**U.S.SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**FORM 10-KSB**

 

| **ý****        Annual Report  Under Section 13 or 15(d) of the Securities Exchange Act of 1934** |
|-----------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                          |
| **For the fiscal year ended: December 31, 2003**                                                                                         |
|                                                                                                                                          |
| **o****        Transition  Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934**  |
|                                                                                                                                          |
| **Commission file number 0-20630**                                                                                                            |

 

**FULL HOUSERESORTS, INC.**

(Name of Small Business Issuer in ItsCharter)

 

| **Delaware**                                                         |   | **13-3391527**                              |
|----------------------------------------------------------------------|--------|---------------------------------------------|
| (State or Other Jurisdiction of  Incorporation or Organization)      |   | (I.R.S. Employer Identification No.)        |
|                                                                 |   |                                        |
| **4670 S. Fort Apache Rd., Suite 190, Las Vegas, Nevada 89147**      |
| (Address and zip code of principal  executive offices)               |
|                                                                 |   |                                        |
| **(702) 221-7800**                                                   |
| (Issuer’s Telephone Number, Including Area  Code)               |
|                                                                 |   |                                        |
| Securities registered under  Section 12(b) of the Exchange Act: |
|                                                                 |   |                                        |
| **None**                                                             |   | **None**                                    |
| (Title of Each Class)                                                |   | (Name of Each Exchange on Which Registered) |
|                                                                 |   |                                        |
| Securities registered under  Section 12(g) of the Exchange Act: |
|                                                                 |   |                                        |
| **Common Stock, $.0001 per Share**                                   |
| (Title of class)                                                     |

 

Check whether the registrant:  (1)filed all reports required to be filed by Section 13 or 15(d) of theExchange Act during the past 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days. Yes ý  No o

 

Check if there is no disclosure of delinquent filers in response toItem 405 of Regulation S-B contained in this form, and no disclosure will becontained, to the best of registrant’s knowledge, in definitive proxy orinformation statements incorporated by reference in Part III of this Form10-KSB or any amendment to this Form 10-KSB. ý

 

State issuer’s revenues for its most recent fiscal year:  $3,338,851*.*

 

The aggregate market value of registrant’s voting $.0001 par valuecommon stock held by non-affiliates of the registrant, as of March 19,2004 was: $3,564,791.

 

The number of shares outstanding of registrant’s $.0001 par valuecommon stock, as of March 19 2004, was 10,340,380 shares.

 

# **Documents Incorporated By Reference**

None

 

 

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**PART I**

 

**1.**                                      Description ofBusiness.

 

**BACKGROUND**

 

Full HouseResorts, Inc. develops and operates destination resorts and entertainment andgaming centers.  We operate Midway Slotsand Simulcast at the Delaware State Fairgrounds in Harrington, Delaware.  Midway Slots and Simulcast has a total ofapproximately 1,400 gaming devices, a 450-seat buffet, a 50-seat diner and anentertainment lounge area.  We operated,until August 2002, the Mill Casino, which is located on Tribal Trust Landsof the Coquille Indian Tribe in North Bend, Oregon. We are also involved in thedevelopment of a Tribal project in Battle Creek, Michigan.

 

Ourinvolvement with Indian Tribes began in May 1994 when Lee Iacocca, currentlyone of our directors, brought to us opportunities to become involved in thedevelopment of gaming projects in the Detroit, Michigan metropolitan areatogether with certain Indian tribes that we refer to as the Organized Tribes, asecond project in Michigan with the Nottawaseppi Huron Band of Potawatomi, a projectin southern California with the Torres Martinez Desert Cahuilla Indians and theHarrington, Delaware project.

 

We wereincorporated in Delaware on January 5, 1987.  Our executive offices are located at 4670 S. Fort Apache Rd.,Suite 190, Las Vegas, Nevada 89147, telephone (702) 221-7800.

** **

**GTECH JOINT VENTURES**

 

InApril 1995, we entered into a series of agreements with GTECH Corporation,a wholly-owned subsidiary of GTECH Holdings Corporation, a leading supplier ofcomputerized on-line lottery systems and services for government-authorizedlotteries, to jointly pursue gaming opportunities.  Pursuant to the agreements, joint venture companies equally ownedby Dreamport, Inc., the gaming and entertainment subsidiary of GTECH, and FullHouse were formed.  We contributed ourgaming rights to the North Bend, Oregon facility and our gaming rights todevelop the Torres Martinez, Nottawaseppi Huron Band of Potawatomi and DelawareState Fair projects to the joint venture companies.

 

In payment forour interest in the joint venture companies, we contributed cash and otherintangible assets to the companies and committed to loan the joint venturecompanies up to $16.4 million to complete the North Bend, Oregon and Delawarefacilities.  We agreed to guaranteeone-half of the obligations of the joint venture companies to GTECH under theseloans.  The Delaware and Oregon loanshave been repaid in full.  GTECH alsoagreed to make loans to us for our portion of the financing of projects if wewere unable to otherwise obtain financing. GTECH provided project management, technology and other expertise toanalyze, develop and manage the implementation of opportunities developed bythe joint venture companies.  GTECH alsoloaned us $3.0 million, with interest payable monthly at prime, and theprincipal balance originally due in January 2001.  This note was paid in February 2002.

** **

**Acquisition of GTECH’s Interest**

 

OnMarch 30, 2001, we bought GTECH’s 50% interest in three joint ventureprojects that had been equally owned by GTECH and us:

 

•                  GamingEntertainment, LLC, owner of an agreement that continued throughAugust 2002 with the Coquille Indian Tribe, which conducted gaming at TheMill Casino in North Bend, Oregon;

 

•                  GamingEntertainment (Michigan), LLC, owner of a management agreement with theNottawaseppi Huron Band of Potawatomi to develop and manage a gaming facilitynear Battle Creek, Michigan; and

 

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•                  GamingEntertainment (California), LLC, owner of a management agreement with theTorres Martinez Band of Desert Cahuilla Indians to manage a gaming facilitynear Palm Springs, California.

 

The purchaseprice was $1.8 million, and was funded through our existing creditfacility.  As part of this transaction,GTECH extended the due date of our $3.0 million promissory note untilJanuary 25, 2002.  This note wasrepaid in full in February 2002. Also, as part of this transaction, GTECH was no longer required toprovide the necessary financing for the development projects in Michigan andCalifornia.

 

Thistransaction did not include our other joint venture with GTECH, GamingEntertainment (Delaware), LLC, owner of an agreement, continuing through 2011,to manage Midway Slots & Simulcast in Harrington, Delaware.  We continue to own this joint venture withGTECH.

 

Below is ashort description of our remaining joint venture with GTECH and the gamingprojects and opportunities that we now own.

 

**Project Currently Operating**

** **

**Midway Slots and Simulcast—Harrington,Delaware**

** **

We opened MidwaySlots and Simulcast, owned by Harrington Raceway, Inc. on August 20,1996.  The original 35,000 square footfacility located near Dover, Delaware, was developed, financed and is managedby a Full House-Dreamport joint venture company.  The joint venture provided over $11 million in financing,developed the project and acts as manager of the gaming facility under a15-year contract.  The facility openedwith 500 gaming devices, a simulcast parlor and a small buffet. Followingexpansions in 1998 and 2000, the facility now includes a 450-seat buffet, a50-seat diner, and an entertainment lounge area and accommodates 1,430 gamingdevices.

 

Midway Slotsand Simulcast is located in Harrington, Delaware on Route 13, approximately 20miles south of Dover, Delaware between Philadelphia and Baltimore/Washington,D.C.  Midway Slots and Simulcast is oneof three facilities operating in Delaware. The closest competing casino is in Dover and operates 2,000 devices, themaximum number allowed in Delaware.  Theother facility is approximately 60 miles north of Harrington.

 

Under the 15year management agreement, the venture receives a percentage of gross revenuesand operating profits.  The jointventure company changed its management fee structure for revenues and operatingprofits in excess of defined amounts, in recognition of the owner providingcomplete financing for the May 2000 expansion.

 

InNovember 2002, both Maryland and Pennsylvania elected governors supportingsome type of gaming legalization.  Ourfacility draws a significant number of customers from Maryland and we believethat competitive gaming in Maryland would have an impact on our facility.  The magnitude would depend on both the formof gaming that is authorized, and the locations of competing facilities.  Maryland legislators and the governorcontinue to debate gaming legalization with no clear consensus yet formed.

 

The state ofDelaware enacted indoor clean air legislation that became effective in lateNovember of 2002.  This legislationbans smoking in indoor public access facilities, including casinos.  Total Delaware gaming revenue declined byapproximately 11.3% during 2003 compared to 2002, and we believe the smokinglegislation was the principal cause of this market decline.

 

**Project Operating During Part of 2002**

 

**The Mill Casino—North Bend, Oregon**

 

The MillCasino opened on May 19, 1995 with 250 video lottery terminals, nineblackjack tables, three poker tables, a restaurant and buffet, a saloon, abingo hall, a gift shop and a snack bar on Tribal Trust Lands of the CoquilleIndian Tribe in North Bend, Oregon.  Weoriginally received 13% of gaming revenue, but that decreased to

 

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10% under the terms of the agreement. Also, if gross gaming revenue for any twelve-month period exceeded$20,000,000, then only 10% of amounts in excess of such threshold would bepaid.  No Fees were to be paid afterAugust 19, 2002, the termination date of our agreement with theTribe.  The contract expired according toits terms in August 2002.

 

**Projects in Development**

** **

**Nottawaseppi Huron Band of Potawatomi—BattleCreek, Michigan**

** **

We enteredinto a series of agreements in January 1995 with the Nottawaseppi HuronBand of Potawatomi, a Michigan Indian Tribe, to develop and manage gaming andnon-gaming commercial opportunities for the Tribe.  The Tribe’s state reservation lands are in south centralMichigan.  If developed, the facilitywill target the Battle Creek, Kalamazoo, and Lansing, Michigan metropolitanareas, as well as Ft. Wayne, Indiana.

 

The Tribeachieved final federal recognition as a tribe in April 1996.  The Tribe obtained a Gaming Compact fromMichigan’s governor early in 1997 to operate an unlimited number of electronicgaming devices as well as roulette, keno, dice and banking card games.  The Michigan Legislature ratified theCompact by resolution in December 1998, along with compacts for threeother tribes.  A lawsuit was filed in1999 by “Taxpayers of Michigan Against Casinos” in Ingham County Circuit Court.  The lawsuit challenged the constitutionalityof the approval process of these gaming compacts.  On January 18, 2000, Judge Peter D. Houk ruled that thecompacts must be approved by a legislative bill rather than by resolution.  The State of Michigan filed an appeal to theMichigan Court of Appeals on February  4, 2000.  We joined in the appeal filing as anintervening defendant.  OnNovember 12, 2002, the Michigan Court of Appeals unanimously overturnedthe lower court decision; ruling that the compacts were valid.  The plaintiff filed an appeal with theMichigan Supreme Court on December 3, 2002.  The parties have filed their briefs and oral argument was held onMarch 11, 2004.

 

InDecember 1999, the management agreements, along with the required licensingapplications were submitted to the National Indian Gaming Commission, which werefer to as the NIGC.  We met with theNIGC several times to review suggested revisions to the management agreementsand, working with the Tribe, have incorporated all the appropriate changes.

 

InDecember 1999, the Tribe applied to have its existing reservation lands,as well as additional land in its ancestral territory, taken into trust by theBureau of Indian Affairs.  The partiesselected a parcel of land for the gaming enterprise, which was purchased inSeptember 2003, and completed a Fee-to-Trust application that wassubmitted to the Bureau of Indian Affairs in Washington, D.C. inFebruary 2002.  On August 9,2002, the United States Department of Interior issued its notice to take theland into trust for the benefit of the Tribe. On August 30, 2002 “Citizens Exposing Truth About Casinos” filed acomplaint in Federal District Court for the District of Columbia, seeking to preventthis land from being taken into trust. The parties filed their initial briefs and oral argument was heldAugust 28, 2003.  We are nowawaiting the court’s ruling.

 

A FullHouse-GTECH joint venture company had the exclusive right to provide financingand casino management expertise to the Tribe in exchange for 26% of net profitsand certain other considerations from any future gaming or related activitiesof the Tribe. If the project is developed, a third party will be paid a royaltyfee in lieu of its original 15% ownership interest in earlier contracts withthe Tribe.

 

We acquiredGTECH’s interest in this project in March 2001.  On February 15, 2002, we entered into an agreement with RAMEntertainment, LLC, a privately held investment company, whereby RAM willacquire a 50% interest in the California and Michigan projects and provide thenecessary funding for their development. RAM loaned us $2,381,260, which we used to retire our outstanding loanfrom GTECH.  The loan is to be convertedto a 50% equity position in these projects once our management contractsreceive regulatory approval, and the gaming site is taken into trust for theTribe.  Originally, had these approvalsnot been received by February 15, 2003, then the loan was to be repaid andRAM would forfeit any interest in these ventures.  However, we entered into an agreement to extend the date forreceipt, or waiver, of the approvals to February 15, 2004. OnFebruary 12, 2004, we received notice from RAM that they desired to extendthe maturity date of the loan to November 15, 2004 unless they wererequired to convert the loan into a 50% equity ownership position in theproject.  We continue to discuss theseoptions with RAM.

 

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In 1996,Michigan voters approved licenses for three gaming facilities within the Cityof Detroit, approximately 100 miles from the Battle Creek area.  We do not believe that these gamingfacilities in Detroit will have a material adverse impact on the proposed HuronPotawatomi casino.

 

**Torres Martinez Band of Desert CahuillaIndians—Thermal, California**

 

InApril 1995, we entered into a Gaming and Development Agreement and aGaming Management Agreement with the Torres Martinez Desert CahuillaIndians.  The agreements give us certainrights to develop, manage, and operate gaming activities for the Tribe and theright to receive a defined percentage of the net revenues from gamingactivities.  Our right to receive apercentage of the revenues is subject to our obligation to arrange or providefinancing for the development.  Therights to these agreements were assigned to a Full House-GTECH joint venturecompany.  In 1997, a new GamingManagement Agreement was signed, further defining the rights and obligations ofthe Tribe and Full House.  InMarch 2001, we acquired GTECH’s interest in this project.

 

During 1996,the Tribe reached a settlement in its litigation with the Department of Justiceand two water districts, under which the Tribe will be paid $14.0 million incompensation.  Additionally, the Tribewill have the right to select up to 11,200 acres of new reservation land to betaken into trust in replacement for the same quantity of land, which wasflooded by the rising level of the Salton Sea. That settlement, which required legislative enactment, was approved bythe U. S. House of Representatives and the Senate in December 2000.  The settlement allows the Tribe to acquireland in a specifically defined area (generally in the Palm Springs, Californiaarea) for purposes of conducting a gaming enterprise.

 

In August 2001,we received a notice from the Tribe purporting to sever our relationship.  Our balance sheet includes as a receivable,a $25,000 advance due from the Tribe. In addition, Gaming and Contract Rights includes approximately $120,000attributable to this contract.  We haveincurred an aggregate of approximately $1 million in costs, including interest,on the Tribe’s behalf.  InJune 2002, the Tribe requested additional documentation concerning thesecosts, which we have provided.  We arediscussing an appropriate resolution of this matter including reimbursement forcosts that we incurred.  While there canbe no assurance, we believe that we can recover the amounts carried on ourbalance sheet based upon the Tribe’s expressed intentions as well as our contractualrights.

 

**THEME HOTEL/CASINO—BILOXI, MISSISSIPPI**

** **

We bought aone-acre parcel of land on the gulf coast in Biloxi, Mississippi inFebruary 1998, for $4,621,670 with the intent of developing a themedcasino resort.  The land is near theinterchange of Beach Blvd. and Interstate 110, and next to the Beau RivageResort developed by Mirage Resorts, Inc. We later negotiated to buy and/or lease approximately six additionalacres, which, together with the parcel already acquired, would constitute theproject site.

 

InNovember 1998, we executed a series of agreements with Hard Rock CafeInternational to develop the project in Biloxi, Mississippi.  The agreements give us the right to developand operate a Hard Rock Casino in Biloxi. We paid a territory fee of $2,000,000. Hard Rock was to be a partner with us in a Management and DevelopmentAgreement for an ongoing management fee. In February 1999, we entered into various option agreements withseveral owners of the adjacent properties needed for our project.  We also started discussions with investmentbankers concerning the financing for the project, and started preparing ouroffering materials.  During thosediscussions, it became clear that the expected capital market requirements forthe project financing were not acceptable to either Hard Rock or us.

