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EX-32.2 - EX-32.2 - FULL HOUSE RESORTS INCfll-20210331ex3222d96cf.htm
EX-32.1 - EX-32.1 - FULL HOUSE RESORTS INCfll-20210331ex32147a6b2.htm
EX-31.2 - EX-31.2 - FULL HOUSE RESORTS INCfll-20210331ex312127081.htm
EX-31.1 - EX-31.1 - FULL HOUSE RESORTS INCfll-20210331ex3116e0f77.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2021

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from         to

Commission File No. 1-32583

FULL HOUSE RESORTS, INC.

(Exact name of registrant as specified in its charter)

Delaware

(State or other jurisdiction

of incorporation or organization)

    

13-3391527

(I.R.S. Employer

Identification No.)

One Summerlin, 1980 Festival Plaza Drive, Suite 680

Las Vegas, Nevada

(Address of principal executive offices)

89135

(Zip Code)

(702) 221-7800

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each Class

  

Trading Symbol(s)

  

Name of each exchange on which registered

Common Stock, $0.0001 par value per share

FLL

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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  No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes  No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer

Accelerated filer

Emerging growth company

Non-accelerated filer

Smaller reporting company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act:  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No 

As of May 10, 2021, there were 34,109,158 shares of Common Stock, $0.0001 par value per share, outstanding.


2


PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

FULL HOUSE RESORTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(In thousands, except per share data)

Three Months Ended

March 31, 

    

2021

    

2020

Revenues

 

  

 

  

Casino

$

32,064

$

20,751

Food and beverage

 

6,101

 

6,990

Hotel

 

2,211

 

1,974

Other operations, including online/mobile sports

 

1,832

 

1,138

 

42,208

 

30,853

Operating costs and expenses

 

  

 

  

Casino

 

10,339

 

10,333

Food and beverage

 

5,360

 

7,136

Hotel

 

1,056

 

1,173

Other operations

 

395

 

562

Selling, general and administrative

 

14,413

 

12,981

Project development costs

 

47

 

56

Depreciation and amortization

 

1,800

 

2,040

Loss on disposal of assets, net

 

104

 

 

33,514

 

34,281

Operating income (loss)

 

8,694

 

(3,428)

Other (expense) income

 

  

 

  

Interest expense, net of amounts capitalized of $259 and $220

(4,456)

(2,491)

Loss on extinguishment of debt

(6,134)

Adjustment to fair value of warrants

 

(1,347)

 

1,656

 

(11,937)

 

(835)

Loss before income taxes

 

(3,243)

 

(4,263)

Income tax provision

202

95

Net loss

$

(3,445)

$

(4,358)

Basic loss per share

$

(0.13)

$

(0.16)

Diluted loss per share

$

(0.13)

$

(0.22)

See condensed notes to consolidated financial statements.

3


FULL HOUSE RESORTS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (Unaudited)

(In thousands, except share data)

March 31, 

December 31, 

    

2021

    

2020

ASSETS

Current assets

 

  

 

  

Cash and equivalents

$

98,005

$

37,698

Restricted cash

179,923

Accounts receivable, net of allowance of $191 and $176

 

3,801

 

4,904

Inventories

 

1,629

 

1,511

Prepaid expenses and other

 

3,354

 

2,461

 

286,712

 

46,574

Property and equipment, net

 

117,763

 

115,772

Operating lease right-of-use assets, net

16,600

17,361

Goodwill

 

21,286

 

21,286

Other intangible assets, net

 

10,941

 

10,963

Deposits and other

 

641

 

660

$

453,943

$

212,616

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities

Accounts payable

$

5,658

$

4,191

Accrued payroll and related

 

3,696

 

2,397

Other accrued liabilities

 

14,310

 

10,810

Current portion of operating lease obligations

3,283

3,283

Current portion of finance lease obligation

490

491

Current portion of long-term debt

 

799

 

426

Common stock warrant liability

2,653

 

28,236

 

24,251

Operating lease obligations, net of current portion

 

14,094

 

14,914

Finance lease obligation, net of current portion

3,179

3,298

Long-term debt, net

 

305,280

 

106,832

Deferred income taxes, net

 

822

 

620

Contract liabilities, net of current portion

5,298

5,398

Other long-term liabilities

626

626

 

357,535

 

155,939

Commitments and contingencies (Note 8)

 

  

 

  

Stockholders’ equity

 

  

 

  

Common stock, $0.0001 par value, 100,000,000 shares authorized; 35,302,549 and 28,385,299 shares issued and 34,075,350 and 27,124,292 shares outstanding

 

4

 

3

Additional paid-in capital

 

107,959

 

64,826

Treasury stock, 1,227,199 and 1,261,007 common shares

 

(1,496)

 

(1,538)

Accumulated deficit

 

(10,059)

 

(6,614)

 

96,408

 

56,677

$

453,943

$

212,616

See condensed notes to consolidated financial statements.

4


FULL HOUSE RESORTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited)

(In thousands)

Additional

Total

Common Stock

Paid-in

Treasury Stock

Accumulated

Stockholders’

    

Shares

    

Dollars

    

Capital

    

Shares

    

Dollars  

    

Deficit

    

Equity

Balance, January 1, 2021

 

28,385

$

3

$

64,826

 

1,261

$

(1,538)

$

(6,614)

$

56,677

Equity offering, net

6,917

1

42,973

42,974

Exercise of stock options

36

(34)

42

78

Stock-based compensation

 

 

 

124

 

 

 

 

124

Net loss

 

 

 

 

 

 

(3,445)

 

(3,445)

Balance, March 31, 2021

 

35,302

$

4

$

107,959

 

1,227

$

(1,496)

$

(10,059)

$

96,408

Additional

Total

Common Stock

Paid-in

Treasury Stock

Accumulated

Stockholders’

    

Shares

    

Dollars

    

Capital

    

Shares

    

Dollars  

    

Deficit

    

Equity

Balance, January 1, 2020

 

28,346

$

3

$

64,402

 

1,270

$

(1,548)

$

(6,761)

$

56,096

Stock-based compensation

 

 

 

83

 

 

 

 

83

Net loss

 

 

 

 

 

 

(4,358)

 

(4,358)

Balance, March 31, 2020

 

28,346

$

3

$

64,485

 

1,270

$

(1,548)

$

(11,119)

$

51,821

See condensed notes to consolidated financial statements.

5


FULL HOUSE RESORTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(In thousands)

Three Months Ended

March 31, 

    

2021

    

2020

Cash flows from operating activities:

 

  

 

  

Net loss

$

(3,445)

$

(4,358)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

 

  

 

  

Depreciation and amortization

 

1,800

 

2,040

Amortization of debt issuance and warrant costs and other

 

284

 

225

Stock-based compensation

 

124

 

83

Change in fair value of stock warrants

 

1,347

 

(1,656)

Loss on disposal of assets

 

104

 

Loss on extinguishment of debt

6,134

Increases and decreases in operating assets and liabilities:

 

  

 

  

Accounts receivable

 

1,103

 

1,682

Prepaid expenses, inventories and other

 

(1,011)

 

331

Deferred taxes

 

202

 

95

Common stock warrant liability

(4,000)

Contract liabilities

(350)

(25)

Accounts payable and accrued expenses

 

5,999

 

(2,583)

Net cash provided by (used in) operating activities

 

8,291

 

(4,166)

Cash flows from investing activities:

 

  

 

  

Purchase of property and equipment

 

(3,413)

 

(1,031)

Other

 

(8)

 

33

Net cash used in investing activities

 

