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EX-3.2 - EXHIBIT 3.2 - FULL HOUSE RESORTS INCt81810_ex3-2.htm
EX-31.1 - EXHIBIT 31.1 - FULL HOUSE RESORTS INCt81810_ex31-1.htm
EX-32.2 - EXHIBIT 32.2 - FULL HOUSE RESORTS INCt81810_ex32-2.htm
EX-21.1 - EXHIBIT 21.1 - FULL HOUSE RESORTS INCt81810_ex21-1.htm
EX-32.1 - EXHIBIT 32.1 - FULL HOUSE RESORTS INCt81810_ex32-1.htm
EX-31.2 - EXHIBIT 31.2 - FULL HOUSE RESORTS INCt81810_ex31-2.htm
EX-10.34 - EXHIBIT 10.34 - FULL HOUSE RESORTS INCt81810_ex10-34.htm
EX-10.33 - EXHIBIT 10.33 - FULL HOUSE RESORTS INCt81810_ex10-33.htm



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K
þ
Annual Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the fiscal year ended: December 31, 2014
o
Transition Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934
 
Commission file number 1-32583
 

 
FULL HOUSE RESORTS, INC.
(Exact Name of Registrant as specified in Its Charter)
 

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

 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. o
 
Indicate by checkmark whether the registrant: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes  þ      No  o
 
Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “small reporting company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer o     Accelerated Filer o      Non Accelerated Filer o      Smaller reporting company  þ
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
 
The aggregate market value of registrant’s voting $.0001 par value common stock held by non-affiliates of the registrant, as of June 30, 2014, was: $24,708,114.  As of March 25, 2015, there were 18,876,681 shares of common stock, $.0001 par value per share, outstanding.
 
Documents Incorporated By Reference
The information required by Part III of this Form 10-K, to the extent not set forth herein, is incorporated by reference from the Registrant’s definitive proxy statement relating the annual meeting of stockholders to be held in 2015, which definitive proxy statement shall be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year to which this Form 10-K relates.
 


 
 

 

 
TABLE OF CONTENTS
 
   
     
 
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Forward Looking Statements
 
This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, relating to our financial condition, profitability, liquidity, resources, business outlook, market forces, corporate strategies, contractual commitments, legal matters, capital requirements and other matters. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. We note that many factors could cause our actual results and experience to change significantly from the anticipated results or expectations expressed in our forward-looking statements. When words and expressions such as “believes,” “expects,” “anticipates,” “estimates,” “plans,” “intends,” “objectives,” “goals,” “aims,” “projects,” “forecasts,” “possible,” “seeks,” “may,” “could,” “should,” “might,” “likely,” “enable,” or similar words or expressions are used in this Form 10-K, as well as statements containing phrases such as “in our view,” “there can be no assurance,” “although no assurance can be given,” or “there is no way to anticipate with certainty,” forward-looking statements are being made.
 
Various risks and uncertainties may affect the operation, performance, development and results of our business and could cause future outcomes to change significantly from those set forth in our forward-looking statements, including the following factors:
 
 
our growth strategies;
 
 
our potential acquisitions and investments;
 
 
successful integration of acquisitions;
 
 
risks related to development and construction activities;
 
 
anticipated trends in the gaming industries;
 
 
patron demographics;
 
 
general market and economic conditions, including but not limited to, the effects of local and national economic, housing and energy conditions on the economy in general and on the gaming and lodging industries in particular;
 
 
access to capital and credit, including our ability to finance future business requirements;
 
 
our dependence on key personnel;
 
 
the availability of adequate levels of insurance;
 
 
changes in federal, state, and local laws and regulations, including environmental and gaming licenses or legislation and regulations;
 
 
ability to obtain and maintain gaming and other governmental licenses;
 
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regulatory approvals;
 
 
impact of weather;
 
 
competitive environment, including increased competition in our target market areas;
 
 
increases in the effective rate of taxation at any of our properties or at the corporate level; and
 
 
risks, uncertainties and other factors described from time to time in this and our other SEC filings and reports.
 
For a more detailed description of certain Risk Factors affecting our business, see Item 1A, “Risk Factors.”
 
We undertake no obligation to publicly update or revise any forward-looking statements as a result of future developments, events or conditions. New risks emerge from time to time and it is not possible for us to predict all such risk factors, nor can we assess the impact of all such risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ significantly from those forecast in any forward-looking statements.
 
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Item 1. Business.
 
Background
 
Formed as a Delaware corporation on January 5, 1987, Full House Resorts, Inc., owns, operates, develops, manages, and/or invests in casinos and related hospitality and entertainment facilities. References in this document to “Full House,” the “Company”, “we”, “our,” or “us” refer to Full House Resorts, Inc. and its subsidiaries, except where stated or the context otherwise indicates.
 
We currently own three casino properties and operate a fourth casino subject to a lease, as follows:
 
 
Property
Acquisition
Date
 
Location
 
Slot
Machines
Table
Games
Hotel
Rooms
Silver Slipper Casino (Owned)
2012
Bay St. Louis, MS (near New Orleans)
 
938
29
129(1)
Rising Star Casino Resort (Owned)
2011
Rising Sun, IN (near Cincinnati)
 
921
28
294(2)
Stockman’s Casino (Owned)
2007
Fallon, NV (one hour east of Reno)
 
265
4
--
Grand Lodge Casino (leased and part of the Hyatt Regency Lake Tahoe Resort)
2011
Incline Village, NV (North Shore of Lake Tahoe)
 
254
20
--(3)
 
 
(1)
Silver Slipper Casino is expected to open its hotel in the first half of 2015.
 
(2)
Includes a 190-room hotel that we own and operate, and an adjacent 104-room hotel that we lease pursuant to a 10-year capital lease.
 
(3)
Under the Facilities Agreement dated June 29, 2011 with Hyatt Equities, L.L.C. we have the ability to provide rooms to our guests at the Hyatt Regency at Lake Tahoe upon mutually agreeable rates, as well as other amenities and services that cater to our guests and support our operations.
 
We manage our casinos based on geographical regions within the United States.  Accordingly, Stockman’s Casino and Grand Lodge Casino comprise a Northern Nevada business segment, while Rising Star Casino Resort and the Silver Slipper Casino are currently distinct segments.  We previously managed certain casinos owned by Native American tribes and we also consider our fee-based casino development and management services as a segment, although none of our current casino properties are managed for others.
 
Until our three-year contract expired in September 2014, we managed Buffalo Thunder Casino and Resort, Cities of Gold, and other gaming facilities near Santa Fe, New Mexico, for the Pueblo of Pojoaque.
 
Until we sold our interest in March 2012, we managed, through a 50%-owned joint venture, the FireKeepers Casino near Battle Creek, Michigan for the Nottawaseppi Huron Band of Potawatomi pursuant to a seven-year management agreement.
 
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Recent Developments
 
 
Solicitation and Settlement Agreement
 
On November 28, 2014, Full House, and Daniel R. Lee, Bradley M. Tirpak and Craig W. Thomas (jointly and severally, the “Shareholder Group”), entered into a Settlement Agreement (the “Settlement Agreement”) to resolve actions taken by the Shareholder Group to call a special meeting of the Company’s shareholders for the purpose of, among other things, nominating certain individuals to our board of directors and amending the Company’s by-laws (the “Solicitation”).
 
Pursuant to the Settlement Agreement, among other things:
 
-           The size of our board of directors was increased from five to nine members, creating four vacancies on the board of directors.
 
-          We accepted the resignation of Andre M. Hilliou and Mark J. Miller as directors, effective November 28, 2014, resulting in two additional vacancies on the board of directors.
 
-           W.H. Baird Garrett, Raymond Hemmig, Ellis Landau, Daniel R. Lee, Bradley M. Tirpak and Craig W. Thomas (the “Shareholder Group Nominees”) were appointed by the board of directors to fill the six vacancies, each subject to normal and customary state licensing requirements. Pursuant to the Amended Settlement Agreement (defined below), Mr. Hemmig subsequently resigned, leaving the current size of the board of directors at eight members. Mr. Hemmig had no disagreements with the Company.
 
-           At the Company’s 2015 annual meeting of stockholders (the “2015 Annual Meeting”), the  Company will nominate Kenneth R. Adams, Carl G. Braunlich, Kathleen Marshall and each of the Shareholder Group Nominees, with the exception of Mr. Hemmig, to the board of directors.
 
-           The Shareholder Group has irrevocably withdrawn its Solicitation, and has agreed to immediately cease all efforts related to the Solicitation.
 
-           Through the end of our 2016 meeting of the stockholders (or an earlier date upon the occurrence of certain events), each member of the Shareholder Group has agreed not to engage in certain customary standstill restrictions.
 
-           The Company and the Shareholder Group agreed to a mutual release of claims, including those arising in respect of, or in connection with, the Solicitation.
 
-           The Company agreed to reimburse the Shareholder Group for actual out-of-pocket expenses in the aggregate amount up to $215,000 incurred in connection with the Solicitation.
 
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Resignation of Andre M. Hilliou and Mark J. Miller
 
Andre M. Hilliou resigned as a director and Chief Executive Officer of the Company effective November 28, 2014. Pursuant to a Separation Agreement entered into between Mr. Hilliou and the Company (the “Hilliou Separation Agreement”), it was agreed that Mr. Hilliou’s employment with the Company would be terminated at a future date, subject to the Company using its best efforts to  comply with its covenants under the Company’s existing credit facilities.  Mark J. Miller resigned as a director and Chief Operating Officer of the Company effective November 28, 2014. Pursuant to a Separation Agreement entered into between Mr. Miller and the Company (the “Miller Separation Agreement” and together with the Hilliou Separation Agreement, the “Separation Agreements”), it was agreed that Mr. Miller’s employment would be terminated at a future date, subject to the Company using its best efforts to comply with its covenants under the Company’s existing credit facilities.  On January 9, 2015, in conjunction with the amendment of our existing credit facilities, Mr. Hilliou’s and Mr. Miller’s employment was terminated.  Pursuant to the Separation Agreements, (i) all outstanding Company restricted stock held by Messrs. Hilliou and Miller (constituting 60,000 shares of common stock held by each) accelerated and vested in full as of their resignation and (ii) in connection with their terminations of employment, Messrs. Hilliou and Miller each received a cash severance payment of $644,724 and $599,830, respectively, as well as company-paid continued healthcare coverage to the earlier of December 31, 2015 or the date that such executive is covered by another employer’s comparable health plan. On February 18, 2015, as part of our tax strategy, we entered into an amendment to the Separation Agreements with Mr. Hilliou and Mr. Miller respectively (collectively, the “Separation Amendments”).  The Separation Amendments provide us the ability, in our sole discretion, to accelerate any remaining severance payments to payment of a single lump sum.
 
Employment Agreement of Daniel R. Lee
 
On November 28, 2014, we entered into an Employment Agreement with Mr. Lee (the “Employment Agreement”) pursuant to which Mr. Lee serves as our Chief Executive Officer. The Employment Agreement was effective as of November 28, 2014 and expires on November 30, 2018, unless earlier terminated.
 
Mr. Lee’s Employment Agreement provides for an annual base salary of $350,000 and an opportunity to earn an annual discretionary cash performance bonus, based on the achievement of individual and Company-based performance criteria established by our board of directors or compensation committee. In addition, pursuant to the Employment Agreement, Mr. Lee is entitled to (i) participate in customary health, welfare and fringe benefit plans, or at his option, a private medical plan, at our sole expense and (ii) Company-paid life insurance and long-term disability policies each covering $525,000.
 
In connection with entering into the Employment Agreement, Mr. Lee was granted nonqualified stock options covering 943,834 shares of Company common stock, with a per share exercise price equal to $1.25, which was the closing price per share on the grant date. The stock options are intended to be an “employee inducement award” and are scheduled to vest over a four-year period, with 25% vesting on November 28, 2015 and the remaining 75% vesting in substantially equal installments on each monthly anniversary thereafter, subject to Mr. Lee’s continued service through the applicable vesting date.  The stock options will vest in full on a change in control of the Company.
 
Upon Mr. Lee’s termination of employment due to death or disability, he will be entitled to accelerated vesting of all outstanding stock options held by Mr. Lee on the termination date with respect to such number of shares underlying each stock option that would have vested over the one-year period immediately following the termination date had the stock options continued to vest in accordance with its terms.
 
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If Mr. Lee’s employment is terminated by us without “cause” or by Mr. Lee for “good reason” (each, as defined in the Employment Agreement), then, in addition to accrued amounts, Mr. Lee will be entitled to receive the following payments and benefits:
 
-           cash severance in an aggregate amount equal to the greater of (i) the salary Mr. Lee would have earned had he remained employed from the termination date through the fourth anniversary of the effective date of the Employment Agreement and (ii) 12 months’ salary, payable in installments through the fourth anniversary of the Employment Agreement effective date or, if the termination occurs within six months following a change in control, in a lump sum;
 
-           Company-paid healthcare continuation coverage for Mr. Lee and his dependents for the original term of the agreement, unless covered by comparable insurance by a subsequent employer; and
 
-           full accelerated vesting of all outstanding Company stock options held by Mr. Lee on the termination dates.
 
 Mr. Lee’s right to receive the severance payments and benefits described above is subject to the delivery of an effective mutual general release of claims.  The Employment Agreement also contains confidentiality, non-solicitation and non-competition provisions.
 
Settlement Agreement Amendment
 
On January 28, 2015, we entered into that certain First Amendment to Settlement Agreement (the “Amended Settlement Agreement”), which modified portions of the Settlement Agreement.  The Settlement Agreement required, among other things, (i) a board of directors consisting of nine members, and (ii) that Raymond Hemmig be nominated and elected to the board of directors at the 2015 Annual Meeting.  Pursuant to the resignation of Mr. Hemmig, the Company and the Shareholder Group agreed to amend the Settlement Agreement. The Amended Settlement Agreement eliminates the requirement that Mr. Hemmig be nominated and elected to the board of directors, and acknowledges the reduction in the size of the board of directors from nine to eight directors.
 
Properties
 
Silver Slipper Casino
 
On October 1, 2012, we acquired all of the outstanding membership interests in Silver Slipper Casino Venture, LLC (which owned the Silver Slipper Casino) for approximately $78.6 million, inclusive of net working capital, fees and expenses.  The Silver Slipper Casino is situated on the far west end of the Mississippi Gulf Coast in Bay St. Louis, Mississippi. The property has approximately 37,000 square feet of gaming space containing 938 slot and video poker machines, 29 table games and live keno. It includes a fine dining restaurant, buffet, quick service restaurant and two casino bars. The property’s customers are primarily from communities in southern Louisiana, including the New Orleans metropolitan area, and southwestern Mississippi.
 
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On August 26, 2013, we entered into an agreement with WHD Silver Slipper Casino, LLC, an unrelated general contractor, to construct a six-story, 142-room hotel overlooking the waterfront at our Silver Slipper Casino property.  In January 2015, we announced a design change to enhance the property’s appeal, specifically targeting high-end customers by reconfiguring 22 guest rooms on the hotel’s top floor from standard guest rooms to nine larger luxury suites, subject to customary lender approvals for change orders of this nature.  Due to the creation of these larger suites, the number of guest room “keys” was reduced to approximately 129.  Given that the hotel’s interior work was not yet completed, we expect to invest approximately an additional $1 million on this improved configuration.  The total budget for this project, including the design change for the suites mentioned above, is approximately $20 million, inclusive of capitalized interest.  The Company expects to complete and open the 120 standard rooms in the second quarter of 2015, followed shortly thereafter by the remaining nine suites.  We believe that the hotel will allow guests to extend their visits and improve customer loyalty.
 
Rising Star Casino Resort
 
On April 1, 2011, we acquired all of the operating assets of Grand Victoria Casino & Resort, L.P. through Gaming Entertainment (Indiana) LLC, our wholly-owned subsidiary. We rebranded the property as the Rising Star Casino Resort in August 2011.  We paid approximately $43 million for Rising Star Casino Resort, including working capital, fees and rebranding costs.  The property has approximately 40,000 square feet of casino space and includes 921 slot and video poker machines, 28 table games, a contiguous 190-room hotel, five dining outlets and an 18-hole Scottish links golf course.
 
On August 16, 2013, our Gaming Entertainment (Indiana), LLC subsidiary entered into a capital lease of a 104-room hotel developed by a non-profit, municipal corporation on land adjacent to Rising Star Casino Resort.  The hotel opened and the lease commenced on November 15, 2013, increasing our room inventory to 294.  The lease is for ten years and calls for payments of $77,500 per month. We have an option to purchase the hotel during the term of the lease for a pre-set price or at the end of the term for $1 plus closing costs. Upon expiration of the term of the lease, if we have not exercised our option to purchase the hotel, the Landlord shall have the right and option to sell us the hotel for $1 plus closing costs. We are responsible for all maintenance and repairs. In the event that we default on the lease agreement, the landlord’s recourse includes rights against our subsidiary to take possession of the property, collect rents as defined, and seek remediation for any attorneys’ fees, litigation expenses, and costs of retaking and re-leasing the property.
 
Northern Nevada Casino Operations
 
Stockman’s Casino
 
We acquired Stockman’s Casino in Fallon, Nevada on January 31, 2007 for approximately $27 million, including fees and working capital.  In 2008, we sold a Holiday Inn Express that was part of the original acquisition for $7.2 million. Stockman’s Casino has approximately 8,400 square feet of gaming space and 265 slot machines, four table games and keno. The facility has a bar, a fine dining restaurant and a coffee shop.
 
