##### Table of Contents



U.S. SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-QSB
 þ
    
    QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2007.
 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.1-32583
 FULL HOUSE RESORTS, INC.
  Delaware
    
    13-3391527(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)4670 S. Fort Apache RoadSuite 190Las Vegas, Nevada
    
    89147(Address of principal executive offices)
    
    (zip code)
  (Registrants telephone number)
 þ o
 o þ
 APPLICABLE ONLY TO CORPORATE ISSUERS
  o þ




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FULL HOUSE RESORTS, INC.
TABLE OF CONTENTS
 PagePART I. Financial InformationItem 1. Condensed Consolidated Financial StatementsBalance Sheets as of September 30, 2007, (unaudited) and
December 31, 2006
    
    
    3Unaudited Statements of Operations
for the three and nine months ended September 30, 2007 and 2006
    
    
    4Unaudited Statements of Cash Flows
for the nine months ended September 30, 2007 and 2006
    
    
    5Notes to Unaudited Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis or Plan of Operation
    
    
    13Item 3. Controls and Procedures
    
    
    26PART II. Other InformationItem 1. Legal Proceedings
    
    
    27Item 6. Exhibits
    
    
    27Signatures
    
    
    28EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1
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FULL HOUSE RESORTS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 September 30, 2007(unaudited)
    
    
    December 31, 2006ASSETSCurrent assetsCash
    
    $
    7,319,436
    
    
    $
    22,117,482Accounts receivable, net of allowance of $29,200 in 2007
    
    
    195,030
    
    
    
    Income tax receivable
    
    
    380,516
    
    
    
    Prepaid expenses
    
    
    546,524
    
    
    
    76,204Other
    
    
    172,653
    
    
    
    115,0008,614,159
    
    
    
    22,308,686Property and equipment, net of accumulated depreciation
of $6,538,107 and $107,774
    
    
    15,963,065
    
    
    
    7,401Long-term assets related to tribal casino projectsNotes receivable
    
    
    12,023,300
    
    
    
    10,995,782Contract rights, net of accumulated amortization of $658,849
and $608,899
    
    
    5,671,542
    
    
    
    5,160,185Land held for development
    
    
    130,000
    
    
    
    130,00017,824,842
    
    
    
    16,285,967Other long-term assetsGoodwill
    
    
    12,041,668
    
    
    
    Investment in unconsolidated joint venture
    
    
    137,278
    
    
    
    Deferred income tax assets
    
    
    
    
    
    
    159,054Deposits and other
    
    
    895,843
    
    
    
    1,395,01213,074,789
    
    
    
    1,554,066$
    55,476,855
    
    
    $
    40,156,120LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesCurrent portion of long-term debt
    
    $
    2,604,521
    
    
    $
    2,381,260Accounts payable
    
    
    218,530
    
    
    
    153,330Accrued interest
    
    
    653,584
    
    
    
    428,051Other accrued expenses
    
    
    867,065
    
    
    
    486,841Dividend payable
    
    
    
    
    
    
    3,042,084Income tax payable
    
    
    
    
    
    
    237,623Other
    
    
    
    
    
    
    272,1374,343,700
    
    
    
    7,001,326Long-term debt, net of current portion
    
    
    12,301,765
    
    
    
    Deferred income tax liability
    
    
    2,815,805
    
    
    
    15,117,570
    
    
    
    Non-controlling interest in consolidated joint venture
    
    
    2,408,676
    
    
    
    2,035,041Stockholders equityCumulative preferred stock, $.0001par value, 5,000,000 shares
Shares authorized; 700,000 shares issued and outstanding in 2006;
    
    
    
    
    
    
    70Common stock, $.0001 par value, 25,000,000 shares authorized;
19,342,276 and 18,408,380 shares issued and outstanding
    
    
    1,934
    
    
    
    1,841Additional paid-in capital
    
    
    42,862,342
    
    
    
    42,195,263Deferred compensation
    
    
    (1,357,921
    )
    
    
    (2,245,981
    )Deficit
    
    
    (7,899,446
    )
    
    
    (8,831,440
    )33,606,909
    
    
    
    31,119,753$
    55,476,855
    
    
    $
    40,156,120
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FULL HOUSE RESORTS, INC. AND SUBSIDIARIES
 
 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 Three months
    
    
    Nine monthsended September 30,
    
    
    ended September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006RevenuesCasino
    
    $
    2,031,271
    
    
    $
    
    
    
    $
    5,385,458
    
    
    $
    Food and beverage
    
    
    587,103
    
    
    
    
    
    
    
    1,452,885
    
    
    
    Hotel
    
    
    599,529
    
    
    
    
    
    
    
    1,460,912
    
    
    
    Other operating income
    
    
    14,223
    
    
    