(3,421)

 

(998)

Cash flows from financing activities:

 

  

 

  

Proceeds from Senior Secured Notes due 2028 borrowings

 

310,000

 

Proceeds from equity offering, net of issuance costs

42,974

Payment of debt discount and issuance costs

 

(9,510)

 

Repayment of Senior Secured Notes due 2024

(106,825)

(275)

Prepayment premiums of Senior Secured Notes due 2024

 

(1,261)

 

Repayment of finance lease obligation

(120)

(95)

Proceeds from exercise of stock options

 

78

 

Other

24

Net cash provided by (used in) financing activities

 

235,360

 

(370)

Net increase (decrease) in cash, cash equivalents and restricted cash

 

240,230

 

(5,534)

Cash, cash equivalents and restricted cash, beginning of period

 

37,698

 

29,851

Cash, cash equivalents and restricted cash, end of period

$

277,928

$

24,317

Supplemental Cash Flow Information:

 

  

 

  

Cash paid for interest, net of amounts capitalized

$

812

$

2,248

Non-Cash Investing Activities:

 

  

 

  

Accounts payable related capital expenditures

$

478

$

80

See condensed notes to consolidated financial statements.

6


FULL HOUSE RESORTS, INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1. ORGANIZATION

Organization. Formed as a Delaware corporation in 1987, Full House Resorts, Inc. owns, leases, 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.

The Company currently operates five casinos: four on real estate that we own or lease and one located within a hotel owned by a third party. Construction is currently underway at a sixth property, Chamonix Casino Hotel (“Chamonix”), adjacent to the Company’s existing Bronco Billy’s Casino and Hotel in Cripple Creek, Colorado. We also benefit from six permitted sports wagering “skins,” three in Colorado and three in Indiana. Other companies operate or will operate these online sports wagering sites under their brands, paying us a percentage of revenues, as defined, subject to annual minimum amounts. Five of our six permitted skins have commenced operations. The following table identifies our five segments, along with properties and their locations:

Segments and Properties

 Locations

Colorado

Bronco Billy’s Casino and Hotel

 

Cripple Creek, CO (near Colorado Springs)

Chamonix Casino Hotel (under construction)

Cripple Creek, CO (near Colorado Springs)

Indiana

Rising Star Casino Resort

 

Rising Sun, IN (near Cincinnati)

Mississippi

Silver Slipper Casino and Hotel

 

Hancock County, MS (near New Orleans)

Nevada

Grand Lodge Casino
(leased and part of the Hyatt Regency Lake Tahoe Resort, Spa and Casino)

 

Incline Village, NV
(North Shore of Lake Tahoe)

Stockman’s Casino

 

Fallon, NV (one hour east of Reno)

Contracted Sports Wagering

Three sports wagering websites (“skins”)

Colorado

Three sports wagering websites (“skins”)

Indiana

The Company manages its casinos based primarily on geographic regions within the United States. Our 2021 results reflect a change in our operating segments. We now break out our on-site and online sports wagering skins in Colorado and Indiana as a standalone segment, Contracted Sports Wagering. Certain reclassifications were made to 2020 amounts to conform to current-period presentation for enhanced comparability. Such reclassifications had no effect on the previously reported results of operations or financial position.

COVID-19 Pandemic Update. In March 2020, the World Health Organization declared the outbreak of the novel coronavirus as a pandemic (“COVID-19”). Although COVID-19 continues to spread throughout the U.S. and the world, vaccines designed to inhibit the severity and the spread of COVID-19 are now being distributed. As a result, the number of newly reported cases has declined in the U.S. from levels seen in late 2020 and early 2021. COVID-19 has resulted in the implementation of significant, government-imposed measures to prevent or reduce its spread, including travel restrictions, business restrictions, closing of borders, “shelter-in-place” orders and business closures. In March 2020, pursuant to state government orders, the Company temporarily closed all of its casino properties.

7


As a result, the Company experienced a material decline in its revenues until its properties began reopening when permitted by local authorities. The reopening dates were:

Silver Slipper Casino and Hotel ― May 21, 2020
Grand Lodge Casino and Stockman’s Casino ― June 4, 2020
Bronco Billy’s Casino and Hotel ― June 15, 2020
Rising Star Casino Resort ― June 15, 2020.

During the shutdown period, the Company evaluated labor, marketing and other costs at its businesses so that, upon reopening, its properties could reopen with significantly lower operating costs. As a result, the Company’s operating performance since reopening in mid-2020 has been stronger than pre-pandemic levels, despite capacity restrictions throughout its casinos and in its restaurants and certain pandemic-related additional costs. The extent to which the Company’s financial and operating results in future periods may be affected by COVID-19 will largely depend on future developments, which are highly uncertain and cannot be accurately predicted. Significant uncertainties include the ability to operate; new information which may emerge concerning new strains of COVID-19 and their severity; any additional actions imposed by governmental authorities to contain COVID-19 or minimize its impact; increased operating costs and constraints to implement sanitation and social distancing requirements; increased costs for materials due to supply chain constraints; and general economic conditions, among others.

The disruptions arising from COVID-19 continued to impact the Company during the three months ended March 31, 2021. The duration and intensity of this global health emergency and related disruptions are uncertain. While each of the Company’s properties are currently open and operating restrictions have eased over recent weeks, the current economic and regulatory environment in each of the Company’s jurisdictions continues to evolve. The manner in which governments will react as the global and regional impact of the COVID-19 pandemic changes over time is uncertain, and such actions could significantly alter the Company’s current operations.

During the first quarter of 2021, the Company completed several transactions, which include:

The February 2021 refinancing of its Senior Secured Notes due 2024 with $310 million of 8.25% Senior Secured Notes due 2028 (the “2028 Notes”), as further described in Note 5 below;
The creation of a restricted cash account, initially funded with $180 million dedicated to the construction of Chamonix, as further described in Note 2 below;
The March 2021 completion of an underwritten public offering of 6,917,250 shares of the Company’s common stock, resulting in gross proceeds of approximately $46.0 million, as further described in Note 9 below; and
An agreement entered into in March 2021 providing for a $15.0 million, five-year, senior secured revolving credit facility to provide additional liquidity, if needed, as further described in Note 5 below.

As of March 31, 2021, the Company had total cash and cash equivalents of $277.9 million, including $179.9 million in restricted cash.

2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation. As permitted by the rules and regulations of the Securities and Exchange Commission (“SEC”), certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) have been condensed or omitted. These consolidated financial statements should be read in conjunction with the Company’s 2020 annual consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

The interim consolidated financial statements of the Company included herein reflect all adjustments (consisting of normal recurring adjustments) that are, in the opinion of management, necessary to present fairly the financial position and results of operations for the interim periods presented. The results of operations for the interim periods are not necessarily indicative of annualized results for an entire year.

8


The consolidated financial statements include the accounts of Full House and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

Fair Value and the Fair Value Input Hierarchy. Fair value measurements affect the Company’s accounting for net assets acquired in acquisition transactions and certain financial assets and liabilities. Fair value measurements are also used in the Company’s periodic assessments of long-lived tangible and intangible assets for possible impairment, including for property and equipment, goodwill, and other intangible assets. Fair value is defined as the expected price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

GAAP categorizes the inputs used for fair value into a three-level hierarchy:

Level 1: Observable inputs, such as quoted prices in active markets for identical assets or liabilities;
Level 2: Comparable inputs other than quoted prices that are observable for similar assets or liabilities in less active markets; and
Level 3: Unobservable inputs which may include metrics that market participants would use to estimate values, such as revenue and earnings multiples and relative rates of return.

