 100% ownership andmanagement’s ability to control the operations of these entities.  Therefore, amortization of the acquiredcontract rights commenced as of April 1, 2001. Gaming and Contract Rights, net, as of September 30, 2003 is comprisedof the following: 

 

| Contributed Michigan gaming rights |   | $         | 4,155,213 |   |
|------------------------------------|--------|-----------|-----------|--------|
| Acquired contract rights           |   | 1,403,854 |      |
| Less accumulated amortization      |   | (493,288  | )         |
| Gaming Contract Rights, net        |   | $         | 5,065,779 |   |

 

8

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Annual amortizationexpense related to the acquired contract rights is $165,560 through 2008, withthe then remaining balance of $41,374 expensed in 2009.  As of September 30, 2003, the weightedaverage amortization period for acquired contract rights is 5.5 years.

 

TheMichigan and California ventures are in the development stage.  Successful development, and ultimately,sustaining profitable operations is dependent on future events, includingappropriate regulatory approvals and adequate market demand.  These two ventures have not generated anyrevenues, and the costs incurred to date relate to pre-opening expenses such aspayroll, legal and consulting.

 

**6.****                                      JOINTVENTURE INVESTMENTS**

 

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

 

SUMMARY INFORMATION FOR THE DELAWARE LLC FOR THE THREEAND NINE MONTH PERIODS ENDED SEPTEMBER 30, is as follows:

 
|                    |   | **Three  Months** |      | **Nine  Months** |   |
|-------------------------|--------|-------------------|-----------|------------------|--------|
|                    |   | **2003**          |      | **2002**         |   | **2003** |   | **2002** |   |
|                    |   |              |      |             |   |   |   |   |   |
| Revenues                |   | $                 | 4,548,161 |             | $      | 5,196,176 |   | $ | 14,299,320 |   | $ | 14,967,989 |   |
| Income from  operations |   | 1,740,584         |      | 1,774,142        |   | 5,085,758 |   | 5,215,251 |   |
| Net income              |   | 1,740,584         |      | 1,774,142        |   | 5,085,758 |   | 5,215,251 |   |
|                         |        |                   |           |                  |        |  |  |  |  |  |  |  |  |

 

**7.             LONG – TERM DEBT**

 

On February15, 2002, we entered into an agreement with RAM Entertainment, LLC (“RAM”), aprivately held investment company, whereby RAM will acquire a 50% interest inthe California and Michigan projects and provide the necessary funding fortheir development.  RAM advanced$2,381,260 to Full House in the form of a loan, to be forgiven upon receipt bythe Huron Potawatomi Tribe of federal approvals for its proposed casino nearBattle Creek, Michigan.  The loan bearsinterest adjustable daily at prime and requires interest payments monthly.  The principal was originally due on February15, 2003 unless earlier forgiven pursuant to the terms.

 

On February15, 2003 we entered into an agreement with RAM to extend the due date untilFebruary 15, 2004 for receipt of regulatory approvals, or the repayment of thenote. The loan continues to bear interest adjustable daily at prime andrequires interest payments monthly.

The legalchallenge preventing the land from being taken into trust is pending in FederalDistrict Court.  A status conference washeld on this matter on June 5, 2003 and final pleadings were filed July 18,2003.  Oral arguments were held onAugust 28, 2003, and we are now waiting for the ruling of the court.

 

**8.             SEGMENT INFORMATION**

 

Since thejoint venture acquisition from GTECH, we now view our business in three primarybusiness segments.  The Operationssegment includes the performance of the Delaware and Oregon projects.  The Development segment includes costsassociated with our activities in 

 

9

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Michigan,California, and Mississippi.  TheCorporate segment reflects the management and administrative expenses of thebusiness.

