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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, 2022

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 3, 2022, there were 34,399,084 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, 2022 and 2021

3

Consolidated Balance Sheets at September 30, 2022 and December 31, 2021

4

Consolidated Statements of Changes in Stockholders’ Equity for the Three and Nine Months Ended September 30, 2022 and 2021

5

Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2022 and 2021

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

38

Item 4.

Controls and Procedures

39

PART II
OTHER INFORMATION

Item 1.

Legal Proceedings

39

Item 1A.

Risk Factors

39

Item 6.

Exhibits

40

Signatures

41

2

Table of Contents

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, 

    

2022

    

2021

    

2022

    

2021

Revenues

 

  

 

  

 

  

 

  

Casino

$

29,721

$

32,506

$

88,293

$

99,217

Food and beverage

 

6,811

 

7,092

 

20,255

 

20,633

Hotel

 

2,490

 

2,469

 

7,076

 

7,190

Other operations, including contracted sports wagering

 

2,371

 

5,171

 

11,575

 

9,848

 

41,393

 

47,238

 

127,199

 

136,888

Operating costs and expenses

 

  

 

  

 

  

 

  

Casino

 

10,292

 

11,261

 

30,273

 

32,687

Food and beverage

 

6,814

 

6,199

 

20,134

 

17,487

Hotel

 

1,256

 

1,136

 

3,524

 

3,332

Other operations

 

587

 

576

 

1,594

 

1,522

Selling, general and administrative

 

15,218

 

14,791

 

44,795

 

43,211

Project development costs, net

 

(149)

 

318

 

33

 

491

Preopening costs

2,594

17

4,914

17

Depreciation and amortization

 

2,386

 

1,819

 

6,012

 

5,448

Loss on disposal of assets, net

 

 

2

3

 

674

 

38,998

 

36,119

 

111,282

 

104,869

Operating income

 

2,395

 

11,119

 

15,917

 

32,019

Other expense

 

  

 

  

 

  

 

  

Interest expense, net

(5,838)

(6,405)

(19,225)

(17,531)

Loss on modification and extinguishment of debt, net

(105)

(4,530)

(6,104)

Adjustment to fair value of warrants

 

 

 

 

(1,347)

 

(5,943)

 

(6,405)

 

(23,755)

 

(24,982)

(Loss) income before income taxes

 

(3,548)

 

4,714

 

(7,838)

 

7,037

Income tax provision (benefit)

29

95

(16)

379

Net (loss) income

$

(3,577)

$

4,619

$

(7,822)

$

6,658

Basic (loss) earnings per share

$

(0.10)

$

0.13

$

(0.23)

$

0.21

Diluted (loss) earnings per share

$

(0.10)

$

0.13

$

(0.23)

$

0.19

See condensed notes to consolidated financial statements.

3

Table of Contents

FULL HOUSE RESORTS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (Unaudited)

(In thousands, except share data)

September 30, 

December 31, 

    

2022

    

2021

ASSETS

Current assets

 

  

 

  

Cash and equivalents

$

85,712

$

88,721

Restricted cash

156,117

176,572

Accounts receivable, net of reserves of $254 and $257

 

2,806

 

4,693

Inventories

 

1,658

 

1,660

Prepaid expenses and other

 

6,512

 

3,726

 

252,805

 

275,372

Property and equipment, net

 

272,097

 

149,540

Operating lease right-of-use assets, net

15,556

15,814

Goodwill

 

21,286

 

21,286

Other intangible assets, net

 

10,877

 

10,896

Deposits and other

 

2,130

 

934

$

574,751

$

473,842

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities

Accounts payable

$

4,701

$

3,874

Construction payable

16,425

4,537

Accrued payroll and related

 

4,223

 

5,473

Accrued interest

4,322

9,861

Other accrued liabilities

 

9,256

 

10,252

Current portion of operating lease obligations

3,103

3,542

Current portion of finance lease obligation

530

514

 