The Company utilizes Level 1 inputs when measuring the fair value of its 2028 Notes (see Note 5).

The Company utilizes Level 2 inputs when measuring the fair value of its asset purchases and acquisitions (see Note 4).

The Company utilizes Level 3 inputs when measuring the fair value of net assets acquired in business combination transactions, subsequent assessments for impairment, and most financial instruments, including but not limited to the estimated fair value of common stock warrants at issuance and for recurring changes in the related warrant liability (see Note 6).

Cash Equivalents and Restricted Cash. Cash equivalents include cash involved in operations and cash in excess of daily requirements that is invested in highly liquid, short-term investments with initial maturities of three months or less when purchased.

Restricted cash balances consist of funds initially totaling $180 million, which were placed into a construction reserve account to fund the completion of the Chamonix construction project.

Revenue Recognition of Accrued Club Points and Deferred Revenues

Accrued Club Points: Operating Revenues and Related Costs and Expenses. The Company’s revenues consist primarily of casino gaming, food and beverage, hotel, and other revenues (such as sports wagering, golf, RV park operations, and entertainment). The majority of the Company’s revenues are derived from casino gaming, principally slot machines.

Gaming revenue is the difference between gaming wins and losses, not the total amount wagered. The Company accounts for its gaming transactions on a portfolio basis as such wagers have similar characteristics and it would not be practical to view each wager on an individual basis.

The Company sometimes provides discretionary complimentary goods and services (“discretionary comps”). For these types of transactions, the Company allocates revenue to the department providing the complimentary goods or services based upon its estimated standalone selling price, offset by a reduction in casino revenues.

Many of the Company’s customers choose to earn points under its customer loyalty programs. As points are accrued, the Company defers a portion of its gaming revenue based on the estimated standalone value of loyalty points being earned by the customer. The standalone value of loyalty points is derived from the retail value of food, beverages, hotel rooms, and other goods or services for which such points may be redeemed. A liability related to these customer loyalty points is recorded, net of estimated breakage and other factors, until the customer redeems these points, primarily for “free casino play,” complimentary dining, or hotel stays. Such liabilities were approximately $0.7 million for March 31, 2021 and $0.8 million for December 31, 2020, and these amounts are included in “other accrued liabilities” on the consolidated balance sheets. Upon redemption, the related revenue is recognized at retail value within the department providing the goods or services.

9


Revenue for food and beverage, hotel, and other revenue transactions is typically the net amount collected from customers for such goods and services, plus the retail value of (i) discretionary comps and (ii) comps provided in return for redemption of loyalty points. The Company records such revenue as the good or service is transferred to the customer. Additionally, the Company may collect deposits in advance for future hotel reservations or entertainment, among other services, which represent obligations to the Company until the service is provided to the customer.

Deferred Revenues: Market Access Fees from Sports Wagering Agreements. In 2019, the Company entered into several agreements with various unaffiliated companies allowing for online/mobile sports wagering within Indiana and Colorado, as well as on-site sports wagering at Rising Star Casino Resort and at Bronco Billy’s Casino and Hotel (the “Sports Agreements”). The contracts differ as to the percentages of revenues that we receive. Also, some contracts require payments in advance of the contract year, while others call for settlement in arrears. As part of these long-term Sports Agreements, the Company received $6 million in one-time market access fees, which were recorded as a long-term liability in the same amount and are being recognized as revenue ratably over the initial term length of each agreement of 10 years, beginning with the commencement of operations.

Indiana. Two of the Company’s Sports Agreements commenced operations in December 2019 and April 2021, respectively. The remaining Sports Agreement is expected to go live in the next few months.

Colorado. The Company’s three contracted mobile sports wagering websites commenced online operations in June 2020, December 2020 and April 2021.

Deferred revenues consisted of the following as discussed above:

(In thousands)

March 31, 

December 31, 

    

Balance Sheet Location

2021

    

2020

Deferred revenue, current

Other accrued liabilities

$

1,122

$

1,372

Deferred revenue, net of current portion

Contract liabilities, net of current portion

5,298

5,398

$

6,420

$

6,770

Income Taxes. For interim income tax reporting for the three-months ended March 31, 2021, the Company estimates its annual effective tax rate and applies it to its year-to-date pretax income or loss.

Reclassifications. The Company made certain minor financial statement presentation reclassifications to prior-period amounts to conform to the current-period presentation. Such reclassifications had no effect on the previously reported results of operations or financial position.

Earnings (Loss) Per Share. Earnings (loss) per share is net income (loss) applicable to common stock divided by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflects additional dilutive effects for all potentially-dilutive securities, including share-based awards outstanding under the Company’s stock compensation plan and warrants, using the treasury stock method.

Leases. The Company determines if a contract is or contains a lease at inception or modification of the agreement. A contract is or contains a lease if there are identified assets and the right to control the use of an identified asset is conveyed for a period of time in exchange for consideration. Control over the use of the identified asset means that the lessee has both the right to obtain substantially all of the economic benefits from the use of the asset and the right to direct the use of the asset.

For material leases with terms greater than a year, the Company records right-of-use (“ROU”) assets and lease liabilities on the balance sheet, as measured on a discounted basis. For finance leases, the Company recognizes interest expense associated with the lease liability and depreciation expense associated with the ROU asset; for operating leases, the Company recognizes straight-line rent expense.

10


The Company does not recognize ROU assets or lease liabilities for leases with a term of 12 months or less. However, costs related to short-term leases with terms greater than one month, which the Company deems material, are disclosed as a component of lease expenses when applicable. Additionally, the Company accounts for new and existing leases containing both lease and non-lease components (“embedded leases”) together as a single lease component by asset class for gaming-related equipment; therefore, the Company does not allocate contract consideration to the separate lease and non-lease components based on their relative standalone prices.

Finance and operating lease ROU assets and liabilities are recognized based on the present value of future minimum lease payments over the expected lease term at commencement. As the implicit rate is not determinable in most of the Company’s leases, management uses the Company’s incremental borrowing rate as estimated by third-party valuation specialists in determining the present value of future payments based on the information available at the commencement date and/or modification date. The expected lease terms include options to extend the lease when it is reasonably certain that the Company will exercise such options. Lease expense for minimum lease payments is recognized on a straight-line basis over the expected lease term for operating leases. For finance leases, the ROU asset depreciates on a straight-line basis over the shorter of the lease term or useful life of the ROU asset and the lease liability accretes interest based on the interest method using the discount rate determined at lease commencement.

Recent Accounting Pronouncements

Income Taxes. In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes” (“ASU 2019-12”). This standard simplifies the accounting for income taxes and includes removal of certain exceptions to the general principles of ASC 740, Income Taxes, and updates and simplifies certain areas of the codification. ASU 2019-12 was effective for the Company beginning on January 1, 2021, but did not have a material impact on its financial statements upon adoption.

The Company believes that there are no other recently-issued accounting standards not yet effective that are currently likely to have a material impact on its financial statements.

3. LEASES

The Company has no leases in which it is the lessor. As lessee, the Company has one finance lease for a hotel and various operating leases for land, casino and office space, equipment, buildings, and signage. The Company’s lease terms, including extensions, range from one month to approximately 37 years. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants, but the land lease at Silver Slipper does include contingent rent as further discussed below.