Grand Lodge Casino
 
On June 28, 2011, we entered into a lease with Hyatt Equities L.L.C. to operate the Grand Lodge Casino at Hyatt Regency Lake Tahoe Resort, Spa & Casino in Incline Village, Nevada (“Hyatt Lake Tahoe”) on the north shore of Lake Tahoe.  In addition, on June 28, 2011, we entered into an agreement with HCC Corporation to acquire the operating assets and certain liabilities related to the Grand Lodge Casino for approximately $1.4 million, including operating cash and working capital. The lease is secured by the Company’s interests under the lease and property, as defined, and is subordinate to the liens in the First and Second Lien Credit Facilities (defined below).  The initial term of the lease was due to expire on August 31, 2016.  In April 2013, the lease was extended and is now scheduled to expire on August 31, 2018.  The lease has an option, subject to mutual agreement, to renew for an additional five-year term. Hyatt Equities has an option to purchase the leasehold interest and the operating assets at the Grand Lodge Casino, subject to assumption of applicable liabilities. The option purchase price is an amount equal to the Grand Lodge Casino’s positive working capital, plus the Grand Lodge Casino’s EBITDA for the twelve-month period preceding the acquisition or for such period of time remaining on the lease term, whichever is less, plus the fair market value of the Grand Lodge Casino’s personal property.
 
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The Grand Lodge Casino has 18,900 square feet of casino space within Hyatt Lake Tahoe, featuring 254 slot machines, 20 table games and a poker room.  The Hyatt Lake Tahoe is one of two AAA Four Diamond hotels in the Lake Tahoe area, and is one of only three AAA Four Diamond hotels in northern Nevada.
 
Prior Projects
 
Buffalo Thunder Casino and Resort
 
In May 2011, we entered into a three-year management contract with the Pueblo of Pojoaque to advise the tribe on the operations of Buffalo Thunder Casino and Resort in Santa Fe, New Mexico, along with the Pueblo’s Cities of Gold and other gaming facilities. In aggregate, these gaming facilities have approximately 1,200 slot machines, 18 table games (including poker) and a simulcast area. We received a base consulting fee of $0.1 million per month plus quarterly success fees based on achieving certain financial targets, and incurred only minimal incremental operating costs related to the contract. Our management contract and related agreements became effective on September 23, 2011 and expired on September 23, 2014.
 
FireKeepers Casino
 
Until March 30, 2012, we owned 50% of Gaming Entertainment (Michigan), LLC, a joint venture with RAM Entertainment, LLC, a privately-held investment company.  Gaming Entertainment (Michigan), LLC had the exclusive right to provide casino management services at the FireKeepers Casino near Battle Creek, Michigan for the Nottawaseppi Huron Band of Potawatomi for seven years commencing August 5, 2009.
 
On March 30, 2012, our joint venture which managed the FireKeepers Casino sold its interests to the FireKeepers Development Authority for $97.5 million.  In addition to the $97.5 million sale price, the FireKeepers Development Authority paid RAM Entertainment, LLC and us $1.2 million each.  Our gain on the sale was $41.2 million.
 
Terminated Transactions and Agreements
 
On March 21, 2014, we entered into a definitive agreement (the “Majestic Star Purchase Agreement”) with The Majestic Star Casino LLC (“Majestic Star”) to acquire all of the outstanding membership interests of Majestic Mississippi, LLC (“Majestic Mississippi”), which operates a casino located in Tunica, Mississippi commonly known as the Fitz Tunica Casino & Hotel.  On June 23, 2014, we terminated the Majestic Star Purchase Agreement and such termination was disputed by the seller.  On August 21, 2014, Majestic Star, Majestic Mississippi, LLC and the Company entered into a settlement agreement to resolve all disputes, and mutually released each other and their respective officers, directors, and employees from any claims, demands or actions for damages related thereto. This potential but unconsummated transaction cost us approximately $0.9 million in fees and $1.7 million in a foregone deposit, all of which was recorded in 2014.  For “additional detail on our termination of the Majestic Star Purchase Agreement and the settlement agreement, see Note 10 to the consolidated financial statements set forth in “Item 8. Financial Statements and Supplementary Data”.
 
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On February 26, 2014, we entered into an exclusivity agreement with Keeneland Association, Inc. (“Keeneland”) to own, manage, and operate instant racing and, if authorized, traditional casino gaming at racetracks in Kentucky, subject to completion of definitive documents for each opportunity. On November 17, 2014, both parties agreed to terminate all agreements between us. For additional detail regarding the termination of the Keeneland agreements, see Note 10 to the consolidated financial statements set forth in “Item 8. Financial Statements and Supplementary Data”.
 
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, which are administered by the relevant regulatory agency or agencies in each jurisdiction. These laws, regulations and ordinances are different in each jurisdiction, but primarily deal with the responsibility, financial stability and character of the owners and managers of gaming operations, as well as persons financially interested or involved in gaming operations.
 
We may not own, manage or operate a gaming facility unless we obtain proper licenses, permits and approvals. Applications for a license, permit or approval may generally be denied for reasonable cause. Most regulatory authorities license, investigate, and determine the suitability of any person who has a material relationship with us. Persons having material relationships include officers, directors, employees, and certain security holders.
 
Once obtained, licenses, permits, and approvals must be renewed from time to time and generally 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 under certain circumstances, gaming operation revenues can be forfeited. We may be unable to obtain any licenses, permits, or approvals, or if obtained, they may not be renewed or may be revoked in the future. In addition, a rejection or termination of a license, permit, or approval in one jurisdiction may have a negative effect in other jurisdictions. Some jurisdictions require gaming operators licensed in that state to receive their permission before conducting gaming in other jurisdictions.
 
The political and regulatory environment for gaming is dynamic and rapidly changing. The laws, regulations, and procedures dealing with gaming are subject to the interpretation of the regulatory authorities and may be amended. Any changes in such laws, regulations, or their interpretations could have a negative effect on our operations and future development of gaming opportunities. Certain specific provisions applicable to us are described below.  We believe that we are in material compliance with such governmental regulations in each jurisdiction in which we conduct business.
 
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Nevada Regulatory Matters
 
In order to acquire, own or lease Stockman’s Casino, the Grand Lodge Casino or any other gaming operation in Nevada, we are subject to the Nevada Gaming Control Act and to the licensing and regulatory control of the Nevada State Gaming Control Board, the Nevada Gaming Commission, and various local, city and county regulatory agencies.
 
The laws, regulations and supervisory procedures of the Nevada gaming authorities are based upon declarations of public policy which are concerned with, among other things:
 
 
the character of persons having any direct or indirect involvement with gaming to prevent unsavory or unsuitable persons from having a direct or indirect involvement with gaming at any time or in any capacity;
 
 
establishment and application of responsible accounting practices and procedures;
 
 
maintenance of effective control over the financial practices and financial stability of licensees, including procedures for internal controls and the safeguarding of assets and revenues;
 
 
recordkeeping and reporting to the Nevada gaming authorities;
 
 
fair operation of games; and
 
 
the raising of revenues through taxation and licensing fees.
 
In May 2006, we applied for registration with the Nevada Gaming Commission as a publicly traded corporation, which was granted on January 25, 2007. The registration is not transferable and requires periodic payment of fees. The Nevada gaming authorities may limit, condition, suspend or revoke a license, registration, approval or finding of suitability for any cause deemed reasonable by the licensing agency. If a Nevada gaming authority determines that we violated gaming laws, then the approvals and licenses we hold could be limited, conditioned, suspended or revoked, and we, and the individuals involved, could be subject to substantial fines for each separate violation of the gaming laws at the discretion of the Nevada Gaming Commission. Each type of gaming device, slot game, slot game operating system, table game or associated equipment manufactured, distributed, leased, licensed or sold in Nevada must first be approved by the Nevada State Gaming Control Board and, in some cases, the Nevada Gaming Commission. We must regularly submit detailed financial and operating reports to the Nevada State Gaming Control Board. Certain loans, leases, sales of securities and similar financing transactions must also be reported to or approved by the Nevada Gaming Commission.
 
Certain officers, directors and key employees are required to be, and have been, found suitable by the Nevada Gaming Commission and employees associated with gaming must be registered as gaming employees, which are subject to immediate suspension under certain circumstances. An application for suitability may be denied for any cause deemed reasonable by the Nevada Gaming Commission. Changes in specified key positions must be reported to the Nevada Gaming Commission. In addition to its authority to deny an application for a license, the Nevada Gaming Commission has jurisdiction to disapprove a change in position by an officer, director or key employee. The Nevada Gaming Commission has the power to require licensed gaming companies to suspend or dismiss officers, directors or other key employees and to sever relationships with other persons who refuse to file appropriate applications or whom the authorities find unsuitable to act in such capacities.
 
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The Nevada Gaming Commission may also require anyone having a material relationship or involvement with us to be found suitable or licensed, in which case those persons are required to pay the costs and fees of the Nevada State Gaming Control Board in connection with the investigation. Any person who acquires more than 5% of any class of our voting securities must report the acquisition to the Nevada Gaming Commission; any person who becomes a beneficial owner of 10% or more of our voting securities is required to apply for a finding of suitability. Under certain circumstances, an “institutional investor,” as such term is defined in the regulations of the Nevada Gaming Commission, which acquires more than 10%, but not more than 25% of our voting securities, may apply to the Nevada Gaming Commission for a waiver of such finding of suitability requirements, provided the institutional investor holds the voting securities for investment purposes only. Additionally, an institutional investor may beneficially own more than 25%, but not more than 29%, of the voting securities if the ownership percentage results from a stock repurchase program. These institutional investors may not acquire any additional shares. An institutional investor will be deemed to hold voting securities for investment purposes only if the voting securities were acquired and are held in the ordinary course of business as an institutional investor and not for the purpose of causing, directly or indirectly, the election of a majority of our board of directors, any change in our corporate charter, by-laws, management, policies or operations, or any of our gaming affiliates, or any other action which the Nevada Gaming Commission finds to be inconsistent with holding our voting securities for investment purposes only.
 
Any person who fails or refuses to apply for a finding of suitability or a license within 30 days after being ordered to do so by the Nevada Gaming Commission may be found unsuitable based solely on such failure or refusal. The same restrictions apply to a record owner if the record owner, when requested, fails to identify the beneficial owner. Any security holder found unsuitable and who holds, directly or indirectly, any beneficial ownership of the common stock beyond such period of time as may be prescribed by the Nevada Gaming Commission may be guilty of a gross misdemeanor. We are subject to disciplinary action if, after we receive notice that a person is unsuitable to be a security holder or to have any other relationship with us, we:
 
 
pay that person any dividend or interest upon our voting securities;
 
 
allow that person to exercise, directly or indirectly, any voting right conferred through securities held by that person; or
 
 
give remuneration in any form to that person.
 
If a security holder is found unsuitable, then we may be found unsuitable if we fail to pursue all lawful efforts to require such unsuitable person to relinquish his or her voting securities for cash at fair market value.
 
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The Nevada Gaming Commission may also, in its discretion, require any other holders of our debt or equity securities to file applications, be investigated and be found suitable to own the debt or equity securities. The applicant security holder is required to pay all costs of such investigation. If the Nevada Gaming Commission determines that a person is unsuitable to own such security, then pursuant to the regulations of the Nevada Gaming Commission, we may be sanctioned, including the loss of our approvals, if, without the prior approval of the Nevada Gaming Commission, we:
 
 
pay to the unsuitable person any dividends, interest or any distribution whatsoever;
 
 
recognize any voting right by such unsuitable person in connection with such securities;
 
 
pay the unsuitable person remuneration in any form; or
 
 
make any payment to the unsuitable person by way of principal, redemption, conversion; exchange, liquidation or similar transaction.
 
We are required to maintain a current stock ledger in Nevada which may be examined by the Nevada Gaming Commission at any time, and to file with the Nevada Gaming Commission, at least annually, a list of our stockholders. The Nevada Gaming Commission has the power to require our stock certificates to bear a legend indicating that the securities are subject to the Nevada Gaming Control Act and the regulations of the Nevada Gaming Commission.
 
As a licensee or registrant, we may not make certain public offerings of our securities without the prior approval of the Nevada Gaming Commission.  Such approval, if given, does not constitute a recommendation or approval of the investment merits of the securities subject to the offering.  We have received a waiver of the prior approval requirement with respect to public offerings of securities subject to certain conditions.  Also, changes in control through merger, consolidation, acquisition of assets, management or consulting agreements or any form of takeover cannot occur without prior investigation by the Nevada State Gaming Control Board and approval by the Nevada Gaming Commission.
 
The Nevada legislature has declared that some repurchases of voting securities, corporate acquisitions opposed by management, and corporate defense tactics affecting Nevada gaming licensees, and registered companies that are affiliated with those operations, may be harmful to stable and productive corporate gaming. The Nevada Gaming Commission has established a regulatory scheme to reduce the potentially adverse effects of these business practices upon Nevada’s gaming industry and to further Nevada’s policy to:
 
 
assure the financial stability of corporate gaming licensees and their affiliates;
 
 
preserve the beneficial aspects of conducting business in the corporate form; and
 
 
promote a neutral environment for the orderly governance of corporate affairs.
 
Because we are a registered company, approvals may be required from the Nevada Gaming Commission before we can make exceptional repurchases of voting securities above their current market price and before a corporate acquisition opposed by management can be consummated. The Nevada Gaming Control Act also requires prior approval of a plan of recapitalization proposed by a registered company’s Board in response to a tender offer made directly to its stockholders for the purpose of acquiring control.
 
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Any person who is licensed, required to be licensed, registered, required to be registered, or who is under common control with those persons, collectively, “licensees,” and who proposes to become involved in a gaming venture outside of Nevada, is required to deposit with the Nevada Gaming Control Board, and thereafter maintain, a revolving fund in the amount of $30,000 to pay the expenses of investigation by the Nevada Gaming Control Board of the licensee’s participation in foreign gaming. We currently comply with this requirement. The revolving fund is subject to increase or decrease at the discretion of the Nevada Gaming Commission. Licensees are required to comply with the reporting requirements imposed by the Nevada Gaming Control Act. A licensee is also subject to disciplinary action by the Nevada Gaming Commission if it:
 
 
knowingly violates any laws of the foreign jurisdiction pertaining to the foreign gaming operation;
 
 
fails to conduct the foreign gaming operation in accordance with the standards of honesty and integrity required of Nevada gaming operations;
 
 
engages in any activity or enters into any association that is unsuitable because it poses an unreasonable threat to the control of gaming in Nevada, reflects or tends to reflect, discredit or disrepute upon the State of Nevada or gaming in Nevada, or is contrary to the gaming policies of Nevada;
 
 
engages in activities or enters into associations that are harmful to the State of Nevada or its ability to collect gaming taxes and fees; or
 
 
employs, contracts with or associates with a person in the foreign operation who has been denied a license or a finding of suitability in Nevada on the ground of unsuitability.
 
In May 2006, we adopted a compliance plan, which has been amended from time to time, and appointed a compliance committee in accordance with Nevada Gaming Commission requirements.  It currently consists of the following Company directors: Kenneth A. Adams (Chair and Independent Director), Carl G. Braunlich (Independent Director), Kathleen Marshall (Independent Director), W.H. Baird Garrett (Independent Director) and Daniel R. Lee.  Our compliance committee meets quarterly and is responsible for implementing and monitoring our compliance with Nevada regulatory matters, as well as other jurisdictions in which we operate. This committee will also review information and reports regarding the suitability of potential key employees or other parties who may be involved in material transactions or relationships with us.
 
Indiana Regulatory Matters
 
We own and operate a wholly-owned subsidiary, Gaming Entertainment (Indiana) LLC, which acquired and operates Rising Star Casino Resort in Rising Sun, Indiana. The ownership and operation of casino facilities in Indiana are subject to extensive state and local regulation, including primarily the licensing and regulatory control of the Indiana Gaming Commission (“IGC”).  The IGC is given extensive powers and duties for administering, regulating and enforcing riverboat gaming in Indiana.
 
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Pursuant to the Indiana Riverboat Gaming Act, as amended (the “Indiana Act”), the IGC is authorized to award up to 11 gaming licenses to operate riverboat casinos in the State of Indiana, including five to counties contiguous to Lake Michigan in northern Indiana, five to counties contiguous to the Ohio River in southern Indiana and one to a county contiguous to Patoka Lake in southern Indiana, which was subsequently relocated to French Lick, Indiana. In April 2007, the Indiana General Assembly enacted legislation that authorized the holders of two pari-mutuel racing permits located in Anderson and Shelbyville, Indiana to obtain gambling game licenses and install up to 2,000 slot machines at each facility (“racinos”). The IGC granted each horse track a five-year gaming license authorizing the use of such slot machines.  Installation of slot machines beyond the statutorily authorized number is allowed with further approval by the Indiana Gaming Commission. The slot operations at the racetracks opened in June of 2008. There is no similar cap on the number of gaming positions under each riverboat license, although the installation of additional tables and slots generally requires IGC approval. Historically, the IGC has generally permitted increases in gaming capacity, provided its concerns as to security and surveillance coverage are accommodated.  In November 2011, the Indiana Commission authorized Indiana Grand, located in Shelbyville, to install an additional 200 slot machines at its facility. In November 2012, the Indiana Gaming Commission authorized Hoosier Park, in Anderson, Indiana, to install an additional 200 slot machines at its facility.
 
The Indiana Act strictly regulates the facilities, persons, associations and practices related to gaming operations pursuant to the police powers of Indiana, including comprehensive law enforcement provisions. The Indiana Act vests the IGC with the power and duties of administering, regulating and enforcing the system of riverboat gaming in Indiana. The IGC’s jurisdiction extends to every person, association, corporation, partnership and trust involved in riverboat gaming operations in Indiana.
 