    
    
    
    
    333,108
    
    
    
    3,232,126
    
    
    
    
    
    
    
    8,632,363
    
    
    
    Operating costs and expensesCasino
    
    
    584,205
    
    
    
    
    
    
    
    1,664,040
    
    
    
    Food and beverage
    
    
    534,368
    
    
    
    
    
    
    
    1,407,200
    
    
    
    Hotel
    
    
    375,931
    
    
    
    
    
    
    
    932,866
    
    
    
    Project development costs
    
    
    102,541
    
    
    
    134,321
    
    
    
    348,274
    
    
    
    491,801Selling, general and administrative
    
    
    1,446,772
    
    
    
    1,010,343
    
    
    
    5,254,049
    
    
    
    2,781,069Depreciation and amortization
    
    
    423,261
    
    
    
    18,770
    
    
    
    1,135,672
    
    
    
    56,3093,467,078
    
    
    
    1,163,434
    
    
    
    10,742,101
    
    
    
    3,329,179Operating gains (losses)Equity in net income of unconsolidated joint venture
    
    
    1,022,340
    
    
    
    952,192
    
    
    
    3,096,045
    
    
    
    2,946,783Unrealized gains (losses) on notes receivable,
tribal governments
    
    
    (209,106
    )
    
    
    304,534
    
    
    
    719,195
    
    
    
    1,022,283813,234
    
    
    
    1,256,726
    
    
    
    3,815,240
    
    
    
    3,969,066Income from operations
    
    
    578,282
    
    
    
    93,292
    
    
    
    1,705,502
    
    
    
    639,887Other income (expense)Interest and other income
    
    
    378,057
    
    
    
    12,065
    
    
    
    664,536
    
    
    
    58,397Interest expense
    
    
    (329,330
    )
    
    
    (49,517
    )
    
    
    (952,605
    )
    
    
    (140,021
    )48,727
    
    
    
    (37,452
    )
    
    
    (288,069
    )
    
    
    (81,624
    )Income before non-controlling interest in net loss
of consolidated joint venture and income taxes
    
    
    627,009
    
    
    
    55,840
    
    
    
    1,417,433
    
    
    
    558,263Non-controlling interest in net (income) loss of
consolidated joint venture
    
    
    (12,044
    )
    
    
    76,538
    
    
    
    (123,634
    )
    
    
    94,587Income before income taxes
    
    
    614,965
    
    
    
    132,378
    
    
    
    1,293,799
    
    
    
    652,850Income taxes
    
    
    (10,174
    )
    
    
    (230,150
    )
    
    
    (361,805
    )
    
    
    (313,616
    )Net income (loss)
    
    
    604,791
    
    
    
    (97,772
    )
    
    
    931,994
    
    
    
    339,234Less undeclared dividends on cumulative
preferred stock
    
    
    
    
    
    
    (52,500
    )
    
    
    
    
    
    
    (157,500
    )Net income (loss) available to common stockholders
    
    $
    604,791
    
    
    $
    (150,272
    )
    
    $
    931,994
    
    
    $
    181,734Net income (loss) per common shareBasic and diluted
    
    $
    0.03
    
    
    $
    (0.01
    )
    
    $
    0.05
    
    
    $
    0.02Weighted-average number of common shares outstandingBasic
    
    
    19,342,276
    
    
    
    11,008,380
    
    
    
    19,291,437
    
    
    
    10,638,900Diluted
    
    
    19,342,276
    
    
    
    11,008,380
    
    
    
    19,291,437
    
    
    
    11,340,262
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FULL HOUSE RESORTS, INC. AND SUBSIDIARIES
 
 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 Nine monthsended September 30,2007
    
    
    2006Net cash provided by (used in) operating activities:
    
    $
    2,150,515
    
    
    $
    (359,018
    )Investing activities:Deposits and other cash costs of the Stockmans
Casino acquisition, net of cash acquired of
$920,824 in 2007
    
    
    (8,317,493
    )
    
    
    (1,055,402
    )Acquisition of contract rights and other assets
    
    
    (402,261
    )
    
    
    (149,397
    )Purchase of property and equipment
    
    
    (157,510
    )
    
    
    Advances to tribal governments, net of $33,277 and
$350,401 expensed
    
    
    (308,323
    )
    
    
    (768,569
    )Proceeds from sale of equipment
    
    
    900
    
    
    
    Repayments by co-venturer
    
    
    
    
    
    
    37,215Net cash used in investing activities
    
    
    (9,184,687
    )
    
    
    (1,936,153
    )Financing activities:Dividends paid
    
    
    (3,042,084
    )
    
    
    Payments on long-term debt
    
    
    (4,721,790
    )
    
    
    Offering costs
    
    
    
    
    
    
    (77,203
    )Cash used in financing activities
    
    
    (7,763,874
    )
    
    
    (77,203
    )Net decrease in cash and cash equivalents
    
    
    (14,798,046
    )
    
    
    (2,372,374
    )Cash and cash equivalents, beginning of period
    
    
    22,117,482
    
    
    
    3,275,270Cash and cash equivalents, end of period
    
    $
    7,319,436
    
    
    $
    902,896
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FULL HOUSE RESORTS, INC. AND SUBSIDIARIES
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 1.
    