 

By mutualagreement we ended the Management and Development Agreement which relieved HardRock of its obligation to co-manage the facility.  We are still allowed to seek an equity partner to fill Hard Rock’srole. Additionally, the parties amended certain portions of the LicensingAgreement.  While negotiating to amendthe agreements, we entered into discussions with potential equity partners andthen potential partners for the development of the Hard Rock.  Because of the timing requirements in ouragreements with Hard Rock, and the conditions in the tourism industry, wedecided not to develop this project as planned.

 

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InNovember 2002, we entered into a termination agreement with Hard Rock withrespect to the Licensing Rights, which were due to expire by contract onNovember 20, 2003.  We received$100,000 in exchange for relinquishing any right we had to prevent Hard Rockfrom entering into any other licensing agreements in Mississippi prior to theoriginal contract termination date. Additionally, if Hard Rock executed 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 for annual fees of $100,000 or 10%of the licensing fees, whichever is greater. During 2003 and within the one year period, Hard Rock executed a newlicensing agreement. Our consulting fees become payable upon opening of thefacility which is expected to occur in 2005.

 

In May 2003 wesold the Biloxi land parcel for $2,500,000 and recognized a gain of $27,793.

 

**GOVERNMENT REGULATION**

** **

The ownership,management, and operation of gaming facilities are subject to many federal,state, provincial, tribal and/or local laws, regulations and ordinances, whichare administered by the relevant regulatory agency or agencies in eachjurisdiction.  These laws, regulationsand ordinances are different in each jurisdiction, but mostly deal with the responsibility,financial stability and character of the owners and managers of gamingoperations as well as persons financially interested or involved in gamingoperations.

 

Neither FullHouse nor any subsidiary may own, manage or operate a gaming facility unlessthey obtain proper licenses, permits and approvals.  Applications for a license, permit or approval may be denied forreasonable cause.  Most regulatoryauthorities license, investigate, and determine the suitability of any personwho has a material relationship with us. Persons having material relationships include officers, directors,employees, and security holders.

 

Once obtained,licenses, permits, and approvals must be renewed from time to time andgenerally are not transferable. Regulatory authorities may at any time revoke, suspend, condition,limit, or restrict a license for reasonable cause.  License holders may be fined and in some jurisdictions and undercertain circumstances gaming operation revenues can be forfeited.  We cannot guarantee that we will obtain anylicenses, permits, or approvals, or if obtained, will be renewed or not revokedin the future.  In addition, a rejectionor termination of a license, permit, or approval in one jurisdiction may have anegative effect in other jurisdictions. Some jurisdictions require gaming operators licensed in that state toreceive their permission before conducting gaming in other jurisdictions.

 

The politicaland regulatory environment for gaming is dynamic and rapidly changing.  The laws, regulations, and proceduresdealing with gaming are subject to the interpretation of the regulatoryauthorities and may be amended.  Anychanges in such laws, regulations, or their interpretations could have anegative effect on Full House.

 

Certainspecific provisions applicable to us are described below.

 

**Indian Gaming.**  Gaming on Indian Lands (lands over whichIndian tribes have jurisdiction and which meet the definition of Indian Landsunder the Indian Gaming Regulatory Act of 1988, which we refer to as theRegulatory Act), is regulated by federal, state and tribal governments.  The regulatory environment regarding Indiangaming is always changing.  Changes infederal, state or tribal law or regulations may limit or otherwise affectIndian gaming or may be applied retroactively and could then have a negativeeffect on Full House or its operations.

 

The terms andconditions of management contracts or other agreements, and the operation ofcasinos on Indian Land, are subject to the Regulatory Act, which is implementedby the NIGC.  The contracts also aresubject to the provisions of statutes relating to contracts with Indian tribes,which are supervised by the Secretary of the U.S. Department of the Interior.  The Regulatory Act is interpreted by theSecretary of the Interior and the NIGC and may be clarified or amended by thejudiciary or legislature.  Under theRegulatory Act, the NIGC has the power to:

 

•                  inspectand examine certain Indian gaming facilities;

 

•                  dobackground checks on persons associated with Indian gaming;

 

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•                  inspect,copy and audit all records of Indian gaming facilities;

 

•                  holdhearings, issue subpoenas, take depositions, and adopt regulations; and

 

•                  penalizeviolators of the Regulatory Act.

 

Penalties forRegulatory Act violators include fines, and possible temporary or permanentclosing of gaming facilities.  TheDepartment of Justice may also impose federal criminal sanctions for illegalgaming on Indian Lands and for theft from Indian gaming facilities.

 

The RegulatoryAct also requires that the NIGC review tribal gaming ordinances.  Such ordinances are approved only if theymeet certain requirements relating to:

 

•                  ownership;

 

•                  security;

 

•                  personnelbackground;

 

•                  recordkeeping and auditing of the tribe’s gaming enterprises;

 

•                  useof the revenues from gaming; and

 

•                  protectionof the environment and the public health and safety.

 

The RegulatoryAct also regulates Indian gaming and management contracts.  The NIGC must approve management contractsand collateral agreements, including agreements like promissory notes, loanagreements and security agreements.  Amanagement contract can be approved only after determining that the contractprovides for:

 

•                  adequateaccounting procedures and verifiable financial reports, copies of which must befurnished to the tribe;

 

•                  tribalaccess to the daily operations of the gaming enterprise, including the right toverify daily gross revenues and income;

 

•                  minimumguaranteed payments to the tribe, which must have priority over the retirementof development and construction costs;

 

•                  aceiling on the repayment of such development and construction costs; and

 

•                  acontract term not exceeding five years and a management fee not exceeding 30%of profits if the Chairman of the NIGC determines that the fee is reasonableconsidering the circumstances; provided that the NIGC may approve up to a sevenyear term and a management fee not to exceed 40% of net revenues if the NIGC issatisfied that the capital investment required or the income projections forthe particular gaming activity justify the larger profit allocation and longerterm.

 

Under theRegulatory Act, we must provide the NIGC with background information, includingfinancial statements and gaming experience, on:

 

•                  eachperson with management responsibility for a management contract;

 

•                  eachof our directors; and

 

•                  theten persons who have the greatest direct or indirect financial interest in amanagement contract to which we are a party.

 

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The NIGC willnot approve a management company and may void an existing management contractif a director, key employee or an interested person of the management company:

 

•                  isan elected member of the Indian tribal government that owns the facility beingmanaged;

 

•                  hasbeen or is convicted of a felony or misdemeanor gaming offense;

 

•                  hasknowingly and willfully provided materially false information to the NIGC or atribe;

 

•                  hasrefused to respond to questions from the NIGC;

 

•                  isa person whose prior history, reputation and associations pose a threat to the public interest or toeffective gaming regulation and control, or create or enhance the chance ofunsuitable, unfair or illegal activities in gaming or the business andfinancial arrangements incidental thereto; or

 

•                  hastried to influence any decision or process of tribal government relating togaming.

 

Contracts mayalso be voided if:

 

•                  themanagement company has materially breached the terms of the managementcontract, or the tribe’s gaming ordinance; or

 

•                  atrustee, exercising the skill and diligence to which a trustee is commonlyheld, would not approve such management contract.

 

The RegulatoryAct divides games that may be played on Indian Land into three categories.  Class I Gaming includes traditional Indiangames and private social games and is not regulated under the RegulatoryAct.  Class II Gaming includes bingo,pull tabs, lotto, punch boards, tip jars, instant bingo, and other gamessimilar to bingo, if those games are played at a location where bingo isplayed.  Class III Gaming includes allother commercial forms of gaming, such as video casino games (e.g., videoslots, video blackjack); so-called “table games” (e.g., blackjack, craps,roulette); and other commercial gaming (e.g., sports betting and pari-mutuelwagering).

 

Class IIGaming is allowed on Indian Land if performed according to a tribal ordinancewhich has been approved by the NIGC and if the state in which the Indian Landis located allows such gaming for any purpose. Class II Gaming also must comply with several other requirements,including a requirement that key management officials and employees be licensedby the tribe.

 

Class IIIGaming is permitted on Indian Land if the same conditions that apply to ClassII Gaming are met and if the gaming is performed according to the terms of awritten agreement between the tribe and the host state.  The Regulatory Act requires states tonegotiate in good faith with Indian tribes that seek to enter into tribal-statecompacts, and gives Indian tribes the right to get a federal court order toforce negotiations.

 

Thenegotiation and adoption of tribal-state compacts is vulnerable to legal andpolitical changes that may affect our future revenues and securitiesprices.  Full House cannot predict:

 

•                  whichadditional states, if any, will approve casino gaming on Indian Land;

 

•                  thetiming of any such approval;

 

•                  thetypes of gaming permitted by each tribal-state compact;

 

•                  anylimits on the number of gaming machines allowed per facility; or

 

•                  whetherstates will attempt to renegotiate or take other steps that may affect existingcompacts.

 

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Under theRegulatory Act, Indian tribal governments have primary regulatory authorityover gaming on Indian Land within the tribe’s jurisdiction unless atribal-state compact has delegated this authority.  Therefore, persons engaged in gaming activities, including FullHouse, are subject to the provisions of tribal ordinances and regulations ongaming.

 

Tribal-StateCompacts have been litigated in several states, including California andMichigan.  In addition, many bills havebeen introduced in Congress that would amend the Regulatory Act.  If the Regulatory Act were amended, thegovernmental structure and requirements by which Indian tribes may performgaming could be significantly changed.

 

**COMPETITION**

** **

The gaming industry is highlycompetitive.  Gaming activities includetraditional land-based casinos; river boat and dockside gaming; casino gamingon Indian Land; state-sponsored lotteries and video poker in restaurants, barsand hotels; pari-mutuel betting on horse racing, dog racing and jai alai;sports bookmaking; and card rooms.  TheIndian-owned casinos that we are developing and plan to operate compete withall these forms of gaming, and will compete with any new forms of gaming thatmay be legalized in additional jurisdictions, as well as with other types ofentertainment.

 

Midway Slots and Simulcast is one of threefacilities currently operating in Delaware.  Inaddition, in November 2002, both Maryland and Pennsylvania electedgovernors supporting some type of gaming legalization.  Neither jurisdiction has yet passed gaminglegislation but several proposals are being considered.  Our facility draws a significant number ofcustomers from Maryland and we believe that competitive gaming in Marylandwould have an impact on our facility. The magnitude would depend on both the form of gaming that is authorized,and the locations of competing facilities.

 

The State of Michigan, a potentialdevelopment site for Full House, currently has three gaming facilitiesoperating in Detroit and numerous Indian casinos.

 

Additionally, we are in constant competitionwith other companies in the industry to acquire other legal gaming sites andfor opportunities to manage casinos on Indian land.  Many of our competitors are larger in terms of potentialresources and personnel.  Suchcompetition in the gaming industry could adversely affect our ability toattract customers and thus, adversely affect operating results. In addition,further expansion of gaming into new jurisdictions could also adversely affectour business by diverting customers from its managed casinos to competitors insuch jurisdictions.

 

**FACTORS THAT MAYAFFECT OUR FUTURE PERFORMANCE**

** **

In addition to factors discussed elsewhere inthis Form 10-KSB, the following are important factors that could cause actualresults or events to differ materially from those contained in anyforward-looking statement made by or on behalf of Full House.

 

**Thegaming industry is highly regulated**.  Gaming facility ownership, management and operation is subject tomany federal, state, provincial, tribal and/or local laws, regulations, andordinances which are administered by particular regulatory agency or agenciesin each jurisdiction.  These laws,regulations and ordinances are different in each jurisdiction but generallydeal with the responsibility, financial stability and character of the ownersand managers of gaming operations and persons financially interested orinvolved in gaming operations.  Thechange of these laws, regulations or ordinances could affect our performance.

 

**Weare currently a defendant in litigation which could result in an obligation topay substantial amounts**.  Full House andsome of our current and former directors and officers are defendants in alawsuit with Lone Star Casino regarding the potential acquisition of ariverboat casino on the Mississippi Gulf Coast.  A verdict against us could require payments of amounts in excessof our financial resources.

 

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**Wewill need additional capital to pursue gaming opportunities**.  We believe we have enough revenue to finance presentoperations.  We will, however, needsubstantial additional funding to pursue gaming opportunities in Michigan andelsewhere.  We may not be able to getsuch financing.  If we get suchfinancing, you should know that any additional equity financings may bedilutive to shareholders, and any debt financing may involve additionalrestrictions.  An inability to raisesuch funds when needed might require us to delay, scale back or eliminate someof our expansion and development goals, and might require us to ceaseoperations entirely.

 

**Wehave numerous competitors**.  The gamingindustry is highly competitive.  Gamingactivities include traditional land-based casinos; river boat and docksidegaming; casino gaming on Indian land; state-sponsored lotteries and video pokerin restaurants, bars and hotels; pari-mutuel betting on horse racing, dogracing and jai alai; sports bookmaking; and card rooms.  The Indian-owned casinos that we are tryingto develop and operate compete with all these forms of gaming, and any newforms of gaming that may be legalized in additional jurisdictions, as well aswith other types of entertainment.

 

**Ourmanagement contracts are of limited duration**.  We are prohibited by law from having an ownership interest in anycasino we manage for Indian tribes.  Themanagement contract for the Coquille Indian Tribe, which conducts the gaming atThe Mill Casino, ended in August 2002. Our management contract for Midway Slots and Simulcast ends inAugust 2011.  If a managementcontract is not renewed we will lose the revenues from such contract whichwould have a negative effect on our results of operations.

 

**Ourmanagement contracts are subject to governmental or regulatory modification**.  The NIGC has the power to require modifications to Indianmanagement contracts under some circumstances or to void such contracts orsecondary agreements including loan agreements if we fail to obtain therequired approvals or to comply with the necessary laws and regulations.  While we believe that our managementcontracts meet the applicable requirements, NIGC has the right to review eachcontract and has the authority to reduce the term of a management contract orthe management fee or otherwise require modification of the contract.  Such changes would have a negative effect onour profitability.

 

**Wehave limited recourses against tribal assets**.  Development of our gaming opportunities will require us to makesubstantial loans to tribes for the construction, development, equipment andoperations.  Our only recourse forcollection of indebtedness from a tribe or money damages for breach or wrongfultermination of a management contract is from revenues, if any, from casinooperations.

 

**Wehave a limited base of operations**.  Our principal operations currently consist of the management ofone facility, Midway Slots and Simulcast. This, combined with the potentially significant investment associatedwith any new managed facilities may cause our operating results to fluctuatesignificantly.  Additionally, delays inthe opening or non-opening of any future casinos could also significantlyaffect our profitability.  Future growthin revenues and profits will depend on our ability to increase the number ofour managed casinos and facilities or develop new business opportunities.  We may be unable to successfully develop ormanage any additional casinos or facilities.

 

**Development of new casinos is subject to manyrisks, some of which we may not be able to control**.  The opening of our proposed facilities willdepend on, among other things, the completion of construction, hiring andtraining of sufficient personnel and obtaining all regulatory licenses,permits, allocations and authorizations. The number of the approvals needed to construct and open new facilitiesis extensive, and the failure to obtain such approvals could prevent or delaythe completion of construction or opening of all or part of such facilities orotherwise affect the design and features of the proposed casinos.

 

Even ifapprovals and financing are obtained, major construction projects entailsignificant risks, including a shortages of materials or skilled labor,unforeseen engineering, environmental and/or geological problems, workstoppages, weather interference, unanticipated cost increases and non-availabilityof construction equipment. Construction, equipment or stalling problems or difficulties inobtaining any of the requisite licenses, permits, allocations andauthorizations from regulatory authorities could increase the total cost, delayor prevent the construction or opening of any of these planned casinodevelopments or otherwise affect their design. In addition, once developed, we may not be able to manage these casinoson a profitable basis or to attract a sufficient number of guests, gamingcustomers and other visitors to make the various operations profitableindependently.

 

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**EMPLOYEES**

** **

As of March 19, 2004, we had four fulltime employees, two of whom are our executive officers.  Our joint venture operations haveapproximately 380 full time employees, and management believes that itsrelationship with its employees is good. None of our employees are currently represented by a labor union, althoughsuch representation could occur in the future.

 

**2.**                                      Description ofProperty.

** **

A Full House-GTECH joint venture company hasa fifteen-year lease and leaseback agreement with Harrington Raceway, Inc.  The lease encumbers the revenues of thegaming facility.  The lease is treatedas a capital lease and payments began on August 20, 1996.

 

Full House, together with RAM Entertainment,LLC, owns an eighty-acre parcel of land outside Battle Creek, Michigan which isintended to be a future gaming development site.