The Indiana Act requires the owner of a riverboat gaming operation to hold an owner’s license issued by the IGC. To obtain an owner’s license, the Indiana Act requires extensive disclosure of records and other information concerning an applicant. Applicants for licensure must submit a comprehensive application and personal disclosure forms and undergo an exhaustive background investigation prior to the issuance of a license. The applicant must also disclose the identity of every person holding an ownership interest in the applicant. The IGC has the authority to request specific information on or license anyone holding an ownership interest.  An ownership interest in a licensee may only be transferred in accordance with the Indiana Act and the rules promulgated thereunder.
 
Each license is a revocable privilege and is not a property right under the Indiana Act.   An Indiana riverboat license entitles the licensee to own and operate one riverboat and gaming equipment as part of a gaming operation. The Indiana Act allows a person to hold up to 100% of up to two separate licenses. Each initial owner’s license runs for a period of five years. Thereafter, the license is subject to renewal on an annual basis upon a determination by the IGC that the licensee continues to be eligible for an owner’s license pursuant to the Indiana Act and the rules and regulations adopted thereunder. A licensee may not lease, hypothecate, borrow money against or lend money against an owner’s riverboat gaming license. An ownership interest in an owner’s riverboat gaming license may only be transferred in accordance with the regulations promulgated under the Indiana Act.  Gaming Entertainment (Indiana) LLC applied for and, on March 15, 2011, was granted the transfer of a riverboat owner’s license. Thereafter, Gaming Entertainment (Indiana) LLC has renewed its license annually on September 15 of each year.
 
The Indiana Act requires that a licensed owner undergo a complete investigation every three years. If for any reason the license is terminated, the assets of the riverboat gaming operation cannot be disposed of without the approval of the IGC. Furthermore, the Indiana Act requires licensees to disclose the identity of all directors, officers and persons holding a beneficial ownership interest in the licensee, and the IGC may require licensure for such persons, as well as other key employees.  The IGC also requires a comprehensive disclosure of financial and operating information on licensees, their principal officers and their parent corporations.
 
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If an institutional investor acquires 5% or more of any class of voting securities, the investor is required to notify the IGC and may be subject to a finding of suitability.  Institutional investors who acquire 15% or more of any class of voting securities are subject to a finding of suitability.  In addition, the IGC may require an institutional investor that acquires 15% or more of certain non-voting equity units to apply for a finding of suitability.  Any other person who acquires 5% or more of any class of voting securities of a licensee is required to apply for a finding of suitability.
 
The Indiana Act prohibits contributions to a candidate for a state, legislative, or local office, to a candidate’s committee or to a regular party by the holder of a riverboat owner’s license or a supplier’s license, by a political action committee of the licensee, by an officer of a licensee, by an officer of a person that holds at least 1% interest in the licensee or by a person holding at least 1% interest in the licensee.
 
In 2009, the Indiana General Assembly enacted legislation requiring all casino operators to submit for approval by the IGC a written power of attorney identifying a person who would serve as a trustee to temporarily operate the casino in certain rare circumstances, such as the revocation or non-renewal of any owner’s license; the denial of an owner’s license to a proposed transferee and the person attempting to sell the riverboat is unable or unwilling to retain ownership or control; or a licensed owner agrees in writing to relinquish control of the riverboat. The IGC has developed a model power of attorney granting the trustee board an exclusive authority to exercise and perform those acts and powers concerning real and personal property transactions, litigation, insurance, employees and making transactions.  The power of attorney, which each licensee is required to execute, also authorizes the trustee, on behalf of the licensee, to commence, manage, and consent to relief in a case involving the licensee under bankruptcy code without the consent of the licensee.  A riverboat’s owner has 180 days after the date of the resolution is adopted to sell the riverboat and its related properties to a suitable owner who is approved by the IGC.  If the owner is unable to sell the property within the timeframe, the trustee may take any action necessary to sell the property to a person who meets the requirements for licensure under the Indiana Act.  During the time period that the trustee is operating the casino operations, the trustee has exclusive and broad authority over the casino gambling operations.  The IGC most recently approved Gaming Entertainment (Indiana) LLC’s power of attorney renewal on September 18, 2014.
 
The IGC has promulgated a rule mandating that licensees maintain a cash reserve.  The cash reserve is to be equal to a licensee’s average payout for a three-day period based on the riverboat’s performance during the prior calendar quarter. The cash reserve can consist of cash on hand, cash maintained in Indiana bank accounts and cash equivalents not otherwise committed or obligated. The IGC has also promulgated a rule that prohibits distributions, excluding distributions for the payment of state or federal taxes, by a licensee to its partners, shareholders, its self or any affiliated entity if the distribution would impair the financial viability of the riverboat gaming operation.
 
The Indiana Act does not limit the maximum bet or loss per patron. Each licensee sets minimum and maximum wagers on its own games. Players must use chips or tokens as, according to the Indiana Act, wagering may not be conducted with money or other negotiable currency. No person under the age of 21 is permitted to wager, and wagers may only be taken from persons present at a licensed riverboat.
 
Contracts to which Gaming Entertainment (Indiana) LLC is a party are subject to disclosure and approval processes imposed by Indiana regulations.  A riverboat owner licensee may not enter into or perform any contract or transaction in which it transfers or receives consideration which is not commercially reasonable or which does not reflect the fair market value of the goods or services rendered or received.  All contracts are subject to disapproval by the IGC.
 
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Through the establishment of purchasing goals, the IGC encourages minority business enterprises and women business enterprises to participate in the gaming industry. The goals must be derived from the statistical analysis of utilization studies of licensee contracts for goods and services. Failure to meet these goals will be scrutinized heavily by the IGC, and the Indiana Act authorizes the IGC to suspend, limit or revoke an owner’s gaming license or impose a fine for failure to comply with these guidelines. If a determination is made that a licensee has failed to demonstrate compliance with these guidelines, the licensee has 90 days from the date of the determination to comply.
 
Pursuant to a 2013 amendment to the graduated wagering tax law, riverboat licensees that received Adjusted Gross Receipts (“AGR”) under $75.0 million are subject to a graduated wagering tax with a starting tax rate of 5% for the first $25.0 million of AGR and a top rate of 40% for AGR in excess of $600.0 million. “AGR” is the total of all cash and property received from gaming less cash paid out as winnings and uncollectible gaming receivables (not to exceed 2%).
 
The 2013 legislation also permits riverboats and racinos to deduct amounts attributable to qualified wagering incentives from AGR.  Qualified wagering incentives refers to wagers made by patrons using non-cash vouchers, coupons, electronic credits or electronic promotions offered by the licensee and are commonly referred to as “free play”.  For the state fiscal years ending after June 30, 2013, and before July 1, 2016, the maximum amount of permitted deduction is $5.0 million.
 
In addition to the wagering tax, an admissions tax of $3 per admission is assessed. The Indiana Act provides for the suspension or revocation of a license if the wagering and admissions taxes are not timely submitted.
 
Pursuant to a development agreement between the Company and the City of Rising Sun, Indiana, we are required to pay annually 1.55% of AGR if $150 million or less, or 1.6% of AGR if greater than $150 million, to the Rising Sun Regional Foundation.
 
Real property taxes are imposed on riverboats at rates determined by local taxing authorities.  Income to us from Rising Star Casino Resort is also subject to the Indiana adjusted gross income tax and certain court decisions have resulted in gaming taxes not being deductible in the computation of Indiana income taxes.  Sales on a riverboat and at its related amenities, other than gaming revenues, are subject to applicable use, excise and retail taxes.  The Indiana Act requires a riverboat licensee to directly reimburse the IGC for the costs of gaming enforcement agents which are required to be present while gaming is conducted.
 
A licensee may enter into debt transactions of $1.0 million or greater only with the prior approval of the IGC. Such approval is subject to compliance with requisite procedures and a showing that each person with whom the licensee enters into a debt transaction would be suitable for licensure under the Indiana Act. Unless waived, approval of debt transactions requires consideration by the IGC at two business meetings. The IGC, by resolution, has authorized its executive director, subject to subsequent ratification by the IGC, to approve debt transactions after a review of the transaction documents and consultation with the IGC’s Chairman and the IGC’s financial consultant.
 
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The IGC may subject a licensee to fines, suspension or revocation of its license for any act that is in violation of the Indiana Act or the regulations of the IGC or for any other fraudulent act. In addition, the IGC may revoke an owner’s license if the IGC determines that the revocation of the license is in the best interests of the State of Indiana. Limitation, conditioning, or suspension of any gaming license or approval or the directive to utilize its power of attorney could (and revocation of any gaming license or approval would) materially adversely affect us, our gaming operations and our results of operations.
 
The Indiana Act provides that the sale of alcoholic beverages at riverboat casinos is subject to licensing, control and regulation pursuant to Title 7.1 of the Indiana Code and the rules adopted by the Indiana Alcohol and Tobacco Commission.
 
Mississippi Regulatory Matters
 
In order to acquire, own and operate Silver Slipper Casino or any other gaming operation in Mississippi, we are subject to the Mississippi Gaming Control Act (“Mississippi Act”) and to the licensing and regulatory control of the Mississippi Gaming Commission (“MGC”), the Mississippi Department of Revenue and various local, city and county regulatory agencies.
 
The laws, regulations and supervisory procedures of the Mississippi gaming authorities are based upon declarations of public policy which are concerned with, among other things:
 
 
the character of persons having any direct or indirect involvement with gaming to prevent unsavory or unsuitable persons from having a direct or indirect involvement with gaming at any time or in any capacity;
 
 
the establishment and application of responsible accounting practices and procedures;
 
 
maintenance of effective control over the financial practices and financial stability of licensees, including procedures for internal controls and the safeguarding of assets and revenues, including recordkeeping and requiring the filing of periodic reports to the MGC;
 
 
the prevention of cheating and fraudulent practices;
 
 
providing a source of state and local revenues through taxation and licensing fees; and
 
 
ensuring that gaming licensees, to the extent practicable, employ Mississippi residents.
 
The Mississippi Act provides for legalized gaming in each of the 14 counties that border the Gulf Coast or the Mississippi River; however, gaming is legal only if the voters in the county have not voted to prohibit gaming in that county. Currently, gaming is permissible in nine of the fourteen counties and occurs in all nine counties. Historically, the Mississippi Act required gaming vessels to be located on the Mississippi River or on navigable waterways in eligible counties along the Mississippi River or in waters along the Gulf Coast shore of the eligible counties. However, more recently, the Mississippi Act has been amended to permit licensees in the three counties along the Gulf Coast to establish land-based casino operations. Due to another change to the Mississippi Act, the MGC has also permitted licensees in approved river counties to conduct gaming operations on permanent structures, provided that the majority of any such structure is located on the river side of the “bank full” line of the Mississippi River.
 
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We and any subsidiary we own that operates a casino in Mississippi are subject to the licensing and regulatory control of the MGC. As the sole member of Silver Slipper Casino Venture LLC, a licensee of the MGC, we applied for registration with the MGC as a publicly traded corporation, which was granted on September 20, 2012. As a registered, publicly-traded corporation, we are required periodically to submit financial and operating reports, and any other information that the MGC may require. If we fail to satisfy the requirements of the Mississippi Act, we and our Mississippi subsidiary, Silver Slipper Casino Venture LLC, cannot own or operate gaming facilities in Mississippi. No person may receive any percentage of profits from a Mississippi gaming licensee without first obtaining the necessary licensing and approvals from the MGC. A Mississippi gaming licensee must maintain a gaming license from the MGC, subject to certain conditions, including continued compliance with all applicable state laws and regulations.
 
There are no limitations on the number of gaming licenses that may be granted. Further, the Mississippi Act provides for 24-hour gaming operations and does not limit the maximum bet or loss per patron or the percentage of space that may be utilized for gaming. Gaming licenses are issued for a three-year period, are not transferable, and must be renewed periodically thereafter. There is no assurance that a new license can be obtained at the end of each three-year period of a license.  Moreover, the MGC may, at any time, and for any cause it deems reasonable, revoke, suspend, condition, limit or restrict a license.  Silver Slipper Casino was most recently granted a renewal of its license by the MGC on June 21, 2012, effective July 20, 2012. The license expires on July 19, 2015, and we submitted our application for renewal to the MGC on March 3, 2015.
 
If the MGC determines that we violated gaming laws, then the approvals and licenses we hold could be limited, conditioned, suspended or revoked, and we, our subsidiary, and the individuals involved, could be subject to substantial fines for each separate violation of the gaming laws at the discretion of the MGC. Such limitation, conditioning, or suspension of any gaming license or approval could (and revocation of any gaming license or approval would) materially adversely affect us, our gaming operations and our results of operations.
 
Certain of our officers, directors and key employees are required to be, and have been, found suitable by the MGC and employees associated with gaming must obtain work permits which are subject to immediate suspension under certain circumstances. The MGC, at its discretion, may require additional persons to file applications for findings of suitability.  An application for suitability may be denied for any cause deemed reasonable by the MGC. Changes in specified key positions must be reported to the MGC. In addition to its authority to deny an application for a license, the MGC has jurisdiction to disapprove a change in position by an officer, director or key employee. The MGC has the power to require licensed gaming companies to suspend or dismiss officers, directors or other key employees and to sever relationships with other persons who refuse to file appropriate applications or whom the authorities find unsuitable to act in such capacities. Determinations of suitability or questions pertaining to licensing are not subject to judicial review in Mississippi. We believe that we have obtained, applied for or are in the process of applying for all necessary findings of suitability with respect to such persons affiliated with us or Silver Slipper Casino Venture LLC, although the MGC, in its discretion, may require additional persons to file applications for findings of suitability.
 
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The MGC may also require anyone having a material relationship or involvement with us to be found suitable or licensed, in which case those persons are required to pay the costs and fees in connection with the investigation. At any time, the MGC has the power to investigate and require the finding of suitability of any beneficial stockholders of record. The Mississippi Act requires that any person who acquires more than 5% of any class of our voting securities, as reported to the Securities and Exchange Commission, must report the acquisition to the MGC and such person may be required to be found suitable. Also, any person who becomes a beneficial owner of 10% or more of any class of our voting securities, as reported to the Securities and Exchange Commission, is required to apply for a finding of suitability by the MGC and must pay the costs and fees that the MGC incurs in conducting its investigation. If a stockholder who must be found suitable is a corporation, partnership or trust, it must submit detailed business and financial information, including a list of beneficial owners.
 
The MGC generally has exercised its discretion to require a finding of suitability of any beneficial owner of 5% of any class of voting securities of a registered corporation. However, under certain circumstances, an “institutional investor”, as defined in the Mississippi gaming regulations, which acquires more than 10%, but not more than 15%, of the voting securities of a registered corporation, as reported to the Securities and Exchange Commission, may apply for a waiver of such finding of suitability if such investor holds the securities for investment purposes only. An institutional investor will be deemed to hold voting securities for investment purposes only if the voting securities were acquired and are held in the ordinary course of business as an institutional investor and not for the purpose of causing, directly or indirectly, the election of a majority of our board of directors, any change in our corporate charter, bylaws, management, policies or operations, or any of our gaming affiliates, or any other action which the MGC finds to be inconsistent with holding our voting securities for investment purposes only. Activities that are not deemed to be inconsistent with holding voting securities for investment purposes include (1) voting on all matters voted on by stockholders; (2) making financial and other inquiries of management of the type normally made by securities analysts for informational purposes and not to cause a change in the registered corporation’s management, policies or operations and (3) such other activities as the MGC may determine to be consistent with such investment intent.
 
Any person who fails or refuses to apply for a finding of suitability or a license within 30 days after being ordered to do so by the MGC may be found unsuitable based solely on such failure or refusal. The same restrictions apply to a record owner if the record owner, when requested, fails to identify the beneficial owner. Any security holder found unsuitable and who holds, directly or indirectly, any beneficial ownership of the common stock beyond such period of time as may be prescribed by the MGC may be guilty of a misdemeanor. We are subject to disciplinary action if, after we receive notice that a person is unsuitable to be a security holder or to have any other relationship with us, we:
 
 
pay that person any dividend or interest upon our voting securities;
 
 
recognize the exercise, directly or indirectly of any voting right conferred through securities held by that person;
 
 
pay the unsuitable person any remuneration in any form for services rendered or otherwise, except in certain limited and specific circumstances; or
 
 
fail to pursue all lawful efforts to require the unsuitable person to divest himself of the securities including, if necessary, the immediate purchase of the securities for cash at fair market value.
 
The MGC may require us to disclose the identities of the holders of our debt or other securities, and, in its discretion, require such holders to file applications, be investigated and be found suitable to own any debt security of a registered corporation. Although the MGC generally does not require the individual holders of such securities to be investigated and found suitable, it retains the right to do so for any reason deemed necessary by the MGC. The applicant holder of any debt securities is required to pay all costs of such investigation.
 
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If the MGC determines that a person is unsuitable to own such debt security, we may be sanctioned, including the loss of our approvals, if, without the prior approval of the MGC, we:
 
 
pay to the unsuitable person any dividends, interest or any distribution whatsoever;
 
 
recognize any voting right by such unsuitable person in connection with such securities;
 
 
pay the unsuitable person remuneration in any form; or
 
 
make any payment to the unsuitable person by way of principal, redemption, conversion; exchange, liquidation or similar transaction.
 