    BASIS OF PRESENTATIONThe interim condensed consolidated financial statements of Full House Resorts, Inc. and its
subsidiaries (collectively, the Company) included herein reflect all adjustments that are,
in the opinion of management, necessary to present fairly the financial position and results
of operations for the interim periods presented. Certain information normally included in
annual financial statements prepared in accordance with accounting principles generally
accepted in the United States of America has been omitted pursuant to the interim financial
information rules and regulations of the United States Securities and Exchange Commission.These unaudited interim condensed consolidated financial statements should be read in
conjunction with the annual audited consolidated financial statements and notes thereto
included in the Companys Annual Report on Form 10-KSB for the year ended December 31, 2006,
from which the balance sheet information as of that date was derived. Certain minor
reclassifications to amounts previously reported have been made to conform to the current
period presentation, none of which affected previously reported net income or earnings per
share. The results of operations for the period ended September 30, 2007, are not
necessarily indicative of the results to be expected for the year ending December 31, 2007.The condensed consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiaries, including Stockmans Casino and Holiday Inn Express (Stockmans)
which was acquired on January 31, 2007 (Note 2). Gaming Entertainment (Michigan), LLC (GEM),
a 50%-owned investee of the Company that is jointly owned with RAM Entertainment, LLC (RAM),
a privately held company, has been consolidated pursuant to the guidance in Financial
Accounting Standards Board (FASB) Interpretation No. 46R, Consolidation of Variable Interest
Entities. The Company accounts for its investment in Gaming Entertainment (Delaware), LLC
(GED) (Note 4) using the equity method of accounting. All material intercompany accounts and
transactions have been eliminated.2.
    
    ACQUISITION OF STOCKMANS CASINOOn January 31, 2007, the Company acquired Stockmans in Fallon, Nevada. The purchase price
of approximately $27.4 million (including acquisition costs of $659,846) was financed
through an equity offering effected during 2006, a $16 million reducing revolving loan from
a bank, and a promissory note to the seller in the approximate amount of $1.25 million (Note
6).The purchase price was allocated as of the acquisition date as follows:
 Current assets
    
    $
    1,437,662Other assets
    
    
    151,531Property and equipment
    
    
    16,885,000Current liabilities
    
    
    (440,514
    )Goodwill
    
    
    9,372,983$
    27,406,662
 In the first quarter of 2007, goodwill was adjusted upward from the original estimate
reported in the Companys 2006 Annual Report on Form 10-KSB by approximately $2.5 million,
primarily as a result of the recognition of a deferred tax liability related to the
Companys carry-over tax basis in Stockmans property assets. In October 2007, the Company
paid the seller an additional $730,812 per the amended purchase agreement, and the seller
consented to modify its tax treatment of the acquisition (Note 9). Accordingly, in the
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fourth quarter, the Companys tax basis of the Stockmans assets acquired will increase and
the Company will reduce goodwill and the deferred tax liability by approximately $2.5
million.
 The following unaudited, condensed consolidated pro forma data summarizes the Companys
results of operations for the periods indicated as if the acquisition had occurred as of
January 1, 2006. This unaudited pro forma consolidated financial information is not
necessarily indicative of what the Companys actual results would have been had the
acquisition been completed on that date, or of future financial results.
 Nine months ended September 30,2007
    
    2006Net revenues
    
    $
    13,443,553
    
    
    $
    12,913,799Net income
    
    
    1,073,176
    
    
    
    1,569,185Earnings per share, basic
    
    
    .06
    
    
    
    0.15Earnings per share, diluted
    
    
    .06
    
    
    
    0.14
 3.
    
    SHARE-BASED COMPENSATIONShare-based compensation results from the amortization of restricted stock grants and is
included in general and administrative expense. For the three months ended September 30,
2007 and 2006, the Company recognized share-based compensation of $228,844 and $241,436,
respectively, and for the nine months ended September 30, 2007 and 2006, the Company
recognized share-based compensation expense of $1,364,060 and $797,473, respectively. At
September 30, 2007, the Company has recorded deferred share-based compensation of
$1,357,921, which is expected to be amortized through February 2010.4.
    