42,560

38,053

Operating lease obligations, net of current portion

 

12,962

 

12,903

Finance lease obligation, net of current portion

2,384

2,783

Long-term debt, net

 

401,429

 

301,619

Deferred income taxes, net

 

1,039

 

1,055

Contract liabilities, net of current portion

7,956

4,714

 

468,330

 

361,127

Commitments and contingencies (Note 7)

 

  

 

  

Stockholders’ equity

 

  

 

  

Common stock, $0.0001 par value, 100,000,000 shares authorized; 35,302,549 and 35,302,549 shares issued and 34,399,084 and 34,242,581 shares outstanding

 

4

 

4

Additional paid-in capital

 

110,249

 

108,911

Treasury stock, 903,465 and 1,059,968 common shares

 

(1,102)

 

(1,292)

(Accumulated deficit) retained earnings

 

(2,730)

 

5,092

 

106,421

 

112,715

$

574,751

$

473,842

See condensed notes to consolidated financial statements.

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Table of Contents

FULL HOUSE RESORTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited)

(In thousands)

Retained

Additional

Earnings

Total

Common Stock

Paid-in

Treasury Stock

(Accumulated

Stockholders’

Shares

Dollars

Capital

Shares

Dollars  

Deficit)

Equity

Balance, January 1, 2022

35,302

$

4

$

108,911

1,060

$

(1,292)

$

5,092

$

112,715

Options exercised and
restricted stocks vested

14

(103)

125

139

Stock-based compensation

 

 

343

 

 

343

Net income

 

 

 

110

 

110

Balance, March 31, 2022

35,302

4

109,268

957

(1,167)

5,202

113,307

Restricted stocks vested

(47)

(39)

47

Stock-based compensation

487

487

Net loss

(4,355)

(4,355)

Balance, June 30, 2022

35,302

4

109,708

918

(1,120)

847

109,439

Options exercised

9

(15)

18

27

Stock-based compensation

532

532

Net loss

(3,577)

(3,577)

Balance, September 30, 2022

35,302

$

4

$

110,249

903

$

(1,102)

$

(2,730)

$

106,421

(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

Options exercised

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

Options exercised

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

See condensed notes to consolidated financial statements.

5

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FULL HOUSE RESORTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(In thousands)

Nine Months Ended

September 30, 

    

2022

    

2021

Cash flows from operating activities:

 

  

 

  

Net (loss) income

$

(7,822)

$

6,658

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

 

  

 

  

Depreciation and amortization

 

6,012

 

5,448

Amortization of debt issuance costs, discounts and premiums

 

1,227

 

991

Stock-based compensation

 

1,362

 

647

Change in fair value of stock warrants

 

 

1,347

Loss on disposal of assets, net

 

3

 

674

Proceeds from insurance related to property damage

1,334

Loss on modification and extinguishment of debt, net

4,530

6,104

Increases and decreases in operating assets and liabilities:

 

  

 

  

Accounts receivable

 

1,887

 

360

Prepaid expenses, inventories and other

 

(2,784)

 

(3,229)

Deferred taxes

 

(16)

 

379

Common stock warrant liability

(4,000)

Contract liabilities

2,635

(600)

Accounts payable and accrued expenses

 

(6,994)

 

3,188

Net cash provided by operating activities

 

40

 

19,301

Cash flows from investing activities:

 

  

 

  

Capital expenditures

 

(116,148)

 

(17,828)

Other

 

(1,086)

 

(164)

Net cash used in investing activities

 

(117,234)

 

(17,992)

Cash flows from financing activities:

 

  

 

  

Proceeds from Senior Secured Notes due 2028 borrowings

 

100,000

 

310,000

Proceeds from premium on Senior Secured Notes due 2028 borrowings

2,000

Proceeds from equity offering, net of issuance costs

42,974

Payment of debt discount and issuance costs

 

(7,945)

 

(9,421)