Each Mississippi gaming subsidiary must maintain in Mississippi a current stock ledger with respect to the ownership of its equity securities. We also must maintain a current list of our shareholders, which must reflect the record ownership of each outstanding share of any class of our equity securities. The ledger and stockholder lists must be available for inspection by the MGC at any time. If any securities are held in trust by an agent or by a nominee, the record holder may be required to disclose the identity of the beneficial owner to the MGC. A failure to make such disclosure may be grounds for finding the record holder unsuitable. We must also render maximum assistance in determining the identity of the beneficial owner. The Mississippi Act requires that certificates representing securities of a registered corporation bear a legend indicating that the securities are subject to the Mississippi Act and the regulations of the MGC. On September 20, 2012, we received a waiver of this legend requirement from the MGC. The MGC has the power to impose additional restrictions on the holders of our securities at any time.
 
Substantially all material loans, leases, sales of securities and similar financing transactions by a registered corporation or a Mississippi gaming subsidiary must be reported to and approved by the MGC. A Mississippi gaming subsidiary may not make a public offering of its securities, but may pledge or mortgage casino facilities. A registered corporation may not make a public offering of its securities without the prior approval of the MGC if any part of the proceeds of the offering is to be used to finance the construction, acquisition, or operation of gaming facilities in Mississippi or to retire or extend obligations incurred for those purposes. Such approval, if given, does not constitute a recommendation or approval of the investment merits of the securities subject to the offering. We have received a waiver of the prior approval requirement with respect to public offerings and private placements of securities, subject to certain conditions.
 
A Mississippi gaming subsidiary may not guarantee a security issued by an affiliated company pursuant to a public offering, or pledge its assets to secure payment or performance of the obligations evidenced by a security issued by an affiliated company, without the prior approval of the MGC. A pledge of the stock of a Mississippi gaming subsidiary and the foreclosure of such a pledge are ineffective without the prior approval of the MGC. We have obtained approvals from the MGC for such guarantees, pledges and restrictions in connection with offerings of securities, subject to certain restrictions.
 
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Also, changes in control through merger, consolidation, acquisition of assets, management or consulting agreements or any form of takeover cannot occur without prior investigation and approval by the MGC.
 
The Mississippi legislature has declared that some repurchases of voting securities, corporate acquisitions opposed by management, and corporate defense tactics affecting Mississippi gaming licensees and registered corporations that are affiliated with those operations, may be harmful to stable and productive corporate gaming. The MGC has established a regulatory scheme to reduce the potentially adverse effects of these business practices upon Mississippi’s gaming industry and to further Mississippi’s policy to:
 
 
assure the financial stability of corporate gaming licensees and their affiliates;
 
 
preserve the beneficial aspects of conducting business in the corporate form; and
 
 
promote a neutral environment for the orderly governance of corporate affairs.
 
Because we are a registered corporation, approvals may be required from the MGC before we can make exceptional repurchases of voting securities above their current market price and before a corporate acquisition opposed by management can be consummated. Mississippi gaming regulations also require prior approval of a plan of recapitalization proposed by a registered corporation’s board of directors in response to a tender offer made directly to its stockholders for the purpose of acquiring control of the registered corporation.
 
Neither we nor Silver Slipper Casino Venture LLC may engage in gaming activities in Mississippi while also conducting operations outside of Mississippi without approval of, or a waiver of such approval by, the MGC. The MGC may require determinations that there are means for the MGC to have access to information concerning us and our affiliates’ out-of-state gaming operations. We have approval from the MGC for foreign gaming operations in that such approval for foreign gaming operations is automatically granted under the Mississippi regulations in connection with foreign operations (except for internet gaming activities) conducted within the 50 states or any territory of the United States, or on board any cruise ship embarking from a port located therein. The MGC requires a formal foreign gaming waiver for involvement in internet gaming.
 
License, fees and taxes are payable to the State of Mississippi, the MGC, and the county and city in which our Mississippi subsidiary, Silver Slipper Casino Venture LLC’s gaming operations are conducted. Depending on the particular fee or tax involved, these fees and taxes are payable either monthly, quarterly or annually. Gaming fees and tax calculations are generally based upon (1) a percentage of the gross gaming revenues received by the subsidiary operation; (2) the number of gaming devices operated by the casino; or (3) the number of table games operated by the casino. The license fee payable to the State of Mississippi is based upon gross revenue (generally defined as gaming receipts less payout to customers as winnings) and equals 4% of gross revenue of $50,000 or less per calendar month, 6% of gross revenue in excess of $50,000 but less than $134,000 per calendar month, and 8% of gross revenue in excess of $134,000 per calendar month.  The Gaming Commission imposes a flat annual fee on each casino operator licensee, covering all investigative fees for that year associated with an operator licensee, any entity registered as a holding company or publicly traded corporation of that licensee, and any person required to be found suitable in connection with that licensee or any holding company or publicly-traded corporation of that licensee.  The annual fee is based on the average number of gaming devices operated by the licensee during a twelve month period, as reported to the MGC.  The investigative fee is $325,000 for licensees with 1,500 or more gaming devices, $250,000 for licensees with 1,000 to 1,499 gaming devices, and $150,000 for licensees with less than 1,000 gaming devices.  The fee is payable in four (4) equal quarterly installments.  During the twelve months ended December 31, 2014, the Silver Slipper Casino operated an average of 955 gaming devices.
 
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The sale of alcoholic beverages at our Mississippi gaming operation is subject to the licensing, control and regulation by the Alcoholic Beverage Control Division of the Mississippi Department of Revenue as well as local ordinances. If alcohol regulations are violated, the Alcoholic Beverage Control Division may limit, condition, suspend or revoke any license for the serving of alcoholic beverages or place such licensee on probation with or without conditions.
 
In November 2004, Silver Slipper Casino Venture LLC entered into a thirty-year public trust tidelands lease agreement with the State of Mississippi for certain marsh lands. Prior to Hurricane Katrina, all Gulf Coast casinos had similar tidelands leases with the State of Mississippi, generally for the lease of water bottoms under each casino when the casinos were required to be floating. Subsequent to Hurricane Katrina, the law changed to allow casinos to be built on land no further than 800 feet from the approved gaming site. Therefore the tidelands lease expired and the Gulf Coast casinos hold “In Lieu” agreements with the State of Mississippi. The “In Lieu” agreements are in the form of a property tax assessment with the State of Mississippi and the properties are taxed similarly to their tidelands leases as long as they occupy the land and continue gaming operations.  Payments under our “In Lieu” agreement are currently $472,000 per year and are subject to annual review and adjustment including consumer price index factors.
 
Costs and Effects of Compliance with Environmental Laws
 
Indiana riverboat casinos are subject to regulation by the Indiana Department of Environmental Management (“IDEM”). That department has regulations similar to the federal Department of Environmental Protection and maintains enforcement programs in the areas of air pollution, water and wastewater pollution and hazardous waste handling. Operating a riverboat and a golf club, we are subject to the regulation of the IDEM in our operations. The IDEM has reporting requirements and can impose fines and other penalties for violations of its regulations. While there can be criminal sanctions for serious and intentional violations of the regulations, the general penalty is a fine of up to $30,000 for each day of a violation and injunctions against continued violations and corrective orders. Rising Star Casino Resort has not been the subject of any fine or other enforcement proceeding by the IDEM.
 
Competition
 
The gaming industry is highly competitive. Gaming activities include traditional land-based casinos, riverboat and dockside gaming, casino gaming on tribal land, state-sponsored lotteries, video poker in restaurants, bars and hotels, internet gaming, pari-mutuel betting on horse racing, dog racing and jai alai, sports bookmaking, card rooms, and casinos at racetracks.  Silver Slipper Casino, Rising Star Casino Resort, Stockman’s Casino and Grand Lodge Casino, as well as other casinos that we may develop or acquire, compete with all these forms of gaming.  We also will compete with any new forms or jurisdictions of gaming that may be legalized, as well as with other types of entertainment. Some of our competitors have more personnel and greater financial or other resources than we do. The principal methods of competition are: location, with casinos located closer to their feeder markets at an advantage; product quality, both in terms of the quality of the facilities and customer service; breadth of offerings, including the selection of casino games and other non-gaming amenities (such as a hotel) offered at the facility; and marketing, often the amount and frequency of promotions offered to guests.
 
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Silver Slipper Casino
 
Silver Slipper Casino is one of eleven casinos located on the Gulf Coast. Its closest competitor is the Hollywood Casino, approximately a fifteen minute drive to the northeast in Bay St. Louis.  The Hollywood Casino is larger than our property with approximately 1,200 slot machines, 20 table games and 290 hotel rooms. Approximately 30 minutes further to the east, in Gulfport, Mississippi, is Island View, with approximately 2,000 slot machines, over 40 table games and approximately 560 hotel rooms.   Island View is constructing an expansion to include a new 400-room beachfront hotel, restaurants and meeting and convention space. The Island View expansion is expected to be completed by the summer of 2015. There are also eight casinos in the Biloxi area, approximately an hour away on I-10 East. The largest Biloxi casinos include Beau Rivage and IP Casino, Resort & Spa. The IP Casino, Resort & Spa includes approximately 1,800 slot machines, 60 table games and a poker room.  Beau Rivage includes 2,000 slot machines, 80 table games and a poker room.  In January 2014, the Hard Rock Biloxi completed a 154-room expansion project, which increased its hotel capacity to 479 rooms.  In May 2014, the Golden Nugget Biloxi completed a $100 million renovation project.  Approximately 1.5 hours to the west of the Silver Slipper Casino are three casinos located in or near New Orleans: Harrah’s New Orleans, Boomtown New Orleans and the Treasure Chest.  The largest of these casinos is Harrah’s New Orleans, in downtown New Orleans, which features approximately 1,800 gaming machines, 150 table and poker games and a 450-room hotel.  In January 2015, Boomtown New Orleans opened a 150-room hotel, the first hotel product at that property.  Each of these facilities is within the general market of Silver Slipper Casino and is expected to continue providing competition to our Silver Slipper Casino operation.
 
Rising Star Casino Resort
 
The Rising Star Casino Resort is one of three riverboat casinos located on the Ohio River in southeastern Indiana. Its closest competitor is Hollywood Casino Lawrenceburg, approximately 20 minutes away, which features a large casino with over 2,200 slot machines and 76 table games.  Approximately 30 minutes to the south of Rising Star Casino Resort is Belterra Casino Resort & Spa, with approximately 1,200 slot machines and 45 table games. Ohio legalized a limited number of casinos in 2009. The Scioto Downs racino and the Hollywood Casino opened in Columbus, Ohio in June and October 2012, respectively.  Scioto Downs includes over 2,100 slots and live horse racing. Hollywood Casino Columbus includes over 2,250 slots, approximately 114 table games and a poker room. In March 2013, the Horseshoe Cincinnati opened in downtown Cincinnati featuring 1,950 slot machines, 119 table games and a poker room.  Miami Valley Gaming opened approximately 30 miles north of Cincinnati in December 2013 and has over 1,550 slots.  Belterra Park racino opened in May 2014 with over 1,300 slot machines and the Hollywood Dayton racino opened in August 2014 with approximately 980 slot machines. While Kentucky has limited legal gaming, the cities of Lexington and Louisville are within the market of Rising Star Casino Resort. Should Kentucky expand legalized gaming, Rising Star could be adversely impacted. Two racetracks in Kentucky have recently installed wagering devices branded “historical racing machines”, but it is not yet clear if such machines are permitted under Kentucky law.  There is a racetrack in Northern Kentucky near Rising Sun that has not yet installed such wagering devices.  Also, the two racinos near Indianapolis that Rising Star Casino Resort competes with are currently trying to amend existing legislation that prohibits them from offering table games with live dealers, similar to what Rising Star currently offers.  This change, should it occur, would likely impact our business.
 
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Stockman’s Casino
 
Stockman’s Casino is located in Fallon, Nevada on Highway 50, approximately 60 miles east of Reno, Nevada, and is the largest of several casinos in the Churchill County area.  The county’s population is roughly 25,000, with a nearby naval air base having a significant economic impact on our business.   While we are not aware of any significant planned expansion to gaming capacity in the Churchill County area, additional competition may adversely affect our financial condition or results of operations. Furthermore, if the naval air base closed, it would likely have an adverse effect on our financial condition and results of operations.
 
Grand Lodge Casino
 
Grand Lodge Casino is one of four casinos located within a five mile radius in the North Lake Tahoe area.   A fifth casino is currently expected to re-open in December 2015. 
 
Grand Lodge also competes with casinos in nearby South Lake Tahoe and Reno.  There are also numerous Native American casinos in California serving the Northern California market.
 
Employees
 
As of February 20, 2015, we had twelve full-time corporate employees, two of whom are executive officers and four that are senior management. Our casino properties had 985 full-time and 277 part-time employees as follows:
 
   
Full-time
 
Part-time
Silver Slipper Casino
    393       90  
Rising Star Casino Resort
    416       139  
Grand Lodge Casino
    91       36  
Stockman’s Casino
    85       12  
 
We believe that our relationship with our employees is good. None of our employees are currently represented by a labor union.
 
Item 1A. Risk Factors.
 
An investment in our securities is subject to risks inherent to our business. We have described below what we currently believe to be the material risks and uncertainties in our business. Before making an investment decision, you should carefully consider the risks and uncertainties described below, together with all of the other information included or incorporated by reference in this Annual Report on Form 10-K.
 
We also face other risks and uncertainties beyond what is described below. This Annual Report on Form 10-K is qualified in its entirety by these risk factors. If any of the following risks actually occur, our business, financial condition and results of operations could be materially and adversely affected. If this were to happen, the value of securities, including our common stock, could decline significantly. You could lose all or part of your investment.
 
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Risks Related to our Substantial Indebtedness
 
Our present indebtedness and projected future borrowings could adversely affect our financial health; future cash flows may not be sufficient to meet our obligations, and we may have difficulty obtaining additional financing or refinancing; and we may experience adverse effects of interest rate fluctuations.
 
As of December 31, 2014, we had indebtedness of $60.6 million, including $40.6 million of variable interest debt and $20 million of 14.25% debt.  We are incurring additional debt in 2015, including for the construction of our hotel at Silver Slipper Casino.  Our variable interest rate debt is due in June of 2016, while our 14.25% debt is due in April 2017.
 
There can be no assurance that we will generate sufficient cash flow from operations or through asset sales to meet our long-term debt service obligations. Our present indebtedness and projected future borrowings could have important adverse consequences to us, such as:
 
 
making it more difficult for us to satisfy our obligations with respect to our existing indebtedness;
 
 
limiting our ability to obtain additional financing without restructuring the covenants in our existing indebtedness to permit the incurrence of such financing;
 
 
requiring a substantial portion of our cash flow to be used for payments on the debt and related interest, thereby reducing our ability to use cash flow to fund other working capital, capital expenditures and general corporate requirements;
 
 
limiting our ability to respond to changing business, industry and economic conditions and to withstand competitive pressures, which may affect our financial condition;
 
 
causing us to incur higher interest expense in the event of increases in interest rates on our borrowings that have variable interest rates or in the event of refinancing existing debt at higher interest rates;
 
 
limiting our ability to make investments, dispose of assets, pay cash dividends or repurchase stock;
 
 
increasing our vulnerability to downturns in our business, our industry or the general economy and restricting us from making improvements or acquisitions or exploring business opportunities;
 
 
placing us at a competitive disadvantage to competitors with less debt or greater resources; and
 
 
subjecting us to financial and other restrictive covenants in our indebtedness, the non-compliance with which could result in an event of default.
 
If we fail to refinance our debt at least one year prior to its maturity, it becomes a current liability.  Having a large current liability may cause our auditors to qualify their opinion as to our status as a “going concern”. There can be no assurance that our business will generate sufficient cash flow from operations, that our anticipated growth in operations will be realized, or that future borrowings will be available to us under our credit facilities in amounts sufficient to enable us to pay our indebtedness, to complete construction of the hotel at Silver Slipper Casino, or to fund our other liquidity needs. In addition, as we undertake substantial new developments or facility renovations or if we consummate significant acquisitions in the future, our cash requirements and our debt service requirements may increase significantly.
 
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We may need to refinance all or a portion of our debt on or before maturity. There can be no assurance that we will be able to refinance any of our debt on either attractive terms or commercially reasonable terms, or at all. Our future operating performance and our ability to service, extend or refinance our indebtedness will be subject to future economic conditions and to financial, business and other factors, many of which are beyond our control.
 
Certain borrowings under our credit facilities are at variable rates of interest, and to the extent not protected with interest rate hedges, could expose us to market risk from adverse changes in interest rates. If interest rates increase, our debt service obligations on the variable-rate indebtedness could increase significantly even though the amount borrowed would remain the same.
 
Our indebtedness imposes restrictive covenants on us.
 
Our credit facilities impose various customary covenants on us and our subsidiaries. The restrictions that are imposed under these debt obligations include, among other obligations, limitations on our and our subsidiaries’ ability to:
 
 
incur additional debt;
 
 
make payments on subordinated obligations;
 
 
make dividends or distributions and repurchase stock;
 
 
make investments;
 
 
grant liens on our property to secure debt;
 
 
sell assets or enter into mergers or consolidations;
 
 
sell equity interest in our subsidiaries;
 
 
make capital expenditures;
 
 
amend or modify our subordinate indebtedness without obtaining consent from the holders of our senior indebtedness.
 
Our credit facilities impose various customary affirmative covenants on us and our restricted subsidiaries, including, among others, reporting covenants, covenants to maintain insurance, compliance with laws, maintenance of properties and other covenants customary in financings of this type. In addition, our credit facilities require that we comply with various restrictive maintenance financial covenants, including a maximum total leverage ratio and maximum first lien leverage ratio (a ratio of total debt to LTM Adjusted EBITDA (as defined in our credit facilities )), and a fixed charge coverage ratio.
 