 

SUMMARYINFORMATION FOR THE THREE MONTHS  ENDEDSEPTEMBER 30,

 

**2003**

** **
|                          |   | **Operations** |    | **Development** |   | **Corporate** |   | **Consolidated** |   |
|-------------------------------|--------|----------------|---------|-----------------|--------|---------------|--------|------------------|--------|
|                          |   |           |    |            |   |          |   |             |   |
| Revenues                      |   | $              | 870,292 |            | $      | —        |   | $                | — |   | $ | 870,292 |   |
| Development costs             |   | —         |    | 181,071         |   | —        |   | 181,071          |   |
| Income (loss) from operations |   | 870,292        |    | (222,460        | )      | (715,780      | )      | (67,948          | )      |
| Net income (loss)             |   | 544,421        |    | (130,268        | )      | (471,932      | )      | (57,779          | )      |
|                               |        |                |         |                 |        |               |        |                  |        |  |  |  |  |

 

**2002**

 
|                          |   | **Operations** |      | **Development** |   | **Corporate** |   | **Consolidated** |   |
|-------------------------------|--------|----------------|-----------|-----------------|--------|---------------|--------|------------------|--------|
|                          |   |           |      |            |   |          |   |             |   |
| Revenues                      |   | $              | 1,271,710 |            | $      | —        |   | $                | — |   | $ | 1,271,710 |   |
| Development costs             |   | —         |      | 291,086         |   | —        |   | 291,086          |   |
| Income (loss) from operations |   | 1,264,998      |      | (332,476        | )      | (395,780      | )      | 536,742          |   |
| Net income (loss)             |   | 820,854        |      | (262,506        | )      | (260,918      | )      | 297,430          |   |
|                               |        |                |           |                 |        |               |        |                  |        |  |  |  |  |

 

SUMMARYINFORMATION FOR THE NINE MONTHS  ENDEDSEPTEMBER 30,

 

**2003**

 
|                          |   | **Operations** |      | **Development** |   | **Corporate** |   | **Consolidated** |   |
|-------------------------------|--------|----------------|-----------|-----------------|--------|---------------|--------|------------------|--------|
|                          |   |           |      |            |   |          |   |             |   |
| Revenues                      |   | $              | 2,542,879 |            | $      | —        |   | $                | — |   | $ | 2,542,879 |   |
| Development costs             |   | —         |      | 470,578         |   | —        |   | 470,578          |   |
| Income (loss) from operations |   | 2,542,879      |      | (594,746        | )      | (1,500,752    | )      | 447,381          |   |
| Net income (loss)             |   | 1,386,020      |      | (279,650        | )      | (976,113      | )      | 130,257          |   |
|                               |        |                |           |                 |        |               |        |                  |        |  |  |  |  |

** **

**2002**

 
|                          |   | **Operations** |      | **Development** |   | **Corporate** |   | **Consolidated** |   |
|-------------------------------|--------|----------------|-----------|-----------------|--------|---------------|--------|------------------|--------|
| **2002**                      |   |           |      |            |   |          |   |             |   |
| Revenues                      |   | $              | 4,137,184 |            | $      | —        |   | $                | — |   | $ | 4,137,184 |   |
| Development costs             |   | —         |      | 684,131         |   | —        |   | 684,131          |   |
| Income (loss) from operations |   | 4,102,450      |      | (933,301        | )      | (1,224,979    | )      | 1,944,170        |   |
| Net income (loss)             |   | 2,568,579      |      | (687,195        | )      | (805,923      | )      | 1,075,461        |   |
|                               |        |                |           |                 |        |               |        |                  |        |  |  |  |  |

 

**9.****                                      SUBSEQUENTEVENT**

 

On October14, 2003 we were notified by the Morongo Band of Mission Indians, thatthe general membership had failed to approve the proposed merger between Full HouseResorts and a

 

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subsidiary of the Morongo Band and therefore theproposed merger will not proceed.  TheTribe placed the question of approval on a ballot conducted among all votingmembers of the Morongo Band, in accordance with its custom and tradition ofgovernance.  As previously indicated,completion of the proposed merger was subject to obtaining this approval.

 

**Item 2****.  Management’s Discussion and Analysis ofFinancial Condition and Results of Operations.**

 

### **RecentDevelopments**

 

On October14, 2003 we were notified by the Morongo Band of Mission Indians, thatthe general membership had failed to approve the proposed merger between FullHouse Resorts and a subsidiary of the Morongo Band and therefore the proposedmerger will not proceed.