Repayment of Senior Secured Notes due 2024

(106,825)

Prepayment premiums of Senior Secured Notes due 2024

 

 

(1,261)

Repayment of finance lease obligation

(383)

(367)

Proceeds from exercise of stock options

 

166

 

367

Other

(108)

24

Net cash provided by financing activities

 

93,730

 

235,491

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

 

(23,464)

 

236,800

Cash, cash equivalents and restricted cash, beginning of period

 

265,293

 

37,698

Cash, cash equivalents and restricted cash, end of period

$

241,829

$

274,498

Supplemental Cash Flow Information:

 

  

 

  

Cash paid for interest, net of amounts capitalized

$

27,726

$

13,180

Non-Cash Investing Activities:

 

  

 

  

Accounts payable related capital expenditures

$

17,312

$

7,031

See condensed notes to consolidated financial statements.

6

Table of Contents

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. We are currently constructing two additional properties: Chamonix Casino Hotel (“Chamonix”), adjacent to the Company’s existing Bronco Billy’s Casino and Hotel in Cripple Creek, Colorado; and The Temporary by American Place (“The Temporary”) in Waukegan, Illinois. We also benefit from seven permitted sports wagering “skins,” three in Colorado, three in Indiana, and one in Illinois that we expect to receive shortly after the opening of The Temporary. As of September 30, 2022, five of our seven online skins are contracted with other companies, and four of which are currently in operation. These contracts allow the counterparties to operate online sports wagering sites under their brands, paying us a percentage of revenues, as defined in each respective agreement, subject to annual minimum amounts.

In December 2021, Full House was selected by the Illinois Gaming Board (“IGB”) to develop its American Place project in Waukegan, Illinois, a northern suburb of Chicago. During the period that the permanent American Place facility is under construction, we intend to operate a temporary casino facility named The Temporary. In May 2022, we commenced construction of The Temporary, which is expected to open within the next three months, subject to customary regulatory approvals.

The following table identifies our 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)

Illinois

The Temporary and American Place (under construction)

Waukegan, IL (northern suburb of Chicago)

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

One sports wagering website (“skin”) upon opening of The Temporary

Illinois

The Company manages its casinos based primarily on geographic regions within the United States and type of income. See Note 10 for further information.

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Table of Contents

COVID-19 Pandemic Update. The COVID-19 pandemic continues to evolve. Governmental authorities continue to update their precautionary measures and promote vaccination programs to manage the spread of the virus as different variants of the virus surface and subside. The Company has generally benefited from the gradual relaxation of pandemic-related business restrictions since 2021.

However, the COVID-19 pandemic and certain precautionary measures, as well as other factors, have created economic uncertainty both in the United States and globally, as well as significant volatility in, and disruption to, financial markets, labor markets and supply chains. Global supply chain disruptions and other world events have resulted in shipping delays, increased shipping costs, supply shortages, and inflationary pressures, including increases in prices for fuel, food, building materials, and other items. These increased costs, labor shortages, and supply shortages continued to put additional constraints on our operating business and our construction projects for the nine months ended September 30, 2022. We do not know when, or if, these cost, labor and supply chain issues will materially alleviate and, accordingly, they may continue to impact our existing business and our construction projects.

We believe that as the COVID-19 pandemic evolves, the direct and indirect impacts on global macro-economic conditions, as well as conditions specific to us, are becoming more difficult to isolate or quantify. In addition, these direct and indirect factors can make it difficult to isolate and quantify the portion of our costs that are a direct result of the pandemic versus costs arising from factors that may have been influenced by the pandemic, including supply chain constraints, increased prices and inflationary pressures, labor shortages, and changes in the spending patterns of customers. These factors and their effects on our operations may persist for a longer period, even after the COVID-19 pandemic has subsided.

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 2021 annual consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

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.

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.

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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.