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Our ability to comply with the covenants governing our indebtedness may be affected by general economic conditions, industry conditions, and other events beyond our control, including delay in the completion of new projects under construction. As a result, there can be no assurance that we will be able to comply with these covenants. Our failure to comply with the covenants contained in the instruments governing our indebtedness, including failure to comply as a result of events beyond our control, could result in an event of default, which could materially and adversely affect our operating results and our financial condition.
 
If there were an event of default under one of our credit facilities, the holders of the defaulted debt could cause all amounts outstanding with respect to that debt to be due and payable, subject to applicable grace periods. This could trigger cross-defaults under our other debt obligations. There can be no assurance that our assets or cash flow would be sufficient to repay borrowings under our outstanding credit facilities if accelerated upon an event of default, or that we would be able to repay, refinance or restructure the payments on any of those debt instruments.
 
To service our indebtedness, we will require a significant amount of cash. Our ability to generate cash depends on many factors beyond our control.
 
Our ability to make payments on and to refinance our indebtedness and to fund planned capital expenditures and expansion efforts will depend upon our ability to generate cash in the future. This, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.
 
There can be no assurance that our business will generate sufficient cash flows from operations, or that future borrowings will be available to us under our credit facilities in amounts sufficient to enable us to pay our indebtedness, as such indebtedness matures and to fund our other liquidity needs. In such circumstances, we may need to refinance all or a portion of our indebtedness, at or before maturity, and cannot provide assurances that we will be able to refinance any of our indebtedness on commercially reasonable terms, or at all. We may have to adopt one or more alternatives, such as reducing or delaying planned expenses and capital expenditures, selling assets, restructuring debt, or obtaining additional equity or debt financing or joint venture partners. These financing strategies may not be completed on satisfactory terms, if at all. In addition, certain states’ laws contain restrictions on the ability of companies engaged in the gaming business to undertake certain financing transactions. Some restrictions may prevent us from obtaining necessary capital.
 
Our ability to obtain additional financing on commercially reasonable terms may be limited.
 
Although we believe that our cash, cash equivalents and working capital, as well as future cash from operations and availability under the revolving term loan, will provide adequate resources to fund ongoing operating requirements, we may need to seek additional financing to compete effectively. If we are unable to obtain financing on commercially reasonable terms, it could:
 
 
reduce funds available to us for purposes such as working capital, capital expenditures, strategic acquisitions and other general corporate purposes;
 
 
restrict our ability to capitalize on business opportunities;
 
 
increase our vulnerability to economic downturns and competitive pressures in the markets in which we operate; and
 
 
place us at a competitive disadvantage.
 
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Risks Related to our Business
 
We may face reductions in discretionary consumer spending as a result of an economic downturn.
 
Our net revenues are highly dependent upon the volume and spending levels of customers at our properties and, as such, our business has been adversely impacted by economic downturns. Decreases in discretionary consumer spending brought about by weakened general economic conditions such as, but not limited to, lackluster recoveries from recessions, high unemployment levels, higher income taxes, low levels of consumer confidence, weakness in the housing market, cultural and demographic changes, and increased stock market volatility may negatively impact our revenues and operating cash flow.
 
We face significant competition from other gaming and entertainment operations.
 
                The gaming industry is characterized by an increasingly high degree of competition among a large number of participants, including riverboat casinos, dockside casinos, land-based casinos, racetrack casinos, video lottery, poker machines not located in casinos, Native American gaming, social gaming and other forms of gaming in the U.S. Furthermore, competition from internet lotteries, sweepstakes, and other internet wagering gaming services, which allow their customers to wager on a wide variety of sporting events and play Las Vegas-style casino games from home or in non-casino settings, could divert customers from our properties and thus adversely affect our business. Such internet wagering services are often illegal under federal law but operate from overseas locations and are nevertheless sometimes accessible to domestic gamblers. Currently, there are proposals that would legalize internet poker and other varieties of internet gaming in a number of states and at the federal level. Several states, including Nevada, New Jersey and Delaware, have enacted legislation authorizing intrastate internet gaming and internet gaming operations have begun in these states. Expansion of internet gaming in other jurisdictions (both legal and illegal) could further compete with our traditional operations, which could have an adverse impact on our business and results of operations.
 
                In a broader sense, our gaming operations face competition from all manner of leisure and entertainment activities, including: shopping; athletic events; television and movies; concerts; and travel. Legalized gaming is currently permitted in various forms throughout the U.S., in several Canadian provinces and on various lands taken into trust for the benefit of certain Native Americans in the U.S. and Canada. Other jurisdictions, including states adjacent to states in which we currently have facilities (such as in Ohio), have recently legalized and implemented gaming. In addition, established gaming jurisdictions could award additional gaming licenses or permit the expansion or relocation of existing gaming operations. New, relocated or expanded operations by other persons could increase competition for our gaming operations and could have a material adverse impact on us.
 
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                Gaming competition is intense in most of the markets where we operate. As competing properties and new markets are opened, our operating results may be negatively impacted. In addition, some of our direct competitors in certain markets may have superior facilities and/or operating conditions.  We expect each existing or future market in which we participate to be highly competitive. The competitive position of each of our casino properties is discussed in “Item 1, Business – Competition”.
 
We face extensive regulation from gaming and other regulatory authorities.
 
Licensing.    The ownership, management and operation of gaming facilities are subject to extensive state and local regulation.   See “Item 1. Business – Government Regulation.”
 
Taxation and fees.    We believe that the prospect of significant revenue is one of the primary reasons that jurisdictions permit legalized gaming. As a result, gaming companies are typically subject to significant revenue-based taxes and fees in addition to normal federal, state, local and provincial income taxes, and such taxes and fees are subject to increase at any time. We pay substantial taxes and fees with respect to our operations. From time to time, federal, state, local and provincial legislators and officials have proposed changes in tax laws, or in the administration of such laws, affecting the gaming industry. In addition, worsening economic conditions could intensify the efforts of state and local governments to raise revenues through increases in gaming taxes and/or property taxes. It is not possible to determine with certainty the likelihood of changes in tax laws or in the administration of such laws. Such changes, if adopted, could have a material adverse effect on our business, financial condition and results of operations. The large number of state and local governments with significant current or projected budget deficits makes it more likely that those governments that currently permit gaming will seek to fund such deficits with new or increased gaming taxes and/or property taxes, and worsening economic conditions could intensify those efforts. Any material increase, or the adoption of additional taxes or fees, could have a material adverse effect on our future financial results.
 
Compliance with other laws.    We are also subject to a variety of other rules and regulations, including zoning, environmental, employment, construction and land-use laws and regulations governing the serving of alcoholic beverages. If we are not in compliance with these laws, it could have a material adverse effect on our business, financial condition and results of operations.
 
We are subject to certain federal, state and other regulations.
 
We are subject to certain federal, state and local environmental laws, regulations and ordinances that apply to businesses generally. The Bank Secrecy Act, enforced by the Financial Crimes Enforcement Network (“FinCEN”) of the U.S. Treasury Department, requires us to report currency transactions in excess of $10,000 occurring within a gaming day, including identification of the guest by name and social security number, to the Internal Revenue Service (“IRS”).  This regulation also requires us to report certain suspicious activity, including any transaction that exceeds $5,000 that we know, suspect or have reason to believe involves funds from illegal activity or is designed to evade federal regulations or reporting requirements.  Periodic audits by the IRS and our internal audit department assess compliance with the Bank Secrecy Act, and substantial penalties can be imposed against us if we fail to comply with this regulation.  In recent years, the U.S. Treasury Department has increased its focus on Bank Secrecy Act compliance throughout the gaming industry, and recent public comments by FinCEN suggest that casinos should obtain information on each customer’s sources of income.  This could impact our ability to attract and retain casino guests.
 
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Our riverboat must comply with certain federal and state laws and regulations with respect to boat design, on-board facilities, equipment, personnel and safety. In addition, we are required to have third parties periodically inspect and certify our casino riverboat for stability and single compartment flooding integrity. Our casinos also must meet local fire safety standards. We would incur additional costs, if any, if our gaming facilities were not in compliance with one or more of these regulations.
 
We are also subject to various federal, state, and local laws and regulations affecting businesses in general. These laws and regulations include, but are not limited to, restrictions and conditions concerning alcoholic beverages, environmental matters, smoking, employees, currency transactions, taxation, zoning and building codes, and marketing and advertising.
 
We also deal with significant amounts of cash in our operations and are subject to various reporting and anti-money laundering regulations. Any violations of anti-money laundering laws or regulations by any of our properties could have an adverse effect on our financial condition, results of operations or cash flows. Such laws and regulations could change or could be interpreted differently in the future, or new laws and regulations could be enacted.
 
The imposition of a substantial penalty could have a material adverse effect on our business.
 
Our business may be adversely affected by legislation prohibiting tobacco smoking.
 
Legislation in various forms to ban indoor tobacco smoking has been enacted or introduced in jurisdictions in which we operate.  The gaming areas of our properties are not currently subject to tobacco restrictions.  While gaming areas have generally been exempted from these restrictions, if additional restrictions on smoking are enacted in jurisdictions in which we operate, we could experience a significant decrease in gaming revenue and particularly, if such restrictions are not applicable to all competitive facilities in that gaming market, our business could be materially adversely affected.
 
We derive a significant amount of our revenues from our properties located in Indiana and Mississippi, and are especially subject to certain risks, including economic and competitive risks, associated with the conditions in those areas and in the states from which we draw patrons.
 
Because we derive a majority of our revenues from properties concentrated in two states, we are subject to greater risks from regional conditions than a gaming company with operating properties in several different geographies. A decrease in revenues from or increase in costs for one of these locations is likely to have a proportionally greater impact on our business and operations than it would for a gaming company with more geographically diverse operating properties. Risks from regional conditions include the following:
 
 
regional economic conditions;
 
 
regional competitive conditions, including legalization or expansion of gaming in Indiana, Mississippi or in neighboring states;
 
 
allowance of new types of gaming, such as the introduction of live table games at Indiana racinos;
 
 
reduced land and air travel due to increasing fuel costs or transportation disruptions;
 
 
increase our vulnerability to economic downturns and competitive pressures in the markets in which we operate; and
 
 
place us at a competitive disadvantage.
 
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Some of our casinos are located on leased property. If lessor buyout rights are exercised or if we default on one or more leases, the applicable lessors could terminate the affected leases and we could lose possession of the affected casino.
 
We lease certain parcels of land at our Silver Slipper Casino in Mississippi, and one of the two hotels at our Rising Star Casino Resort in Indiana.  We also lease casino space at our Grand Lodge Casino in Nevada. As a lessee, we have the right to use the leased land, hotel or space as applicable; however, we do not hold fee ownership. Accordingly, unless we have a purchase option and exercise such option, we will have no interest in the improvements thereon at the expiration of the leases. The operating lease at the Grand Lodge Casino includes certain lessor buyout rights based upon a multiple of EBITDA that, if exercised, could result in the lessor purchasing our leasehold interest and the operating assets on terms that are less than fair market value or that are financially unfavorable to us.  Since we do not completely control the land, hotel and space underlying our leased properties, a lessor could take certain actions to disrupt our rights under the long-term leases which are beyond our control. If the entity owning any leased land, hotel or space chose to disrupt our use either permanently or for a significant period of time, then the value of our assets could be impaired and our business and operations could be adversely affected. If we were to default on the lease, the lessor could terminate the affected lease and we could lose possession of the affected land, hotel or space and any improvements thereon. The loss of the lease through exercise of buyout rights or through termination upon default would have a significant adverse effect on our business, financial condition and results of operations as we would then be unable to operate all or portions of the affected facilities, which, in turn, may result in a default under our credit facilities.
 
We are engaged from time to time in one or more construction and development projects, and many factors could prevent us from completing them as planned.
 
Construction of major buildings has certain inherent risks, including the risks of fire, structural collapse, human error and electrical, mechanical and plumbing malfunction. In addition, projects entail additional risks related to structural heights and the required use of cranes. Our development and expansion projects also entail significant risks, including:
 
 
shortage of materials;
 
 
shortage of skilled labor or work stoppages;
 
 
unforeseen construction scheduling, engineering, excavation, environmental or geological problems;
 
 
natural disasters, hurricanes, weather interference, changes in river levels, floods, fires, earthquakes or other casualty losses or delays;
 
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unanticipated cost increase or delays in completing the project;
 
 
delays in obtaining or inability to obtain or maintain necessary license or permits;
 
 
changes to plans or specifications;
 
 
performance by contractors and subcontractors;
 
 
disputes with contractors;
 
 
disruption of our operations caused by diversion of management’s attention to new development projects and construction at our existing properties;
 
 
remediation of environmental contamination at some of our proposed construction sites, which may prove more difficult or expensive than anticipated in our construction budgets;
 
 
failure to obtain and maintain necessary gaming regulatory approvals and licenses, or failure to obtain such approvals and licenses on a timely basis;
 
 
requirements or government-established “goals” concerning union labor or requiring that a portion of the project expenditures be through companies controlled by specific ethnic or gender groups, goals that may not be obtainable, or may only be obtainable at additional project cost; and
 
 
increases in the cost of raw materials for construction, driven by demand, higher labor and construction costs and other factors, may cause price increases beyond those anticipated in the budgets for our development projects.
 
Escalating construction costs may cause us to modify the design and scope of projects from those initially contemplated or cause the budgets for those projects to be increased. We generally carry insurance to cover certain liabilities related to construction, but not all risks are covered, and it is uncertain whether such insurance will provide sufficient payment in a timely fashion even for those risks that are insured and material to us.
 
Construction of our development projects exposes us to risks of cost overruns due to typical construction uncertainties associated with any project or changes in the designs, plans or concepts of such projects. For these and other reasons, construction costs may exceed the estimated cost of completion, notwithstanding the existence of any guaranteed maximum price construction contracts.
 
The casino, hotel and resort industry is capital intensive and we may not be able to finance expansion and renovation projects, which could put us at a competitive disadvantage.
 
Our properties have an ongoing need for renovations and other capital improvements to remain competitive, including replacement, from time to time, of furniture, fixtures and equipment.  We may also need to make capital expenditures at our casino properties to comply with applicable laws and regulations.
 
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Renovations and other capital improvements at our properties require significant capital expenditures. In addition, renovations and capital improvements usually generate little or no cash flow until the projects are completed.  We may not be able to fund such projects solely from cash provided from operating activities.  Consequently, we may have to rely upon the availability of debt or equity capital to fund renovations and capital improvements, and our ability to carry them out will be limited if we cannot obtain satisfactory debt or equity financing, which will depend on, among other things, market conditions.  There can be no assurance that we will be able to obtain additional equity or debt financing or that we will be able to obtain such financing on favorable terms. Our failure to renovate our properties may put us at a competitive disadvantage.
 
Adverse weather conditions, road construction, gasoline shortages and other factors affecting our facilities and the areas in which we operate could make it more difficult for potential customers to travel to our properties and deter customers from visiting our properties.
 
Our continued success depends upon our ability to draw customers from each of the geographic markets in which we operate. Adverse weather conditions or road construction can deter our customers from traveling to our facilities or make it difficult for them to frequent our properties. In late 2013 and early 2014, there were severe cold temperatures that we believe adversely affected our Indiana and Mississippi properties’ financial performance. Moreover, gasoline shortages or fuel price increases in regions that constitute a significant source of customers for our properties could make it more difficult for potential customers to travel to our properties and deter customers from visiting. Our dockside gaming facility in Indiana, as well as any additional riverboat or dockside casino properties that might be developed or acquired, are also subject to risks, in addition to those associated with land-based casinos, which could disrupt our operations. Although our Indiana vessel does not leave its moorings in normal operations, there are risks associated with the movement or mooring of vessels on waterways, including risks of casualty due to river turbulence, flooding, collisions with other vessels and severe weather conditions.
 
Our results of operations and financial condition could be materially adversely affected by the occurrence of natural disasters, such as hurricanes, or other catastrophic events, including war and terrorism.
 
Natural disasters, such as major hurricanes, tornados, typhoons, floods, fires and earthquakes, could adversely affect our business and operating results. Hurricanes are common in the areas in which our Mississippi property is located and the severity of such natural disasters is unpredictable. In 2005, Hurricanes Katrina and Rita caused significant damage in the Gulf Coast region and damaged our Mississippi facility.  Additionally, our Indiana property is at risk of flooding due to its proximity to the Ohio River.
 
Catastrophic events, such as terrorist and war activities in the United States and elsewhere, have had a negative effect on travel and leisure expenditures, including lodging, gaming (in some jurisdictions) and tourism. We cannot accurately predict the extent to which such events may affect us, directly or indirectly, in the future. There also can be no assurance that we will be able to obtain or choose to purchase any insurance coverage with respect to occurrences of terrorist acts and any losses that could result from these acts. If there is a prolonged disruption at our properties due to natural disasters, terrorist attacks or other catastrophic events, our results of operations and financial condition would be materially adversely affected.
 
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We may incur property and other losses that are not adequately covered by insurance, including adequate levels of Weather Catastrophe Occurrence/Named Windstorm, Flood and Earthquake insurance coverage for our properties.
 
Although we maintain insurance that our management believes is customary and appropriate for our business, there can be no assurance that insurance will be available at reasonable costs in any given year or adequate to cover all losses and damage to which our business or our assets might be subjected. The lack of adequate insurance for certain types or levels of risk could expose us to significant losses in the event that a catastrophe occurred for which we are uninsured or underinsured. Any losses we incur that are not adequately covered by insurance may decrease our future operating income, require us to find replacements or repairs for destroyed property, and reduce the funds available for payments of our obligations.
 
