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 September 30, 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 November 8, 2021, there were 34,227,493 shares of Common Stock, $0.0001 par value per share, outstanding.

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FULL HOUSE RESORTS, INC. AND SUBSIDIARIES

FORM 10-Q

INDEX


		Page
PART I FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	3
	Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2021 and 2020	3
	Consolidated Balance Sheets at September 30, 2021 and December 31, 2020	4
	Consolidated Statements of Changes in Stockholders’ Equity for the Three and Nine Months Ended September 30, 2021 and 2020	5
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2021 and 2020	6
	Condensed Notes to Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	42
Item 4.	Controls and Procedures	42

PART II OTHER INFORMATION
Item 1.	Legal Proceedings	43
Item 1A.	Risk Factors	43
Item 6.	Exhibits	43


Signatures		44

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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				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
Revenues
Casino	$	32,506	$	31,910	$	99,217	$	63,616
Food and beverage		7,092		5,612		20,633		14,596
Hotel		2,469		2,511		7,190		5,204
Other operations, including contracted sports wagering		5,171		1,923		9,848		3,904
		47,238		41,956		136,888		87,320
Operating costs and expenses
Casino		11,261		10,125		32,687		23,886
Food and beverage		6,199		5,234		17,487		14,453
Hotel		1,136		1,113		3,332		2,663
Other operations		576		564		1,522		1,441
Selling, general and administrative		14,791		12,555		43,211		35,332
Project development costs		318		108		491		423
Preopening costs		17		—		17		—
Depreciation and amortization		1,819		1,848		5,448		5,868
Loss on disposal of assets, net		2		—		674		439
		36,119		31,547		104,869		84,505
Operating income		11,119		10,409		32,019		2,815
Other (expense) income
Interest expense, net of $509 and $208 capitalized for the three-months ended September 30, 2021 and 2020, and $1,017 and $639 capitalized for the nine-months ended September 30, 2021 and 2020		(6,405)		(2,391)		(17,531)		(7,329)
Loss on extinguishment of debt		—		—		(6,104)		—
Adjustment to fair value of warrants		—		(403)		(1,347)		1,159
		(6,405)		(2,794)		(24,982)		(6,170)
Income (loss) before income taxes		4,714		7,615		7,037		(3,355)
Income tax provision (benefit)		95		(93)		379		(2)
Net income (loss)	$	4,619	$	7,708	$	6,658	$	(3,353)

Basic earnings (loss) per share	$	0.13	$	0.28	$	0.21	$	(0.12)
Diluted earnings (loss) per share	$	0.13	$	0.28	$	0.19	$	(0.17)

See condensed notes to consolidated financial statements.

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FULL HOUSE RESORTS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (Unaudited)

(In thousands, except share data)


	September 30,		December 31,
	2021		2020
ASSETS
Current assets
Cash and equivalents	$	97,926	$	37,698
Restricted cash		176,572		—
Accounts receivable, net		4,544		4,904
Inventories		2,139		1,511
Prepaid expenses and other		5,062		2,461
		286,243		46,574

Property and equipment, net		134,244		115,772
Operating lease right-of-use assets, net		16,619		17,361
Goodwill		21,286		21,286
Other intangible assets, net		10,904		10,963
Deposits and other		796		660
	$	470,092	$	212,616
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	10,391	$	4,191
Accrued payroll and related		5,497		2,397
Accrued interest		3,386		38
Other accrued liabilities		9,320		10,772
Current portion of operating lease obligations		3,492		3,283
Current portion of finance lease obligation		508		491
Current portion of long-term debt		1,546		426
Common stock warrant liability		—		2,653
		34,140		24,251

Operating lease obligations, net of current portion		13,813		14,914
Finance lease obligation, net of current portion		2,914		3,298
Long-term debt, net		305,329		106,832
Deferred income taxes, net		999		620
Contract liabilities, net of current portion		4,948		5,398
Other long-term liabilities		626		626
		362,769		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 34,227,493 and 27,124,292 shares outstanding		4		3
Additional paid-in capital		108,586		64,826
Treasury stock, 1,075,056 and 1,261,007 common shares		(1,311)		(1,538)
Retained earnings (accumulated deficit)		44		(6,614)
		107,323		56,677
	$	470,092	$	212,616

See condensed notes to consolidated financial statements.