Operating Leases

Silver Slipper Casino Land Lease through April 2058 and Options to Purchase. In 2004, the Company’s subsidiary, Silver Slipper Casino Venture, LLC, entered into a land lease with Cure Land Company, LLC for approximately 31 acres of marshlands and a seven-acre parcel on which the Silver Slipper Casino and Hotel is situated. The agreement includes fixed, base monthly payments of $77,500 plus contingent rents of 3% of monthly gross gaming revenue (as defined in the lease) in excess of $3.65 million, with no scheduled base rent increases through the remaining lease term ending in 2058.

The Company executed a fourth amendment to the original lease with the landlord, effective March 2020, which granted a waiver of base rent for April and May of 2020. Such abatement totaled $155,000 and the value of such abatement will be amortized over the remaining term of the lease. This amendment also restricts the Company’s purchase option period for the leased land, so that the Company cannot exercise its purchase option until April 1, 2022. From such date through October 1, 2027, the Company may buy out the lease for $15.5 million plus a seller-retained interest in Silver Slipper Casino and Hotel’s operations of 3% of net income (as defined) for 10 years following the purchase date.

11


Bronco Billy’s Lease through January 2035 and Option to Purchase. Bronco Billy’s leases certain parking lots and buildings, including a portion of the hotel and casino, under a long-term lease. The lease term includes six renewal options in three-year increments to 2035. In May 2019, Bronco Billy’s exercised its second renewal option to extend the lease term through January 31, 2023 and currently pays $32,500 per month in rent. The lease also contains a $7.6 million purchase option exercisable at any time during the lease term, or as extended, and a right of first refusal on any sale of the property.

Chamonix / Third Street Corner Building through August 2023 and Option to Purchase. The Company leased a nearby closed casino in August 2018, which it rebranded and reopened in November 2018. The reopened casino did not produce enough incremental revenue to offset the incremental costs, and it was closed in September 2020. As part of the Chamonix development project, this building is currently used as office space for construction personnel. The lease includes a minimum three-year term with annual lease payments of $0.2 million, and can be extended an additional two years with annual lease payments of $0.3 million. The Company also has the right to purchase the casino at any time during the lease term, or as extended. The purchase price is currently $2.7 million if exercised by October 31, 2021 and increases to $2.8 million for purchase dates thereafter.

Grand Lodge Casino Lease through August 2023. The Company’s subsidiary, Gaming Entertainment (Nevada), LLC, has a lease with Hyatt Equities, L.L.C. (“Hyatt”) to operate the Grand Lodge Casino. The lease is collateralized by the Company’s interests under the lease and property (as defined in the lease) and is subordinate to the liens of the 2028 Notes (see Note 5). Hyatt currently has an option to purchase the Company’s leasehold interest and related operating assets of the Grand Lodge Casino, subject to assumption of applicable liabilities. The option price is an amount equal to the Grand Lodge Casino’s positive working capital, plus Grand Lodge Casino’s earnings before interest, income taxes, depreciation and amortization (“EBITDA”) for the twelve-month period preceding the acquisition (or pro-rated if less than twelve months remain on the lease), plus the fair market value of the Grand Lodge Casino’s personal property. The current monthly rent of $166,667 is applicable through the remaining lease term ending in August 2023.

In July 2020, the Company executed a fifth amendment to the Hyatt lease that retroactively reduced rent amounts due during the closure period, specifically a 25% reduction in rent for March 2020 and a 50% reduction in rent for each of April and May of 2020. Such reductions totaled $208,000 and such benefit is being amortized over the remaining life of the lease.

Corporate Office Lease through January 2025. The Company leases 4,479 square feet of office space in Las Vegas, Nevada. Annual rent is approximately $0.2 million and the term of the office lease expires in January 2025.

Finance Lease

Rising Star Casino Hotel Lease through October 2027 and Option to Purchase. The Company’s Indiana subsidiary, Gaming Entertainment (Indiana) LLC, leases a 104-room hotel at Rising Star Casino Resort. At any time during the lease term, the Company has the option to purchase the hotel at a price based upon the hotel’s original cost of $7.7 million, reduced by the cumulative principal payments made by the Company during the lease term. At March 31, 2021, such net amount was $3.7 million. Upon expiration of the lease term in October 2027, (i) the landlord has the right to sell the hotel to the Company, and (ii) the Company has the option to purchase the hotel. In either case, the purchase price is $1 plus closing costs.

The components of lease expense are as follows:

(In thousands)

    

    

Three Months Ended

March 31, 

Lease Costs

Statement of Operations Classification

2021

 

2020

Operating leases:

 

  

 

  

  

Fixed/base rent

 

Selling, General and Administrative Expenses

$

1,159

$

1,200

Variable payments

 

Selling, General and Administrative Expenses

 

402

 

154

Finance lease:

 

  

 

  

 

  

Amortization of leased assets

 

Depreciation and Amortization

 

39

 

40

Interest on lease liabilities

 

Interest Expense, Net

 

43

 

32

Total lease costs

$

1,643

$

1,426

12


Leases recorded on the balance sheet consist of the following:

(In thousands)

Leases

    

Balance Sheet Classification

    

March 31, 2021

December 31, 2020

Assets

 

  

 

  

  

Operating lease assets

   

Operating Lease Right-of-Use Assets, Net

   

$

16,600

$

17,361

Finance lease assets

 

Property and Equipment, Net(1)

 

4,840

 

4,879

Total lease assets

 

  

$

21,440

$

22,240

Liabilities

 

  

 

  

 

  

Current

 

  

 

  

 

  

Operating

 

Current Portion of Operating Lease Obligations

$

3,283

$

3,283

Finance

 

Current Portion of Finance Lease Obligation

 

490

 

491

Noncurrent

 

  

 

 

Operating

 

Operating Lease Obligations, Net of Current Portion

 

14,094

 

14,914

Finance

 

Finance Lease Obligation, Net of Current Portion

 

3,179

 

3,298

Total lease liabilities

 

  

$

21,046

$

21,986

__________

(1)

Finance lease assets are recorded net of accumulated amortization of $2.9 million and $2.8 million as of March 31, 2021 and December 31, 2020, respectively.

Maturities of lease liabilities as of March 31, 2021 are summarized as follows:

(In thousands)

    

Operating

    

Financing

Years Ending December 31, 

Leases

Lease(1)

2021 (excluding the three months ended March 31, 2021)

$

3,574

$

435

2022

 

4,576

 

652

2023

 

2,984

 

652

2024

 

1,243

 

652

2025

 

1,046

 

652

Thereafter

 

30,070

 

1,195

Total future minimum lease payments

 

43,493

 

4,238

Less: Amount representing interest

 

(26,116)

 

(569)

Present value of lease liabilities

 

17,377

 

3,669

Less: Current lease obligations

 

(3,283)

 

(490)

Long-term lease obligations

$

14,094

$

3,179

__________

(1)The Company’s only material finance lease is at Rising Star Casino Resort for a 104-room hotel.

13


Other information related to lease term and discount rate is as follows:

Lease Term and Discount Rate

March 31, 2021

December 31, 2020

Weighted-average remaining lease term

 

  

  

Operating leases

 

20.97

years

20.4

years

Finance lease

 

6.5

years

6.8

years

Weighted-average discount rate

 

  

  

Operating leases

 

9.43

%

9.41

%

Finance lease

 

4.50

%

4.50

%

Supplemental cash flow information related to leases is as follows:

(In thousands)

    

Three Months Ended

March 31, 

Cash paid for amounts included in the measurement of lease liabilities:

2021

2020

Operating cash flows for operating leases

$

1,218

$

1,209

Operating cash flows for finance lease

$

43

$

32

Financing cash flows for finance lease

$

120

$

95

4. ACQUISITIONS

Cripple Creek Land and Real Estate Purchase. As part of the development of Chamonix, the Company closed on the purchase of Carr Manor, a boutique hotel with 14 guest rooms. This transaction closed on March 31, 2021 as an asset purchase for total consideration of $2.8 million (see Note 2). The purchase included five parcels of land, which adds to the Company’s land ownership in Cripple Creek by approximately 1.6 acres and provides additional guest parking. The addition of Carr Manor allows Bronco Billy’s to provide overnight accommodations to its guests, as Bronco Billy’s existing hotel rooms are either currently closed or will be demolished as part of the construction of Chamonix.