    INVESTMENT IN UNCONSOLIDATED JOINT VENTUREThe Companys investment in unconsolidated joint venture is comprised of a 50% ownership
interest in GED, a joint venture between the Company and Harrington Raceway Inc. (HRI). GED
has no non-operating income or expenses, and is treated as a partnership for income tax
purposes and consequently recognizes no federal or state income tax provision. As a result,
income from operations for GED is equal to net income for each period presented, and there
are no material differences between its income for financial and tax reporting purposes.On June 18, 2007, the Company restructured its management contract relating to Midway Slots
and Simulcast (Midway) in Harrington, Delaware. The Company has agreed with HRI, the owner
of Midway and an equal co-venturer in GED, to allow HRI greater flexibility in GEDs
management of the facility while providing the Company with guaranteed growth in its share
of GEDs management fee for the remaining term of the management contract, which expires in
August, 2011. Under the terms of the restructured management agreement, the Company is to
receive the greater of its share of GEDs management fees as currently prescribed under the
management agreement, or a 5% increase in its share of GEDs management fees beginning in
2007. For 2008, the growth factor increases from 5% to 8%, which takes into account an
expansion currently underway at Midway.
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Unaudited summary information for GEDs operations is as follows:
 Three months
    
    Nine monthsended September 30,
    
    ended September 30,2007
    
    2006
    
    2007
    
    2006Management fee revenues
    
    $
    2,177,901
    
    
    $
    2,020,443
    
    
    $
    6,561,511
    
    
    $
    6,242,876Net income
    
    
    2,044,678
    
    
    
    1,904,384
    
    
    
    6,192,088
    
    
    
    5,893,565
 5.
    
    NOTES RECEIVABLE, TRIBAL GOVERNMENTSThe Company has advanced funds directly to tribes to fund tribal operations and for
development expenses related to potential projects. The repayment of these notes is
contingent upon the development of the projects, and ultimately, the successful operation of
the facilities. The Companys agreements with the tribes provide for the reimbursement of
these advances plus applicable interest either from the proceeds of any outside financing of
the development, the actual operation itself or in the event that the Company does not
complete the development, from the revenues of the tribal gaming operation following
completion of development activities undertaken by others.As of September 30, 2007 and December 31, 2006, the Company has made advances to tribal
governments as follows:
 September 30,
    
    
    December 31,2007
    
    
    2006Contractual (stated) amount
(not including interest):Huron (Michigan) tribe
    
    $
    12,857,593
    
    
    $
    12,728,428Other
    
    
    1,195,357
    
    
    
    923,900$
    14,052,950
    
    
    $
    13,652,328Estimated fair value of notes
receivable related to tribal
casino projects:Huron (Michigan) tribe
    
    $
    11,041,227
    
    
    $
    10,258,202Other
    
    
    982,073
    
    
    
    737,580$
    12,023,300
    
    
    $
    10,995,782
 During the current quarter, the estimated opening date for the casino resort in the Battle
Creek, Michigan area, to be known as Firekeepers Casino, was extended from the third quarter
of 2008 to the first quarter of 2009 based on unanticipated delays in the approval of GEMs
management agreement by the NIGC. These estimates include approximately 14 months
(previously 12 months) to complete the required construction, which is largely based on the
actual construction period for a similar project under construction in the same geographical
vicinity, design and construction and current discussions with the construction manager.
Also during the current quarter, the discount rate for the Firekeepers Casino was changed
from the previously utilized 20% to 18.5% based on the capital asset pricing model and
project-specific risk. The estimated inherent risk of the project has decreased due to the
favorable resolution of the legal challenges that had resulted in significant previous
delays. The combined impact of the changes in estimated opening date and change in the
discount rate reduced the estimated fair value of the notes receivable related to the
Michigan project by $737,811 as of September 30, 2007.The estimated opening date for the Montana casino was extended from the fourth quarter of
2008 to the third quarter of 2009. This change in estimate results from slower than
expected progress in state and federal approvals. The impact of the change in estimated
opening date reduced the estimated fair value of the note receivable related to the Montana
project by $1,571 as of September 30, 2007.
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The Company also extended its estimated opening date for the New Mexico casino from the
fourth quarter of 2008 to the first quarter of 2009. This revision is due to a change in
project scope and budget following completion of an updated market study during the third
quarter and a review of the recent changes in credit markets. Also during the current
quarter, the discount rate for the New Mexico casino was changed from 20% to 19.5% based on
the capital asset pricing model and project-specific risk. The combined impact of the
changes in estimated opening date and change in the discount rate applied reduced the
Companys estimated fair value of the notes receivable related to the New Mexico project by
$16,012 as of September 30, 2007.
 The following table summarizes the changes in fair market value of notes receivable from
tribal governments from January 1, 2007 to September 30, 2007:
 Total
    