 

**3.**                                      LegalProceedings.

** **

In October 1994, we filed an action fordeclaratory relief in Mississippi, seeking a determination by the court that norelationship exists between us and Lone Star Casino Corporation regarding thepotential acquisition of a riverboat casino on the Mississippi gulf coast (FullHouse Resorts, Inc. v. Lone Star Casino Corporation v. Allen E. Paulson, SecondJudicial District of the Chancery Court of Harrison County, Mississippi).  Lone Star filed a counterclaim allegingbreaches of fiduciary duty, breach of contract, conspiracy to breach contractand to breach fiduciary duty and common law fraud.  The trial court granted summary judgment in favor of alldefendants on that counterclaim, and Lone Star appealed that judgment to theMississippi appellate court.  InApril 1998, the Appeals Court affirmed the dismissal of all counts againstall parties, excepting Lone Star’s claim against us for breach of contract,which it remanded to the trial court for additional hearing.  In January 2000, LS Capital, successorentity to Lone Star Casino Corporation, announced that it had retained counselto pursue the two remaining claims it had alleged against us which were notalready dismissed by the Mississippi appellate courts.  In April 2000, the trial judgedismissed both counts for Lone Star’s failure to prosecute its claims fornearly twenty months after their remand from the Court of Appeals.  Lone Star appealed that ruling and theMississippi State Court of Appeals reversed the dismissal, and in late 2001again remanded the claims against the Company for breach of contract, back tothe trial court for further proceedings.

 

Lone Star has not taken any further action,and in February 2004, following an additional twenty eight months ofinactivity, we prepared another motion to dismiss this action which was filedwith the court on March 19, 2004.

 

**4.**                                      Submission ofMatters to a Vote of Security Holders.

** **

None.

 

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**PART II**

 

**5.**                                      Market Price ofand Dividends on the Registrant’s Common Equity and Related StockholderMatters.

 

**(a)**                                  Market Information

 

Our common stock was listed by The NasdaqSmallCap Market under the symbol FHRI until April 17, 2001.  Thereafter, the stock began trading on theOTC Bulletin Board.  Set forth below arethe high and low sales prices of the common stock as reported on the OTCBulletin Board for the periods indicated.

 
|                              |   | **High** |       | **Low** |       |
|-----------------------------------|--------|----------|------------|---------|------------|
| Year Ended December 31, 2003 |   |     | ** ** |    | ** ** |
|                              |   |     |       |    |       |
| First Quarter                     |   | $        | 0.51       |    | $          | 0.33 |   |
| Second Quarter                    |   | 1.30     |       | 0.45    |       |
| Third Quarter                     |   | 1.30     |       | 0.63    |       |
| Fourth Quarter                    |   | 1.30     |       | 0.47    |       |
|                              |   |     |       |    |       |
| Year Ended December 31, 2002 |   |     |       |    |       |
|                              |   |     |       |    |       |
| First Quarter                     |   | $        | 0.64       |    | $          | 0.25 |   |
| Second Quarter                    |   | 0.70     |       | 0.33    |       |
| Third Quarter                     |   | 0.60     |       | 0.28    |       |
| Fourth Quarter                    |   | 0.70     |       | 0.42    |       |

 

The quotations reflect inter-dealer prices,without retail mark-up, mark-down or commission, and may not represent actualtransactions.  On March 19, 2004,the last sale price of the Common Stock as reported by the OTC Bulletin Boardwas $0.85.

 

**(b)**                                  Holders

** **

As of March 19, 2004, we had approximately129 holders of record of our common stock. We believe that there are over 800 beneficial owners.

 

**(c)**                                  Dividends

 

We have never paid dividends on our commonstock or preferred stock.  Holders ofcommon stock are entitled to receive such dividends as may be declared by theboard of directors out of funds legally available therefor.

 

Holders of our Series 1992-1 Preferred Stock areentitled to receive dividends, when, as and if declared by the board ofdirectors out of funds legally available therefor, in the annual amount of $.30per share, payable in arrears semi-annually on the 15th day ofDecember and June, in each year. Dividends on the Series 1992-1 Preferred Stock commenced accruing on July 1, 1992and are cumulative.  We have notdeclared or paid the accrued dividends on our preferred stock which werepayable since issuance, totaling $2,415,000 and, accordingly, are in default inregard thereto.

 

Since we are in default in declaring, settingapart for payment and paying dividends on the preferred stock, we arerestricted from paying any dividend or making any other distribution orredeeming any stock ranking junior to the preferred stock.

 

We intend to retain future earnings, if any,to provide funds for the operation of our business, retirement of our debt andpayment of preferred stock dividends and, accordingly, do not anticipate payingany cash dividends on our common stock in the near future.

 

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**(d)****                                 ****Securitiesauthorized for issuance under equity compensation plans**

 

**EQUITY COMPENSATION PLAN INFORMATION**

 

The followingtable provides information as of December 31, 2003 with respect tocompensation plans (including individual compensation arrangements) under whichour equity securities are authorized for issuance. 

 
|                                                           |   | **Equity  Compensation Plan Information**                                                                            |   |
|----------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------------------------|--------|
| **Plan Category**                                              |   | **Number of  securities  to be issued upon  exercise of outstanding  options, warrants and  rights  (in thousands)** |   | **Weighted-average  exercise price of  outstanding options,  warrants and rights** |   | **Number of  securities  remaining available  for future issuance  under equity  compensation plans  (excluding securities  reflected in column (a)  (in thousands)** |   |
|                                                           |   | **(a)**                                                                                                              |   | **(b)** |   | **(c)** |   |
| Equity compensation plans approved by security  holders        |   | 575,000                                                                                                              |   | $ | 2.88 |   | None |   |
| Equity compensation plans not approved by security  holders(1) |   | 150,000                                                                                                              |   | 2.25 |   | None |   |
| Total                                                          |   | 725,000                                                                                                              |   | $ | 2.75 |   | None |   |

 

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(1)                    Optionsto purchase 150,000 shares of our common stock were issued in 1994 to aconsultant. These options are exercisable at $2.25 per share and expireJune 1, 2004.

 

 

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

 

**Forward Looking Statements**

 

This Annual Report on Form 10-KSB containsforward-looking statements within the meaning of Section 21E of theSecurities Exchange Act of 1934, as amended, relating to our financialcondition, profitability, liquidity, resources, business outlook, proposedacquisitions, market forces, corporate strategies, consumer preferences,contractual commitments, legal matters, capital requirements and othermatters.  The Private SecuritiesLitigation Reform Act of 1995 provides a safe harbor for forward-lookingstatements.  We note that many factorscould cause our actual results and experience to change significantly from theanticipated results or expectations expressed in our forward-lookingstatements.  When words and expressionssuch as: “believes,” “expects,” “anticipates,” “estimates,” “plans,” “intends,”“objectives,” “goals,” “aims,” “projects,” “forecasts,” “possible,” “seeks,”“may,” “could,” “should,” “might,” “likely,” “enable,” or similar words orexpressions are used in this Form 10-KSB, as well as statements containingphrases such as “in our view,” “there can be no assurance,” “although no assurancecan be given,” or “there is no way to anticipate with certainty,”forward-looking statements are being made.

 

Various risks and uncertainties may affectthe operation, performance, development and results of our business and couldcause future outcomes to change significantly from those set forth in ourforward-looking statements, including the following factors:

 

•                  ourgrowth strategies;

 

•                  ourdevelopment and potential acquisition of new facilities;

 

•                  risksrelated to development and construction activities;

 

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•                  anticipatedtrends in the gaming industries;

 

•                  patrondemographics;

 

•                  accessto capital;

 

•                  generalmarket and economic conditions;

 

•                  ourability to finance future business requirements;

 

•                  theavailability of adequate levels of insurance;

 

•                  theability to successfully integrate acquired companies and businesses;

 

•                  changesin Federal, state, and local laws and regulations, including environmental andgaming license legislation and regulations;

 

•                  regulatoryapprovals;

 

•                  competitiveenvironment;

 

•                  risks,uncertainties and other factors described from time to time in this and ourother SEC filings and reports.

 

We undertake no obligation to publicly updateor revise any forward-looking statements as a result of future developments,events or conditions.  New risk factorsemerge from time to time and it is not possible for us to predict all such riskfactors, nor can we assess the impact of all such risk factors on its businessor the extent to which any factor, or combination of factors, may cause actualresults to differ significantly from those forecast in any forward-lookingstatements.

 

**Overview**

 

During 2002and 2003, we had focused on selling our company.  We signed a merger agreement with the Morongo Band of MissionIndians in July 2003, but the agreement was terminated inOctober 2003 based on the failure of their membership to approve themerger.  Our revenues during 2003 werederived solely from our Delaware operations. We have been unable to proceedwith development of our Michigan project until two court cases in Michigan areresolved.  We are still awaiting aruling in both cases.

 

We are nowrefocusing our efforts to seek out additional development and managementopportunities in line with our philosophy of providing fair value to ourpartners and enhancing shareholder value. We have strengthened our management team to allow us to successfullypursue this strategy.

 

**Accounting Policies**

 

Our accounting policies are more fully describedin Note 2 of the Notes to Consolidated Financial Statements.  As disclosed therein, the preparation offinancial statements in conformity with generally accepted accountingprinciples requires management to make estimates and assumptions about futureevents that affect the amounts reported in the financial statements andaccompanying notes.  Future events andtheir effects cannot be determined with absolute certainty.  Therefore, the determination of estimatesrequires the exercise of judgment.  Actualresults inevitably will differ from those estimates and such differences may bematerial to the financial statements.

 

The most significant accounting estimatesinherent in the preparation of our financial statements include estimatesassociated with management’s evaluation of the recoverability ofintangibles.  Various assumptions andother factors underlie the determination of these significant estimates.  The process of determining significant

 

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estimates is factspecific and takes into account factors such as historical experience, currentand expected 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**

 

**Year Ended December 31, 2003 Compared toYear Ended December 31, 2002**

 

**Revenues**.  Total operating revenues decreased $1,478,830 from the prior yearperiod. This decrease is due to the termination, in August 2002, of theOregon management agreement.  With theexpiration of the Oregon contract, our Delaware joint venture is now our solesource of revenue.  This revenue streamis being used to fund our ongoing operations and the pursuit of our developmentproject in Michigan.

 

*DelawareJoint Venture*.  Our share ofincome from the Delaware joint venture was $3,338,851, an increase of $50,729compared to $3,288,122 in 2002.  In lateNovember 2002, a non-smoking law became effective in Delaware.  This law, which prohibits smoking inenclosed public facilities, applies to our facility.  Midway experienced a decline in revenue of approximately 9%during 2003 compared to 2002.  Areduction in expenses at the joint venture level offset the decline inmanagement fees received.  The Delawaremarket gaming revenues declined by 11.3% in 2003, and we believe the smokingrestrictions are the principal reason for this decline.

 

*Oregon*.  The total fees attributable to the Oregon contract were$1,529,559 in 2002.  This contractexpired in August 2002 in accordance with its terms, and the reduction infees is due to the contract termination.

 

**DevelopmentCosts**.  Development related costs for the Californiaand Michigan projects were $692,399 in 2003, compared to $954,063 for the prioryear.  The majority of these costs weredue to activities related to the Michigan venture with the Huron PotawatomiTribe in Battle Creek.  These costs wereprimarily for legal and consulting fees to assist the Tribe in obtainingsuitable land and complying with the requirements of the Indian GamingRegulatory Act.  The decrease isprimarily due to the purchase of land that was previously optioned for $216,000per year.

 

**Generaland Administrative Expenses**.  General andadministrative expenses of $1,857,655 for 2003 includes approximately $300,000in expenses related to a failed merger agreement.  For the prior year, the $1,776,059 in expense included alitigation settlement of $125,000.  Theremaining $93,404 difference between periods primarily resulted from reducedproperty taxes, rental expense and legal fees

 

**Depreciationand Amortization**.  Depreciationexpense decreased from $16,258 to $11,002. Amortization of the acquired contract rights was $165,557 compared to$200,292 in the prior period.  Thedecrease is due to the expiration of the Oregon contract.

 

**InterestExpense**.  Interest expense was $99,173 in 2003compared to $146,067 in 2002.  Thisdecrease is due to slight reduction in the average debt outstanding, coupledwith a reduction in our effective borrowing rate from 5.15% to 4.16%.

 

**Interestand Other Income**.  In May 2003 wesold our one-acre parcel of land in Mississippi for $2,500,000 and recognized again of $27,793.  In November 2002we entered into a termination agreement with Hard Rock concerning our Biloxi,Mississippi licensing rights in exchange for a termination fee of $100,000.  Interest income is primarily due to earningson invested cash balances and was slightly less than the prior year due todeclining interest rates.

 

**IncomeTax Benefit (Provision).**  The income taxprovision is a combination of separate state taxes on joint venture earningscombined with the effect of a federal consolidated return.  At December 31, 2003, we had netoperating loss carryforwards for federal income tax purposes of approximately$1,702,000, which may be carried forward to offset future taxable income.  The loss carryforwards will begin to expirein 2018.  The availability of the

 

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loss carryforwardsmay be limited in the event of a significant change in ownership of Full Houseor our subsidiaries.

 

**Year Ended December 31, 2002 Compared toYear Ended December 31, 2001**

 

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

 

Total operating revenues decreased $178,145from the prior year period. This decrease is due to the termination, inAugust 2002, of the Oregon management agreement, partially offset byimproved performance in Delaware.  Withthe expiration of the Oregon contract, our Delaware joint venture is now oursole source of revenue.  This revenuestream is being used to fund our ongoing operations and the pursuit of asuccessful development project in Michigan.

 

*DelawareJoint Venture*.  Our share ofincome from the Delaware joint venture was $3,288,122, an increase of $313,448,or 10%, compared to $2,974,674 in 2001. During 2002 we were able to increase the gaming capacity byapproximately 150 machines bringing the total to 1,430 as of December 31,2002.  This increased capacity, coupledwith continuing growth in the market, helped to drive a 16% increase in gamingwin.  In late November 2002, anon-smoking law became effective in Delaware. This law, which prohibits smoking in enclosed public facilities, appliesto our facility.  We experienced adecline in revenue of approximately 14% during December, which was also negativelyimpacted by severe winter weather. However, we believe the smoking restrictions are having a significantimpact on our revenues, and also at the competing facilities in Delaware.

 

*Oregon*.  The total fees attributable to the Oregon contract were $1,529,559in 2002, compared to $2,303,519 in 2001. This contract expired in August 2002 in accordance with its terms,and the reduction in fees is due to the contract termination.

 

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

 

**Pre-openingand Development**.  Total developmentrelated costs (joint venture pre-opening costs and development costs) for theCalifornia and Michigan projects were $954,063 in 2002, compared to $955,441for the prior year.  The majority ofthese costs were due to increased activities related to the Michigan venturewith the Huron Potawatomi Tribe in Battle Creek.  These costs were primarily for legal and consulting fees toassist the Tribe in obtaining suitable land and complying with the requirementsof the Indian Gaming Regulatory Act, as well as land option payments.  We also increased our ownership in theseprojects to 100% in March 2001.

 

Pre-opening and development expenses in 2001included $250,000 related to the expiration of a land purchase option inBiloxi, Mississippi that we chose not to exercise or renew.  No similar expense was incurred in 2002.

 

**Generaland Administrative Expenses**.  General andadministrative expenses increased by $132,863 to $1,776,059 in 2002 compared to$1,643,196 in the prior year.  Thisincrease is primarily due to a litigation settlement of $125,000 related to ourintended Hard Rock Biloxi development.

 

**Impairment**.  The Impairment provision of $4,593,800, recorded in the thirdquarter of 2001, resulted from an assessment of the carrying values of ourMississippi assets as a result of the unsuccessful conclusion of discussionswith potential partners.  These assetstotaled $7,065,800, for land, licenses and permits.  The reduction of the carrying value to $2,472,000 represents theestimated fair value of the land parcel.

 

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**Depreciationand Amortization**.  Depreciationexpense decreased from $23,828 to $16,258. Amortization of the acquired contract rights was $200,292 compared to$168,828 in the prior period.  Theincrease is due to 12 months of amortization in 2002, compared to only ninemonths in the prior year. Our goodwill had been fully amortized as of September 30,2001.

 

**InterestExpense**.  Interest expense was $146,067 in 2002compared to $286,745 in 2001.  Thisdecrease is due to a 30% reduction in the average debt outstanding, coupledwith a reduction in our effective borrowing rate from 7% to 5.15%.

 

**Interestand Other Income**.  InNovember 2002 we entered into a termination agreement with Hard Rockconcerning our Biloxi, Mississippi licensing rights in exchange for atermination fee of $100,000.  Interestincome is primarily due to earnings on invested cash balances and was slightlyless than the prior year due to declining interest rates.