Because of significant loss experience caused by hurricanes and other natural disasters over the last several years, a number of insurance companies have stopped writing insurance in Class 1 hurricane areas, including Mississippi. Others have significantly limited the amount of coverage they will write in these markets and have dramatically increased the premiums charged for this coverage. In addition, as a result of the worldwide economic conditions, there has been uncertainty as to the viability of certain insurance companies. While we believe that the insurance companies from which we have purchased insurance policies will remain solvent, there is no certainty that this will be the case.
 
We may face disruption and other difficulties in integrating and managing facilities we have recently developed or acquired, or may develop or acquire in the future.
 
We expect to continue pursuing expansion opportunities, and we regularly evaluate opportunities for acquisition and development of new properties, which evaluations may include discussions and the review of confidential information after the execution of nondisclosure agreements with potential acquisition candidates, some of which may be potentially significant in relation to our size.
 
We could face significant challenges in managing and integrating our expanded or combined operations and any other properties we may develop or acquire, particularly in new competitive markets. The integration of properties we may develop or acquire will require the dedication of management resources that may temporarily divert attention from our day-to-day business. The process of integrating properties that we may acquire also could interrupt the activities of those businesses, which could have a material adverse effect on our business, financial condition and results of operations. In addition, the development of new properties may involve construction, local opposition, regulatory, legal and competitive risks, as well as the risks attendant to partnership deals on these development opportunities. In particular, in projects where we team up with a joint venture partner, if we cannot reach agreement with such partners, or our relationships otherwise deteriorate, we could face significant increased costs and delays. Local opposition can delay or increase the anticipated cost of a project. Finally, given the competitive nature of these types of limited license opportunities, litigation is possible.
 
Management of new properties, especially in new geographic areas, may require that we increase our management resources. We cannot assure you that we will be able to manage the combined operations effectively or realize any of the anticipated benefits of our acquisitions. We also cannot assure you that if acquisitions are completed, that the acquired businesses will generate returns consistent with our expectations.
 
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Our ability to achieve our objectives in connection with any acquisition we may consummate may be highly dependent on, among other things, our ability to retain the senior level property management teams of such acquisition candidates. If, for any reason, we are unable to retain these management teams following such acquisitions or if we fail to attract new capable executives, our operations after consummation of such acquisitions could be materially adversely affected.
 
If we make new acquisitions or new investments, we may face additional risks related to our business, results of operations, financial condition, liquidity, ability to satisfy financial covenants and comply with other restrictive covenants under our debt agreements, and ability to pay or refinance our credit facilities and other indebtedness.
 
The occurrence of some or all of the above described events could have a material adverse effect on our business, financial condition and results of operations.
 
We may face risks related to our ability to receive regulatory approvals required to complete, or other delays or impediments to completing, certain of our acquisitions.
 
Our growth may be fueled, in part, by the acquisition of existing gaming and development properties. In addition to standard closing conditions, our acquisitions are often conditioned on the receipt of regulatory approvals and other hurdles that create uncertainty and could increase costs. Such delays could significantly reduce the benefits to us of such acquisitions and could have a material adverse effect on our business, financial condition and results of operations.
 
We face a number of challenges prior to opening new or upgraded facilities.
 
No assurance can be given that, when we endeavor to open new or upgraded facilities, the expected timetables for opening such facilities will be met in light of the uncertainties inherent in the development of the regulatory framework, construction, the licensing process, legislative action and litigation. For example, recent labor disputes at port facilities in California has delayed the arrival of some furniture items needed for the hotel we are constructing in Mississippi. Delays in opening new or upgraded facilities could lead to increased costs and delays in receiving anticipated revenues with respect to such facilities and could have a material adverse effect on our business, financial condition and results of operations.
 
Insufficient or lower-than-expected results generated from our new developments and acquired properties may negatively affect our operating results and financial condition.
 
There can be no assurance that the revenues generated from our new developments and acquired properties will be sufficient to pay related expenses if and when these developments are completed; or, even if revenues are sufficient to pay expenses, that the new developments and acquired properties will yield an adequate return or any return on our significant investments. Our projects, if completed, may take significantly longer than we expect to generate returns, if any. Moreover, lower-than-expected results from the opening of a new facility may negatively affect our operating results and financial condition and may make it more difficult to raise capital.
 
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Rising operating costs at our gaming properties could have a negative impact on our business.
 
The operating expenses associated with our gaming properties could increase due to, among other reasons, the following factors:
 
 
changes in federal, state or local tax or regulations, including state gaming regulations or gaming taxes, could impose additional restrictions or increase our operating costs;
 
 
aggressive marketing and promotional campaigns by our competitors for an extended period of time could force us to increase our expenditures for marketing and promotional campaigns in order to maintain our existing customer base or attract new customers;
 
 
as our properties age, we may need to increase our expenditures for repairs, maintenance, and to replace equipment necessary to operate our business in amounts greater than what we have spent historically;
 
 
an increase in the cost of health care benefits for our employees could have a negative impact on our financial results;
 
 
our reliance on slot play revenues and any additional costs imposed on us from vendors;
 
 
availability and cost of the many products and service we provide our customers, including food, beverages, retail items, entertainment, hotel rooms, spa and golf services;
 
 
availability and costs associated with insurance;
 
 
increase in costs of labor, including due to potential unionization of our employees;
 
 
our properties use significant amounts of electricity, natural gas and other forms of energy, and energy price increases may adversely affect our cost structure; and
 
 
our properties use significant amounts of water, and a water shortage may adversely affect our operations.
 
If our operating expenses increase without any offsetting increase in our revenues, our results of operations would suffer.
 
We may experience an impairment of our goodwill, which could adversely affect our financial condition and results of operations.
 
We have recognized a substantial amount of goodwill in connection with the purchase of our owned properties. We test goodwill for impairment annually or more frequently if events or circumstances indicate that the carrying value may not be recoverable. A significant amount of judgment is involved in performing fair value estimates for goodwill since the results are based on estimated future cash flows and assumptions related thereto. Significant assumptions include estimates of future sales and expense trends, liquidity and capitalization, among other factors. We base our fair value estimates on projected financial information, which we believe to be reasonable. However, actual results may differ from those projections. Further, we may need to recognize an impairment of some of the goodwill recognized, which would adversely affect our financial condition and results of operations.
 
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Our gaming operations rely heavily on technology services and an uninterrupted supply of electrical power. Our security systems and all of our slot machines are controlled by computers and are reliant on electrical power to operate.
 
Any unscheduled disruption in our technology services or interruption in the supply of electrical power could result in an immediate, and possibly substantial, loss of revenues due to a shutdown of our gaming operations. Such interruptions may occur as a result of, for example, a failure of our information technology or related systems, catastrophic events or rolling blackouts. Our systems are also vulnerable to damage or interruption from earthquakes, floods, fires, telecommunication failures, terrorist attacks, computer viruses, computer denial-of-service attacks and similar events.
 
Our information technology and other systems are subject to cyber security risk, including misappropriation of customer information or other breaches of information security.
 
We rely on information technology and other systems to maintain and transmit our customers’ personal and financial information, credit card settlements, credit card funds transmissions, mailing lists and reservations information. We have taken steps designed to safeguard our customers’ confidential personal information and have implemented systems designed to meet all requirements of the Payment Card Industry standards for data protection. However, our information and processes are subject to the ever-changing threat of compromised security in the form of a risk of potential breach, system failure, computer virus, or unauthorized or fraudulent use by customers, company employees, or employees of third party vendors. The steps we take to deter and mitigate these risks may not be successful, and any resulting compromise or loss of data or systems could adversely impact operations or regulatory compliance and could result in remedial expenses, fines, litigation, and loss of reputation, potentially impacting our financial results.
 
We are subject to environmental laws and potential exposure to environmental liabilities.
 
We are subject to various federal, state and local environmental laws and regulations that govern our operations, including emissions and discharges into the environment, and the handling and disposal of hazardous and non-hazardous substances and wastes. Failure to comply with such laws and regulations could result in costs for corrective action, penalties or the imposition of other liabilities or restrictions.  To date, none of these matters have had a material adverse effect on our business, financial condition or results of operations; however, there can be no assurance that such matters will not have such an effect in the future.  We also are subject to laws and regulations that impose liability and clean-up responsibility for releases of hazardous substances into the environment. Under certain of these laws and regulations, a current or previous owner or operator of property may be liable for the costs of remediating contaminated soil or groundwater on or from its property, without regard to whether the owner or operator knew of, or caused, the contamination, as well as incur liability to third parties impacted by such contamination. The presence of contamination, or failure to remediate it properly, may adversely affect our ability to use, sell or rent property. To date, none of these matters or other matters arising under environmental laws has had a material adverse effect on our business, financial condition, or results of operations; however, there can be no assurance that such matters will not have such an effect in the future.
 
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The concentration and evolution of the slot machine manufacturing industry could impose additional costs on us.
 
A majority of our revenues are attributable to slot machines and related systems operated by us at our gaming facilities. It is important, for competitive reasons, that we offer popular and up to date slot machine games to our customers.
 
A substantial majority of the slot machines sold in the U.S. in recent years were manufactured by a few select companies, and there has been recent consolidation activity within the gaming equipment sector.
 
In recent years, slot machine manufacturers have frequently refused to sell slot machines featuring the most popular games, instead requiring participation lease arrangements in order to acquire the machines. Participation slot machine leasing arrangements typically require the payment of a fixed daily rental. Such agreements may also include a percentage payment of coin-in or net win. Generally, a participation lease is substantially more expensive over the long term than the cost to purchase a new machine.
 
For competitive reasons, we may be forced to purchase new slot machines or enter into participation lease arrangements that are more expensive than our current costs associated with the continued operation of our existing slot machines. If the newer slot machines do not result in sufficient incremental revenues to offset the increased investment and participation lease costs, it could hurt our profitability.
 
We depend on our key personnel.
 
We are highly dependent on the services of our executive management team and other members of our senior management team.  Our ability to attract and retain key personnel is affected by the competitiveness of our compensation packages and the other terms and conditions of employment, our continued ability to compete effectively against other gaming companies, and our growth prospects. The loss of the services of any members of our senior management team could have a material adverse effect on our business, financial condition and results of operations.
 
We are subject to litigation which, if adversely determined, could cause us to incur substantial losses.
 
From time to time during the normal course of operating our businesses, we are subject to various litigation claims and legal disputes. Some of the litigation claims may not be covered under our insurance policies, or our insurance carriers may seek to deny coverage. As a result, we might also be required to incur significant legal fees, which may have a material adverse effect on our financial position. In addition, because we cannot accurately predict the outcome of any action, it is possible that, as a result of current and/or future litigation, we will be subject to adverse judgments or settlements that could significantly reduce our earnings or result in losses.
 
Subsequent phases to certain of our existing projects and potential enhancements at our properties may require us to raise additional capital.
 
We may need to access the capital markets or otherwise obtain additional funds to complete subsequent phases of our existing projects and to fund potential enhancements we may undertake at our facilities there. We do not know when or if the capital markets will permit us to raise additional funds for such phases and enhancements in a timely manner, on acceptable terms, or at all. Inability to access the capital markets, or the availability of capital only on less-than-favorable terms, may force us to delay, reduce or cancel our subsequent phases and enhancement projects.
 
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Our ability to obtain bank financing or to access the capital markets for future offerings may also be limited by our financial condition, results of operations or other factors, such as our credit rating or outlook at the time of any such financing or offering and the covenants in our existing debt agreements, as well as by general economic conditions and contingencies and uncertainties that are beyond our control. As we seek additional financing, we will be subject to the risks of rising interest rates and other factors affecting the financial markets.
 
The market price for our common stock may be volatile, and you may not be able to sell our stock at a favorable price or at all.
 
Many factors could cause the market price of our common stock to rise and fall, including:
 
 
actual or anticipated variations in our quarterly results of operations;
 
 
change in market valuations of companies in our industry;
 
 
change in expectations of future financial performance;
 
 
regulatory changes;
 
 
fluctuations in stock market prices and volumes;
 
 
issuance of common stock market prices and volumes;
 
 
issuance of common stock or other securities in the future;
 
 
the addition or departure of key personnel; and
 
 
announcements by us or our competitors of acquisitions, investments, dispositions, joint ventures or other significant business decisions.
 
In addition, the stock market in general has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to companies’ operating performance. Broad market and industry factors may materially harm the market price of our common stock, regardless of our operating performance. In the past, following periods of volatility in the market price of a company’s securities, shareholder derivative lawsuits and/or securities class action litigation has often been instituted against that company. Such litigation, if instituted against us, could result in substantial costs and a diversion of management’s attention and resources.
 
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The global financial crisis and recession have affected our business and financial condition, and economic and financial market conditions may continue to affect us in ways that we currently cannot accurately predict.
 
The credit crisis, economic recession and related turmoil in the global financial system have had and may continue to have an effect on our business and financial condition. The U.S. economy continues to experience some weakness following a severe recession, which resulted in increased unemployment, decreased consumer spending and a decline in housing values. While the U.S. economy has emerged from the recession, high levels of unemployment have continued to persist. In addition, while the Federal Reserve took policy actions to promote market liquidity and encourage economic growth following the recession, such actions are now being curtailed as signs of improvement in the economy have emerged, and the impact of these monetary policy actions on the recovery is uncertain. If the economic recovery slows or stalls, or if the economy experiences another recession, we may experience a material adverse effect on our business, results of operations and financial condition.
 
If our lenders were to file for bankruptcy or otherwise default on their obligations to us, we may not have the liquidity to fund our current or future projects. There is no certainty that our lenders will continue to remain solvent or fund their respective obligations under our credit facilities, which would have a material adverse effect on our liquidity and financial condition.
 
The significant distress experienced by financial institutions during the financial crisis and the recession has had and may continue to have far reaching adverse consequences across many industries, including the gaming industry. The credit and liquidity crisis greatly restricted the availability of capital and caused the cost of capital (if available) to be much higher than it had traditionally been. Volatility in the capital markets is perceived to be high. The need to access the capital markets could increase the costs of our projects, which could have an impact on our flexibility to react to changing economic and business conditions and our ability or willingness to fund our development projects. All of these effects could have a material adverse effect on our business, financial condition and results of operations, liquidity and our ability to satisfy financial covenants and comply with other restrictive covenants.
 
Item 1B. Unresolved Staff Comments.
 
Not applicable.
 
Item 2. Properties.
 
The following describes our principal real estate properties.  All properties listed below and substantially all other assets secure our indebtedness in connection with our First Lien Credit Agreement with Capital One Bank, N.A. (“First Lien Credit Facility”) and our Second Lien Credit Agreement with ABC Funding, LLC (“Second Lien Credit Facility”), as discussed in Note 7 to the consolidated financial statements set forth in “Item 8. Financial Statements and Supplementary Data.
 
Silver Slipper Casino
 
We own the Silver Slipper located in Bay St. Louis, Mississippi which offers a casino with approximately 37,000 square feet, three restaurants, a surface parking lot, and an 800-space parking garage.  It is located on 38 acres of land we lease pursuant to a Lease with Option to Purchase, as amended, which expires on April 30, 2058.  The leased land includes approximately 31 acres of protected marshlands.  We also lease approximately five acres of land occupied by the Silver Slipper Casino gaming office and warehouse space, as well as a small parcel of land with a building. We have commenced construction of a 129-room hotel, including nine suites, adjacent to the Silver Slipper Casino.  We expect to complete and open the 120 standard rooms in the second quarter of 2015, followed shortly thereafter by the remaining nine suites.
 
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Rising Star Casino Resort
 
We own the Rising Star Casino Resort, located in Rising Sun, Indiana on the Ohio River.  The property consists of a dockside riverboat with approximately 40,000 square feet of gaming space, a land-based pavilion, a 190-room hotel, surface parking and an 18-hole golf course on 380 acres.  In addition, a third party constructed a new 104-room hotel that opened in 2013 on property adjacent to Rising Star Casino Resort, bringing total room capacity to 294.  Through our Indiana subsidiary, we lease this new hotel pursuant to a 10-year capital lease that includes an option to purchase the hotel during the term of the lease at a pre-set price or at the end of the term for $1 plus closing costs. Upon expiration of the term of the lease, if we have not exercised our option to purchase the hotel, the Landlord shall have the right and option to sell us the hotel for $1 plus closing costs. We are responsible for all maintenance and repairs.  See Note 6 to the consolidated financial statements set forth in “Item 8.  Financial Statements and Supplementary Data”.
 
Stockman’s Casino
 
We own Stockman’s Casino located in Fallon, Nevada. Stockman’s Casino is located on approximately five acres and includes 8,400 square feet of gaming space, a fine dining restaurant, coffee shop and adjacent surface parking.
 
Grand Lodge Casino
 
The Grand Lodge Casino has 18,900 square feet of gaming area and the casino is integrated into the Hyatt Lake Tahoe in Incline Village, Nevada on the north shore of Lake Tahoe.  Pursuant to a lease expiring on August 31, 2018, we operate the Grand Lodge Casino and pay a fixed monthly rent of $0.1 million over the term of the lease.   The lease includes an option, subject to future mutual agreement, to renew the lease for an additional five-year term.  The lease is secured by the Company’s interests under the lease and property, as defined, and is subordinate to the liens in the First and Second Lien Credit Facilities.  Lessor has an option to purchase the leasehold interest and the operating assets of the Grand Lodge Casino, subject to assumption of applicable liabilities. The option purchase price is an amount equal to the Grand Lodge Casino’s positive working capital, plus Grand Lodge Casino’s EBITDA for the twelve-month period preceding the acquisition or for such period of time remaining on the lease term, whichever is less, plus the fair market value of the Grand Lodge Casino’s personal property (including slot machines).
 