 

On July 29,2003 we signed a definitive merger agreement with the Morongo Band ofMission Indians, a federally-recognized California Indian tribe, pursuant towhich a subsidiary of the Morongo tribe was to acquire Full House Resorts.  In the merger, each Full House Resortscommon shareholder was to  receive $1.30for each share of Full House Resorts common stock and each holder of its Series1992-1 Preferred Stock was to receive $6.15 per share of preferred stock. TheTribe placed the question of approval on a ballot conducted among all votingmembers of the Morongo Band, in accordance with its custom and tradition ofgovernance.

 

As previously indicated, completion of the proposedmerger was subject to obtaining shareholder approval by Full House Resorts,approval by the general membership of the Morongo tribe, the gaming and othernecessary regulatory approval and other customary closing conditions.

 

### **AccountingPolicies**

 

Thepreparation of financial statements in conformity with generally acceptedaccounting principles requires management to make estimates and assumptionsabout future events that affect the amounts reported in the financialstatements and accompanying notes.  Futureevents and their effects cannot be determined with absolute certainty.  Therefore, the determination of estimatesrequires the exercise of judgment. Actual results inevitably will differ from those estimates and thosedifferences may be material to the financial statements. Our accountingpolicies are more fully described in Note 2 of Notes to ConsolidatedFinancial Statements included in our Form 10-KSB for the period ended December31, 2002.

 

The mostsignificant accounting estimates inherent in the preparation of our financialstatements include estimates associated with management’s evaluation of therecoverability of intangibles; the adequacy of our allowance for uncollectiblereceivables; and the recoverability of deferred income tax assets.  Various assumptions and other factors underliethe determination of these significant estimates.  The process of determining significant estimates is fact specificand takes into account factors such as historical experience, current andexpected economic conditions.  Weconstantly re-evaluate these significant factors and make adjustments wherefacts and circumstances dictate. Historically, actual results have not significantly deviated from thosedetermined using the estimates described above.

 

**Results of Operations****for the Three and Nine Months EndedSeptember 30, 2003 Compared to the Three and Nine Months Ended September 30,2002**

 

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

 

***Delaware Joint Venture.*** Our share of income from the Delaware jointventure was $870,292 in 2003, a decrease of $16,779, or 2% for the three monthperiod, and $2,542,879, a decrease of $64,747, or 3% for the nine monthperiod.  These decreases are primarilydue to the statewide smoking ban, coupled with adverse weather conditionsduring the first quarter of 2003.

 

In late November 2002, a statewide smoking ban tookeffect in Delaware that prohibits smoking in the casino facilities.  Additionally, adverse weather conditions inJanuary and February of 2003, which caused the facility to be closed for twodays of President’s Day weekend, had a significant impact on operations. We areunable to accurately determine the relative impact attributable to each factor,however, we believe the smoking ban, which is expected to be permanent, may beresponsible for monthly revenue declines of 5% to 10%.

 

***Oregon.***  This agreement expired in August 2002 pursuant to its terms, andno further fees will be paid.  Ourmanagement fees from the Oregon contract were $384,639 and $1,529,558 for therespective prior year three and nine month periods.

 

**Development Costs**.  Total development costs were $181,071 compared to $291,086 forthe three month periods ended September 30, 2003 and 2002, respectively, and$470,578 compared to $684,131 for the respective nine month periods. In September2002, we had paid approximately $200,000 for an option extension on theproposed gaming site for the Michigan venture with the Huron Potawatomi Tribein Battle Creek. In September 2003, we purchased this property.  The elimination of the option expense forthe three month period was partially offset by an increase in legal fees forthe land trust litigation.  For the ninemonth period, the reduction in development costs is primarily attributable tothe elimination of the option fee.

 

**General and Administrative Expenses*.*** Generaland administrative expenses increased by $320,933 for the three month periodended September 30, 2003, primarily due to expenses associated with Morongomerger transaction. These expenses included legal fees related to the mergeragreements and preliminary proxy documents, as well as investment banking fees,primarily for a fairness opinion.  Forthe nine month period ended September 30, 2003, expenses increased by $154,864which reflects these merger related expenses being offset by an accrual in theprior year period of $125,000 for a litigation settlement and reduced rentexpense.