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FULL HOUSE RESORTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited)

(In thousands)


									(Accumulated
				Additional					Deficit)		Total
	Common Stock			Paid-in		Treasury Stock			Retained		Stockholders’
	Shares	Dollars		Capital		Shares	Dollars		Earnings		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
Exercise of stock options	—		—		104	(152)		185		—		289
Stock-based compensation	—		—		199	—		—		—		199
Net income	—		—		—	—		—		5,484		5,484
Balance, June 30, 2021	35,302		4		108,262	1,075		(1,311)		(4,575)		102,380
Stock-based compensation	—		—		324	—		—		—		324
Net income	—		—		—	—		—		4,619		4,619
Balance, September 30, 2021	35,302	$	4	$	108,586	1,075	$	(1,311)	$	44	$	107,323


				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
Stock grants	13		—		24	—		—		—		24
Stock-based compensation	—		—		79	—		—		—		79
Net loss	—		—		—	—		—		(6,703)		(6,703)
Balance, June 30, 2020	28,359		3		64,588	1,270		(1,548)		(17,822)		45,221
Stock grants	16		—		24	—		—		—		24
Stock-based compensation	—		—		97	—		—		—		97
Net income	—		—		—	—		—		7,708		7,708
Balance, September 30, 2020	28,375	$	3	$	64,709	1,270	$	(1,548)	$	(10,114)	$	53,050

See condensed notes to consolidated financial statements.

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FULL HOUSE RESORTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(In thousands)


	Nine Months Ended
	September 30,
	2021		2020
Cash flows from operating activities:
Net income (loss)	$	6,658	$	(3,353)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		5,448		5,868
Amortization of debt issuance and warrant costs and other		991		827
Stock-based compensation		647		307
Change in fair value of stock warrants		1,347		(1,159)
Loss on disposal of assets, net		674		439
Proceeds from insurance related to property damage		1,334		—
Loss on extinguishment of debt		6,104		—
Increases and decreases in operating assets and liabilities:
Accounts receivable		360		306
Prepaid expenses, inventories and other		(3,229)		1,533
Deferred taxes		379		(2)
Common stock warrant liability		(4,000)		—
Contract liabilities		(600)		(109)
Accounts payable and accrued expenses		3,188		(1,732)
Net cash provided by operating activities		19,301		2,925
Cash flows from investing activities:
Purchase of property and equipment		(17,828)		(1,883)
Other		(164)		11
Net cash used in investing activities		(17,992)		(1,872)
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		—
Proceeds from CARES Act unsecured loans		—		5,606
Payment of debt discount and issuance costs		(9,421)		(1,284)
Repayment of Senior Secured Notes due 2024		(106,825)		(825)
Prepayment premiums of Senior Secured Notes due 2024		(1,261)		—
Repayment of finance lease obligation		(367)		(369)
Proceeds from exercise of stock options		367		—
Other		24		—
Net cash provided by financing activities		235,491		3,128

Net increase in cash, cash equivalents and restricted cash		236,800		4,181
Cash, cash equivalents and restricted cash, beginning of period		37,698		29,851
Cash, cash equivalents and restricted cash, end of period	$	274,498	$	34,032

Supplemental Cash Flow Information:
Cash paid for interest, net of amounts capitalized	$	13,180	$	6,324
Non-Cash Investing Activities:
Accounts payable related capital expenditures	$	7,031	$	265

See condensed notes to consolidated financial statements.

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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 continues for 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”), all operating		Colorado
Three sports wagering websites (“skins”), two in operation		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. in recent weeks, though new variants could result in a reversal of these trends. For example, the Delta variant of COVID-19 resulted in large increases in the number of COVID-19 cases as it spread globally. 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.