    Michigan tribe
    
    Other tribesBalances, January 1, 2007
    
    $
    10,995,782
    
    
    $
    10,258,202
    
    
    $
    737,580Total advances
    
    
    400,621
    
    
    
    129,164
    
    
    
    271,457Advances allocated to contract rights
    
    
    (59,021
    )
    
    
    
    
    
    
    (59,021
    )Advances expensed as period costs
    
    
    (33,277
    )
    
    
    (33,277
    )
    
    
    Unrealized gains
    
    
    719,195
    
    
    
    687,138
    
    
    
    32,057Balances, September 30, 2007
    
    $
    12,023,300
    
    
    $
    11,041,227
    
    
    $
    982,073
 6.
    
    LONG-TERM DEBTLong-term debt increased in the first quarter of 2007 in connection with the Stockmans
acquisition. At September 30, 2007, long-term debt consists of the following:
 Reducing revolving loan agreement, $16.0 million
limit on January 31, 2007, due January 31, 2022,
interest at 2.1% above the five year LIBOR/Swap rate,
adjusted annually (7.39% at September 30, 2007)
    
    $
    11,401,000Promissory note, $1.25 million on January 31, 2007,
due February 1, 2012, interest at a fixed annual rate
of 7.44%
    
    
    1,124,026Promissory note, $2.38 million on February 15, 2002,
originally due March 15, 2003, and was extended to
December 2007, interest based on Bank of America New
York prime rate (7.75% at September 30, 2007)
    
    
    2,381,26014,906,286Less current portion
    
    
    (2,604,521
    )$
    12,301,765
 The maximum amount permitted to be outstanding under the reducing revolving loan decreases
$533,000 semiannually on January 1 and July 1 of each year and any outstanding amounts above
such reduced maximum must be repaid on each such date. The reducing revolving loan is
payable over 15 years at a variable interest rate based on the five year LIBOR/Swap rate
plus 2.1%. This rate adjusts annually based on the funded debt to EBITDA ratio of
Stockmans with adjustments based on the five year LIBOR/Swap rates. Stockmans assets are
pledged as collateral for the loan. The loan agreement also contains certain customary
financial representations and warranties and requires that Stockmans maintain specified
financial covenants, including a fixed charge coverage ratio, a funded debt to EBITDA ratio
and a minimum tangible net worth. In addition, the loan agreement provides restrictions on
certain distributions and capital expenditures by Stockmans, and also provides for
customary events of default including payment defaults and covenant defaults. Management is
not aware of any covenant violations through the date of this filing.
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As a result of additional principal payments of $1.1 and $3.0 million in the first and third
quarters of 2007, respectively, the Company has approximately $4.1 million of availability
under its revolving credit line at September 30, 2007.The promissory note payable to the seller of Stockmans is payable in 60 monthly
installments of principal and interest and is secured by a second interest in the real
estate of Stockmans.Scheduled maturities of long-term debt are as follows:
 Annual periods ending September 30,2008
    
    $
    2,604,5212009
    
    
    240,4502010
    
    
    258,9622011
    
    
    476,9002012
    
    
    1,188,453Thereafter
    
    
    10,137,000$
    14,906,286
 7.
    
    INCOME TAXESFASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes(FIN 48), became
effective and was adopted by the Company in the first quarter of 2007. Based on
managements assessment of its tax positions in accordance with FIN 48, there was no impact
on its opening retained earnings or the current periods results of operations as a result
of the change in accounting principle to adopt FIN 48.For the periods ended September 30, 2007 and 2006, the difference between the Companys
estimated effective and statutory tax rates was primarily due to the state tax provision,
net of the federal benefit, as well as the treatment of share-based compensation. The
income tax receivable of $380,516 is due to differences in estimates used for purposes of
preparing the 2006 provision for income taxes and actual amounts used in preparing the
income tax returns. Income tax expense was reduced by the refund amount during the quarter.8.
    
    SEGMENT REPORTINGFollowing the acquisition of Stockmans in January 2007, the Company is comprised of three
primary business segments. The operations segment includes Stockmans casino and hotel
operation in Fallon, Nevada. The development/management segment includes costs associated
with our tribal casino projects and our Delaware joint venture. The Corporate segment
reflects the management and administrative expenses of the Company and one-time revenues of
$283,554 in the second quarter of 2007, related to the termination of a consulting agreement
with the Hard Rock casino in Biloxi, Mississippi as recorded in the second quarter of 2007.
The following tables reflect selected segment information for the three and nine months
ended September 30, 2007 and 2006.
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##### Table of Contents



Selected unaudited Statements of Operations data for the three months ended September 30,
 Casino/Hotel
    