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 placed into a construction reserve account for 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 reserve to approximate fair value. Reserves 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 May 2022, Rising Star sold its available “free play” for $2.1 million. We received all of such amount during the third quarter of 2022. 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.

Management believes that, as of September 30, 2022, no significant concentrations of credit risk existed for which a reserve had not already been recorded.

Revenue Recognition:

Accrued Club Points and Customer Loyalty Programs: 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 casino 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 under loyalty programs by property for various benefits, primarily for “free casino play,” complimentary dining, or hotel stays, among others, depending on each property’s specific offers. Upon redemption, the related revenue is recognized at retail value within the department providing the goods or services. Unredeemed points are forfeited if the customer becomes and remains inactive for a specified period of time. Such liabilities were approximately $0.8 million for each of September 30, 2022 and December 31, 2021, and these amounts are included in “other accrued liabilities” on the consolidated balance sheets.

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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. The Company entered into several agreements with various unaffiliated companies allowing for online sports wagering within Indiana, Colorado and Illinois, as well as on-site sports wagering at Rising Star Casino Resort, Bronco Billy’s Casino and Hotel, and The Temporary/American Place (the “Sports Agreements”). As part of these long-term Sports Agreements, the Company received one-time market access fees totaling $6 million in prior years, which were recorded as long-term liabilities and are being recognized as revenue ratably over the initial contract terms (or as accelerated due to termination), beginning with the commencement of operations. In May 2022, the Company received an additional $5 million of non-refundable, one-time market access fees for its executed Illinois Sports Agreement. As with the prior Sports Agreements, such market access fee was capitalized and will be amortized over the initial term of the agreement, beginning with the commencement of operations. The market access fees are not refundable under ordinary circumstances.

Indiana. The Company’s three Sports Agreements commenced operations in December 2019, April 2021 and December 2021. As noted below, one of these Sports Agreements ceased operations in May 2022.

Colorado. The Company’s three Sports Agreements commenced operations in June 2020, December 2020 and April 2021. As noted below, one of these Sports Agreements ceased operations in May 2022.

Illinois. The Company signed a Sports Agreement in May 2022 for Illinois. Such operations are expected to commence shortly after the opening of The Temporary, pending the receipt of customary gaming approvals.

In addition to the market access fees, deferred revenue includes the annual prepayment of contracted revenue, as required in two of the Sports Agreements. As of September 30, 2022, $1.5 million of such deferred revenue has been recognized during the year.

Deferred revenues consisted of the following, as discussed above:

(In thousands)

September 30, 

December 31, 

    

Balance Sheet Location

2022

    

2021

Deferred revenue, current

Other accrued liabilities

$

1,215

$

1,822

Deferred revenue, net of current portion

Contract liabilities, net of current portion

7,956

4,714

$

9,171

$

6,536

On May 15, 2022, one of the Company’s contracted parties for sports wagering ceased operations, which created one available skin in each of Colorado and Indiana. Accordingly, this accelerated the recognition of $1.6 million of deferred revenue, which was recognized through the May 2022 termination date, as opposed to the remaining eight years of the original 10-year term. The Company is currently evaluating whether to utilize these two remaining skins itself or to find replacement operators for such skins. There is no certainty that the Company will be able to enter into agreements with third-parties related to these skins or operate these skins itself on better terms than the Company’s prior agreements.

Other Revenues. The transaction price of rooms, food and beverage, and retail contracts is the net amount collected from the customer for such goods and services. The transaction price for such contracts is recorded as revenue when the good or service is transferred to the customer over their stay at the hotel or when the delivery is made for the food, beverage, retail and other contracts. Sales and usage-based taxes are excluded from revenues.

Revenue by Source. The Company presents earned revenue as disaggregated by the type or nature of the good or service (casino, food and beverage, hotel, and other operations comprised mainly of retail, golf, entertainment, and contracted sports wagering) and by relevant geographic region within Note 10.

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Income Taxes. For interim income tax reporting for the three and nine months ended September 30, 2022, 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.