5. LONG-TERM DEBT

Long-term debt, related discounts and issuance costs consist of the following:

(In thousands)

March 31, 

December 31, 

2021

2020

Senior Secured Notes due 2028(1)

$

310,000

$

Senior Secured Notes due 2024(2)

106,825

Unsecured Loans (CARES Act)(2)

5,606

5,606

Less: Unamortized discounts and debt issuance costs

 

(9,527)

 

(5,173)

 

306,079

 

107,258

Less: Current portion of long-term debt

 

(799)

 

(426)

$

305,280

$

106,832

__________

(1)As of March 31, 2021, the estimated fair value of these notes was approximately $331.8 million. The fair value was estimated using quoted market prices for these notes (see Note 2).
(2)The estimated fair value for these non-traded debt instruments can be approximated by their respective carrying values because management believes their terms are representative of market conditions.

14


Debt Refinancing: Notes Issuance. On February 12, 2021, the Company refinanced its existing outstanding Senior Secured Notes due 2024 (the “Prior Notes”) with the issuance of $310 million aggregate principal amount of 8.25% Senior Secured Notes due 2028 (the “2028 Notes”). The 2028 Notes bear interest at a fixed rate of 8.25% per year and mature on February 15, 2028. There is no mandatory debt amortization prior to the maturity date. Interest on the 2028 Notes is payable on February 15 and August 15 of each year, with the first interest payment due on August 15, 2021.

The net proceeds from the sale of the 2028 Notes were used to redeem all of the Prior Notes (including a 0.90% prepayment premium) and to repurchase all outstanding warrants. Additionally, $180 million of bond proceeds were placed into a construction reserve account to fund construction of Chamonix. Accordingly, this amount is recorded as restricted cash. Net of transaction fees and expenses, approximately $8 million was added to unrestricted cash and equivalents.

The 2028 Notes are guaranteed, jointly and severally (such guarantees, the “Guarantees”), by each of the Company’s restricted subsidiaries (collectively, the “Guarantors”). The 2028 Notes and the Guarantees are the Company’s and the Guarantors’ general senior secured obligations, subject to the terms of the Collateral Trust Agreement (as defined in the Indenture), ranking senior in right of payment to all of the Company’s and the Guarantors’ existing and future debt that is expressly subordinated in right of payment to the 2028 Notes and the Guarantees, if any. The 2028 Notes and the Guarantees will rank equally in right of payment with all of the Company’s and the Guarantors’ existing and future senior debt.

The 2028 Notes contain customary representations and warranties, financial covenants, and restrictions on dividends. Mandatory prepayments of the 2028 Notes will be required upon the occurrence of certain events, including sales of certain assets, upon certain changes of control, or should the Company have certain unused funds in the construction disbursement account following the completion of Chamonix.

On or prior to February 15, 2024, we may redeem up to 35% of the original principal amount of the 2028 Notes with proceeds of certain equity offerings at a redemption price of 108.25%, plus accrued and unpaid interest to the redemption date. In addition, we may redeem some or all of the 2028 Notes prior to February 15, 2024 at a redemption price of 100% of the principal amount of the 2028 Notes, plus accrued and unpaid interest to the redemption date and a “make-whole” premium.

At any time on or after February 15, 2024, the Company may redeem some or all of the 2028 Notes for cash at the following redemption prices:

Redemption Periods

    

Percentage Premium

February 15, 2024 to February 14, 2025

 

104.125

%

February 15, 2025 to February 14, 2026

 

102.063

%

February 15, 2026 and Thereafter

100.000

%

Prior Notes. On February 2, 2018, the Company sold $100 million of Prior Notes to qualified institutional buyers. On May 10, 2019, the Company sold an additional $10 million in aggregate principal amount of Prior Notes. Collectively, the Prior Notes were due to mature on February 2, 2024 and included quarterly principal payments as defined and interest based on the greater of the three-month London Interbank Offered Rate (“LIBOR”) or 1.0%, plus a margin rate of 7.0%. The Prior Notes also had a prepayment premium of 0.9% when repaid on February 12, 2021.

The Prior Notes contained customary representations and warranties, events of default, and financial covenants. The Company was required to maintain a total leverage ratio, which measured Consolidated EBITDA (as defined in the indenture) against outstanding debt. Due to the impact of the COVID-19 pandemic on the Company’s business operations in 2020, the Company executed amendments to delete the total leverage ratio covenant as of March 31, June 30, and September 30, among other items.

Revolving Credit Facility. On March 31, 2021, the Company entered into an agreement, which provides for a $15.0 million, senior secured five-year revolving credit facility and includes a letter of credit sub-facility (the “Credit Facility”). The Credit Facility may be used for working capital and other ongoing general purposes.

Until the completion of Chamonix, the interest rate per annum applicable to loans under the Credit Facility will be, at the Company’s option, either (i) LIBOR plus a margin equal to 3.50%, or (ii) a base rate plus a margin equal to 2.50%.  After

15


completion of Chamonix (as defined in the agreement), the interest rate per annum applicable to loans under the Credit Facility will be reduced to, at the Company’s option, either (i) LIBOR plus a margin equal to 3.00%, or (ii) a base rate plus a margin equal to 2.00%. The commitment fee per annum payable is equal to 0.50% of the unused portion of the Credit Facility. The Company has also agreed to pay customary letter of credit fees. The Credit Facility is available, subject to the satisfaction of customary conditions, until March 31, 2026, at which time all amounts borrowed must be repaid.  As of March 31, 2021, there were no drawn amounts under the Credit Facility or any outstanding letters of credit.

The Credit Facility is equally and ratably secured by the same assets and guarantees securing the 2028 Notes. The Company may make prepayments of any amounts outstanding under the Credit Facility (without any reduction of the revolving commitments) in whole or in part at any time without penalty.

The Credit Facility contains a number of negative covenants that, subject to certain exceptions, are substantially similar to the covenants contained in the 2028 Notes. The Credit Facility also includes a requirement that the Company maintain, for the first two fiscal quarters following the closing of the Credit Facility, cash and equivalents totaling at least $20.0 million, excluding any amounts in the construction reserve accounts reserved for construction of Chamonix. The Credit Facility also requires compliance with a financial covenant as of the last day of each fiscal quarter, such that Adjusted EBITDA (as defined) for the trailing twelve-month period must equal or exceed the utilized portion of the Credit Facility, if drawn. The Company was in compliance with both covenants as of March 31, 2021.

Unsecured Loans Under the CARES Act.  On May 8, 2020, two wholly-owned subsidiaries of the Company executed promissory notes (the “Promissory Notes”) evidencing unsecured loans in the aggregate amount of $5,606,200 through programs established under the CARES Act (the “Loans”) and administered by the U.S. Small Business Administration (the “SBA”). Such funds were principally used to rehire several hundred employees at Rising Star and Bronco Billy’s in advance of, and subsequent to, their reopenings in mid-June. The Loans were made through Zions Bancorporation, N.A. dba Nevada State Bank (the “Lender”), bear interest at a rate of 1.00% per annum, and originally had a two-year term.