    Development/2007
    
    Operations
    
    Management
    
    Corporate
    
    ConsolidatedRevenues
    
    $
    3,232,126
    
    
    $
    
    
    
    $
    
    
    
    $
    3,232,126Selling, general and administrative
    
    
    490,999
    
    
    
    22,137
    
    
    
    933,636
    
    
    
    1,446,772Depreciation and amortization
    
    
    407,193
    
    
    
    14,364
    
    
    
    1,704
    
    
    
    423,261Operating gains
    
    
    
    
    
    
    813,234
    
    
    
    
    
    
    
    813,234Income (loss) from operations
    
    
    839,430
    
    
    
    711,395
    
    
    
    (972,543
    )
    
    
    578,282Net income (loss) available to
common stockholders
    
    
    852,318
    
    
    
    946,176
    
    
    
    (1,193,703
    )
    
    
    604,791Casino/Hotel
    
    Development/2006
    
    Operations
    
    Management
    
    Corporate
    
    ConsolidatedRevenues
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Selling, general and administrative
    
    
    
    
    
    
    56,973
    
    
    
    953,370
    
    
    
    1,010,343Depreciation and amortization
    
    
    
    
    
    
    16,649
    
    
    
    2,121
    
    
    
    18,770Operating gains
    
    
    
    
    
    
    1,256,726
    
    
    
    
    
    
    
    1,256,726Income (loss) from operations
    
    
    
    
    
    
    963,273
    
    
    
    (869,981
    )
    
    
    93,292Net income (loss) available to
common stockholders
    
    
    
    
    
    
    973,810
    
    
    
    (1,124,082
    )
    
    
    (150,272
    )
 Selected unaudited Statements of Operations data for the nine months ended September 30,
 Casino/Hotel
    
    Development/2007
    
    Operations
    
    Management
    
    Corporate
    
    ConsolidatedRevenues
    
    $
    8,348,809
    
    
    $
    
    
    
    $
    283,554
    
    
    $
    8,632,363Selling, general and administrative
    
    
    1,164,904
    
    
    
    137,684
    
    
    
    3,951,461
    
    
    
    5,254,049Depreciation and amortization
    
    
    1,082,115
    
    
    
    47,664
    
    
    
    5,893
    
    
    
    1,135,672Operating gains
    
    
    
    
    
    
    3,815,240
    
    
    
    
    
    
    
    3,815,240Income (loss) from operations
    
    
    2,097,683
    
    
    
    3,321,331
    
    
    
    (3,713,512
    )
    
    
    1,705,502Net income (loss) available to
common stockholders
    
    
    2,125,556
    
    
    
    3,299,476
    
    
    
    (4,493,038
    )
    
    
    931,994Casino/Hotel
    
    Development/2006
    
    Operations
    
    Management
    
    Corporate
    
    ConsolidatedRevenues
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Selling, general and administrative
    
    
    
    
    
    
    160,644
    
    
    
    2,620,425
    
    
    
    2,781,069Depreciation and amortization
    
    
    
    
    
    
    49,950
    
    
    
    6,359
    
    
    
    56,309Operating gains
    
    
    
    
    
    
    3,969,066
    
    
    
    
    
    
    
    3,969,066Income (loss) from operations
    
    
    
    
    
    
    3,395,434
    
    
    
    (2,755,547
    )
    
    
    639,887Net income (loss) available to
common stockholders
    
    
    
    
    
    
    3,291,971
    
    
    
    (3,110,237
    )
    
    
    181,734
 11




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##### Table of Contents



Selected unaudited Balance Sheet data as of September 30,
 Casino/Hotel
    
    Development/2007
    
    Operations
    
    Management
    
    Corporate
    
    ConsolidatedAssets
    
    $
    17,991,136
    
    
    $
    17,744,988
    
    
    $
    19,740,731
    
    
    $
    55,476,855Property and equipment, net
    
    
    15,949,400
    
    
    
    
    
    
    
    13,665
    
    
    
    15,963,065Goodwill
    
    
    
    
    
    
    
    
    
    
    12,041,668
    
    
    
    12,041,668Liabilities
    
    
    503,132
    
    
    
    2,292,694
    
    
    
    16,665,444
    
    
    
    19,461,270Casino/Hotel
    
    Development/2006
    
    Operations
    
    Management
    
    Corporate
    
    ConsolidatedAssets
    
    $
    
    
    
    $
    13,042,340
    
    
    $
    5,204,252
    
    
    $
    18,246,592Property and equipment, net
    
    
    
    
    
    
    
    
    
    
    3,988,832
    
    
    
    3,988,832Goodwill
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Liabilities
    
    
    
    
    
    
    486,312
    
    
    
    3,552,239
    
    
    
    4,038,551
 9.
    