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.

Preopening costs. Preopening costs are related to the preopening phases of new ventures, in accordance with accounting standards regarding start-up activities, and are expensed as incurred. These costs consist of payroll, advertising, outside services, organizational costs and other expenses directly related to new or start-up operations.

Recently Issued Accounting Pronouncements Not Yet Adopted. 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.

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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 36 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 land lease 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.

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 exercised its third renewal option to extend the lease term through January 2026, with current annual lease payments of $0.4 million. Annual minimum rent will increase to $0.5 million starting in February 2026 with adjustments on each anniversary thereafter, based on the consumer price index. 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.

In September 2022, the Company remeasured this lease’s related ROU asset and liability balances on its balance sheet, by factoring in all renewal terms through January 2035 to reflect the partial overlap of Chamonix’s construction on leased land. As a result of that overlap, the Company is deemed likely to exercise each renewal unless it exercises its purchase buyout right.

Third Street Corner Building through August 2023 and Option to Purchase. The Company began leasing this building in August 2018. This building is currently used as office space for Chamonix’s construction personnel, obviating the need for construction trailers. The lease had an initial three-year term with annual lease payments of $0.2 million. This was subsequently extended to August 13, 2023, with current annual lease payments of $0.3 million. The Company has the right to purchase the building at any time during the extended lease term for $2.8 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. 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 Notes (see Note 5). The lessor 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 12-month period preceding the acquisition (or pro-rated if less than 12 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.

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-guestroom hotel at Rising Star Casino Resort. At any time during the lease term, the Company has the option to purchase the hotel, and approximately 3.01 acres of land on which it resides, 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, 2022, such potential purchase price was $2.9 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 expenses are as follows:

(In thousands)

    

    

Three Months Ended

    

Nine Months Ended

Classification within

September 30, 

September 30, 

Lease Costs

Statement of Operations

2022

 

2021

2022

 

2021

Operating leases:

 

 

 

  

  

 

  

  

Fixed/base rent

 

Selling, General and Administrative Expenses

$

1,206

$

1,112

$

3,549

$

3,357

Short-term payments

Selling, General and Administrative Expenses

33

29

103

29

Variable payments

 

Selling, General and Administrative Expenses

 

314

 

385

 

1,069

 

1,254

Finance lease:

 

 

  

 

 

  

 

  

Amortization of leased assets

 

Depreciation and Amortization

 

39

 

39

 

118

 

118

Interest on lease liabilities

 

Interest Expense, Net

 

34

 

38

 

106

 

122

Total lease costs

$

1,626

$

1,603

$

4,945

$

4,880

Leases recorded on the balance sheet consist of the following:

(In thousands)

September 30, 

December 31, 

Leases

    

Balance Sheet Classification

    

2022

2021

Assets

 

  

 

  

Operating lease assets

   

Operating Lease Right-of-Use Assets, Net

   

$

15,556

$

15,814

Finance lease assets

 

Property and Equipment, Net(1)

 

4,605

 

4,722

Total lease assets

 

  

$

20,161

$

20,536

Liabilities

 

  

 

  

 

  

Current

 

  

 

  

 

  

Operating

 

Current Portion of Operating Lease Obligations

$

3,103

$

3,542

Finance

 

Current Portion of Finance Lease Obligation

 

530

 

514

Noncurrent

 

  

 

 

Operating

 

Operating Lease Obligations, Net of Current Portion

 

12,962

 

12,903

Finance

 

Finance Lease Obligation, Net of Current Portion

 

2,384

 

2,783

Total lease liabilities

 

  

$

18,979

$

19,742

__________

(1)

Finance lease assets are recorded net of accumulated amortization of $3.1 million and $3.0 million as of September 30, 2022 and December 31, 2021, respectively.