 

**IncomeTax Benefit (Provision).**  The income taxprovision for the current year reflects an effective tax rate of 47.8%, whichis a combination of state taxes on joint venture earnings combined with the taxeffect of non-deductible amortization expenses.  The income tax benefit recorded for 2001 is primarily a result ofthe expected tax benefit from the realization of the impairment provisionrecorded in the third quarter of 2001. At December 31, 2002, we had net operating loss carryforwards forfederal income tax purposes of approximately $464,000, which may be carriedforward to offset future taxable income. The loss carryforwards expire in 2019. The availability of the loss carryforwards may be limited in the eventof a significant change in ownership of Full House or our subsidiaries.

 

**LIQUIDITY ANDCAPITAL RESOURCES**

 

We held cash and cash equivalents of$1,942,430 as of December 31, 2003. Net cash provided by operating activities was $447,999 as compared to$1,771,870 in the prior year.  Thedecrease is primarily due to the decreased cash flow from Oregon as a result ofthe expiration of the contract. Investing activities provided cash of $330,378 resulting from the saleof our Mississippi land parcel for $2,500,000, coupled with the landacquisition in Michigan of $1,929,415 and $240,000 in advances to the MichiganTribe. In 2002, investing activities used $256,496, primarily to fund $240,000in advances to the Michigan Tribe pursuant to our agreements with them.  There were no financing activities in2003.  Financing activities used$1,218,740 in cash in 2002 as we repaid the balance of the $3,000,000 GTECHnote and $600,000 outstanding on our bank line with the $2,381,260 proceedsfrom the RAM note and cash provided by operations.  As a result of these activities our cash and cash equivalentsincreased by $778,377 and $296,634 during 2003 and 2002, respectively.

 

In 1998, we obtained a $2,000,000 line ofcredit with Coast Community Bank of Mississippi with an initial maturity dateof February 25, 1999.  We hadrenewed this line on an annual basis. In February 2002, the renewal reduced the availability to $1,000,000and extended the maturity date to May 12, 2003.  The sale of our property in Mississippi has provided adequateliquidity, and also ended our active involvement in that market; accordingly,the line was not renewed at maturity.

 

OnFebruary 15, 2002, we entered into an agreement with RAM Entertainment,LLC, a privately held investment company, whereby RAM may acquire a 50%interest in the California and Michigan projects and provide the necessaryfunding for their development.  RAMadvanced $2,381,260 to us in the form of a loan, to be converted into equityupon receipt by the Huron Potawatomi Tribe of federal approvals for itsproposed casino near Battle Creek, Michigan. The loan bears interest adjustable daily at prime and requires interestpayments monthly.  The originalFebruary 15, 2003 maturity date has been extended to February 15,2004 and extended again at the option of RAM until November 15, 2004unless it is required to convert the loan into equity.  The legal challenge preventing the land frombeing taken into trust is pending in Federal District Court.

 

OnSeptember 9, 2003 we, together with RAM Entertainment, LLC, our jointventure partner, purchased approximately 80 acres of land located at theintersection of I-94 and 11 Mile Road in Emmett Township, just outsideBattle Creek, Michigan.  The purchaseprice of $3,858,830 was funded equally by the two parties.  The land is intended to be used as the sitefor a casino project for the Nottawaseppi Band of Huron Potawatomi Indians

 

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As a result of our agreement with RAM,development funding cash needs for the Michigan project may be substantiallyprovided by RAM.  Our future cashrequirements will primarily be to fund the balance of development expense andgeneral and administrative expenses. Our Oregon contract expired in August 2002, leaving the Delawarejoint venture as our sole source of operating cash flow.  We believe that adequate financial resourceswill be available to execute our current business plan, which is to concentrateon the Michigan project and select development and management opportunities.

 

On April 15, 2002 we announced theintent to hire an investment advisor to assist in enhancing shareholder valuethrough the exploration of strategic alternatives.  On July 29, 2003 we signed a definitive merger agreementwith the Morongo Band of Mission Indians, a federally recognizedCalifornia Indian tribe, pursuant to which a subsidiary of the Morongo tribewas to acquire Full House Resorts.  Inthe merger, each Full House Resorts common shareholder was to receive $1.30 foreach 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. OnOctober 14, 2003 we were notified by the Morongo Band of MissionIndians, that the general membership had failed to approve the proposed mergerbetween Full House Resorts and a subsidiary of the Morongo Band and thereforethe proposed merger would not occur.

 

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

 

As part of the Michigan and Californiamanagement agreements with the tribes, we have advanced funds for tribaloperations and the construction of a tribal community center.  The receivable on our balance sheet isattributable to this funding, and the repayment obligation is dependent on thefuture profitable operation of the tribes’ gaming enterprises.  Additional advanced costs, which we have expensedas period development costs may also be recovered if we successfully developand operate a gaming enterprise for the tribe.

 

 InAugust 2001, we received a notice from the Torres-Martinez Tribe inCalifornia purporting to sever our relationship.  Our balance sheet includes as a receivable a $25,000 advance duefrom Torres-Martinez Tribe, and included in Gaming and Contract Rights isapproximately $120,000 attributable to this contact.  We have incurred aggregate expenses of approximately $1 million,including interest, on behalf of Torres-Martinez Tribe.  In June 2002, the Triberequested additional documentation concerning these costs, which we haveprovided.  We are discussing anappropriate resolution of this matter including reimbursement for costs that weincurred.  We believe that these amounts are recoverablebased upon the expressed intentions of Torres-Martinez Tribe, as well as ourcontractual rights.

 

InNovember 2002, we executed a termination agreement with respect to ourHard Rock licensing rights in Biloxi, Mississippi in exchange for a $100,000termination fee.  Additionally, if HardRock executed a new licensing agreement for Biloxi within one year of thetermination agreement, we agreed to provide consulting services to Hard Rockfor a two-year period beginning with the opening of a Biloxi facility,entitling us to receive annually, for the two year consulting period, $100,000,or 10% of licensing fees, as defined, whichever is greater.  During 2003, Hard Rock executed a newlicensing agreement for Biloxi.

 

**Contractual Obligations. **The following tablesummarizes our contractual obligations as of December 31, 2003:

 
|             |   |      |      | **Payments  Due by Period** |   |
|------------------|--------|-----------|-----------|-----------------------------|--------|
|             |   | **Total** |      | **Less than  1 year**       |   | **1 to 3  years** |   | **3 to 5  years** |   | **Thereafter** |   |
| Long term debt   |   | $         | 2,381,260 |                        | $      | 2,381,260 |   | $ | — |   | $ | — |   | $ | — |   |
| Operating leases |   | 126,993   |      | 37,320                      |   | 89,673 |   | — |   | — |   |
| Total            |   | $         | 2,508,253 |                        | $      | 2,418,580 |   | $ | 89,673 |   | $ | — |   | $ | — |   |

 

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As of December 31, 2003, we hadcumulative undeclared and unpaid dividends in the amount of $2,415,000 on the700,000 outstanding shares of our 1992-1 Preferred Stock.  Such dividends are cumulative whether or notdeclared, and are currently in arrears.

 

**Quantitativeand Qualitative Disclosures about Market Risk**.  Market risk is the risk of loss from changes in market rates orprices, such as interest rates and commodity prices.  We are exposed to market risk in the form of changes in interestrates and the potential impact such changes may have on our variable ratedebt.  We have not invested inderivative based financial instruments.

 

Our totaloutstanding short-term debt of $2.4 million at December 31, 2003 issubject to variable interest rates, which averaged 4.16% during the currentyear.  Our variable rate debt is basedon the Prime lending rate and therefore, our interest rates on this variablerate debt will change as the Prime rate changes.  Based on our $2.4 million of outstanding variable rate debt atDecember 31, 2003, a hypothetical 100 basis point (1%) change in rateswould result in an annual interest expense change of approximately $24,000.

 

**RecentAccounting Pronouncements**.  InJuly 2001, the Financial Accounting Standards Board (“FASB”) issuedStatement of Financial Accounting Standard (“SFAS”) No. 141, “BusinessCombinations” and SFAS No.  142, “Goodwill and Other IntangibleAssets.”  SFAS 141 prohibits the poolingof interests method of accounting for business combinations initiated afterJune  30, 2001. SFAS 142, which was effective for Full House in January 2002,requires, among other things, the discontinuance of goodwill amortization.  In addition, the standard includesprovisions for the reclassification of certain existing intangibles asgoodwill, reassessment of the useful lives of existing intangibles, and ongoingassessments of potential impairment of existing goodwill.

 

Our goodwill, net of accumulatedamortization, has been reduced to zero. Other existing intangibles consist of net Gaming and Contract Rights of$5,024,389.

 

InJune 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associatedwith Exit or Disposal Activities.”  SFASNo. 146 addresses financial accounting and reporting for costs associated withexit or disposal activities and nullifies Emerging Issues Task Force (EITF)Issue 94-3, Liability Recognition for Certain Employee Termination Benefits andOther Costs to Exit an Activity. The provisions of this Statement are effectivefor exit or disposal activities that are initiated after December 31,2002, with early application encouraged. The adoption of SFAS No. 146 did nothave a material effect on our financial statements.

 

InDecember 2002, the FASB issued SFAS No. 148, “Accounting for Stock-BasedCompensation - Transition and Disclosure,” an amendment of FASB Statement No.123. This Statement amends FASB Statement No. 123, Accounting for Stock-BasedCompensation, to provide alternative methods of transition for a voluntarychange to the fair value method of accounting for stock-based employeecompensation. In addition, this Statement amends the disclosure requirements ofStatement No. 123 to require prominent disclosures in both annual and interimfinancial statements. Certain of the disclosure modifications are required forfiscal years ending after December 15, 2002 and are included in these consolidatedfinancial statements. The adoption of SFAS No. 148 did not have a materialeffect on our financial statements.

 

**7.**                                      FinancialStatements.

** **

The following financial statements are filedas part of this Report:

 

•                  Independent Auditors’ Report;

 

•                  Consolidated Balance Sheetsas of December 31, 2003 and 2002;

 

•                  Consolidated Statements ofOperations for the years ended December 31, 2003 and 2002;

 

•                  Consolidated Statements ofStockholders’Equity for the years ended December 31, 2003 and 2002;

 

19

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•                  Consolidated Statements ofCash Flows for the years ended December 31, 2003 and 2002;

 

•                  Notes to ConsolidatedFinancial Statements.

 

**8.**                                      Changes in andDisagreements with Accountants on Accounting and Financial Disclosure.

** **

None.

 

**8A.**                             Controls and Procedures.

** **

Evaluation ofDisclosure Controls and Procedures.  Full House’s chief executive and financialofficers, have evaluated 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 December 31, 2003, and concluded that as ofDecember 31, 2003, our disclosure controls and procedures were effectiveand designed to ensure that material information relating to us would be madeknown to them to allow timely decisions regarding disclosures.

 

Changes inInternal Controls. No significant changes in our internal controls or in other factors thatcould significantly affect those controls occurred during the fourth quarter of2003.

 

**PART III**

 

**9.**                                      Directors,Executive Officers, Promoters and Control Persons; Compliance withSection 16(a) of the Exchange Act.

 

Our directors and executive officers andtheir ages as of March 26, 2004 are as follows:

 
| **Name**           |   | **Age** |   | **Positions**                         |   |
|--------------------|--------|---------|--------|---------------------------------------|--------|
| J. Michael Paulson |   | 48      |   | Chairman                              |   |
| William P. McComas |   | 77      |   | Director                              |   |
| Lee A. Iacocca     |   | 79      |   | Director                              |   |
| Andre M. Hilliou   |   | 56      |   | President and Chief Executive Officer |   |
| Greg Violette      |   | 53      |   | Chief Financial  Officer              |   |
| Barth F. Aaron     |   | 55      |   | Secretary                             |   |

 

**J. Michael Paulson**was elected to our board on February 13, 2004 and was appointed Chairmanon March 1, 2004.  Mr. Paulson hasbeen involved in the real estate development and investment business since 1986as the Founder, Owner and President of Nevastar Investments Corp. and ConstructionSpecialist of Nevada, Inc.  Mr. Paulsonhas been a director, president and general manager of Gold River Resort andCasino, Inc. and Gold River Operating Corporation since 2000. Mr. Paulson alsoserves as a director or officer of various businesses involving thoroughbredracing and breeding operations, oil exploration and real estate, gaming andequity investments.  Mr. Paulson workedin the aerospace industry for 17 years, including 11 years with Gulfstream AerospaceCorporation.

 

**WilliamP. McComas**was Chairman of the Board and Chief Executive Officer from March  5,1998 until March 1, 2004.  Mr. McComas has been a Director of Full House since November 1992.  Mr. McComas has been President of McComasProperties, Inc., a California real estate development company sinceJanuary 1984.  Mr. McComas andcompanies controlled by him have developed several hotels and resorts,including Marina Bay Resort, Fort Lauderdale, Florida; Ocean Colony Hotel andResort, Half Moon Bay, California; Residence Inn by Marriott, Somers Point, NewJersey; and five Holiday Inns located in Des Moines, Iowa; San Angelo, Texas;Suffern, New York; Niagara Falls, New York; and Fort Myers, Florida.

 

**Lee A. Iacocca** hasbeen one of our directors since April 1998.  In 1997, he founded EV Global Motors, to design, market anddistribute the next generation of electric vehicles.  Mr. Iacocca is former Chief Executive Officer and Chairman of theBoard of Directors of Chrysler Corporation, retiring from those positions in1992.  He retired as a Chrysler Directorin September 1993 and continued to serve as a consultant to Chrysler until1994.  He is Chairman of the IacoccaFoundation, a philanthropic organization dedicated to educational projects andthe advancement of diabetes

 

20

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research, and is Chairman of the Committee for Corporate Support ofJoslin Diabetes Foundation.  Mr. Iacoccais also Chairman Emeritus of the Statue of Liberty - Ellis Island Foundationand serves on the Advisory Board of Reading Is Fundamental, the nation’slargest reading motivation program.

 

**AndreM. Hilliou**became President and Chief Executive Officer on March 1, 2004.  Mr. Hilliou has over 25 years experience inthe gaming industry.  FromSeptember 2001 until joining the Full House, Mr. Hilliou served asChairman and Chief Executive Officer of Vision Gaming and Technology, Inc.,formerly known as Leisure Time Technology, Inc. where he brought the companyout of bankruptcy.  Prior to that heserved as a consultant to the gaming industry. From 1998 to 1999, Mr. Hilliou was Chief Executive Officer of AmericanBingo and Gaming, Inc., a manager of bingo operations in the Southeast.  Prior to that he served as Chief ExecutiveOfficer of Aristocrat, Inc., the U.S. subsidiary of Australia’s largest slotmachine manufacturer.  He spent 16 yearswith the Showboat Corporation, reaching the level of Vice President ofOperations for its Atlantic City, New Jersey property, and Chief ExecutiveOfficer of Showboat’s Sydney Harbour Casino, a $1 billion development project.

 

**GregViolette**becameChief Financial Officer on March 1, 2004. Mr. Violette has 11years of gaming experience.  From Audust 2001 until joining Full House he has been a financialand operational consultant to the gaming industry.  From August 1997 until August 2001 he served as ChiefFinancial Officer of Pacific Coast Gaming and Michels Development Company(under common ownership) in the business of developing and managingcasinos.  Prior to that Mr. Violetteserved as the Chief Financial Officer for casinos in the Midwest.  He has been involved in developing andmanaging several casinos for tribes in the Midwest and Southwest.  Prior to his gaming experience, Mr. Violetteworked in the travel industry for 10 years, holding middle and seniormanagement positions with Hertz Rent a Car and Northwest Airlines.

 

**Barth F. Aaron** was appointed Secretary onMarch 26, 2004.  He was hired asGeneral Counsel for the Company on March 2, 2004.  From April 2002, Mr. Aaron was GeneralCounsel of Vision Gaming and Technology, Inc., for which he remains companySecretary and legal counsel.  FromJanuary 2001until April 2002, Mr. Aaron served as Corporate Directorof Regulatory Compliance and Risk Management for Penn National Gaming, Inc.  From August 1996 until May 2000, Mr.Aaron was Corporate General Counsel for Aristocrat, Inc., the U.S. subsidiaryof Australia’s largest slot machine manufacturer, where he was a legalconsultant from May 2000 until January 2001.  Mr. Aaron has been a Deputy Attorney General with the New JerseyDivision of Gaming Enforcement and is admitted to practice law in the states ofNevada, New Jersey and New York.