    SUBSEQUENT EVENTSAmendment of Stockmans Purchase Agreement.In October, 2007, the Company amended the
purchase agreement with the seller of Stockmans Casino to allow the Company to adjust its
tax basis in the assets of Stockmans Casino to estimated fair value under Section 338 of
the Internal Revenue Code, which is expected to reduce the Companys deferred tax liability.
In consideration for the amendment, the Company agreed to pay the seller $730,812.Sale of Holiday Inn Express.In October, 2007, the Company entered into an agreement to
sell the Holiday Inn Express in Fallon, Nevada for the sum of $7,200,000 payable in cash at
the time of closing. The contract is subject to a 45 day due diligence period during which
the buyer can cancel the agreement. Management expects to close within 45 days following
completion of the due diligence period. The agreement includes a joint marketing agreement
and a prohibition on gaming activity at the hotel. As a result of the amendment to the
Stockmans Purchase Agreement discussed above, the Company expects net proceeds to increase
from the previous estimate of $6.1 million to approximately $6.8 million, which are expected
to be used to further reduce debt.At September 30, 2007, the carrying values of the major classes of assets related to the
Holiday Inn Express are as follows:
 Asset Class
    
    Carrying ValueLand
    
    $
    874,763Buildings / Improvements
    
    
    5,672,066Furniture / Fixtures
    
    
    333,966Total
    
    $
    6,880,795
 Michigan Reservation Proclamation.On October 30, 2007, the Assistant Secretary of the
Interior for Indian Affairs issued a reservation proclamation related to the land intended
to be used as the site of the Michigan project, which was taken into trust in December 2006.
This proclamation is expected to be the final administrative approval by the Department of
the Interior prior to approval of the GEM management contract by the National Indian Gaming
Commission (NIGC). While there can be no guarantee that the NIGC will approve the contract
or all of its terms, management believes such approval will be forthcoming.
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Item 2. Managements Discussion and Analysis or Plan of Operation.
 Overview
     13




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Critical accounting estimates and policies
   14




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Long-term assets related to tribal casino projects
 Recognition of Interest
Income and Balance Sheet Classification of Structured Notes
    
    
    the Federal Bureau of Indian Affairs (BIA) recognizes the tribe;
    
    the tribe has the right to acquire land to be used as a casino site;
    
    the Department of the Interior has put the land into trust as a casino site;
    
    the tribe has a gaming compact with the state government;
    
    the NIGC has approved a proposed management agreement; and
    
    other legal or political obstacles exist or are likely to occur.
  
    
    a certain minimum monthly priority payment to the tribe;
    
    repayment of various senior debt associated with construction and equipping of the
casino with interest accrued thereon;
    
    repayment of various debt with interest accrued thereon due to us;
    
    management fee to us;
    
    other obligations; and
    
    the remaining funds distributed to the tribe.
 15




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Notes receivable
  Accounting by Creditors for Impairment of a
Loan
 Contract rights
  16




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Summary of long-term assets related to tribal casino projects
  September 30,
    
    December 31,2007
    
    2006Michigan project:Notes receivable, tribal governments
    
    $
    11,041,227
    
    
    $
    10,258,202Contract rights, net
    
    
    5,140,333
    
    
    
    4,687,99716,181,560
    
    
    
    14,946,199Other projects:Notes receivable, tribal governments
    
    
    982,073
    
    
    
    737,580Contract rights, net
    
    
    531,209
    
    
    
    472,188Land held for development
    
    
    130,000
    
    
    
    130,0001,643,282
    
    
    
    1,339,768$
    17,824,842
    
    
    $
    16,285,967
   
    
    the tribe is federally recognized;
    
    adequate land for the proposed casino resort has been placed in trust;
    
    the tribe has a valid gaming compact with the State of Michigan;
    
    the NIGC has not yet approved the management agreement;
    
    the BIA issued a record of decision approving the final environmental impact
statement in September 2006; and
    
    the Tribe has engaged Merrill Lynch as the underwriter for the project financing
and in conjunction with the project submission to the NIGC Merrill Lynch submitted a
letter expressing their confidence that $270m of financing could be obtained on
favorable terms.
  17




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##### Table of Contents



September 30, 2007
    
    December 31, 2006 Discount rate increases 2.5%
    
    $
    (551,140
    )
    
    $
    (363,556
    ) Discount rate decreases 2.5%
    
    
    358,792
    
    
    
    384,996 Forecasted opening date delayed one quarter
    
    
    (458,664
    )
    
    
    (457,077
    ) Forecasted opening date accelerated one quarter
    
    
    478,545
    
    
    
    478,393
    September 30, 2007
    
    December 31, 2006Aggregate face amount of the notes
receivable
    
    $
    14,052,950
    
    
    $
    13,652,328Estimated years until opening of casino:Michigan
    
    
    1.50
    
    
    