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Maturities of lease liabilities as of September 30, 2022 are summarized as follows:

(In thousands)

    

Operating

    

Financing

Years Ending December 31, 

Leases

Lease(1)

2022 (excluding the nine months ended September 30, 2022)

$

1,262

$

109

2023

 

3,694

 

652

2024

 

1,819

 

652

2025

 

1,543

 

652

2026

 

1,403

 

652

Thereafter

 

33,019

 

543

Total future minimum lease payments

 

42,740

 

3,260

Less: Amount representing interest

 

(26,675)

 

(346)

Present value of lease liabilities

 

16,065

 

2,914

Less: Current lease obligations

 

(3,103)

 

(530)

Long-term lease obligations

$

12,962

$

2,384

__________

(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, 2022

December 31, 2021

Weighted-average remaining lease term

 

  

  

Operating leases

 

23.2

years

21.5

years

Finance lease

 

5.0

years

5.8

years

Weighted-average discount rate

 

  

  

Operating leases

 

9.70

%

9.32

%

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:

2022

2021

Operating cash flows for operating leases

$

3,670

$

3,652

Operating cash flows for finance lease

$

106

$

122

Financing cash flows for finance lease

$

383

$

367

4. ACQUISITIONS

Fountain Square Land Purchase. In connection with the development of its American Place project in Waukegan, Illinois, the Company entered into an agreement in January 2022 to purchase approximately 10 acres of land adjoining the approximately 30-acre casino site to be leased from the City, providing space for additional parking and access to the casino site from a major road. The land was acquired on March 17, 2022 for total consideration of $7.5 million.

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5. LONG-TERM DEBT

Long-term debt consists of the following:

(In thousands)

September 30, 

December 31, 

2022

2021

Revolving Credit Facility due 2026

$

$

Senior Secured Notes due 2028(1)

410,000

310,000

Less: Unamortized debt issuance costs, discounts and premiums, net

 

(8,571)

 

(8,381)

$

401,429

$

301,619

__________

(1)The estimated fair value of these notes was approximately $370.2 million for September 30, 2022 and $327.5 million for December 31, 2021. The fair value was estimated using quoted market prices for these notes.

Senior Secured Notes due 2028. On February 12, 2021, the Company refinanced all $106.8 million of its 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 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.

On February 7, 2022, the Company closed a private offering of $100 million aggregate principal amount of additional 8.25% Senior Secured Notes due 2028 (the “Additional Notes”), which sold at a price of 102.0% of such principal amount. Proceeds from the sale of the Additional Notes are being used: (i) to develop, equip and open The Temporary, which the Company intends to operate while it constructs its permanent American Place facility, (ii) to pay the transaction fees and expenses of the offer and sale of the Additional Notes and (iii) for general corporate purposes. The Additional Notes were issued pursuant to the indenture, dated as of February 12, 2021 (the “Indenture”), to which the Company issued the $310 million of 2028 Notes noted above (collectively, the “Notes”). In connection with the issuance of the Additional Notes, the Company and the subsidiary guarantors party to the Indenture entered into two Supplemental Indentures with Wilmington Trust, National Association, as trustee, dated February 1, 2022 and February 7, 2022, respectively. On March 3, 2022, the Company entered into a third Supplemental Indenture to establish a special record date for the initial interest payment for the Additional Notes.

The 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 Notes is payable on February 15 and August 15 of each year, with the next interest payment due on February 15, 2023.

The Notes are guaranteed, jointly and severally (such guarantees, the “Guarantees”), by each of the Company’s restricted subsidiaries (collectively, the “Guarantors”). The 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 Notes and the Guarantees, if any. The 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 Notes contain representations and warranties, financial covenants, and restrictions on dividends customary for notes of this type. Mandatory prepayments, in whole or in part, of the 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, the Company may redeem up to 35% of the original principal amount of the 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, the Company may redeem some or all of the Notes prior to February 15, 2024 at a redemption price of 100% of the principal amount of the Notes, plus accrued and unpaid interest to the redemption date and a “make-whole” premium.

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