 

**Meetings and Committees of the Board ofDirectors**

 

During fiscalyear 2003, the board of directors held five meetings of the board of directorsand four meetings of the board of directors acting as the audit committee.  Each director attended at least 75% of theboard of directors meetings and committee meetings for which their attendancewas required.

 

Our board ofdirectors does not currently have a standing audit, nominating or compensationcommittee or any committees performing similar functions.  The full board of directors performs thesefunctions.  Two of the current membersof our board of directors are independent as defined in the listing standardsestablished by the NASD.  Our board ofdirectors has determined that the board does not have an audit committeefinancial expert, as defined by SEC regulations.

 

Our board hasdetermined that all of the members of the board, which performs the functionsof the audit committee, have owned and/or managed sizable businesses.  The board believes that the members havesufficient knowledge and experience necessary to fulfill the duties andobligations of an audit committee.

 

**Compensation Committee Interlocks and InsiderParticipation**

 

We do not havea compensation committee of our board of directors.  No executive officer of Full House serves as a member of thecompensation committee of the board of directors of any entity, one or more ofwhose executive officers serves as a member of our board of directors.

 

21

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**Compliance with Section 16(a) of theSecurities Exchange Act of 1934**

 

Section 16(a)of the Securities Exchange Act of 1934 requires our directors and executiveofficers and persons who own more than ten percent of our outstanding commonstock, to file with the Securities and Exchange Commission initial reports ofownership and reports of changes in ownership of common stock. These personsare required by SEC regulation to furnish us with copies of all such reportsthey file. To our knowledge, based solely on a review of the copies of suchreports furnished to us and written representations that no other reports wererequired, we believe that all Section 16(a) reports were timely filed byour officers, directors and greater than ten percent beneficial owners.

 

**Code of Ethics**

 

We haveadopted a code of ethics that applies to our principal executive officer,principal financial officer, principal accounting officer and other seniorfinancial officers.  The code of ethicsis filed with this report as Exhibit 14.

 

**10.**                               Executive Compensation.

 

**Summary Compensation Table**

 

The followingtable sets forth the annual compensation paid or accrued by us for servicesrendered during each year presented, for our Chief Executive Officer and ChiefFinancial Officer, collectively known as the Named Executive Officers, forservices in all capacities to us and our subsidiaries.  No other executive officer received over$100,000 in annual salary and bonus in 2003.

 

**Summary Compensation Table**

 
|                                        |       |             |       | **Annual  Compensation** |       |
|---------------------------------------------|------------|------------------|------------|--------------------------|------------|
| **Name and Principal Position**             | ** ** | **Fiscal  Year** | ** ** | **Salary**               | ** ** | **Other  Annual  Compensation** | ** ** |
| William P. McComas,                         |       | 2003             |       | $                        | 250,000    |   | -0- |   |
| Former Chairman and Chief Executive Officer |       | 2002             |       | 250,000                  |       | -0- |   |
|                                        |       | 2001             |       | 250,000                  |       | -0- |   |
|                                        |       |             |       |                     |       |   |   |
| Michael P. Shaunnessy                       |       | 2003             |       | 250,000             |       | -0- |   |
| Former Executive Vice President and Chief   |       | 2002             |       | 250,000                  |       | -0- |   |
| Financial Officer                           |       | 2001             |       | 250,000                  |       | -0- |   |
|                                             |            |                  |            |                          |            |  |  |  |

 

 

**Option Grants In LastFiscal Year**

 

We did notgrant any options to purchase common stock to the Named Executive Officersduring 2003.

 

**Aggregated Option/SARExercises in Last Fiscal Year and Fiscal Year-End Option/SAR Values**

 

The following table sets forth certain information concerning thefiscal year-end value of the unexercised stock options held by the NamedExecutive Officers.  No options wereexercised by such officers in 2003.

 
| **Name**              |   | **Number of  Securities Underlying  Unexercised Options at 2003  Fiscal Year End** |   | **Value of  Unexercised In the  Money Options at 2003 Fiscal  Year End (1)** |   |
|-----------------------|--------|------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------|--------|
|                  |   | **Exercisable**                                                                    |   | **Unexercisable**                                                            |   | **Exercisable** |   | **Unexercisable** |   |
| William P. McComas    |   | 250,000                                                                            |   | -0-                                                                          |   | -0- |   | -0- |   |
| Michael P. Shaunnessy |   | -0-                                                                                |   | -0-                                                                          |   | -0- |   | -0- |   |

 

22

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----

(2)                                  Basedupon the market value of the underlying securities at December 31, 2003 of$0.70, none of the options were “in-the-money”.

 

**Employment Agreements**

 

In January 2002, we entered into anemployment agreement with Michael P. Shaunnessy, our former chief financialofficer. The agreement provides that during the two-year term Mr. Shaunnessy bepaid a salary of $250,000 and participate in such benefits plans and bonusplans as we provide to other executives. This agreement expired January 1,2004 and was not renewed.

 

**Stock Option Plans**

 

We previously adopted our 1992 IncentivePlan, which was amended in 1999. We are no longer able to issue incentiveawards under this plan.

 

**11.****                               SecurityOwnership of Certain Beneficial Owners and Management.**

 

The following table sets forth information asof March 19, 2004 concerning the beneficial ownership of our common stockby:

 

•                  eachperson known by us to be the beneficial owner of morethan 5% of our outstanding common stock,

 

•                  eachdirector,

 

•                  eachof the named executive officers (as defined above), and

 

•                  allexecutive officers and directors as a group.

 
| **Name and  Address of Beneficial Owner**                                                           |   | **Number of Shares  Owned (1)** |   | **Percentage of Class  Outstanding (1)** |   |
|-----------------------------------------------------------------------------------------------------|--------|---------------------------------|--------|------------------------------------------|--------|
| *Common  Stock:*                                                                                    |   |                            |   |                                     |   |
| William P. McComas (2)                                                                              |   | 2,058,537                       | (3)    | 19.4                                     | %      |
| Lee A. Iacocca (2)                                                                                  |   | 1,381,471                       | (3)(4) | 13.0                                     | %      |
| LKL Family  Limited Partnership  10900 Wilshire Boulevard, Suite 310  Los Angeles, California 90024 |   | 1,056,471                       |   | 10.2                                     | %      |
| J. Michael Paulson (2)                                                                              |   | 3,281,500                       | (5)    | 31.7                                     | %      |
| Allen E. Paulson  Living Trust  514 Via De La Valle, Suite 210  Solana Beach, California 92075      |   | 3,181,500                       |   | 30.8                                     | %      |
| Andre M. Hilliou (2)                                                                                |   | -0-                             |   | —                                   |   |
| Greg Violette (2)                                                                                   |   | -0-                             |   | —                                   |   |
| Barth F. Aaron (2)                                                                                  |   | -0-                             |   | —                                   |   |
| Michael P. Shaunnessy (2)                                                                           |   | -0-                             |   | —                                   |   |
| All Officers and Directors as a Group (7 Persons)                                                   |   | 6,721,508                       | (6)    | 61.6                                     | %      |
|                                                                                                |   |                            |   |                                     |   |
| *Preferred  Stock:*                                                                                 |   |                            |   |                                     |   |
| William P. McComas (2)                                                                              |   | 350,000                         |   | 50.0                                     | %      |
| H. Joe Frazier  2420 Sea Island Drive  Fort Lauderdale, Florida 33301                               |   | 350,000                         |   | 50.0                                     | %      |

 

23

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----

(1)                   Shares areconsidered beneficially owned, for purposes of this table only, if held by theperson indicated as beneficial owner, or if such person, directly orindirectly, through any contract, arrangement, understanding, relationship, orotherwise, has or shares the power to vote, to direct the voting of and/ordispose of or to direct the disposition of, such security, or if the person hasa right to acquire beneficial ownership within 60 days, unless otherwiseindicated in these footnotes.  Anysecurities outstanding which are subject to options or warrants exercisablewithin 60 days are deemed to be outstanding for the purpose of computing thepercentage of outstanding securities of the class owned by such person, but arenot deemed to be outstanding for the purpose of computing the percentage of theclass owned by any other person.

 

(2)                   The address forMessrs. McComas, Iacocca, Paulson, Hilliou, Violette, Aaron and Shaunnessy isc/o Full House Resorts, 4670 South Fort Apache Road, Suite 190, Las Vegas,Nevada 89147.

 

(3)                   Includesoptions to purchase 250,000 and 325,000 shares of common stock for Messrs.McComas and Iacocca, respectively.

 

(4)                   Includes1,056,471 shares held by the LKL Family Limited Partnership of which Lee A.Iacocca is the General Partner.

 

(5)                   Includes3,181,500 shares held by the Allen E. Paulson Living Trust of which Mr. J.Michael Paulson is the trustee.

 

(6)                   Includes575,000 shares of common stock which may be purchased upon exercise of currentlyexercisable options.

 

**12.**                               Certain Relationshipsand Related Transactions.

** **

None.

 

24

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

** **

**(a)**                                  Exhibits

 
| 2.5    |   | Assignment and  Sale Agreement dated March 30, 2001 by and among GTECH Corporation,  Dreamport, Inc., GTECH Gaming Subsidiary 2 Corporation, Full House Resorts,  Inc., and Full House Subsidiary, Inc.   (Incorporated by reference to Full House’s Current Report on Form 8-K  as filed with the Securities and Exchange Commission on April 12, 2001) |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                         |
| 10.38  |   | Gaming Management  Agreement between Full House and the Torres Martinez Desert Cahuilla Indians  dated April 23, 1993 (incorporated by reference to Full House’s  Quarterly Report on Form 10-QSB for the quarter ended March 31, 1995)                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                         |
| 10.50  |   | Agreement dated  as of November 18, 1996 by and among Green Acres Casino Management  Company, GTECH Corporation, Gaming Entertainment (Michigan) LLC and Full  House (Incorporated by reference to Full House’s Annual Report on Form 10-KSB  for the fiscal year ended December 31, 1996)                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                         |
| 10.51  |   | Amended and  Restated Class III Management Agreement dated November 18, 1996 between  Nottawaseppi Huron Band of Potawatomi and Gaming Entertainment (Michigan) LLC  (Incorporated by reference to Full House’s Annual Report on Form 10-KSB for  the fiscal year ended December 31, 1996)                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                         |
| 10.56  |   | Investor Agreement by and between Full House Resorts, Inc. and RAM  Entertainment, LLC, dated February 15, 2002 (Incorporated by reference  to Full House’s Quarterly Report on Form 10-QSB for the quarter ended  March 31, 2002)                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                         |
| 10.57  |   | Management Agreement by and between Gaming Entertainment (Delaware),  LLC and Harrington Raceway, Inc. dated January 31,1996 (Incorporated by reference  to Full House’s Quarterly Report on Form 10-QSB for the quarter ended  September 30, 2002)                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                         |
| 10.58  |   | Amendment to Management Agreement by and between Gaming Entertainment  (Delaware), LLC and Harrington Raceway, Inc. dated March 18, 1998 (Incorporated by reference  to Full House’s Quarterly Report on Form 10-QSB for the quarter ended  September 30, 2002)                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                         |
| 10.59  |   | Amendment to Management Agreement by and between Gaming Entertainment  (Delaware), LLC and Harrington Raceway, Inc. dated July 1, 1999 (Incorporated by reference  to Full House’s Quarterly Report on Form 10-QSB for the quarter ended  September 30, 2002)                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                         |
| 10.60  |   | Amendment to Management Agreement by and between Gaming Entertainment  (Delaware), LLC and Harrington Raceway, Inc. dated February 4, 2002 (Incorporated by reference  to Full House’s Quarterly Report on Form 10-QSB for the quarter ended  September 30, 2002)                                                                                             |

 

25

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| 10.61  |   | Employment Agreement by and between Full House Resorts, Inc. and  Michael P. Shaunnessy dated January 1, 2002 (Incorporated by reference  to Full House’s Quarterly Report on Form 10-QSB for the quarter ended  September 30, 2002)+ |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                 |
| 14     |   | Code of Ethics for CEO and Senior Financial Officers*                                                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                 |
| 21     |   | List of  Subsidiaries of Full House Resorts, Inc.*                                                                                                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                 |
| 23.1   |   | Consent of  Deloitte & Touche LLP *                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                 |
| 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.

+ Executivecompensation plan or arrangement

 

**(b)**                                  Reports on Form 8-K

** **

**None**

 

**14.**                               Principal AccountingFees and Services.

** **

Deloitte &Touche, LLP, audited Full House’s annual consolidated financial statements forthe year ending December 31, 2003. We have not yet retained an audit firm for the year endedDecember 31, 2004.

 

During fiscalyears 2003 and 2002, Full House retained Deloitte & Touche, LLP to provideservices in the following categories and amounts:

 

*Audit Fees*

 

We paid oraccrued an aggregate of $82,500 in 2003 and $83,600 in 2002 in fees forprofessional services rendered by Deloitte & Touche, LLP in connection withthe audit of our financial statements for the most recent fiscal years and thereviews of the financial statements included in each of our Quarterly Reportson Form 10-QSB during those fiscal years.

 

*Audit Related Fees*

 

We did notengage Deloitte & Touche, LLP for any audit related professional servicesfor the fiscal year ended December 31, 2003 or the fiscal year endedDecember 31, 2002.

 

*Tax Fees*

 

We did notengage Deloitte & Touche, LLP for any tax related professional services forthe fiscal year ended December 31, 2003 or the fiscal year endedDecember 31, 2002.

 

*All Other Fees*

 

We did notengage Deloitte & Touche, LLP for any other services for the fiscal yearended December 31, 2003 or the fiscal year ended December 31, 2002.

 

Because we dono have an audit committee, we do not have audit committee pre-approvalpolicies and procedures.  All of theservices provided by our independent auditors were approved by our board ofdirectors and the board of directors believes that the provision of theseservices is consistent with maintaining the accountants’ independence.

 

 

26

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**SIGNATURES**

** **

In accordance with Section 13 or 15(d)of the Securities Exchange Act of 1934, the Registrant has caused this Reportto be signed on its behalf by the undersigned thereunto duly authorized.

 
|                            | FULL HOUSE  RESORTS, INC. |
|---------------------------------|---------------------------|
|                            |                      |
| Date:  March 26, 2004 | By:                       | /s/ ANDRE M.  HILLIOU |
|                            |                      | Andre M. Hilliou,  Chief Executive Officer |

 

In accordance with the Securities ExchangeAct of 1934, this Report has been signed below by the following persons onbehalf of the Registrant and in the capacities and on the dates indicated.

 
| **Name and Capacity**                         |   | **Date**             |
|-----------------------------------------------|--------|----------------------|
|                                          |   |                 |
| /s/ J. MICHAEL  PAULSON                       |   | March 26,  2004 |
| J. Michael  Paulson, Chairman of the Board    |   |                 |
|                                          |   |                 |
|                                          |   |                 |
| /s/ LEE A.  IACOCCA                           |   | March 26,  2004 |
| Lee A. Iacocca,  Director                     |   |                 |
|                                          |   |                 |
| /s/ WILLIAM P.  MCCOMAS                       |   | March 26,  2004 |
| William P.  McComas, Director                 |   |                 |
|                                          |   |                 |
| /s/ GREG VIOLETTE                             |   | March 26,  2004 |
| Greg Violette,  Chief Financial Officer       |   |                 |
| (Principal  Financial and Accounting Officer) |   |                 |

 

27

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**INDEPENDENT AUDITORS’** REPORT

** **

To the Boardof Directors and Stockholders of Full House Resorts, Inc.:

 

We haveaudited the accompanying consolidated balance sheets of Full House Resorts,Inc. and Subsidiaries (the “Company”) as of December 31, 2003 and 2002,and the related consolidated statements of operations, stockholders’ equity,and cash flows for the years then ended. These financial statements are the responsibility of the Company’smanagement.  Our responsibility is toexpress an opinion on these financial statements based on our audits.

 

We conductedour audits in accordance with auditing standards generally accepted in theUnited States of America.  Thosestandards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement.  An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements.  An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well asevaluating the overall financial statement presentation.  We believe that our audits provide areasonable basis for our opinion.

 

In ouropinion, such consolidated financial statements present fairly, in all materialrespects, the financial position of the Company at December 31, 2003 and2002, and the results of its operations and its cash flows for the years thenended in conformity with accounting principles generally accepted in the UnitedStates of America.