Corporate Offices
 
We lease 2,569 square feet of office space in Las Vegas, Nevada pursuant to an amended lease agreement dated December 1, 2012.  The lease agreement expires on May 31, 2018.
 
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Item 3. Legal Proceedings.
 
 We are subject to various legal and administrative proceedings relating to personal injuries, employment matters, commercial transactions and other matters arising in the normal course of business.  We do not believe that the final outcome of these matters will have a material adverse effect on our consolidated financial position or results of operations. We maintain what we believe is adequate insurance coverage to further mitigate the risks of such proceedings.
 
Item 4. Mine Safety Disclosures.
 
Not applicable.
 
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Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
 
Our common stock traded on the NYSE Amex under the symbol “FLL” until February 12, 2013.  On February 13, 2013, our common stock commenced trading on the NASDAQ Capital Market under the symbol “FLL”.  Set forth below are the high and low sales prices of our common stock as reported on the NYSE Amex until February 12, 2013 and the NASDAQ Capital Market for the periods thereafter.
 
   
High
   
Low
Year Ended December 31, 2014
         
First Quarter
  $ 2.79     $ 1.92  
Second Quarter
    2.23       1.18  
Third Quarter
    1.59       0.87  
Fourth Quarter
    1.65       1.07  
                 
Year Ended December 31, 2013
               
First Quarter
  $ 3.58     $ 2.75  
Second Quarter
    3.32       2.58  
Third Quarter
    3.05       2.61  
Fourth Quarter
    3.03       2.70  
 
On March 23, 2015, the last sale price of our common stock as reported by the NASDAQ Capital Market was $1.47, and we had 96 registered holders of record of our common stock.
 
Dividend Policy
 
We have not paid any dividends on our common stock to date.  The payment of dividends in the future will be contingent upon our revenues and earnings, if any; the terms of our indebtedness; our capital requirements; growth opportunities; and general financial condition.   Our debt covenants restrict the payment of dividends and it is the present intention of our board of directors to retain all earnings, if any, for use in our business operations, debt reduction and growth initiatives.  Accordingly, we do not anticipate paying any dividends in the foreseeable future.
 
Stock Options Granted In Connection With the Daniel R. Lee Employment Agreement
 
On November 28, 2014, the Company entered into the Employment Agreement with Daniel R. Lee pursuant to which Mr. Lee serves as the Company’s Chief Executive Officer.  The employment agreement is discussed in more detail in Item 1. “Business – Recent Developments”.
 
In connection with entering into the Employment Agreement, we granted Mr. Lee nonqualified stock options, covering 943,834 shares of Company common stock, with a per share exercise price equal to the closing price per share on the grant date. At the time, the Company did not have sufficient options available under the Company’s Amended and Restated 2006 Incentive Compensation Plan. The stock options were issued as an “employee inducement award” as permitted under the rules of NASDAQ and the Securities and Exchange Commission.  The options are scheduled to vest over a four-year period, with 25% vesting on November 28, 2015 and the remaining 75% vesting in substantially equal installments on each monthly anniversary thereafter, subject to Mr. Lee’s continued service through the applicable vesting date.  The stock options will vest in full on a change in control of the Company.  The Company intends to file a Registration Statement on SEC Form S-8 to register the shares issuable upon exercise of the nonqualified stock option.  As of December 31, 2014, all of Mr. Lee’s stock options remained outstanding.
 
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Upon Mr. Lee’s termination of employment due to death or disability, he or his estate will be entitled to accelerated vesting of all outstanding stock options held by Mr. Lee on the termination date with respect to such number of shares underlying each stock option that would have vested over the one-year period immediately following the termination date had the stock options continued to vest in accordance with its term. If Mr. Lee’s employment is terminated by the Company without “cause” or by Mr. Lee for “good reason” (each, as defined in the Employment Agreement), then Mr. Lee will be entitled to receive full accelerated vesting of all outstanding Company stock options held by Mr. Lee on the termination dates.
 
Item 6.  Selected Financial Data.
 
As a smaller reporting company, we are not required to provide the information required by this Item.
 
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
Overview
 
We own, operate, develop, manage, and/or invest in casinos and related hospitality and entertainment facilities.
 
We currently own three casino properties and operate a fourth casino subject to a lease, as follows:
 
Property
 
Acquisition
Date
Location
 
Slot
Machines
Table
Games
Hotel
Rooms
Silver Slipper Casino (Owned)
 
2012
Bay St. Louis, MS (near New Orleans)
 
938
29
129(1)
Rising Star Casino Resort (Owned)
 
2011
Rising Sun, IN (near Cincinnati)
 
921
28
294(2)
Stockman’s Casino (Owned)
 
2007
Fallon, NV (one hour east of Reno)
 
265
4
--
Grand Lodge Casino (leased and part of the Hyatt Regency Lake Tahoe Resort)
 
2011
Incline Village, NV (North Shore of Lake Tahoe)
 
254
20
-- (3)
 
(1)
The Silver Slipper Casino is expected to open its hotel in the first half of 2015.
 
(2)
Includes a 190-room hotel that we own and operate, and a 104-room hotel that we lease pursuant to a 10-year capital lease.
 
(3)
Under the Facilities Agreement dated June 29, 2011 with Hyatt Equities, L.L.C. we have the ability to provide rooms to our guests at the Hyatt Regency at Lake Tahoe upon mutually agreeable rates, as well as other amenities and services that cater to our guests and support our operations.
 
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Until our three-year contract expired in September 2014, we managed Buffalo Thunder Casino and Resort, Cities of Gold and other gaming facilities near Santa Fe, New Mexico for the Pueblo of Pojoaque.  In addition, we also previously managed, through a 50%-owned joint venture, the FireKeepers Casino near Battle Creek, Michigan for the Nottawaseppi Huron Band of Potawatomi until we sold our interest in March 2012.
 
Our financial results are dependent upon the number of patrons that we attract to our properties and the amounts those guests spend per visit. Additionally, our operating results may be affected by, among other things, overall economic conditions affecting the disposable income of our guests, weather conditions affecting our properties, achieving and maintaining cost efficiencies, competitive factors, gaming tax increases and other regulatory changes, the commencement of new gaming operations and construction at existing facilities. We may experience significant fluctuations in our quarterly operating results due to seasonality, variations in gaming hold percentages and other factors. Consequently, our operating results for any quarter or year are not necessarily comparable and may not be indicative of future periods’ results.
 
Our revenues are primarily derived from gaming revenues, which include revenues from slot machines, table games and live keno. Gaming revenues are generally defined as gaming wins less gaming losses. In addition, we derive a significant amount of revenue from our hotel rooms and our food and beverage outlets. We also derive revenues from our golf course (at Rising Star Casino Resort), retail outlets and entertainment. Promotional allowances consist primarily of hotel, food and beverages furnished to customers on a complimentary basis. The retail value of such services is included in the respective revenue classifications and is then deducted as promotional allowances to calculate net revenues.  We calculate operating income (loss) as net revenues less total operating costs and expenses. Operating income (loss) represents only those amounts that relate to our operations and excludes interest income, interest expense, and other non-operating income and expenses.
 
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Results of Operations - 2014 Compared to 2013

Operating results – reportable segments
 
The following summarizes our operating results by reportable segment for the years ended December 31, 2014 and 2013, expressed in thousands of dollars:
 
               
       Percent of Net Revenues
   
Increase
(Decrease)
 
   
2014
   
2013
   
2014
   
2013
   
Dollars
   
Percent
 
Net Revenues
                                   
    Silver Slipper Casino
  $ 48,023     $ 51,629       39.6 %     35.6 %   $ (3,606 )     (7.0 )%
    Rising Star Casino Resort
    51,110       69,147       42.1 %     47.8 %     (18,037 )     (26.1 )%
    Northern Nevada Casinos
    21,222       22,273       17.5 %     15.5 %     (1,051 )     (4.7 )%
    Corporate and other
    1,066       1,678       0.8 %     1.1 %     (612 )     (36.5 )%
    $ 121,421     $ 144,727       100.0 %     100.0 %   $ (23,306 )     (16.1 )%
Operating income (loss)
                                               
    Silver Slipper Casino
  $ 2,189     $ 3,936       1.8 %     2.7 %   $ (1,747 )     (44.4 )%
    Rising Star Casino Resort
    (12,742 )     2,393       (10.5 )%     1.7 %     (15,135 )     (632.4 )%
    Northern Nevada Casinos
    3,609       334       3.0 %     0.2 %     3,275       980.5 %
    Corporate and other
    (6,894 )     (3,727 )     (5.7 )%     (2.6 )%     (3,167 )     (85.0 )%
    $ (13,838 )   $ 2,936       (11.4 )%     2.0 %   $ (16,774 )     (571.3 )%
 
48
 

 

 
Consolidated operating results
 
The following summarizes our consolidated operating results for the years ended December 31, 2014 and 2013, expressed in thousands of dollars:
 
               
Percent of Net Revenues
   
Increase (Decrease)
 
   
2014
   
2013
   
2014
   
2013
   
Dollars
   
Percent
 
                                     
Revenues, net
                                   
Casino
  $ 109,566     $ 131,581       90.2 %     90.9 %   $ (22,015 )     (16.7 )%
Non-casino related, net of promotional allowances
    10,789       11,468       8.9 %     7.9 %     (679 )     (5.9 )%
Management fees
    1,066       1,678       0.9 %     1.2 %     (612 )     (36.5 )%
      121,421       144,727       100.0 %     100.0 %     (23,306 )     (16.1 )%
                                                 
Costs and expenses
                                               
Casino
    56,867       67,779       46.8 %     46.8 %     (10,912 )     (16.1 )%
Non-casino related
    10,311       10,086       8.5 %     7.0 %     225       2.2 %
Project development and acquisition costs
    296       67       0.2 %     -- %     229       341.8 %
Board and executive transition costs
    2,741       --       2.3 %     -- %     2,741       -- %
Selling, general and administrative
    43,942       50,447       36.2 %     34.9 %     (6,505 )     (12.9 )%
Depreciation and amortization
    9,183       9,388       7.6 %     6.5 %     (205 )     (2.2 )%
Loss on disposal of assets, net
    372       24       0.3 %     -- %     348       1,450 %
Impairment charges
    11,547       4,000       9.5 %     2.8 %     7,547       188.7 %
      135,259       141,791       111.4 %     98.0 %     (6,532 )     (4.6 )%
                                                 
Operating income (loss)
    (13,838 )     2,936       (11.4 )%     2.0 %     (16,774 )     (571.3 )%
                                                 
Interest expense and other
    7,995       7,259       6.6 %     5.0 %     736       10.1 %
                                                 
Loss before income tax benefit
    (21,833 )     (4,323 )     (18.0 )%     (3.0 )%     (17,510 )     (405.0 )%
                                                 
Income tax benefit
    (988 )     (361 )     (0.8 )%     (0.3 )%     (627 )     173.7 %
                                                 
Net loss
  $ (20,845 )   $ (3,962 )     (17.2 )%     (2.7 )%   $ (16,883 )     (426.1 )%
 
49
 

 

 
Additional details related to the composition of our revenues for the years ended December 31, 2014 and 2013, expressed in thousands of dollars, follows:
 
               
Percent of Net
Revenues
   
Increase (Decrease)
 
   
2014
   
2013
   
2014
   
2013
   
Dollars
   
Percent
 
Casino revenues
                                   
Slots
  $ 94,239     $ 114,249       77.6 %     78.9 %   $ (20,010 )     (17.5 )%
Table games
    14,968       16,950       12.3 %     11.7 %     (1,982 )     (11.7 )%
Other
    359       382       0.3 %     0.3 %     (23 )     (6.0 )%
      109,566       131,581       90.2 %     90.9 %     (22,015 )     (16.7 )%
                                                 
Non-casino revenues, net
                                               
Food and beverage
    7,768       7,967       6.4 %     5.5 %     (199 )     (2.5 )%
Hotel
    822       582       0.7 %     0.4 %     240       41.2 %
Other
    2,199       2,919       1.8 %     2.0 %     (720 )     (24.7 )%
      10,789       11,468       8.9 %     7.9 %     (679 )     (5.9 )%
                                                 
Management fees
    1,066       1,678       0.9 %     1.2 %     (612 )     (36.5 )%
                                                 
Total net revenues
  $ 121,421     $ 144,727       100.0 %     100.0 %   $ (23,306 )     (16.1 )%
 
The following discussion is based on our consolidated financial statements for the years ended December 31, 2014 and 2013.
 
Revenues. Consolidated net revenues and casino revenues decreased primarily as a result of increased competitive pressure from new casino openings in southwest Ohio, adverse weather conditions during the first quarter at both the Rising Star and Silver Slipper casinos, and construction disruption at the Silver Slipper Casino.
 
Similarly, consolidated non-casino revenues decreased primarily as a result of the decline in patronage at the Rising Star and Silver Slipper casinos, partially offset by an increase in hotel revenues after the opening of the new 104-room hotel in November 2013 at Rising Star Casino Resort.
 
Consolidated management fees, included within our corporate segment, decreased due to the expiration of our management contract in September 2014 with Buffalo Thunder, Cities of Gold, and other gaming facilities near Santa Fe, New Mexico, for the Pueblo of Pojoaque.
 
Casino costs and expenses.  The decrease in consolidated casino costs and expenses was primarily attributable to reductions in gaming and other revenue-based taxes ($7.9 million), payroll-related cost containment measures ($1.3 million) and a decline in the cost of complimentaries ($1.2 million), all at the Rising Star Casino Resort. The decrease in gaming taxes was due to lower gaming revenues and a legislative reduction in the tax rate.
 
50
 

 

 
Non-casino related costs and expenses.  Consolidated non-casino related costs and expenses increased primarily due to higher food and beverage costs from promotional campaigns at Rising Star and Silver Slipper casinos, and an increase in costs related to the opening of the new hotel at Rising Star Casino Resort in November 2013.
 
Project development and acquisition costs.   Project development and acquisition costs were not significant in either year and are allocated to our development/management segment.
 
Board and executive transition costs.    These costs include $0.8 million in fees for advisors consisting of a financial strategist, proxy solicitor, and legal counsel hired to assist the Company with responding to the requests of the Shareholder Group; reimbursement of $0.2 million in fees and expenses incurred by the Shareholder Group; and the payments and benefits made to executives in accordance with the resultant Settlement Agreement ($1.7 million).  The matters that gave rise to these expenses are described in “Item 1. Business – Recent Developments” above, and in Note 9 to the consolidated financial statements set forth in “Item 8. Financial Statements and Supplementary Data”.
 
Selling, general and administrative costs and expenses.  These costs decreased by approximately $1.6 million, or 8.5%, at Silver Slipper Casino; $4.2 million, or 20.1%, at Rising Star Casino Resort; $0.3 million, or 5.5%, at the Northern Nevada properties; and $0.4 million at our corporate segment. The decrease primarily related to the implementation of cost control initiatives at all of our properties, including staff reductions and employee-related expenses ($2.9 million) and lower spending for marketing expenses ($3.1 million) at Rising Star.
 
Depreciation and amortization expense.  Depreciation and amortization expense decreased primarily due to intangible assets related to our player loyalty program becoming fully amortized, partially offset by an increase from depreciation of our new leased hotel at the Rising Star Casino Resort which opened in November 2013.
 
Loss on disposals, net.  Loss on disposals, net, increased due to the disposition of various assets related to our hotel remodel at Rising Star Casino Resort.
 
Impairment losses.  During 2014, we incurred impairment charges for goodwill of $1.6 million and gaming licenses of $9.9 million at the Rising Star Casino Resort.  During 2013, we incurred a goodwill impairment charge of $4.0 million at our Northern Nevada segment.
 
Goodwill and other intangible assets are reviewed for impairment annually or more frequently if indicators of impairment exist. During the second quarter of 2014, we believed such indicators existed. See Note 5 to the consolidated financial statements set forth in “Item 8. Financial Statements and Supplementary Data” for a more detailed discussion. These impairments were driven by various factors including weak economic conditions, lower than anticipated discretionary consumer spending, and increased competition in the Indiana market.
 
Interest and other non-operating expense.  Interest and other non-operating expenses increased primarily due to the $1.7 million settlement loss associated with the terminated purchase of Majestic Mississippi, LLC, partially offset by a $1.0 million decrease in interest expense. Interest expense declined due to the reduction of $8.8 million of long-term debt during 2013, a one percentage point reduction of our interest rate within the First Lien Credit Facility in August 2013, and the capitalization of $0.4 million of interest related to the hotel we are constructing at Silver Slipper Casino.
 
51
 

 

 
Income tax benefit. Income tax benefit increased due to a larger pre-tax book loss, partially offset by a $7.0 million valuation allowance related to our long-term deferred tax assets. The effective income tax rate was 4.5% during 2014 compared to 8.3% in 2013. The impairment charges recorded in 2014 and 2013 resulted in a significant amount of deferred tax assets.  In assessing our ability to realize our deferred tax assets, we consider whether it is “more likely than not” that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences become deductible.  As a result, we recorded a valuation allowance against our deferred tax assets, which also resulted in a tax rate substantially below statutory rates.  Our actual tax returns resulted in tax losses during 2014 and 2013 which we elected to carryback to taxable income earned during 2012 and 2011 in accordance with IRS rules. See Note 11 to the consolidated financial statements set forth inItem 8. Financial Statements and Supplementary Data”, for a more detailed discussion.
 