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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 business restrictions throughout its properties 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, including the Delta or other variants, will largely depend on future developments, which are highly uncertain and cannot be accurately predicted at this time. Significant uncertainties include the ability to operate; new information which may emerge concerning new strains of COVID-19 and their severity; vaccination rates among the population; the effectiveness of COVID-19 vaccines against variants; any additional actions imposed by governmental authorities (including the potential mandated vaccination or repeated testing of our employees) to contain or minimize the impact of COVID-19 and any variants; 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- and nine-months ended September 30, 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 further eased during the third quarter of 2021, the current economic and regulatory environment in each of the Company’s jurisdictions continues to evolve. For example, mask mandates for all employees and guests were re-introduced at our Nevada properties in July 2021 in compliance with recent orders from Nevada state government officials and, in November 2021, new national rules were announced that would require employers with more than 100 employees to ensure their workers are vaccinated against COVID-19 or undergo weekly testing. 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.

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.

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.

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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.

Accounts Receivable. Accounts receivable consist primarily of casino, hotel and other receivables, are typically non-interest bearing, and are carried net of an appropriate collection allowance to approximate fair value. Allowances for doubtful accounts are estimated based on specific review of customer accounts including the customers’ willingness and ability to pay and nature of collateral, if any, as well as historical collection experience and current economic and business conditions. Accounts are written off when management deems the account to be uncollectible and recoveries of accounts previously written off are recorded when received.


(In thousands)	September 30,		December 31,
	2021		2020
Accounts receivable	$	4,796	$	5,080
Accounts receivable allowance		(252)		(176)
	$	4,544	$	4,904

At September 30, 2021, the balance in accounts receivables includes the sale of “free play” at Rising Star for $2.1 million in September. Because Indiana has a progressive gaming tax system and Rising Star is one of the smaller casinos in the state, the property has consistently sold its ability to deduct “free play” in computing gaming taxes to operators in higher tax tiers (and usually sold in the fourth quarter in prior years). Compared to December 31, 2020, the balance in accounts receivables includes the sale of “free play” at Rising Star for the same amount of $2.1 million in the fourth quarter.

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.

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The Company sometimes provides discretionary complimentary goods and services (“discretionary comps”), primarily to casino customers. 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 $0.6 million for September 30, 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, offset by a reduction in the liability.

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 of 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 ten-year 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 and Bronco Billy’s casinos (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 of each agreement, beginning with the commencement of operations.

Indiana. Two of the Company’s Sports Agreements commenced operations in December 2019 and April 2021, respectively. The contracted party for the remaining Sports Agreement is awaiting approval from the state gaming commission prior to commencing operations.

Colorado. The Company’s three Sports Agreements commenced online operations in June 2020, December 2020 and April 2021, respectively.

Deferred revenues also include a total of $2.0 million related to the annual prepayment of contracted revenue, as required in two of the Sports Agreements. We received $1.0 million of prepaid revenue for contracted sports operations that commenced in Colorado in December 2020, and $1.0 million for contracted sports operations that commenced in Indiana in April 2021.

Such revenues consisted of the following, as discussed above:


(In thousands)		September 30,		December 31,
	Balance Sheet Location	2021		2020
Deferred revenue, current	Other accrued liabilities	$	1,222	$	1,372
Deferred revenue, net of current portion	Contract liabilities, net of current portion		4,948		5,398
		$	6,170	$	6,770

Income Taxes. For interim income tax reporting for the three- and nine-months ended September 30, 2021, the Company estimates its annual effective tax rate and applies it to its year-to-date pretax income or loss.

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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.

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

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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 was amortized over the remaining term of the lease. From April 1, 2022 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.

Bronco Billy’s / Chamonix 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. The Company considers the renewal options reasonably certain of being exercised through January of 2026, with current annual lease payments of $0.4 million. The lease 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.

Third Street Corner Building through August 2023 and Option to Purchase. The Company leased a nearby closed casino in August 2018 and reopened it in November 2018. The reopened casino did not produce enough incremental revenue to offset the incremental costs, and it was closed in September 2020. The Company has the right to purchase the casino at any time during the lease term, as extended. Currently, the purchase price is $2.8 million as of November 1, 2021.

As part of the Chamonix development project, this building is currently used as office space for construction personnel, obviating the need for construction trailers. The lease includes a minimum three-year term with annual lease payments of $0.2 million, and was subsequently extended in June 2021 for an additional two years with annual lease payments of $0.3 million.