Recently-passed legislation extended the original maturity dates to May 3, 2025 with no change to the annual interest rate. After a 15-month deferment period for principal and interest payments, the Company is required to make monthly loan payments totaling $128,557 beginning in September 2021. The Loans may be prepaid at any time prior to maturity with no prepayment penalties. Such Loans may be forgiven, either in whole or in part, depending on the amount of such proceeds that are used for certain eligible expenses over a 24-week period, including primarily the payroll and health benefits of employees who might otherwise have been without jobs or health benefits. The Company has through the maturity date of the loans to apply for forgiveness; however, there is no certainty that any or all of such Loans will be forgiven.

6. COMMON STOCK WARRANT LIABILITY

On February 12, 2021, the Company used a portion of the proceeds from the 2028 Notes offering to redeem all of its outstanding warrants. As part of the Company’s former Second Lien Credit Facility, which was retired in 2018, the Company granted the second lien lenders 1,006,568 warrants. The settled repurchase price to redeem the warrants was $4.0 million.

The Company previously measured the fair value of the warrants at each reporting period (see Note 2). However, upon redemption of the warrants on February 12, 2021, the fair value was determined based on the repurchase price of $4.0 million. This resulted in an incremental fair value adjustment of $1.3 million in the quarter, to increase the warrant liability from $2.7 million at December 31, 2020, when the Company’s stock traded at lower prices.

7. INCOME TAXES

The Company’s effective income tax rate for the three-months ended March 31, 2021 and 2020 was (6.2)% and (2.2)%, respectively. The Company’s tax rate differs from the statutory rate of 21.0% primarily due to the effects of valuation allowances against net deferred tax assets, as well as certain permanent item differences between tax and financial reporting purposes.

16


8. COMMITMENTS AND CONTINGENCIES

Litigation

The Company is party to a number of pending legal proceedings related to matters that occurred in the normal course of business. Management does not expect that the outcome of any such proceedings, either individually or in the aggregate, will have a material effect on the Company’s financial position, results of operations and cash flows.

Land and Real Estate Purchases

Cripple Creek Land and Real Estate Purchases. On April 16, 2021, the Company purchased a lot and building near its operations in Cripple Creek, Colorado for $600,000.

9. EARNINGS (LOSS) PER SHARE AND STOCKHOLDERS’ EQUITY

Earnings (Loss) Per Share

The table below reconciles basic and diluted loss per share of common stock:

(In thousands)

Three Months Ended March 31, 

    

2021

    

2020

Numerator:

 

  

 

  

Net loss – basic

$

(3,445)

$

(4,358)

Adjustment for assumed conversion of warrants

(1,656)

Net loss – diluted

$

(3,445)

$

(6,014)

Denominator:

 

  

 

  

Weighted-average common and common share equivalents - basic

 

27,357

 

27,076

Potential dilution from assumed conversion of warrants

 

 

364

Weighted-average common and common share equivalents - diluted

 

27,357

 

27,440

Anti-dilutive share-based awards and warrants excluded from the calculation of diluted loss per share

 

3,140

 

2,844

Stockholders’ Equity

On March 29, 2021, the Company completed an underwritten public offering (the “Offering”) for a total of 6,917,250 shares of its common stock, par value $0.0001 per share (the “Common Stock”), which includes 902,250 shares of Common Stock sold pursuant to the underwriters’ exercise of an option to purchase additional shares of Common Stock to cover over-allotments. The price to the public in the Offering was $6.65 per share of Common Stock, and net proceeds were approximately $43.0 million after deducting underwriting discounts, commissions and offering expenses. The Company intends to use the net proceeds from this offering for general corporate purposes, including its current and future development projects.

10. SHARE-BASED COMPENSATION

As of March 31, 2021, the Company had 8,000 share-based awards authorized by shareholders and available for grant from the 2015 Equity Incentive Plan (the “2015 Plan”).

17


The following table summarizes information related to the Company’s common stock options as of March 31, 2021:

    

    

Weighted

Number

Average

of Stock

Exercise

Options

Price

Options outstanding at January 1, 2021

 

3,183,708

$

1.71

Granted

 

32,027

 

3.93

Exercised

 

(67,616)

 

2.29

Canceled/Forfeited

 

(8,000)

 

1.73

Expired

 

 

Options outstanding at March 31, 2021

 

3,140,119

$

1.72

Options exercisable at March 31, 2021

 

2,432,757

$

1.63

Share-based compensation expense totaled $124,000 and $83,000 for the three-months ended March 31, 2021 and 2020, respectively. The expense for 2021 includes estimates for certain performance-based shares in connection with the employment agreement of Daniel R. Lee, the Company’s President and Chief Executive Officer, as well as his awarded stock options conditioned upon stockholders increasing the number of shares available for issuance under the 2015 Plan. As of March 31, 2021, there was approximately $0.8 million of unrecognized compensation cost related to unvested stock options previously granted that is expected to be recognized over a weighted-average period of approximately 2.0 years.

11. SEGMENT REPORTING AND DISAGGREGATED REVENUE

The Company manages its reporting segments based on geographic regions within the United States and type of income. The casino/resort operations include five segments as of 2021:  Mississippi, Indiana, Colorado, Nevada, and Contracted Sports Wagering. The Company’s management views the states where each of its casino resorts are located as operating segments, in addition to its contracted sports wagering segment. Operating segments are aggregated based on their similar economic characteristics, types of customers, types of services and products provided, the regulatory environments in which they operate, and their management and reporting structure. During the first quarter of 2021, since it is a significantly different business than its core casino business, the Company changed the aggregation of its operations to present Contracted Sports Wagering as a separate segment. This change of the reportable segments reflects realignment within the Company stemming from the expansion of the Company’s contracted on-site and online sports wagering skins. Additionally, this new segment breakout aims to enhance transparency of operations and allow more appropriate valuation of the Company’s various business components. See Note 1 for further information.

The Company utilizes Adjusted Segment EBITDA as the measure of segment profit in assessing performance and allocating resources at the reportable segment level. Adjusted Segment EBITDA is defined as earnings before interest and other non-operating income (expense), taxes, depreciation and amortization, pre-opening expenses, impairment charges, asset write-offs, recoveries, gain (loss) from asset disposals, project development and acquisition costs, non-cash share-based compensation expense, and corporate-related costs and expenses that are not allocated to each segment. As a result of the change in reportable segments described above, the Company has recast previously-reported segment information to conform to the current presentation in the following tables for enhanced comparability, which had no effect on previously reported results of operations or financial position.