 

DELOITTE &TOUCHE LLP

 

Las Vegas, Nevada

March 26, 2004

 

F-1

----

 

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

 

**CONSOLIDATED BALANCE SHEETSDECEMBER 31, 2003 AND 2002**

 
|                                                                                                                                                                                            |   | **2003**   |       | **2002**   |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------|------------|------------|--------|
| **ASSETS**                                                                                                                                                                                      |   |       |       |       |   |
| CURRENT ASSETS:                                                                                                                                                                                 |   |       |       |       |   |
| Cash and cash equivalents                                                                                                                                                                       |   | $          | 1,942,430  |       | $      | 1,164,053 |   |
| Receivables                                                                                                                                                                                     |   | 125,000    |       | 186,969    |   |
| Prepaid expenses                                                                                                                                                                                |   | 110,932    |       | 106,656    |   |
| Total current assets                                                                                                                                                                            |   | 2,178,362  |       | 1,457,678  |   |
|                                                                                                                                                                                            |   |       |       |       |   |
| FIXTURES AND EQUIPMENT, net                                                                                                                                                                     |   | 12,610     |       | 23,612     |   |
| NON-OPERATING LAND                                                                                                                                                                              |   | —     |       | 2,472,000  |   |
| JOINT VENTURE INVESTMENT IN LAND HELD FOR DEVELOPMENT                                                                                                                                           |   | 1,929,415  |       | —     |   |
| INVESTMENT IN JOINT VENTURE                                                                                                                                                                     |   | 171,403    |       | 27,876     |   |
| RECEIVABLES                                                                                                                                                                                     |   | 1,497,291  |       | 1,257,291  |   |
| GAMING AND CONTRACT RIGHTS, net                                                                                                                                                                 |   | 5,024,389  |       | 5,189,947  |   |
| DEFERRED TAX ASSET                                                                                                                                                                              |   | 626,270    |       | 712,418    |   |
| DEPOSITS AND OTHER ASSETS                                                                                                                                                                       |   | 6,382      |       | 6,382      |   |
| TOTAL                                                                                                                                                                                           |   | $          | 11,446,122 |       | $      | 11,147,204 |   |
|                                                                                                                                                                                            |   |       |       |       |   |
| **LIABILITIES AND STOCKHOLDERS’****EQUITY**                                                                                                                                                |   |       |       |       |   |
| CURRENT LIABILITIES:                                                                                                                                                                            |   |       |       |       |   |
| Accounts payable                                                                                                                                                                                |   | $          | 33,465     |       | $      | 13,426 |   |
| Payable to joint ventures                                                                                                                                                                       |   | 54,328     |       | —     |   |
| Current portion of long-term debt                                                                                                                                                               |   | 2,381,260  |       | 2,381,260  |   |
| Accrued expenses                                                                                                                                                                                |   | 204,008    |       | 172,654    |   |
| Total current liabilities                                                                                                                                                                       |   | 2,673,061  |       | 2,567,340  |   |
|                                                                                                                                                                                            |   |       |       |       |   |
| LONG-TERM DEBT, net of current portion                                                                                                                                                          |   | —     |       | —     |   |
| COMMITMENTS AND CONTINGENCIES (Note 14)                                                                                                                                                         |   |       |       |       |   |
| STOCKHOLDERS’ EQUITY:                                                                                                                                                                      |   |       |       |       |   |
| Cumulative preferred stock, par value $.0001, 5,000,000 shares  authorized; 700,000 shares issued and outstanding; aggregate liquidation  preference of $4,515,000 and $4,305,000, respectively |   | 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                                                                                                                                                                             |   | (8,657,932 | )          | (8,851,129 | )      |
| Total stockholders’ equity                                                                                                                                                                 |   | 8,773,061  |       | 8,579,864  |   |
| TOTAL                                                                                                                                                                                           |   | $          | 11,446,122 |       | $      | 11,147,204 |   |

 

See notes toconsolidated financial statements.

 

F-2

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

 

**CONSOLIDATED STATEMENTS OF OPERATIONSFOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002**

 
|                                                                     |   | **2003**   |      | **2002**   |   |
|--------------------------------------------------------------------------|--------|------------|-----------|------------|--------|
| OPERATING REVENUES                                                       |   |       |      |       |   |
| Joint venture earnings                                                   |   | $          | 3,338,851 |       | $      | 3,288,122 |   |
| Management fees                                                          |   | —     |      | 1,529,559  |   |
| Total operating revenues                                                 |   | 3,338,851  |      | 4,817,681  |   |
|                                                                     |   |       |      |       |   |
| OPERATING COSTS AND EXPENSES                                             |   |       |      |       |   |
| Development costs                                                        |   | 692,399    |      | 954,063    |   |
| General and administrative                                               |   | 1,857,655  |      | 1,776,059  |   |
| Depreciation and amortization                                            |   | 176,559    |      | 216,550    |   |
| Total operating costs and expenses                                       |   | 2,726,613  |      | 2,946,672  |   |
|                                                                     |   |       |      |       |   |
| INCOME FROM OPERATIONS                                                   |   | 612,238    |      | 1,871,009  |   |
|                                                                     |   |       |      |       |   |
| Interest expense                                                         |   | (99,173    | )         | (146,067   | )      |
| Interest and other income                                                |   | 30,280     |      | 104,346    |   |
|                                                                     |   |       |      |       |   |
| INCOME BEFORE INCOME TAXES                                               |   | 543,345    |      | 1,829,288  |   |
|                                                                     |   |       |      |       |   |
| INCOME TAX PROVISION                                                     |   | (350,148   | )         | (873,531   | )      |
|                                                                     |   |       |      |       |   |
| NET INCOME                                                               |   | 193,197    |      | 955,757    |   |
|                                                                     |   |       |      |       |   |
| Less, undeclared dividends on cumulative preferred stock                 |   | (210,000   | )         | (210,000   | )      |
|                                                                     |   |       |      |       |   |
| NET  (LOSS) INCOME APPLICABLE  TO COMMON SHARES                     |   | $          | (16,803   | )          | $      | 745,757 |   |
|                                                                     |   |       |      |       |   |
| NET INCOME PER COMMON SHARE, basic and diluted                           |   | $          | 0.00      |       | $      | 0.07 |   |
|                                                                     |   |       |      |       |   |
| WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING, basic and  diluted |   | 10,340,380 |      | 10,340,380 |   |

 

See notes toconsolidated financial statements.

 

F-3

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

 

**CONSOLIDATED STATEMENTS OF STOCKHOLDERS’****EQUITY****FOR THE YEARS ENDED DECEMBER 31, 2003AND 2002**

 
|                            |   | **Preferred Stock** |   | **Common Stock** |   | **Additional Paid-in** |       | **Accumulated** |   |        |   |
|---------------------------------|--------|---------------------|--------|------------------|--------|------------------------|------------|-----------------|--------|-------------|--------|
|                            |   | **Shares**          |   | **Amount**       |   | **Shares**             |       | **Amount**      |   | **Capital** |   | **Deficit** |   | **Total** |   |
| BALANCE  JANUARY 1, 2002   |   | 700,000             |   | $                | 70     |                   | 10,340,380 |            | $      | 1,034       |   | $ | 17,429,889 |   | $ | (9,806,886 | ) | $ | 7,624,107 |   |
|                            |   |                |   |             |   |                   |       |            |   |        |   |   |   |   |   |
| Net  income                     |   | —              |   | —           |   | —                 |       | —          |   | —      |   | 955,757 |   | 955,757 |   |
|                            |   |                |   |             |   |                   |       |            |   |        |   |   |   |   |   |
| BALANCE  DECEMBER 31, 2002 |   | 700,000             |   | 70               |   | 10,340,380             |       | 1,034           |   | 17,429,889  |   | (8,851,129 | ) | 8,579,864 |   |
|                            |   |                |   |             |   |                   |       |            |   |        |   |   |   |   |   |
| Net  income                     |   | —              |   | —           |   | —                 |       | —          |   | —      |   | 193,197 |   | 193,197 |   |
|                            |   |                |   |             |   |                   |       |            |   |        |   |   |   |   |   |
| BALANCE  DECEMBER 31, 2003 |   | 700,000             |   | $                | 70     |                   | 10,340,380 |            | $      | 1,034       |   | $ | 17,429,889 |   | $ | (8,657,932 | ) | $ | 8,773,061 |   |

 

See notes toconsolidated financial statements.

 

F-4

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

 

**CONSOLIDATED STATEMENTS OF CASH FLOWS****FOR THE YEARS ENDED DECEMBER 31, 2003AND 2002**

 
|                                                                               |   | **2003**   |      | **2002**   |   |
|------------------------------------------------------------------------------------|--------|------------|-----------|------------|--------|
| CASH FLOWS FROM OPERATING ACTIVITIES:                                              |   |       |      |       |   |
| Net income                                                                         |   | $          | 193,197   |       | $      | 955,757 |   |
| Adjustments to reconcile net income to net cash provided by operating  activities: |   |       |      |       |   |
| Depreciation and amortization                                                      |   | 176,559    |      | 216,550    |   |
| Gain on sale of non-operating land                                                 |   | (27,793    | )         | —     |   |
| Equity in earnings of joint ventures                                               |   | (3,338,851 | )         | (3,288,122 | )      |
| Distributions from joint ventures                                                  |   | 3,195,324  |      | 3,212,213  |   |
|                                                                               |   |       |      |       |   |
| Changes in operating assets and liabilities:                                       |   |       |      |       |   |
| Receivables                                                                        |   | 61,970     |      | 23,023     |   |
| Prepaid expenses                                                                   |   | (4,276     | )         | (12,778    | )      |
| Deposits and other assets                                                          |   | —     |      | 8,400      |   |
| Deferred income taxes                                                              |   | 86,148     |      | 663,531    |   |
| Accounts payable and accrued expenses                                              |   | 105,721    |      | (6,704     | )      |
| Net cash provided by operating activities                                          |   | 447,999    |      | 1,771,870  |   |
|                                                                               |   |       |      |       |   |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                              |   |       |      |       |   |
| Joint venture investment in land held for development                              |   | (1,929,415 | )         | —     |   |
| Proceeds from sale of non-operation land                                           |   | 2,499,793  |      | —     |   |
| Purchases of fixtures and equipment                                                |   | —     |      | (16,496    | )      |
| Advances on receivable                                                             |   | (240,000   | )         | (240,000   | )      |
| Net cash provided by (used in) investing activities                                |   | 330,378    |      | (256,496   | )      |
|                                                                               |   |       |      |       |   |
| CASH FLOWS FROM FINANCING ACTIVITIES:                                              |   |       |      |       |   |
| Repayment of GTECH note                                                            |   | —     |      | (3,000,000 | )      |
| Proceeds from RAM note                                                             |   | —     |      | 2,381,260  |   |
| Repayment of line of credit                                                        |   | —     |      | (600,000   | )      |
| Net cash used in financing activities                                              |   | —     |      | (1,218,740 | )      |
|                                                                               |   |       |      |       |   |
| NET INCREASE IN CASH AND CASH EQUIVALENTS                                          |   | 778,377    |      | 296,634    |   |
| CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                                       |   | 1,164,053  |      | 867,419    |   |
| CASH AND CASH EQUIVALENTS, END OF YEAR                                             |   | $          | 1,942,430 |       | $      | 1,164,053 |   |

 

See notes toconsolidated financial statements.

 

F-5

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**FULL HOUSE RESORTS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

** **

1.                                       ORGANIZATIONAND NATURE OF OPERATIONS

 

Full HouseResorts, Inc. (“Full House” or the “Company”) was incorporated in the State ofDelaware on January 5, 1987.  Weare currently pursuing various gaming opportunities throughout North America.

 

Theconsolidated financial statements include the accounts of Full House and allits majority-owned subsidiaries.  Allmaterial intercompany accounts and transactions have been eliminated.

 

EffectiveDecember 29, 1995, we entered into a series of agreements with GTECHCorporation (“GTECH”) to jointly pursue gaming opportunities.  Pursuant to the agreements, four limitedliability companies (“Joint Ventures”) were formed. We had a 50% interest ineach joint venture, which was accounted for using the equity method.  On March 30, 2001 we acquired the GTECHownership in three of these joint ventures, Oregon, Michigan and California,which are now wholly-owned and consolidated. The Delaware venture was not included in this transaction and continuesto be accounted for using the equity method.

 

Full House andits principal stockholder entered into an agreement to jointly pursuedevelopment of a themed casino resort in Biloxi, Mississippi and formed alimited liability company for such purpose, which was 50% owned by eachmember.  In June 2001, thisarrangement was terminated by mutual agreement.

 

2.                                       SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES

 

CASH AND CASHEQUIVALENTS - Cash in excess of daily requirements is invested in highly liquidshort-term investments with maturities of three months or less whenpurchased.  Such investments are statedat cost, which approximates market, and are deemed to be cash equivalents forpurposes of the consolidated statements of cash flows.

 

CONCENTRATIONSOF CREDIT RISK - Full House’s financial instruments that are exposed toconcentrations of credit risk consist primarily of cash equivalents andlong-term receivables.  A portion ofFull House’s cash equivalents are in high quality securities placed with majorbanks and financial institutions. Management does not believe that there is significant risk of lossassociated with such investments.  Thereceivable is related to the Michigan development and represents advances madeto the Tribe to fund its operations. This amount is repayable from the operations of the gaming facility andalthough there can be no assurance that a facility will be opened, managementdoes not believe that there is significant risk of loss associated with suchinvestment.

 

INVESTMENT INJOINT VENTURE - Investment in joint venture is accounted for using the equitymethod of accounting.  Under the equitymethod, original investments are recorded at cost and adjusted by Full House’sshare of earnings, losses, and distributions of the joint ventures.

 

FIXTURES ANDEQUIPMENT - Fixtures and equipment are stated at cost and consist primarily ofoffice furniture and fixtures and computer equipment.  Depreciation is computed by the straight-line method over periodsof 3 to 7 years.  Accumulateddepreciation was $135,477 and $124,475 at December 31, 2003 and 2002,respectively.

 

IMPAIRMENT OFLONG-LIVED ASSETS - Full House reviews the carrying values of its long-livedand identifiable intangible assets for possible impairment, at least annually,or whenever events or changes in circumstances indicate that the carryingamount of assets may not be recoverable.

 

FAIR VALUE OFFINANCIAL INSTRUMENTS - The carrying value of Full House’s cash and cashequivalents, receivables and accounts payable, approximates fair value becauseof the short maturity of

 

F-6

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thoseinstruments.  Full House estimates thefair value of its long-term debt based on the current rates offered to FullHouse for loans of the same remaining maturities.  The estimated fair values of Full House’s long-term debtapproximate their recorded values at December 31, 2003.

 

INCOME TAXES -Full House accounts for income taxes in accordance with SFAS No. 109, *“Accountingfor Income Taxes*,” which requires recognition of deferred tax assetsand liabilities for the expected future tax consequences of events that havebeen reflected in the financial statements or tax returns.  Deferred income taxes reflect the net effectof (a) temporary differences between the carrying amounts of assets andliabilities for financial reporting purposes and the amounts used for incometax purposes, and (b) operating loss and tax credit carryforwards.

 

EARNINGS PERCOMMON SHARE - Basic earnings per share (“EPS”) is computed based upon theweighted average number of common shares outstanding during the year.  Diluted EPS is computed based upon the weightedaverage number of common and common equivalent shares plus the weighted averagenumber of options outstanding if their effect upon exercise would have beendilutive using the treasury stock method. All currently outstanding options have exercise prices in excess of thecurrent market price.

 

AWARDS OFSTOCK-BASED COMPENSATION - Full House has adopted SFAS No. 123, *“Accountingfor Awards of Stock-Based Compensation”*which establishes financialaccounting and reporting standards for stock-based employee compensation plansand for transactions where equity securities are issued for goods andservices.  This statement defines a fairvalue based method of accounting for an employee stock option or similar equityinstrument and encourages all entities to adopt that method of accounting forall of their employee stock compensation plans.  However, it also allows an entity to continue to measurecompensation cost for those plans using the intrinsic value based method of accountingprescribed by APB Opinion No. 25, *“Accounting for Stock Issued to Employees.”*  Full House continues to apply APB OpinionNo. 25 to its stock based compensation awards to employees and discloses therequired pro forma effect on net income and net income per common share.

 

The Company hasthree stock-based employee compensation plans, which are more fully describedin Note 13.  The Company accounts forthese plans under the recognition and measurement principles of APB No. 25 andrelated Interpretations.  No stock-basedemployee compensation cost is reflected in net income, as all options grantedunder those plans has an exercise price equal to the market value of theunderlying common stock on the date of the grant.

 

Since alloptions that are outstanding as of December 31, 2003 have vested, applyingthe fair value recognition provisions of SFAS No. 123 results in pro forma netincome (loss) that is the same as historical net income (loss) during the yearsended 2003 and 2002.

