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Table of Contents

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.

Table of Contents

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)