18


The following tables present the Company’s segment information:

(In thousands)

Three Months Ended March 31, 2021

Contracted

Sports

Mississippi

Indiana

Colorado

Nevada

Wagering

Total

Revenues

Casino

$

16,040

$

6,715

$

5,264

$

4,045

$

$

32,064

Food and beverage

 

4,693

 

748

 

413

 

247

 

 

6,101

Hotel

 

1,170

 

919

 

122

 

 

 

2,211

Other operations

 

453

 

208

 

106

 

76

 

989

 

1,832

$

22,356

$

8,590

$

5,905

$

4,368

$

989

$

42,208

Adjusted Segment EBITDA

$

7,630

$

1,134

$

1,710

$

1,224

$

976

$

12,674

Other operating costs and expenses:

Depreciation and amortization

 

(1,800)

Corporate expenses

 

(1,905)

Project development costs

 

(47)

Loss on disposal of asset, net

(104)

Stock-based compensation

(124)

Operating income

 

8,694

Other expenses:

Interest expense, net

 

(4,456)

Loss on extinguishment of debt

 

(6,134)

Adjustment to fair value of warrants

(1,347)

(11,937)

Loss before income taxes

(3,243)

Income tax provision

 

202

Net loss

$

(3,445)

19


(In thousands)

Three Months Ended March 31, 2020

Contracted

Sports

Mississippi

Indiana

Colorado

Nevada

Wagering

Total

Revenues

Casino

$

9,070

$

5,028

$

4,005

$

2,648

$

$

20,751

Food and beverage

 

4,679

 

1,153

 

767

 

391

 

 

6,990

Hotel

 

969

 

858

 

147

 

 

 

1,974

Other operations

 

374

 

208

 

63

 

69

 

424

 

1,138

$

15,092

$

7,247

$

4,982

$

3,108

$

424

$

30,853

Adjusted Segment EBITDA

$

1,831

$

(1,490)

$

(471)

$

(390)

$

390

$

(130)

Other operating costs and expenses:

Depreciation and amortization

 

(2,040)

Corporate expenses

(1,119)

Project development costs

 

(56)

Gain on disposal of assets, net

Stock-based compensation

 

(83)

Operating loss

 

(3,428)

Other (expense) income:

Interest expense, net

 

(2,491)

Loss on extinguishment of debt

 

Adjustment to fair value of warrants

1,656

(835)

Loss before income taxes

(4,263)

Income tax provision

 

95

Net loss

$

(4,358)

(In thousands)

March 31, 

December 31, 

    

2021

    

2020

Total Assets

Mississippi

$

85,467

$

83,809

Indiana

 

35,268

 

37,798

Colorado

 

227,580

 

44,961

Nevada

 

13,082

 

13,248

Contracted Sports Wagering

1,948

1,329

Corporate and Other

 

90,598

 

31,471

$

453,943

$

212,616

20


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

This management’s discussion and analysis of financial condition and results of operations contains forward-looking statements that involve risks and uncertainties. Please see “Forward-Looking Statements” for a discussion of the uncertainties, risks and assumptions that may cause our actual results to differ materially from those discussed in the forward-looking statements. This discussion should be read in conjunction with our historical financial statements and related notes thereto and the other disclosures contained elsewhere in this Quarterly Report on Form 10-Q, and the audited consolidated financial statements and notes for the fiscal year ended December 31, 2020, which were included in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”) on March 12, 2021. The results of operations for the periods reflected herein are not necessarily indicative of results that may be expected for future periods. Full House Resorts, Inc., together with its subsidiaries, may be referred to as “Full House,” the “Company,” “we,” “our” or “us,” except where stated or the context otherwise indicates.

Executive Overview

Our primary business is the ownership and/or operation of casino and related hospitality and entertainment facilities, which includes offering casino gambling, hotel accommodations, dining, golf, RV camping, sports betting, entertainment, and retail outlets, among other amenities. We currently own or operate five casino properties in four states – Mississippi, Colorado, Indiana and Nevada – and are constructing a sixth casino hotel in Colorado. We view our Mississippi and Indiana properties as distinct operating segments. Because they share certain overhead costs, we view both of our Colorado properties (including our Chamonix construction project) as an operating segment, and both of our Nevada properties as an operating segment. We also benefit from six permitted sports “skins” that we are allowed to operate, three in Colorado and three in Indiana. We have contracted with other companies to operate these online sports wagering sites under their own brands in exchange for a percentage of revenues, as defined, subject to annual minimum amounts. As of this report date, five of our six permitted skins have commenced operations. We expect our last remaining skin to begin operations in Indiana in the next few months.

During the first quarter of 2021, because it is a significantly different business from our core casinos, we changed the aggregation of our operations to present Contracted Sports Wagering as a separate segment. This enhances transparency of our operations and allows more appropriate valuation of our various business components.

The following table identifies our five segments, along with properties and their locations:

Segments and Properties

 Locations

Colorado

Bronco Billy’s Casino and Hotel

 

Cripple Creek, CO (near Colorado Springs)

Chamonix Casino Hotel (under construction)

Cripple Creek, CO (near Colorado Springs)

Indiana

Rising Star Casino Resort

 

Rising Sun, IN (near Cincinnati)

Mississippi

Silver Slipper Casino and Hotel

 

Hancock County, MS (near New Orleans)

Nevada

Grand Lodge Casino
(leased and part of the Hyatt Regency Lake Tahoe Resort, Spa and Casino)

 

Incline Village, NV
(North Shore of Lake Tahoe)

Stockman’s Casino

 

Fallon, NV (one hour east of Reno)

Contracted Sports Wagering

Three sports wagering websites (“skins”)

Colorado

Three sports wagering websites (“skins”)

Indiana

Our financial results are dependent upon the number of patrons that we attract to our properties and the amounts those guests spend per visit. While we provide credit at some of our casinos where we are permitted to by gaming regulations, most of our revenues are cash-based, through customers wagering with cash or paying for non-gaming services with cash or credit cards. Our revenues are primarily derived from slot machines, but also include table games, keno, and sports betting. In addition, we derive a significant amount of revenue from our hotels and our food and beverage outlets. We also derive revenues from our golf course at Rising Star, our recreational vehicle parks (“RV parks”) as owned at Rising Star and managed at Silver

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Slipper, our ferry service at Rising Star, and retail outlets and entertainment. We often provide hotel rooms, food and beverages, entertainment, ferry usage, and golf privileges to customers on a complimentary basis; the value of such services are included as revenue in those categories, offset by contra-revenue in the casino revenue category. As a result, the casino revenues in our financial statements reflect patron gaming wins and losses, reduced by the retail value of complimentary services, the value of free play provided to customers, the value of points earned by casino customers that can be redeemed for services or free play, and accruals for certain progressive jackpots offered by the Company.

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 market environment is highly competitive and capital-intensive. Nevertheless, there are significant restrictions and barriers to entry vis-à-vis opening new casinos in most of the markets in which we operate. We rely on the ability of our properties to generate operating cash flow to pay interest, repay debt, and fund maintenance and certain growth-related capital expenditures. We continuously focus on improving the operating margins of our existing properties through a combination of revenue growth and expense management. We also assess growth and development opportunities, which include capital investments at our existing properties, the development of new properties, and the acquisition of existing properties.

Recent Developments

COVID-19 Pandemic Update.  In March 2020, the World Health Organization declared the outbreak of the novel coronavirus as a pandemic (“COVID-19”). Although COVID-19 continues to spread throughout the U.S. and the world, vaccines designed to inhibit the severity and the spread of COVID-19 are now being distributed. As a result, the number of newly-reported cases has declined in the U.S. from levels seen in late 2020 and early 2021. COVID-19 has resulted in the implementation of significant, government-imposed measures to prevent or reduce its spread, including travel restrictions, business restrictions, closing of borders, “shelter-in-place” orders and business closures. In March 2020, pursuant to state government orders to prevent the spread of COVID-19, we temporarily closed all of our casino properties. As a result, we experienced a material decline in our revenues until our properties reopened when permitted by local authorities in May and June 2020.

During the shutdown period, we evaluated labor, marketing and other costs at our businesses so that, upon reopening, our properties could reopen with significantly lower operating costs. As a result, our operating performance since reopening in mid-2020 has been stronger than pre-pandemic levels, despite capacity restrictions throughout our casinos and in our restaurants and certain pandemic-related costs. The extent to which our financial and operating results in future periods may be affected by COVID-19 will largely depend on future developments, which are highly uncertain and cannot be accurately predicted. Significant uncertainties include the ability to operate; new information which may emerge concerning new strains of COVID-19 and their severity; any additional actions imposed by governmental authorities to contain COVID-19 or minimize its impact; increased operating costs and capacity restrictions as a result of COVID-19; increased costs for materials due to supply chain constraints; and general economic conditions, among others.