 

SEGMENTREPORTING - Full House has three business segments consisting of operations,development and a corporate overhead department.  Full House evaluates performance primarily based upon operatingincome of the segment.  The accounting policiesof the segments are the same as those described in this summary of significantaccounting policies.

 

RECENTLYISSUED ACCOUNTING STANDARDS *** ***- InJuly 2001, the Financial Accounting Standards Board (“FASB”) issuedStatement of Financial Accounting Standard (“SFAS”) No. 141, “BusinessCombinations” and SFAS No. 142, “Goodwill and Other Intangible Assets.”  SFAS 141 prohibits the pooling of interestsmethod of accounting for business combinations initiated after June 30,2001.  SFAS 142, which became effectivefor Full House in January 2002, requires, among other things, the discontinuanceof goodwill amortization.  In addition,the standard includes provisions for the reclassification of certain existingintangibles as goodwill, reassessment of the useful lives of existingintangibles, and ongoing assessments of potential impairment of existinggoodwill.

 

As ofDecember 31, 2001, our goodwill, net of accumulated amortization, had beenreduced to zero.  Other existingintangibles consist of net Gaming and Contract Rights of $5,024,389.

 

F-7

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InJune 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associatedwith Exit or Disposal Activities.”  SFASNo. 146 addresses financial accounting and reporting for costs associated withexit or disposal activities and nullifies Emerging Issues Task Force (EITF)Issue 94-3, Liability Recognition for Certain Employee Termination Benefits andOther Costs to Exit an Activity. The provisions of this Statement are effectivefor exit or disposal activities that are initiated after December 31, 2002,with early application encouraged. The adoption of SFAS No. 146 did no have amaterial effect on the Company’s financial statements.

 

InDecember 2002, the FASB issued SFAS No. 148, “Accounting for Stock-BasedCompensation - Transition and Disclosure,” an amendment of FASB Statement No.123. This Statement amends FASB Statement No. 123, Accounting for Stock-BasedCompensation, to provide alternative methods of transition for a voluntarychange to the fair value method of accounting for stock-based employeecompensation. In addition, this Statement amends the disclosure requirements ofStatement No. 123 to require prominent disclosures in both annual and interimfinancial statements. Certain of the disclosure modifications are required forfiscal years ending after December 15, 2002 and are included in theseconsolidated financial statements.  Theadoption of SFAS No. 148 did not have a material effect on the Company’sfinancial statements.

 

USE OFESTIMATES - The preparation of financial statements in conformity withaccounting principles generally accepted in the United States of Americarequires management to make estimates and assumptions that affect the reportedamounts of assets and liabilities at the date of the financial statements andthe reported amounts of revenues and expenses during the reporting period.  Significant estimates used by Full Houseinclude estimated useful lives for depreciable and amortizable assets,valuation of current and long-term receivables, potential impairment ofnon-operating land and gaming and contract rights, and certain accruedliabilities.  Actual results coulddiffer from those estimates.

 

3.                                       JOINTVENTURE INVESTMENT IN LAND HELD FOR DEVELOPMENT

 

OnSeptember 9, 2003 a joint venture including the Company and RAM Entertainment,LLC, our joint venture partner, purchased approximately 80 acres of landlocated at the intersection of I-94 and 11 Mile Road in Emmett Township,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.

 

4.                                       RECEIVABLES

 

Full House hasadvanced funds to the Michigan and California Tribes to fund tribal operationsand for development expenses related to these projects.  The repayment of these amounts is dependentupon the development of the projects, and ultimately, the successful operationof the facilities.  As ofDecember 31, 2003 the net receivable represented $1,472,291 due from theMichigan Tribe and $25,000 due from the California Tribe.  While there can be no assurance, we believethat we can recover the amounts carried on our balance sheet based upon theTribe’s expressed intentions as well as our contractual rights.

 

The currentreceivables include $125,000 due from the Allen E. Paulson Living Trust whichrepresents their 50% share of a litigation settlement in Mississippi concerningour Hard Rock development

 

5.                                       INVESTMENTIN JOINT VENTURE

 

Full Houseentered into a series of agreements with GTECH in 1995 to jointly pursue gamingopportunities. Pursuant to the agreements, the following limited liabilitycompanies, each owned 50% by Dreamport, Inc. (“Dreamport”), a subsidiary of GTECH, and 50% by Full House were formed:Gaming Entertainment, LLC (“Oregon”), Gaming Entertainment (Delaware), LLC(“Delaware”), Gaming Entertainment (Michigan), LLC (“Michigan”), and GamingEntertainment (California), LLC (“California”).

 

F-8

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Full Housecontributed to the capital of the joint ventures its rights to agreements withthe Oregon Tribe to finance and develop a gaming and entertainment facility inNorth Bend, Oregon and the rights to develop the California Tribe, MichiganTribe and Delaware State Fair gaming projects. In payment for its interest in the joint ventures, GTECH contributedcash and other intangible assets and committed to loan the joint ventures up to$16.4 million to complete the North Bend, Oregon and Delaware facilities

 

OnMarch 30, 2001, we acquired GTECH’s 50% interest in three of these jointventure projects that had been equally owned by the two companies: GamingEntertainment LLC, Gaming Entertainment (Michigan), LLC, and GamingEntertainment (California), LLC.  (Note6)

 

Thistransaction did not include our other joint venture with GTECH, GamingEntertainment (Delaware), LLC, owner of a management agreement, continuingthrough 2011, to manage Midway Slots & Simulcast in Harrington, Delaware.  This joint venture continues to be equallyowned by us and GTECH.

 

As a result ofacquiring full ownership of three previous joint ventures, the classificationof both revenue and expenses related to these projects has changed.  The revenues related to the Delawarecontract continue to be reported as joint venture revenue, but as ofMarch 31, 2001, the revenues related to the Oregon contract are reportedas management fees.  The expensesrelated to the California and Michigan projects, which had been reported asjoint venture pre-opening costs, are reported as development costs, as ofMarch 31, 2001.

 

The Investmentin Joint Venture on the balance sheet now reflects only our ownership interestin the Delaware LLC.  The Delaware LLCearnings are reported on the accrual basis, while distributions are based oncash available.  The following is asummary of condensed financial information for the joint venture as ofDecember 31, 2003 and 2002 and for the years then ended:

 

**CONDENSED BALANCE SHEET INFORMATION**

 
|                  |   | **2003** |    | **2002** |   |
|-----------------------|--------|----------|---------|----------|--------|
|                  |   |     |    |     |   |
| Total Assets          |   | $        | 662,598 |     | $      | 760,455 |   |
|                  |   |     |    |     |   |
| Total Liabilities     |   | 319,792  |    | 704,702  |   |
|                  |   |     |    |     |   |
| Members’ capital |   | 342,806  |    | 55,753   |   |
|                       |        |          |         |          |        |  |  |

 

**CONDENSED STATEMENT OF OPERATIONS INFORMATION**

 
|                                |   | **2003**  |       | **2002**  |   |
|-------------------------------------|--------|-----------|------------|-----------|--------|
|                                |   |      |       |      |   |
| Revenues                            |   | $         | 19,311,001 |      | $      | 19,671,970 |   |
|                                |   |      |       |      |   |
| Income from operations              |   | 6,667,702 |       | 6,576,244 |   |
|                                |   |      |       |      |   |
| Net Income                          |   | 6,667,702 |       | 6,576,244 |   |
|                                |   |      |       |      |   |
| Company’s equity in net income |   | 3,338,851 |       | 3,288,122 |   |
|                                     |        |           |            |           |        |  |  |

 

The jointventure is treated as a partnership for tax purposes and consequently, no taxprovision is recognized at the venture level.

 

6.                                       JOINTVENTURE ACQUISITION

 

OnMarch 30, 2001, we acquired GTECH’s 50% interest in three joint ventureprojects that had been equally owned by the two companies: GamingEntertainment, LLC, owner of an agreement continuing

 

F-9

----

 

throughAugust 2002, with the Coquille Indian Tribe (“Oregon Tribe”), whichconducts gaming at The Mill Casino in Oregon; Gaming Entertainment (Michigan),LLC, owner of a Management Agreement with the Nottawaseppi Huron Band ofPotawatomi (“Michigan Tribe”) to develop and manage a gaming facility nearBattle Creek; and Gaming Entertainment (California), LLC owner of a ManagementAgreement with the Torres-Martinez Band of Desert Cahuilla Indians (“CaliforniaTribe”) to develop and manage a gaming facility near Palm Springs.

 

The purchaseprice was $1,800,000, and was funded through our existing credit facility.  As part of this transaction, GTECH extendedthe due date of our $3,000,000 promissory note from January 25, 2001 untilJanuary 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 addition tothe 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 |                   |      |   |

** **

The value of theOregon contract was amortized over the remaining term.  The Michigan and California contracts arebeing amortized over an eight year period which reflects a seven year contractterm and an initial expectation of development being one year in the future.

 

GAMINGENTERTAINMENT, LLC

 

Oregon leasedapproximately 12.5 acres of tribal trust lands from an entity owned by theOregon Tribe on which the gaming facility is located and subleased a portion ofthe land back to the same entity. The master lease expires in 2019 and thesublease expired in August 2002 with options to renew.  The sublease was not renewed, and thisserved to automatically terminate the master lease.

 

GAMINGENTERTAINMENT (MICHIGAN), LLC

 

In late 1996,we renegotiated the management contract with the Michigan Tribe and with the15% owner of the interests in the agreements. Under the new contract, the jointventure will finance, develop and manage gaming operations on reservation landsto be acquired near Battle Creek, Michigan. The 15% owner will be paid a royalty fee in lieu of its original 15%ownership in earlier contracts.

 

The Tribeachieved final federal recognition as a tribe in April 1996.  The Tribe obtained a Gaming Compact fromMichigan’s governor early in 1997 to operate an unlimited number of electronicgaming devices as well as roulette, keno, dice and banking card games.  The Michigan Legislature ratified theCompact by resolution in December 1998, along with compacts for threeother tribes.  A lawsuit was filed in1999 by “Taxpayers of Michigan Against Casinos” in Ingham County Circuit Court.  The lawsuit challenged the constitutionalityof the approval process of these gaming compacts.  On January 18, 2000, Judge Peter D. Houk ruled that thecompacts must be approved by a legislative bill rather than by resolution.  The State of Michigan filed an appeal to theMichigan Court of Appeals on February 4, 2000.  We joined in the appeal filing as an intervening defendant.  On November 12, 2002, the MichiganCourt of Appeals unanimously overturned the lower court decision; ruling thatthe compacts were valid.  The

 

F-10

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plaintifffiled an appeal with the Michigan Supreme Court on December 3, 2002.  The parties filed their initial briefs andoral arguments were held on March 11, 2004.

 

InDecember 1999, the management agreements, along with the requiredlicensing applications were submitted to the National Indian Gaming Commission,which we refer to as the NIGC.  We metwith the NIGC several times to review suggested revisions to the managementagreements and, working with the Tribe, have incorporated all the appropriatechanges.

 

The partiesselected a parcel of land for the gaming enterprise, which is under option, andcompleted a Fee-to-Trust application that was submitted to the Bureau of IndianAffairs in Washington, D.C. in February 2002.  On August 9, 2002, the United States Department of Interiorissued its notice to take the land into trust for the benefit of theTribe.  On August 30, 2002“Citizens Exposing Truth About Casinos” filed a complaint in Federal DistrictCourt for the District of Columbia, seeking to prevent this land from beingtaken into trust.  The parties filedtheir initial briefs and oral arguments were held August 28, 2003.  We are now awaiting the court’s ruling.

 

GAMINGENTERTAINMENT (CALIFORNIA), LLC

 

Pursuant to anagreement with the California Tribe, we have certain rights to develop, manageand operate gaming activities for them.

 

During 1996,the Tribe reached a settlement in its litigation with the Department of Justiceand two water districts, pursuant to which the Tribe will be paid $14.0 millionin compensation, and will have the right to select up to 11,200 acres of newreservation land to be taken into trust in replacement for the same quantity ofland which was flooded by the rising level of the Salton Sea.  That settlement, which required legislativeenactment, was approved by the U. S. House of Representatives and the Senate inDecember 2000.  Under thesettlement, the Tribe may acquire land in a specifically defined area(generally in the Palm Springs, California area) for purposes of conducting agaming enterprise.

 

InAugust 2001, we received a notice from the California Tribe purporting tosever our relationship.  We are in theprocess of discussing an appropriate resolution of this matter that includesreimbursement for costs that we incurred on their behalf.  The Notes Receivable on the balance sheetincludes a $25,000 advance due from the California Tribe and Gaming andContract Rights include approximately $120,000 attributable to thiscontract.  Additional amounts expendedon the Tribe’s behalf were expensed as incurred as development costs, andaggregate approximately $1 million, including interest.  We believe that the balance sheet amountsare recoverable based upon the expressed intentions of the Tribe, as well asthe contractual rights that we continue to hold.

 

7.                                       GAMINGAND CONTRACT RIGHTS

 

As a result ofthe GTECH acquisition, the three joint ventures that had previously beenaccounted for using the equity method are now wholly-owned consolidatedentities.  A substantial portion of ourinvestment in these joint ventures was comprised of previously contributedMichigan gaming rights of $4,155,213 that we acquired in 1995 and whichrepresent the Company’s acquisition of a 50% ownership of the right to managethe planned facility through the management agreement held by the jointventures.  Amortization of thecontributed Michigan gaming rights asset will commence when the associatedfacility is developed and becomes operational and will be on a straight-linebasis over seven years, or the term of the related management contract.  Now that these are wholly-owned consolidatedentities, these previously contributed rights are reflected in Gaming andContract Rights, along with the contract rights acquired in the GTECH acquisitionof $1,403,854.  The contract rightsacquired in the GTECH acquisition represent the Company’s acquisition of 100%ownership and management’s ability to control the operations of these threeentities.  Therefore, amortization ofthe acquired contract rights commenced as of April 1, 2001.  Gaming and contract rights, net, as ofDecember 31, 2003 is comprised of the following:

 

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| Contributed Michigan gaming rights |   | $         | 4,155,213 |   |
|------------------------------------|--------|-----------|-----------|--------|
| Acquired contract rights           |   | 1,403,854 |      |
| Less accumulated amortization      |   | (534,678  | )         |
| Gaming and Contract Rights, net    |   | $         | 5,024,389 |   |

 

Amortizationexpense related to the acquired contract rights was $165,557 and $200,292 forthe 2003 and 2002, respectively.  Theannual amortization expense wil1 be $165,557 through 2008, with the thenremaining balance of $41,391 expensed in 2009. The decrease from 2002 is attributable to the termination of the Oregoncontract in August 2002 according to its terms.  As of December 31, 2003, the weighted average amortizationperiod for acquired contract rights is 5.25 years.

 

The Michiganand California ventures are in the development stage.  Successful development and, ultimately, sustaining profitableoperations is dependent on future events, including appropriate regulatoryapprovals and adequate market demand. These two ventures have not generated any revenues, and the costsincurred to date relate to pre-opening expenses such as payroll, legal andconsulting.

 

8.                                       LONG-TERMDEBT

 
|                                                                                                              |   | **2003**  |      | **2002**  |   |
|-------------------------------------------------------------------------------------------------------------------|--------|-----------|-----------|-----------|--------|
| Long-term debt consists of the following:                                                                         |   |      |      |      |   |
| Note payable to RAM Entertainment, LLC; interest at the  prime rate (4.00% at December 31, 2003) due monthly |   | $         | 2,381,260 |      | $      | 2,381,260 |   |
| Total                                                                                                             |   | 2,381,260 |      | 2,381,260 |   |
| Less current portion                                                                                              |   | 2,381,260 |      | 2,381,260 |   |
|                                                                                                              |   |      |      |      |   |
| Long-term portion                                                                                                 |   | $         | —    |      | $      | — |   |

 

The scheduledmaturities of debt are as follows:

 
| 2004   |   | $      | 2,381,260 |   |
|--------|--------|--------|-----------|--------|
| 2005   |   | — |      |
|   |   |   |      |
| Total  |   | $      | 2,381,260 |   |

 

OnFebruary 15, 2002, we entered into an agreement with RAM Entertainment,LLC (“RAM”), a privately held investment company, whereby RAM will acquire a50% interest in the California and Michigan projects and provide the necessaryfunding for their development.  RAMadvanced $2,381,260 to us 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 due at maturity onFebruary 15, 2003 unless earlier forgiven pursuant to its terms.  On February 15, 2003, we entered intoan agreement with RAM Entertainment, LLC to extend the due date untilFebruary 15, 2004 for the receipt, or waiver, of regulatory approvals, orthe repayment of the $2,381,260 note. The loan continues to bear interest adjustable daily at prime andrequires interest payments monthly, with the principal now due at the extendedmaturity date of November 15, 2004 unless earlier forgiven pursuant to itsterms, or extended by mutual agreement of the parties.