Grand Lodge Casino Lease through August 2023. The Company’s subsidiary, Gaming Entertainment (Nevada), LLC, has a lease with Incline Hotel, LLC, the owner of the Hyatt Regency Lake Tahoe Resort (“Hyatt Lake Tahoe”), to operate the Grand Lodge Casino. The lease was assigned to Incline Hotel, LLC when it purchased the Hyatt Lake Tahoe in September 2021. It 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). The lessor 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 facilities 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 was 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.

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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 September 30, 2021, such potential purchase price was $3.4 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				Nine Months Ended
		September 30,				September 30,
Lease Costs	Classification within Statement of Operations	2021		2020		2021		2020
Operating leases:
Fixed/base rent	Selling, General and Administrative Expenses	$	1,112	$	1,156	$	3,357	$	3,478
Short-term payments	Selling, General and Administrative Expenses		29		—		29		—
Variable payments	Selling, General and Administrative Expenses		385		219		1,254		442
Finance lease:
Amortization of leased assets	Depreciation and Amortization		39		39		118		118
Interest on lease liabilities	Interest Expense, Net		38		45		122		139
Total lease costs		$	1,603	$	1,459	$	4,880	$	4,177

Leases recorded on the balance sheet consist of the following:


(In thousands)
		September 30,		December 31,
Leases	Balance Sheet Classification	2021		2020
Assets
Operating lease assets	Operating Lease Right-of-Use Assets, Net	$	16,619	$	17,361
Finance lease assets	Property and Equipment, Net⁽¹⁾		4,762		4,879
Total lease assets		$	21,381	$	22,240

Liabilities
Current
Operating	Current Portion of Operating Lease Obligations	$	3,492	$	3,283
Finance	Current Portion of Finance Lease Obligation		508		491
Noncurrent
Operating	Operating Lease Obligations, Net of Current Portion		13,813		14,914
Finance	Finance Lease Obligation, Net of Current Portion		2,914		3,298
Total lease liabilities		$	20,727	$	21,986

__________

(1)	Finance lease assets are recorded net of accumulated amortization of $3.0 million and $2.8 million as of September 30, 2021 and December 31, 2020, respectively.

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Maturities of lease liabilities as of September 30, 2021 are summarized as follows:


(In thousands)
	Operating		Financing
Years Ending December 31,	Leases		Lease⁽¹⁾
2021 (excluding the nine months ended September 30, 2021)	$	1,234	$	108
2022		4,852		652
2023		3,539		652
2024		1,663		652
2025		1,466		652
Thereafter		30,105		1,195
Total future minimum lease payments		42,859		3,911
Less: Amount representing interest		(25,554)		(489)
Present value of lease liabilities		17,305		3,422
Less: Current lease obligations		(3,492)		(508)
Long-term lease obligations	$	13,813	$	2,914

__________

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

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


Lease Term and Discount Rate	September 30, 2021		December 31, 2020
Weighted-average remaining lease term
Operating leases	20.8	years	20.4	years
Finance lease	6.0	years	6.8	years
Weighted-average discount rate
Operating leases	9.28	%	9.41	%
Finance lease	4.50	%	4.50	%

Supplemental cash flow information related to leases is as follows:


(In thousands)	Nine Months Ended
	September 30,
Cash paid for amounts included in the measurement of lease liabilities:	2021		2020
Operating cash flows for operating leases	$	3,652	$	3,250
Operating cash flows for finance lease	$	122	$	139
Financing cash flows for finance lease	$	367	$	369

4. ACQUISITIONS

Cripple Creek Land and Real Estate Purchase. As part of the development of Chamonix, the Company purchased 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. 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 during the construction of Chamonix, as many of Bronco Billy’s existing hotel rooms are either currently closed, being utilized by construction personnel, or will be repurposed as part of the construction of Chamonix.

Additionally, on April 16, 2021, the Company purchased a lot and building near its operations in Cripple Creek, Colorado for $600,000.

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5. LONG-TERM DEBT

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


(In thousands)	September 30,		December 31,
	2021		2020
Revolving Credit Facility due 2026	$	—	$	—
Senior Secured Notes due 2028⁽¹⁾		310,000		—
Senior Secured Notes due 2024⁽²⁾		—		106,825
Unsecured Loans (CARES Act)⁽³⁾		5,606		5,606
Less: Unamortized discounts and debt issuance costs		(8,731)		(5,173)