The disruptions arising from COVID-19 continued to impact us during the three months ended March 31, 2021. The duration and intensity of this global health emergency and related disruptions are uncertain. While each of our properties are currently open and operating restrictions have eased over recent weeks, the current economic and regulatory environment in each of our jurisdictions continues to evolve. The manner in which governments will react as the global and regional impact of the COVID-19 pandemic changes over time is uncertain, and such actions could significantly alter our current operations.

Debt Refinancing.  On February 12, 2021, we issued $310 million of new 2028 Notes. The proceeds were used to redeem all $106.8 million of our senior secured notes due 2024 (the “Prior Notes”) and to repurchase all outstanding warrants. Additionally, $180 million of bond proceeds were placed in a construction reserve account to fund our Chamonix project, including designing, developing, constructing, equipping and opening the project. Proceeds were also used to pay the transaction fees and expenses related to the offering, leaving approximately $8 million added to our unrestricted cash balances.

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Underwritten Equity Offering.  On March 29, 2021, pursuant to an underwritten public offering (the “Equity Offering”), we issued an aggregate of 6,917,250 shares of our common stock, par value $0.0001 per share (the “Common Stock”), including 902,250 shares of Common Stock sold pursuant to the Representative’s exercise of a “greenshoe” option to purchase additional shares of Common Stock to cover over-allotments. The price to the public in the Equity Offering was $6.65 per share of Common Stock. The gross proceeds to the Company were approximately $46.0 million, before deducting underwriting discounts and commissions and our estimated offering expenses. We intend to use the net proceeds from the Equity Offering for development, working capital and general corporate purposes.

New Credit Facility.  On March 31, 2021, we entered into a credit agreement among Full House Resorts, Inc., as borrower, the lenders party thereto, and Capital One, National Association, as administrative agent. The credit agreement provides for a $15.0 million, five-year, senior secured revolving credit facility and includes a letter of credit sub-facility, which may be used for working capital and other ongoing general purposes.

Chamonix Casino Hotel Growth Project.   In 2018, we began planning and design work on Chamonix, a new and distinct luxury hotel and casino located adjacent to our existing Bronco Billy’s casino. Reflecting changes made to the state’s gaming laws in November 2020, including the elimination of betting limits and the approval of new table games, we increased the size of Chamonix by 67% to approximately 300 luxury guest rooms and suites, from our previously planned 180 guest rooms.  Such plans were approved by the Cripple Creek Historic Preservation Commission and Cripple Creek City Council in January and February 2021. Construction of Chamonix is currently underway, with substantial completion expected in the fourth quarter of 2022.

Sports Wagering in Colorado and Indiana. Under state laws, we are permitted a total of six sports wagering “skins,” three in Colorado and three in Indiana. As of March 31, 2021, three of our six sports wagering skins had commenced operations. The fourth and fifth skins commenced operations on April 1 and April 23, 2021, respectively. We believe that the Company’s last remaining skin will commence operations in the next few months. We receive a percentage of defined revenues of each skin, subject to annual minimums. When all six skins are in operation, we should receive a contractual minimum of $7 million per year of sports gaming revenues with minimal related expenses.

Waukegan Proposal (American Place).  We continue to be one of three bidders for the opportunity to build a new casino in Waukegan, Illinois, midway between Chicago and Milwaukee, an area with high population density and no existing casino. If awarded the license by the Illinois Gaming Board (“IGB”), we intend to develop and operate a temporary casino on that site while a permanent casino (named “American Place”) is being constructed. American Place is expected to include a world-class casino with a state-of-the-art sportsbook; a premium boutique hotel comprised of twenty luxurious villas, each ranging from 1,500 to 2,500 square feet with full butler service; a 1,500-seat live entertainment venue; and various food and beverage outlets. American Place was one of three proposals certified by the Waukegan City Council in late 2019. At that time, the city’s consultant ranked American Place as the top proposal amongst the various submissions on numerous different criteria.

According to the IGB, the process for it to choose the preferred developer has been slowed by the COVID-19 pandemic. In December 2020, the IGB issued a request for proposals (“RFP”) for an investment bank or similar consultant to advise the IGB in assessing the various proposals.  In April 2021, the IGB indicated that it received at least one response to its RFP. The IGB Administrator has indicated that he believes the IGB can make a preliminary suitability determination within six months of hiring an appropriate financial consultant. We can provide no assurances as to the timing or certainty that our project will be chosen by the Illinois Gaming Board for the available gaming license in Waukegan.

Key Performance Indicators

We use several key performance indicators to evaluate the operations of our properties. These key performance indicators include the following:

Gaming revenue indicators:

Slot coin-in is the gross dollar amount wagered in slot machines and table game drop is the total amount of cash or credit exchanged into chips at table games for use by our customers. Slot coin-in and table game drop are indicators of volume.

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Slot win is the difference between customer wagers and customer winnings on slot machines. Table game hold is the difference between the amount of money or markers exchanged into chips and customer winnings paid. Slot win and table game hold percentages represent the relationship between slot win and coin-in and table game win and drop.

Room revenue indicators:

Hotel occupancy rate is an indicator of the utilization of our available rooms. Complimentary room sales, or the retail value of accommodations gratuitously furnished to customers, are included in the calculation of the hotel occupancy rate.

Adjusted EBITDA, Adjusted Segment EBITDA and Adjusted Segment EBITDA Margin:

Management uses Adjusted EBITDA as a measure of our performance. For a description of Adjusted EBITDA, see “Non-GAAP Financial Measure.”  We utilize Adjusted Segment EBITDA, a financial measure in accordance with generally accepted accounting principles in the United States of America (“GAAP”), as the measure of segment profit in assessing performance and allocating resources at the reportable segment level. For information regarding our operating segments, see Note 11 of our Condensed Notes to Consolidated Financial Statements included in this quarterly report. In addition, we use Adjusted Segment EBITDA Margin, which is calculated by dividing Adjusted Segment EBITDA by the property’s total revenues.

Results of Operations

Consolidated operating results

The following tables summarize our consolidated operating results for the three-months ended March 31, 2021 and 2020:

Three Months Ended

(In thousands)

March 31, 

Percent

    

2021

    

2020

    

Change

Revenues

$

42,208

$

30,853

 

36.8

%

Operating expenses

 

33,514

 

34,281

 

(2.2)

%

Operating income (loss)

 

8,694

 

(3,428)

 

(353.6)

%

Interest and other non-operating expenses, net

 

11,937

 

835

 

1,329.6

%

Income tax provision

 

202

 

95

 

112.6

%

Net loss

$

(3,445)

$

(4,358)

 

(20.9)

%

Three Months Ended

(In thousands)

March 31, 

Percent

    

2021

    

2020

    

Change

Casino revenues

Slots

$

27,060

$

17,359

 

55.9

%  

Table games

 

3,868

 

2,751

 

40.6

%  

Other

 

1,136

 

641

 

77.2

%  

 

32,064

 

20,751

 

54.5

%  

Non-casino revenues, net

 

  

 

  

 

  

Food and beverage

 

6,101

 

6,990

 

(12.7)

%  

Hotel

 

2,211

 

1,974

 

12.0

%  

Other