 

9.                                       STOCKHOLDERS’EQUITY

 

Options topurchase 150,000 shares of common stock at $3.69 per share (market value ondate of grant) were issued in 1994 to a consultant.  These options were repriced in June 1998 at $2.25 per share(market value on the repricing date). The fair value of $43,410 for the options was estimated on the date ofgrant using the Black-Scholes option-pricing model with the followingassumptions: expected volatility of 97 percent, risk-free interest rate of 5.0percent, and expected life of 2.0 years. As the options were granted to

 

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a nonemployeein return for services, consulting expense of $43,410 was recognized in 1998,along with an equivalent increase in paid in capital.  All of these options were exercisable at December 31, 2003.

 

OnDecember 20, 1996, a consultant, who is also a principal stockholder, wasgranted an option to purchase 250,000 common shares at $3.69 in return forconsulting services to be provided over an approximate three-year period.  The options vested immediately.  The fair value of $302,826 for the optionswas estimated on the date of grant using the Black-Scholes option-pricing modelwith the following assumptions: expected volatility of 80 percent, risk-freeinterest rate of 6.0 percent, and expected life of 2.0 years.  As the options were granted to anon-employee in return for services, consulting expense was recognized ratablyover the three-year service period commencing in 1997.

 

Full House’spreferred stock has a $.30 per share cumulative dividend rate, and has aliquidation preference equal to $3.00 per share plus all unpaid dividends.  If Full House is in default in declaring orsetting apart for payment of dividends on the preferred stock, it is restrictedfrom paying any dividend, making any other distribution, or redeeming any stockranking junior to the preferred stock. The stockholders’ right to the $.30 per share cumulative dividends onthe preferred stock commenced as of June 30, 1992 and totaled $2,415,000and $2,205,000 at December 31, 2003 and 2002, respectively.  Through December 31, 2003, no dividendshave been declared or paid.

 

10.                                 INCOMETAX PROVISION

 

The income taxbenefit (provision) recognized in the consolidated financial statementsconsists of the following:

 
|                 |    | **2003** |     | **2002** |     |
|----------------------|---------|----------|----------|----------|----------|
| Current:             | Federal |     | $        | —   |     | $ | — |   |
|                 | State   |     | (264,000 | )        | (210,000 | ) |
|  Total current  |    | (264,000 | )        | (210,000 | )        |
| Deferred:            | Federal |     | (80,417  | )        | (638,964 | ) |
|                 | State   |     | (5,731   | )        | (24,567  | ) |
|  Total deferred |    | (86,148  | )        | (663,531 | )        |
|                 |    |     |     |     |     |
| Total (Provision)    | Benefit |     | $        | (350,148 | )        | $ | (873,531 | ) |

 

 

Areconciliation of the income tax provision with amounts determined by applyingthe statutory U.S. Federal income tax rate of 34% to consolidated income beforeincome taxes is as follows:

 
|                                           |   | **2003** |     | **2002** |   |
|------------------------------------------------|--------|----------|----------|----------|--------|
| Tax (provision) benefit at U.S. statutory rate |   | $        | (184,737 | )        | $      | (621,958 | ) |
| State taxes                                    |   | (178,022 | )        | (153,981 | )      |
| Amortization                                   |   | —   |     | (68,099  | )      |
| Other                                          |   | 12,611   |     | (29,493  | )      |
| Total                                          |   | $        | (350,148 | )        | $      | (873,531 | ) |

 

 

Full House’sdeferred tax items as of December 31, are as follows:

 
|                                                   |   | **2003**   |    | **2002**   |   |
|--------------------------------------------------------|--------|------------|---------|------------|--------|
| Deferred tax assets:                                   |   |       |    |       |   |
| Net operating loss carryforward                        |   | $          | 578,676 |       | $      | 157,883 |   |
| Tax credit carryforwards                               |   | 51,706     |    | 51,706     |   |
| Intangibles                                            |   | 1,440,312  |    | 1,038,854  |   |
| Accrued expenses                                       |   | 6,865      |    | 10,668     |   |
| Stock option plans                                     |   | —     |    | 121,182    |   |
| Asset impairment                                       |   | —     |    | 787,385    |   |
| Other                                                  |   | 3,036      |    | (935       | )      |
| Total deferred tax assets                              |   | 2,080,595  |    | 2,166,743  |   |
|                                                   |   |       |    |       |   |
| Deferred tax liabilities:                              |   |       |    |       |   |
| Difference between book and tax basis of gaming rights |   | (1,454,325 | )       | (1,454,325 | )      |
| Total deferred tax liabilities                         |   | (1,454,325 | )       | (1,454,325 | )      |
|                                                   |   |       |    |       |   |
| Net                                                    |   | $          | 626,270 |       | $      | 712,418 |   |

 

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AtDecember 31, 2003, Full House had net operating loss carryforwards for federalincome tax purposes of approximately $1,702,000, which may be carried forwardto offset future taxable income.  Theloss carryforwards will begin to expire in 2018.  The availability of the loss carryforwards may be limited in theevent of a significant change in ownership of Full House or our subsidiaries.

 

11.                                 SUPPLEMENTALSTATEMENT OF CASH FLOWS INFORMATION

 

Cash paymentsfor interest for the years ended December 31, 2003 and 2002 were $98,415and $144,973, respectively.

 

Income taxespaid for the years ended December 31, 2003 and 2002 were $272,639 and$173,010, respectively.

 

12.                                 COMMITMENTSAND CONTINGENCIES

 

Full Houseleases office space under a noncancellable lease expiring on March 31,2007. Future minimum lease obligations are $37,320 in 2004, and increase 4%each January 1, thereafter.

 

Rent expensepertaining to operating leases was $45,579 and $56,575 for the years endedDecember 31, 2003 and 2002, respectively.

 

InOctober 1994, we filed an action for declaratory relief in Mississippi, seekinga determination by the court that no relationship exists between us and LoneStar Casino Corporation regarding the potential acquisition of a riverboatcasino on the Mississippi gulf coast (Full House Resorts, Inc. v. Lone StarCasino Corporation v. Allen E. Paulson, Second Judicial District of theChancery Court of Harrison County, Mississippi).  Lone Star filed a counterclaim alleging breaches of fiduciaryduty, breach of contract, conspiracy to breach contract and to breach fiduciaryduty and common law fraud.  The trialcourt granted summary judgment in favor of all defendants on that counterclaim,and Lone Star appealed that judgment to the Mississippi appellate court.  In April 1998, the Appeals Courtaffirmed the dismissal of all counts against all parties, excepting Lone Star’sclaim against us for breach of contract, which it remanded to the trial courtfor additional hearing.  InJanuary 2000, LS Capital, successor entity to Lone Star Casino Corporation,announced that it had retained counsel to pursue the two remaining claims ithad alleged against us, which were not already dismissed by the Mississippiappellate courts.  In April 2000,the trial judge dismissed both those counts for Lone Star’s failure toprosecute its claims for nearly twenty months after their remand from the Courtof Appeals.  Lone Star appealed thatruling and the Mississippi State Court of Appeals reversed the dismissal, andin late 2001 again remanded the claims against the Company for breach ofcontract, back to the trial court for further proceedings.

 

Lone Star has nottaken any further action, and in February 2004, following an additionaltwenty eight months of inactivity, we prepared another motion to dismiss thisaction which was filed with the court on March 19, 2004.

 

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Management isunable to determine the outcome of this litigation, but does not believe theoutcome will have a material adverse effect on Full House’s consolidatedfinancial condition.

 

13.                                 STOCK-BASEDCOMPENSATION PLANS

 

AtDecember 31, 2003, Full House had three stock-based compensation plansthat are described below.  The abilityto issue option grants under these plans expired on June 30, 2002.  Full House applies APB Opinion No. 25 andrelated interpretations in accounting for these plans.  Because options have been granted withexercise prices equal to market value on the grant date, no compensation costhas been recognized for options granted under the non-employee Director StockPlan, Incentive Stock Plan (except as disclosed below related to optionsgranted under the Incentive Stock Plan to a consultant/principal shareholder)and an informal director stock plan. Since all options that are outstanding asof December 31, 2003 have vested, applying the fair value recognitionprovisions of SFAS No. 123 results in pro forma net income (loss) that is thesame as historical reported net income (loss) during the years ended 2003 and2002.

 

Full House hadreserved 300,000 shares of its common stock for issuance under the non-employeeDirector Stock Plan. The ability to issue options under this Plan expired onJune 30, 2002.  No options wereissued under this Plan in 2003 or 2002, and as of December 31, 2003, therewere no outstanding options under this Plan.

 

Full House hasreserved 3,000,000 shares of its common stock for issuance under the 1992Incentive Plan as amended in June 1999. The ability to issue options under this Plan expired on June 30,2002.  The Plan allowed for the issuanceof options and other forms of incentive awards, including qualified andnon-qualified incentive stock options. Incentive stock options may be granted at prices not less than fairmarket value on the date of grant, while non-qualified incentive stock optionsmay be granted at a price less than fair market value on the date ofgrant.  The persons eligible for suchplan included employees and officers of Full House (whether or not suchofficers are also directors of Full House) and consultants and advisors to FullHouse, who are largely responsible for the management, growth and protection ofthe business of Full House.  Optionsissued under the Incentive Plan are generally exercisable over a term of tenyears.  There were no options issuedunder this plan during either 2003 or 2002.

 

OnMarch 3, 1997 (“the Grant Date”), the Board of Directors approved a grantof an option (“Option”) to each of Full House’s three directors, to purchase250,000 shares of common stock at an exercise price per share equal to the fairmarket value.  The Options were grantedin consideration of the fact that services to Full House by such directors haveexceeded and are expected to continue to exceed the duties of a typicalcorporate director.  The Options becameexercisable in 50,000 share increments commencing April 9, 1997 and oneach anniversary thereafter.  Inaddition, the Options for two of the directors provide that a 50,000 shareincrement became exercisable on the Grant Date.  In March 1998, 250,000 of these shares were forfeited, andin 2002, another 250,000 of these options were forfeited.  As of December 31, 2003, 250,000 ofthese options are outstanding at an exercise price of $2.25 per share.

 

The totaloptions outstanding under the 1992 Incentive Plan, including the consulting optionsat December 31, 2003 and 2002 were 400,000 and 586,000, respectively.  The total options outstanding under theDirector Stock Plan at December 31, 2003 and 2002 was 325,000.

 

A summary ofthe status of Full House’s stock option plans, including consultant options, asof December 31, 2003 and 2002, and changes during the years then ended ispresented below:

 

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|                                                           |   | **2003**                       |   | **2002**                        |   |
|----------------------------------------------------------------|--------|--------------------------------|--------|---------------------------------|--------|
|                                                           |   | **WEIGHTED-AVERAGE  EXERCISE** |   | **WEIGHTED- AVERAGE  EXERCISE** |   |
|                                                           |   | **SHARES**                     |   | **PRICE**                       |   | **SHARES** |   | **PRICE** |   |
| Outstanding at beginning of year                               |   | 911,000                        |   | $                               | 2.65   |   | 1,211,000 |   | $ | 2.54 |   |
| Granted                                                        |   | —                         |   | —                          |   | — |   | — |   |
| Exercised                                                      |   | —                         |   | —                          |   | — |   | — |   |
| Forfeited                                                      |   | 186,000                        |   | 2.25                            |   | 300,000 |   | 2.22 |   |
|                                                           |   |                           |   |                            |   |   |   |   |   |
| Outstanding at end of year                                     |   | 725,000                        |   | 2.75                            |   | 911,000 |   | 2.65 |   |
| Exercisable at year-end                                        |   | 725,000                        |   | 2.75                            |   | 911,000 |   | 2.65 |   |
|                                                           |   |                           |   |                            |   |   |   |   |   |
| Weighted-average fair value of options granted during the year |   |                           |   | $                               | — |   |   |   | $ | — |   |

 

As ofDecember 31, 2003, the 725,000 options outstanding and exercisable haveexercise prices ranging between $2.25 and $3.69, and a weighted averageremaining contractual life of 2.6 years.

 

14.                                 SEGMENTREPORTING

 

Since theGTECH acquisition transaction, we now view our business in three primarybusiness segments.  The Operationssegment includes the performance of the Delaware project.  The Development segment includes costsassociated with our activities in Michigan, California, and Mississippi.  The Corporate segment reflects themanagement and administrative expenses of the business.

 

**SUMMARY INFORMATION FOR THE YEARS ENDEDDECEMBER 31, 2003**

 
|                            |   | **Operations** |      | **Development** |   | **Corporate** |   | **Consolidated** |   |
|---------------------------------|--------|----------------|-----------|-----------------|--------|---------------|--------|------------------|--------|
| Revenues                        |   | $              | 3,338,851 |            | $      | —        |   | $                | — |   | $ | 3,338,851 |   |
| Development costs               |   | —         |      | 692,399         |   | —        |   | 692,399          |   |
| Income (loss) from operations   |   | 3,338,851      |      | (857,957        | )      | (1,868,656    | )      | 612,238          |   |
| Interest expense                |   | (99,173        | )         | —          |   | —        |   | (99,173          | )      |
| Other income                    |   | —         |      | 27,793          |   | 2,487         |   | 30,280           |   |
| Tax (provision) benefit         |   | (1,374,363     | )         | 376,794         |   | 647,421       |   | (350,148         | )      |
| Net income (loss)               |   | 1,865,315      |      | (453,370        | )      | (1,218,748    | )      | 193,197          |   |
|                            |   |           |      |            |   |          |   |             |   |
| Approximate Identifiable assets |   | 171,000        |      | 9,076,000       |   | 2,199,000     |   | 11,446,000       |   |
|                                 |        |                |           |                 |        |               |        |                  |        |  |  |  |  |

 

**2002**

 
|                            |   | **Operations** |      | **Development** |   | **Corporate** |   | **Consolidated** |   |
|---------------------------------|--------|----------------|-----------|-----------------|--------|---------------|--------|------------------|--------|
| Revenues                        |   | $              | 4,817,681 |            | $      | —        |   | $                | — |   | $ | 4,817,681 |   |
| Development costs               |   | —         |      | 954,063         |   | —        |   | 954,063          |   |
| Income (loss) from operations   |   | 4,782,947      |      | (1,244,622      | )      | (1,667,316    | )      | 1,871,009        |   |
| Interest expense                |   | (117,068       | )         | (28,999         | )      | —        |   | (146,067         | )      |
| Other income                    |   | —         |      | 100,000         |   | 4,346         |   | 104,346          |   |
| Tax (provision) benefit         |   | (1,795,672     | )         | 400,881         |   | 521,260       |   | (873,531         | )      |
| Net income (loss)               |   | 2,870,207      |      | (772,740        | )      | (1,141,710    | )      | 955,757          |   |
|                            |   |           |      |            |   |          |   |             |   |
| Approximate Identifiable assets |   | 40,000         |      | 9,632,000       |   | 1,475,000     |   | 11,147,000       |   |
|                                 |        |                |           |                 |        |               |        |                  |        |  |  |  |  |

 

15.                                 SUBSEQUENTEVENT

 

OnFebruary 12, 2004, we received notice from RAM Entertainment, LLC thatthey desired to extend the maturity date of the $2,381,260 loan toNovember 15, 2004 unless they are required to convert the loan into

 

F-16

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a 50% equityownership position in Gaming Entertainment (Michigan), LLC, the subsidiarywhich is party to the Development and Management Agreement with the MichiganTribe.  Pursuant to the agreement withRAM, the loan is convertible into equity on the occurrence of two events, (a)federal approval of the land into trust application and (b) federal approval ofthe Management Agreement with the Tribe. Neither event has occurred as of December 31, 2003, but RAM maywaive either or both conditions and convert the loan into equity.

 

F-17

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**EXHIBIT INDEX**

 
| **EXHIBIT** |   | **DESCRIPTION**                                                                                                                                                                  |
|-------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |   |                                                                                                                                                                             |
| 14          |   | Code of Ethics for CEO and Senior Financial Officers                                                                                                                             |
|        |   |                                                                                                                                                                             |
| 21          |   | List of  Subsidiaries of Full House Resorts, Inc.                                                                                                                                |
|        |   |                                                                                                                                                                             |
| 23.1        |   | Consent of  Deloitte & Touche LLP                                                                                                                                            |
|        |   |                                                                                                                                                                             |
| 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 |

 

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