    1.75New Mexico
    
    
    1.50
    
    
    
    1.75Montana
    
    
    2.00
    
    
    
    1.75Discount rate:Michigan
    
    
    18.5
    %
    
    
    20.0
    %New Mexico
    
    
    19.5
    %
    
    
    20.0
    %Montana
    
    
    20.0
    %
    
    
    20.0
    %Estimated probability rate of casino
opening:Michigan
    
    
    92
    %
    
    
    90
    %New Mexico
    
    
    88
    %
    
    
    90
    %Montana
    
    
    85
    %
    
    
    90
    %
  18




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
    
    S&P 500, 10 and 15-year average benchmark investment returns (medium-term horizon risk
premiums);
    
    Risk-free investment return equal to the 10-year average for 90-day Treasury Bills;
    
    Investment beta factor equal to the unlevered five-year average for the hotel/gaming
industry; and
    
    Project specific adjustments based on typical size premiums for micro-cap and
low-cap companies using 10 and 15-year averages.
   September 30, 2007
    
    Michigan
    
    New Mexico
    
    Montana
    
    Other
    
    TotalNotes receivable
    
    $
    11,041,227
    
    
    $
    485,250
    
    
    $
    496,823
    
    
    $
    
    
    
    $
    12,023,300Contract rights
    
    
    5,140,333
    
    
    
    201,592
    
    
    
    129,617
    
    
    
    200,000
    
    
    
    5,671,542Land held for development
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    130,000
    
    
    
    130,000Total
    
    $
    16,181,560
    
    
    $
    686,842
    
    
    $
    626,440
    
    
    $
    330,000
    
    
    $
    17,824,842
 December 31, 2006
    
    Michigan
    
    New Mexico
    
    Montana
    
    Other
    
    TotalNotes receivable
    
    $
    10,258,202
    
    
    $
    379,665
    
    
    $
    357,915
    
    
    $
    
    
    
    $
    10,995,782Contract rights
    
    
    4,687,997
    
    
    
    169,780
    
    
    
    102,408
    
    
    
    200,000
    
    
    
    5,160,185Land held for development
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    130,000
    
    
    
    130,000Total
    
    $
    14,946,199
    
    
    $
    549,445
    
    
    $
    460,323
    
    
    $
    330,000
    
    
    $
    16,285,967
  Consolidation of Variable Interest Entities
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Income taxes. Accounting for Uncertainty in Income Taxes, an Interpretation of FASB
Statement 109
 Recently issued accounting pronouncements
 The Fair Value Option for Financial Assets and Financial Liabilities  Including an
Amendment of SFAS No. 115,
 Results of operations
 Three months ended September 30, 2007, compared to three months ended September 30, 2006
 Net income (loss) available to common stockholders.
 Operating revenues.
 Operating costs and expenses.
 Project development costs.
 Selling, general and administrative expense.
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Depreciation and amortization.
 Operating gains (losses).
 Other income (expense).
 Nine months ended September 30, 2007, compared to nine months ended September 30, 2006:
 Net income (loss) available to common stockholders.
 Operating revenues.
 Operating costs and expenses.
 Project development costs.
 Selling, general and administrative expense.
 21




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Depreciation and amortization.
 Operating gains (losses).
 Other income (expense).
 Liquidity and capital resources
     22




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Tribal casino projects
       23




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Other
   24




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Quantitative and qualitative disclosures about market risk
   Safe harbor provision
   
    
    our growth strategies;
    
    our development and potential acquisition of new facilities;
    
    risks related to development and construction activities;
    
    anticipated trends in the gaming industries;
    
    patron demographics;
    
    general market and economic conditions;
    
    access to capital, including our ability to finance future business
requirements;
    
    the availability of adequate levels of insurance;
    
    changes in federal, state, and local laws and regulations, including
environmental and gaming license legislation and regulations;
    
    regulatory approvals;
    
    competitive environment;
    
    risks, uncertainties and other factors described from time to time in this and
our other SEC filings and reports.
  25




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Item 3. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures.
 Changes in Internal Control Over Financial Reporting.
 26




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PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 6. Exhibits
 10.1
    
    Agreement of Purchase and Sale Agreement between Stockmans Casino,
Inc. (the Seller) and Dhillon Hospitality Management, Inc. (the
Buyer) is incorporated herein by reference to the Companys Current
Report on Form 8-K dated October 5, 2007.31.1
    
    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*
 
 *
    
    Filed herewith 27




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SIGNATURES
  FULL HOUSE RESORTS, INC.Date: November 13, 2007By:
    /s/ MARK MILLERMark MillerChief Financial Officer
(on behalf of the Registrant and
as principal financial officer) 28