 

**Depreciation andAmortization**.  Amortization of our contract rights withrespect to our management agreements in Michigan, Oregon and California was$41,389 for the quarter and $124,168 for the nine month period ended September30, 2003, compared to $48,103 and $158,903 for the prior year periods.  These reductions are due to the expirationof the Oregon contract, and the related amortization expense. Depreciationexpense was $2,633 and $3,564 for the three and nine month periods compared to$8,792 and $12,883 in the respective prior year periods.

 

**Interest Expense*.***  Interest expense decreased by $4,037 and$43,681 for the three and nine months ended September 30, 2003, compared to therespective prior year periods.  For thethree month period the decrease is attributable to a decrease in interestrates.  For the nine month period the decreaseis due to lower outstanding borrowings coupled with a decrease in interestrates.

 

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**Interest and Other Income*.***  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 decreased significantlyfor both the three and nine month periods ended September 30, 2003, primarilyreflecting the decrease in earnings. The effective tax rate reflects Delawarestate taxes on joint venture earnings determined on a separate return basis,combined with the tax effect of non-deductible amortization expenses.  Although consolidated earnings before taxesdecreased significantly, the state tax provision only reflects a decreaserelated to the Delaware joint venture earnings.

 

**Liquidity and Capital Resources**

 

At September 30, 2003, we had cash and cashequivalents of $1,842,046.  For the ninemonths ended September 30, 2003, cash of $287,615 was provided by operatingactivities, as compared to $1,446,123 in the prior year period.  This change is primarily due to reducedearnings resulting from the termination of our Oregon contract and mergerrelated expenses.  Net cash provided byinvesting activities was $390,378, representing the net proceeds of $2,499,793from the sale of land in Biloxi, Mississippi and the use of $180,000 foradvances to the Michigan tribe, and $1,929,415 for the acquisition of theproposed Michigan gaming site, compared to using $196,496 in the prior yearprimarily for advances of $180,000 to the Michigan Tribe. There were no cashfinancing activities in the current year. In the prior year period financing activities used $1,218,740 reflectingthe $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 $677,993 during the first nine months of 2003.

 

In 1998, weobtained a $2,000,000 line of credit with Coast Community Bank of Mississippiwith an initial maturity date of February  25, 1999.  We had renewed this line on an annualbasis.  In February 2002, the renewalreduced the availability to $1,000,000 and extended the maturity date to May12, 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 February15, 2002, we entered into an agreement with RAM Entertainment, LLC, a privatelyheld investment company, whereby RAM may acquire a 50% interest in theCalifornia and Michigan projects and provide the necessary funding for theirdevelopment.  RAM advanced $2,381,260 tous in the form of a loan, to be forgiven upon receipt by the Huron PotawatomiTribe of federal approvals for its proposed casino near Battle Creek,Michigan.  The loan bears interestadjustable daily at prime and requires interest payments monthly.  The principal was due at maturity onFebruary  15, 2003 unless earlier forgiven pursuant to its terms.  The anticipated approvals have not yet beenreceived, and the parties have extended the maturity date to February 15,2004.  The legal challenge preventingthe land from being taken into trust is pending in Federal District Court.

 

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

 

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As a resultof our agreement with RAM, development funding cash needs for the Michiganproject may be primarily provided by RAM. Therefore, our future cash requirements will primarily be to fundgeneral and administrative expenses. Our Oregon contract expired in August 2002, leaving the Delaware jointventure as our sole source of operating cash flow.  We believe that adequate financial resources will be available toexecute our current business plan.

 

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

 

As part ofthe Michigan and California management agreements with the tribes, we haveadvanced funds for tribal operations and the construction of a tribal communitycenter.  The Receivable is attributableto this funding, and the repayment obligation is dependent on the futureprofitable operation of the tribes’ gaming enterprises.  In August 2001, we received a notice fromthe Torres-Martinez Tribe in California purporting to sever ourrelationship.  Our balance sheetincludes as a receivable a $25,000 advance due from Torres-Martinez Tribe, andincluded in Gaming and Contract Rights is approximately $130,000 attributableto this contact.  We have incurredaggregate expenses of approximately $1 million, including interest, on behalfof Torres-Martinez Tribe.  InJune 2002, the Tribe requested additional documentation concerning these costs,which we have provided.  We arediscussing an appropriate resolution of this matter including reimbursement forcosts that we incurred.  We believe that these amounts are recoverablebased upon the expressed intentions of Torres-Martinez Tribe, as well as our contractualrights.