Non-GAAP Measures
 
“Adjusted EBITDA” is earnings before interest and other non-operating income (expense), taxes, depreciation and amortization, impairment charges, asset disposals, board and executive transition costs, project development and acquisition costs, and non-cash share based compensation expense.  Adjusted EBITDA information is presented solely as a supplemental disclosure to reported U.S. generally accepted accounting principles (“GAAP”) measures because management believes these measures are (1) widely used measures of operating performance in the gaming and hospitality industry, (2) a principal basis for valuation of gaming and hospitality companies, and (3) are utilized in the covenants within our debt agreements, although not necessarily defined in the same way as above.  “Adjusted Property EBITDA” is Adjusted EBITDA before corporate related costs and expenses which are not allocated to each property.   Adjusted EBITDA and Adjusted Property EBITDA are not, however, a measure of financial performance or liquidity under U.S. generally accepted accounting principles.  Accordingly, these measures should be considered supplemental and not a substitute for net income (loss) or cash flows as an indicator of the Company’s operating performance or liquidity.
 
52
 

 

 
The following table presents a reconciliation of Adjusted EBITDA to net loss for the years ended December 31, 2014 and 2013:
             
   
2014
   
2013
 
Adjusted EBITDA
  $ 10,549     $ 17,058  
Depreciation and amortization
    (9,183 )     (9,388 )
Impairment charges
    (11,547 )     (4,000 )
Loss on disposal of assets, net
    (372 )     (24 )
Board & executive transition costs
    (2,741 )     --  
Project development & acquisition costs
    (296 )     (67 )
Stock compensation
    (248 )     (643 )
Operating income (loss)
    (13,838 )     2,936  
                 
Non-operating expenses
               
Interest expense
    6,272       7,268  
Settlement and other
    1,723       (9 )
      7,995       7,259  
                 
Loss before income tax benefit
    (21,833 )     (4,323 )
Income tax benefit
    (988 )     (361 )
                 
Net loss
  $ (20,845 )   $ (3,962 )
 
53
 

 

 
The following tables present reconciliations of operating income (loss) to Adjusted Property EBITDA and Adjusted EBITDA for the years ended December 31, 2014 and 2013:
 
               
Impairment
          Project              
         
Depreciation
   
charges and
    Board and    
development
             
   
Operating
    and    
disposals,
    executive     and acquisition     Stock    
Adjusted
 
2014
 
income (loss)
   
amortization
    net    
transition costs
    costs    
compensation
   
EBITDA
 
                                           
Casino properties
                                         
Silver Slipper Casino
  $ 2,189     $ 5,312     $ -     $ -     $ -     $ -     $ 7,501  
Rising Star Casino Resort
    (12,742 )     2,997       11,919       -       -       -       2,174  
Northern Nevada Casinos
    3,609       857       -       -       -       -       4,466  
      (6,944 )     9,166       11,919       -       -       -       14,141  
                                                         
Other operations
                                                       
Management fees
    1,066       -       -       -       -       -       1,066  
Board and executive
                                                       
    transition costs
    (2,741 )     -       -       2,741       -       -       -  
Project development and
                                                       
    acquisition costs
    (296 )     -       -       -       296       -       -  
Stock compensation
    (248 )     -       -       -       -       248       -  
Corporate
    (4,675 )     17       -       -       -       -       (4,658 )
      (6,894 )     17       -       2,741       296       248       (3,592 )
                                                         
    $ (13,838 )   $ 9,183     $ 11,919     $ 2,741     $ 296     $ 248     $ 10,549  
 
               
Impairment
         
Project
             
         
Depreciation
   
charges and
   
Board and
   
development
             
   
Operating
   
and
   
disposals,
   
executive
   
and acquisition
   
Stock
   
Adjusted
 
2013
 
income (loss)
   
amortization
   
net
   
transition costs
   
costs
   
compensation
   
EBITDA
 
                                           
Casino properties
                                         
Silver Slipper Casino
  $ 3,936     $ 5,595     $ 24     $ -     $ -     $ -     $ 9,555  
Rising Star Casino Resort
    2,393       3,032       -       -       -       -       5,425  
Northern Nevada Casinos
    334       748       4,000       -       -       -       5,082  
      6,663       9,375       4,024       -       -       -       20,062  
                                                         
Other operations
                                                       
Management fees
    1,678       -       -       -       -       -       1,678  
Board and executive
                                                       
    transition costs
    -       -       -       -       -       -       -  
Project development and
                                                       
    acquisition costs
    (67 )     -       -       -       67       -       -  
Stock compensation
    (643 )     -       -       -       -       643       -  
Corporate
    (4,695 )     13       -       -       -       -       (4,682 )
      (3,727 )     13       -       -       67       643       (3,004 )
                                                         
    $ 2,936     $ 9,388     $ 4,024     $ -     $ 67     $ 643     $ 17,058  
 
The Silver Slipper information presented above is net of rent paid on its underlying land lease of $0.9 million in 2014 and 2013.  Likewise, the Northern Nevada figures are net of $1.5 million of rent paid for the casino space at Grand Lodge Casino in 2014 and 2013.   Rising Star Casino Resort paid $0.9 million in 2014 and $0 in 2013 to rent the hotel that opened in November 2013.  Because this hotel lease is a capital lease, the rent payments are not included in the above numbers but instead appear as amortization of the capitalized lease obligation and as a component of interest expense.
 
54
 

 


Liquidity and Capital Resources
 
Economic Conditions and Related Risks and Uncertainties
 
Beginning in 2007, the United States experienced a widespread and severe economic slowdown accompanied by, among other things, weakness in consumer spending including gaming activity and reduced credit and capital financing availability, all of which have had far-reaching effects on economic conditions in the country. Our operations are currently concentrated in Mississippi, Indiana and Northern Nevada. Although the national economy has begun to recover, future operations could be affected by adverse economic conditions and increased competition particularly in those areas and their key feeder markets in neighboring states. The effects and duration of these conditions and related risks and uncertainties on our future operations and cash flows, including our access to capital or credit financing, cannot be estimated at this time, but may be significant.
 
Liquidity Outlook
 
Our ability to generate cash from operations in the future depends, in significant part, upon the state of the gaming industry in Indiana, Mississippi and Northern Nevada, which in turn depends upon a number of factors including the state of the United States economy, the amount of discretionary consumer spending and the level of competition in these markets. As of December 31, 2014, we held $15.6 million of cash and cash equivalents, have a $3.1 million federal income tax receivable expected to be received during 2015, and had drawn $2.0 million on our $5.0 million revolving loan agreement.
 
The next scheduled principal payment for the term loan of $1.25 million is due October 1, 2015.   Additionally, quarterly payments of $0.25 million are scheduled to begin June 1, 2015 on the construction portion of the term loan.
 
We believe that our existing cash balance, cash flows from operations, and availability under our revolving loan will meet our financial and operating obligations over the next twelve months. However, we will continue to closely monitor and manage our cash position given the current economic environment. If our sources of capital are inadequate to fund our long-term liquidity requirements, we will attempt to procure additional debt or equity financing to fund our operations, capital expenditures and debt service requirements. Our ability to draw on our revolving loan is subject to, amongst other terms, our continued ability to meet our various financial covenants.  We are unlikely to generate sufficient cash flow from operations to repay our existing debt when it comes due and we have begun discussions with our lenders to refinance that debt.
 
 Our casinos are our primary sources of income and operating cash flow. There can be no assurance that our business will generate sufficient cash flow from operations or that future borrowings will be available in amounts sufficient to enable us to pay our indebtedness or fund our other liquidity needs. In addition, there can be no assurance that the Grand Lodge Casino lease ending in August 2018 will be extended beyond its current terms, or that the lessor will not exercise its purchase option. Moreover, we may need to refinance all or a portion of our indebtedness on or before maturity. We cannot make assurances that we will be able to refinance any of our indebtedness on commercially reasonable terms or at all.
 
55
 

 

 
Cash flows - operating activities.  On a consolidated basis, cash provided by operations during the year ended December 31, 2014, was $7.6 million compared to $12.3 million in 2013. Trends in our operating cash flows tend to follow trends in operating income, excluding non-cash charges, but can be affected by changes in working capital.  Cash provided by operating activities decreased primarily due to decreased operating cash flow at the Rising Star and Silver Slipper casinos and from the expiration of our tribal management contract.
 
Cash flows - investing activities.  On a consolidated basis, cash used in investing activities during the year ended December 31, 2014, was $8.9 million largely due to the construction of the hotel and repair of the parking garage at Silver Slipper Casino. Cash used in investing activities during the year ended December 31, 2013, was $6.5 million, which primarily related to the purchase of property and equipment at our properties and $2.2 million of construction costs for the Silver Slipper hotel.
 
 Cash flows - financing activities. On a consolidated basis, cash provided by financing activities during the year ended December 31, 2014, was $2.1 million.  Cash of $2 million was drawn on the revolving term loan related to the terminated purchase of the Majestic Star, and $1.1 million was drawn for construction costs related to the hotel at Silver Slipper Casino.  These funds were partially offset by $0.8 million of payments related to amortization of the Rising Star Casino Resort’s capital lease and $0.3 million of loan fees for the First and Second Lien Credit Facility amendments. Cash used in financing activities during the year ended December 31, 2013, was $11.5 million primarily used to pay debt.
 
Projects
 
 In January 2015, we announced a design change to the hotel at Silver Slipper Casino, subject to customary lender approvals as required, which will add nine luxury suites and reduce the room count to approximately 129 rooms, including nine suites, from 142 standard hotel rooms. The new configuration provides suites for high-end customers which we believe will enhance the customer experience and our profitability. Given that the hotel’s interior work was not yet completed, our expected cash requirements to complete the hotel’s new configuration is expected to be approximately an additional $1 million, bringing the budgeted cost to approximately $20 million, inclusive of capitalized interest.  We expect to complete and open the 120 standard rooms in the second quarter of 2015, followed shortly thereafter by the remaining nine suites. Construction and financing costs for the hotel of $8.2 million were funded from available cash as of December 31, 2014.  We intend to finance $10.0 million of the construction costs of the hotel with the proceeds from the increase in the term loan under our First Lien Credit Facility as described in Note 7 to the consolidated financial statements set forth in “Item 8. Financial Statements and Supplementary Data”, of which we had drawn $1.1 million as of December 31, 2014.  The remaining budgeted costs, including the approximately $1 million of additional funding related to the new suites, is intended to be funded through our existing working capital during 2015.
 
Subject to the effects of the economic uncertainties discussed above, we believe that adequate financial resources will be available to execute our current growth plan from a combination of operating cash flows and external debt and equity financing.  However, there can be no assurances of our ability to continue expanding.
 
We evaluate projects on a number of factors, including forecasted profitability, development period, regulatory and political environment, and the ability to secure the funding necessary to complete the development or acquisition, among other considerations.  No assurance can be given that any additional projects will be pursued or completed or that any completed projects will be successful.
 
56
 

 

 
Credit Facilities
 
On October 1, 2012, we acquired all of the equity membership interests in Silver Slipper Casino Venture LLC dba Silver Slipper Casino located in Bay St. Louis, Mississippi. The purchase price of approximately $69.3 million, exclusive of cash and working capital in the amounts of $6.4 million and $2.9 million, respectively, was funded by our First Lien Credit Facility and our Second Lien Credit Facility.  The First Lien Credit Facility and Second Lien Credit Facility are secured by substantially all of our assets, and our wholly-owned subsidiaries guarantee our obligation under the agreements.  The Second Lien Credit Facility is subordinate to the lien of the First Lien Credit Facility.
 
On June 29, 2012, we entered into the First Lien Credit Facility with Capital One (including the amendments described below), which provided for a term loan in an amount up to $50.0 million and a revolving loan in an amount up to $5.0 million.  The First Lien Credit Facility has been amended as follows:
 
 
On August 26, 2013, we entered into the First Lien Amendment to:
 
¡
Increase the term loan portion by $10.0 million to $56.3 million;
 
¡
Reduce the interest rate by one percent;
 
¡
Extend the maturity date to June 29, 2016; and
 
¡
Amend certain financial covenants.
 
On July 18, 2014, we entered into the Second Amendment to First Lien Credit Facility (“First Lien 2nd Amendment”) effective as of June 30, 2014 to:
 
¡
Revise certain financial ratio covenants as of June 30, 2014, and going forward through the term of the loan;
 
¡
Extend the time period to March 31, 2015 for draws against the $10.0 million term loan associated with the hotel at the Silver Slipper Casino; and
 
¡
Extend the payment terms to begin on April 1, 2015.
 
On January 9, 2015 we entered into the Third Amendment to the First Lien Credit Facility (“First Lien 3rd Amendment”) effective as of December 31, 2014 to:
 
¡
Revise certain financial ratio covenants as of December 31, 2014, and going forward through the term of the loan;
 
¡
Extend the time period to May 31, 2015 for draws against the $10.0 million term loan associated with the hotel at the Silver Slipper Casino; and
 
¡
Extend the payment terms to begin on June 1, 2015.
 
On October 1, 2012, we entered into the Second Lien Credit Facility (including the amendments described below) with ABC Funding, LLC as administrative agent, for a term loan of up to $20.0 million. On October 1, 2012, we closed on the acquisition of all of the equity membership interests in Silver Slipper Casino Venture LLC dba Silver Slipper Casino located in Bay St. Louis, Mississippi. The Second Lien Credit Facility has been amended as follows:
 
 
On August 26, 2013, we entered into the Second Lien Amendment to:
 
¡
Revise certain financial ratio covenants.
 
On July 18, 2014, we entered into the Second Amendment to Second Lien Credit Agreement (“Second Lien 2nd Amendment”) to:
 
¡
Revise certain financial ratio covenants as of June 30, 2014, and going forward through the term of the loan; and
 
¡
Increase the interest rate by one percentage point to 14.25% for the remainder of the term of the loan.
 
On January 9, 2015, we entered into the Third Amendment to Second Lien Credit Agreement (“Second Lien 3rd Amendment”) effective as of December 31, 2014 to:
 
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Revise certain financial ratio covenants as of December 31, 2014, and going forward through the term of the loan; and
 
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Extend the maturity date to April 1, 2017.
 
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As of December 31, 2014, we had drawn $1.1 million of the $10.0 million term loan under the First Lien Credit Facility.  The remaining $8.9 million of funding availability under the term loan will be used for a portion of the approximately $20 million, inclusive of capitalized interest, construction of the 129-room hotel addition to the Silver Slipper Casino. The remaining construction costs will be funded from available cash.  As of December 31, 2014, we had funded cash of $8.2 million in construction costs for the hotel at Silver Slipper Casino, and we anticipate additional funding of approximately $1.5 million in cash in 2015. Construction of the hotel is expected to be completed in two phases, with the 120 standard rooms opening in the second quarter of 2015, and the remaining nine suites shortly thereafter.
 
On March 24, 2014, we made a $2.0 million draw on our $5.0 million revolving loan under the First Lien Credit Facility.  We currently have $3.0 million undrawn on the revolving loan.
 
We have elected to pay interest on the First Lien Credit Facility based on the greater of the elected London Interbank Offered Rate (“LIBOR”) rate or 1.0%, plus a margin rate. LIBOR rate elections can be made based on a 30-day, 60-day, 90-day or 180-day LIBOR, and margins are adjusted quarterly.  As of December 31, 2014, the interest rate was 4.75% on the balance outstanding on the First Lien Credit Facility, based on the 1.0% minimum, plus a 3.75% margin.  We pay interest on the Second Lien Credit Facility at the fixed rate of 14.25% per annum effective July 18, 2014.  During 2013, we paid interest at a fixed rate of 13.25% per annum.
 
The First Lien Credit Facility and Second Lien Credit Facility contain customary negative covenants, including, but not limited to, restrictions on our and our subsidiaries’ ability to: incur indebtedness; grant liens; pay dividends and make other restricted payments; make investments; make fundamental changes; dispose of assets; and change the nature of our business.  The First Lien Credit Facility and Second Lien Credit Facility require that we maintain specified financial covenants, including a total leverage ratio, a first lien leverage ratio, and a fixed charge coverage ratio, all of which measure Adjusted EBITDA (as defined in the agreements) against outstanding debt and fixed charges (as defined in the agreements). A capital expenditure ratio must also be maintained. The First Lien Credit Facility and Second Lien Credit Facility currently defines Adjusted EBITDA as net income (loss) plus (a) interest expense, (b) provisions for income taxes, and (c) depreciation and amortization, and further adjusted to eliminate the impact of certain items that are either non-cash items or are not indicative of ongoing operating performance such as (d) extraordinary gains and losses (including non-cash impairment charges), (e) non-cash stock compensation expense, (f) certain acquisition costs, (g) costs related to the Company’s S-1 registration statement in 2014, (h) board and management transition expenses, and (i) joint venture net income, unless such net income has actually been received by the Company in the form of cash dividends or distributions. For purposes of our covenants, we also receive pro forma credit for gaming tax reductions in Indiana in 2014 and the first quarter of 2015.
 
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The First Lien Credit Facility and the Second Lien Credit Facility maximum total leverage ratio and maximum first lien leverage ratio vary according to the applicable time period and the fixed charge coverage ratio remains constant, as indicated in the tables below:
 
First Lien Credit Facility
 
 
 
Applicable Period
 
Maximum
Total Leverage
Ratio
   
Maximum
First Lien Leverage
Ratio
   
Minimum
Fixed Charge
Coverage Ratio
 
June 30, 2014 through and including September 29, 2014
    4.75 x     3.50 x     1.10 x
September 30, 2014 through and including December 30, 2014
    5.50 x     3.50 x     1.10 x
December 31, 2014 through and including June 29, 2015