 

In November 2002, we executed a termination agreementwith respect to our Hard Rock licensing rights in Biloxi, Mississippi inexchange for a $100,000 termination fee. Additionally, if Hard Rock executes a new licensing agreement for Biloxiwithin one year of the termination agreement, we agreed to provide consultingservices to Hard Rock for a two year period.

 

**ContractualObligations.**

 

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

 
|             |   |      |      | **Payments Due  by Period** |   |      |   |
|------------------|--------|-----------|-----------|-----------------------------|--------|-----------|--------|
|             |   | **Total** |      | **2003**                    |   | **2004**  |   | **2005** |   | **Thereafter** |   |
| Long term debt   |   | $         | 2,381,260 |                        | $      | 2,381,260 |   | $ | — |   | $ | — |   | $ | — |   |
| Operating leases |   | 137,265   |      | 9,057                       |   | 37,677    |   | 39,184 |   | 51,347 |   |
| Total            |   | $         | 2,518,525 |                        | $      | 2,390,317 |   | $ | 37,677 |   | $ | 39,184 |   | $ | 51,347 |   |

 

As ofSeptember 30, 2003, we had cumulative undeclared and unpaid dividends inthe amount of $2,362,500 on the 700,000 outstanding shares of our 1992-1 Preferred Stock.  Such dividends are cumulative whether or notdeclared, and are currently in arrears.

 

**Recent AccountingPronouncements**.  In May 2003, the Financial AccountingStandards Board issued Statement of Financial Accounting Standard (“SFAS”) No.150, “Accounting for Certain Financial Instruments with Characteristics of BothLiabilities and Equity.”  SFAS No. 150establishes standards for how an issuer clarifies and measures certainfinancial instruments with characteristics of both liabilities and equity andrequires that an issuer classify a financial instrument that is within itsscope as a liability (or

 

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an asset in some circumstances). The Company has determined that SFAS No. 150 will not have a materialimpact on its financial position and results of operations.

 

**Item 3****.  Controls and Procedures**

 

Evaluation of Disclosure 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 in Internal Controls.  Full House does not believe that there aresignificant deficiencies in the design or operation of its internal controlsthat could adversely effect its ability to record, process, summarize andreport financial data.  There were nosignificant changes in our internal controls or in other factors that couldsignificantly affect those controls subsequent to the Evaluation Date.

 

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**PARTII - OTHER INFORMATION**

 

**Item 1.  Legal Proceedings**

 

None.

 

**Item3.  Defaults Upon Senior Securities**

 

As of September 30, 2003, cumulative dividends were$2,362,500, which were undeclared, unpaid and were in arrears, with respect tothe Company’s Series 1992-1 Preferred Stock, which class ranks prior to theCompany’s Common Stock with regard to dividend and liquidation rights.

 

**Item6.  Exhibits and Reports on Form 8-K**

 
| (a)    | Exhibits .                                                                                                                      |
|--------|---------------------------------------------------------------------------------------------------------------------------------|
|   | 31.1                                                                                                                            | Certification of  principal executive officer pursuant to 18 U.S.C. section 1350, as adopted  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|   |                                                                                                                            |   |
|   | 31.2                                                                                                                            | Certification of  principal financial officer pursuant to 18 U.S.C. section 1350, as adopted  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|   |                                                                                                                            |   |
|   | 32.1                                                                                                                            | Certification of  principal executive and financial officers pursuant to 18 U.S.C. section  1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|   |                                                                                                                            |   |
| (b)    | Reports on Form 8-K;                                                                                                            |
|   |                                                                                                                            |   |
|   | On September 15, 2003, we filed a Current Report on  Form 8-K concerning our acquisition of a proposed gaming site in Michigan. |

 

**SIGNATURES**

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, as amended, the Company has duly caused this report to besigned on its behalf by the undersigned, thereunto duly authorized.

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

 

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