AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 3, 1996
REGISTRATION STATEMENT NO. 33-61580
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 4 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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FULL HOUSE RESORTS, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
DELAWARE 7011 13-3391527
(STATE OR OTHER JURISDICTION OF (Primary Standard Industrial (I.R.S. Employer
INCORPORATION OR ORGANIZATION) Classification Code Number) Identification No.)
SUITE 380
12555 HIGH BLUFF DRIVE
SAN DIEGO, CALIFORNIA 92310
(619) 350-2030
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL
EXECUTIVE OFFICES AND PRINCIPAL PLACE OF BUSINESS)
ROBERT L. KELLEY, PRESIDENT
SUITE 380
12555 HIGH BLUFF DRIVE
SAN DIEGO, CALIFORNIA 92130
(619) 350-2030
(NAME, ADDRESS AND TELEPHONE NUMBER
OF AGENT FOR SERVICE)
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COPIES TO:
PAUL BERKOWITZ, ESQ.
GREENBERG, TRAURIG, HOFFMAN,
LIPOFF, ROSEN & QUENTEL, P.A.
1221 BRICKELL AVENUE
MIAMI, FLORIDA 33131
TELEPHONE NO.: (305) 579-0500
FAX NO.: (305) 579-0717
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APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
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If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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CROSS REFERENCE SHEET
FORM SB-2 ITEM NUMBER AND CAPTION Caption in Prospectus
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1. Front of Registration Statement and Facing Page of Registration Statement; Cross
Outside Front Cover Page of Prospectus Reference Sheet; Outside Front Cover Page of
Prospectus
2. Inside Front and Outside Back Cover Pages Inside Front and Outside Back Cover Pages of
of Prospectus Prospectus
3. Summary Information and Risk Factors Prospectus Summary; The Company; Risk Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Risk Factors; Underwriting
6. Dilution Rick Factors; Dilution
7. Selling Security Holders *
8. Plan of Distribution Outside Front and Outside Back Cover Pages of
Prospectus; Underwriting
9. Legal Proceedings Business
10. Directors, Executive Officers, Promoters and
Control Persons Management
11. Security Ownership of Certain Beneficial Owners
and Management Principal Stockholders
12. Description of Securities Description of Securities
13. Interest of Named Experts and Counsel *
14. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities *
15. Organization Within Last Five Years Certain Transactions
16. Description of Business Prospectus Summary; Business
17. Management's Discussion and Analysis or Plan of Management's Discussion and Analysis of Financial
Operation Condition and Results of Operations
18. Description of Property Business
19. Certain Relationships and Related Transactions Certain Transactions
20. Market for Common Equity and Related Stockholder Outside Front Cover Page of Prospectus; Dividend
Matters Policy; Description of Securities; Shares
Eligible for Future Sale
21. Executive Compensation Management
22. Financial Statements Financial Statements
23. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure Change in Auditors
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* Not applicable or answer thereto is negative
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED JULY 3, 1996
PROSPECTUS
FULL HOUSE REPORTS, INC.
925,988 SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISEOF
778,534 OUTSTANDING REDEEMABLE
COMMON STOCK PURCHASE WARRANTS
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This Prospectus relates to the issuance by Full House Resorts, Inc. (the
"Company"), of up to an aggregate of 925,988 shares of Common Stock (the "Common
Stock"), par value $.0001 per share, of the Company upon the possible future
exercise of 778,534 outstanding Redeemable Common Stock Purchase Warrants (the
"Warrants"). Each Warrant entitles the holder thereof to purchase 1.1894 shares
of Common Stock at an exercise price of $4.20 per share at any time through
February 10, 1997. The Company may redeem the Warrants at any time prior to
their expiration, upon 30 days prior written notice, at a price of $.05 per
Warrant, provided that the average closing bid price for the Common Stock is
$5.04 or higher for twenty consecutive trading days ending within a period
commencing sixty days prior to the notice of redemption.
The Common Stock and the Warrants are traded in the over-the-counter market
on the National Association of Securities Dealers, Inc. Automated Quotation
System ("NASDAQ") as a small-cap issue under the symbol "FHRI" for the Common
Stock and "FHRIW" for the Warrants. On June 24, 1996, the closing bid prices for
the Common Stock and Warrants were $3.875 and $.813, respectively, as reported
on the NASDAQ Small Cap System.
The exercise price and other terms of the Warrants were arbitrarily
determined by negotiation between the Company and Stuart, Coleman & Co., Inc.
(the "Representative"), as the representative of the Underwriters of the
Company's initial public offering which was consummated in August 1993, and do
not necessarily bear any relationship to the assets or book value of the Company
or any other generally accepted criteria of economic valuation.
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THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" ON PAGES 4 THROUGH 7 AND "DILUTION."
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
PROCEEDS TO
EXERCISE PRICE ISSUER(1)
Per Share $ 4.20 $ 4.20
Total(2) $3,338,149.60 $3,889,149.60
(1) Before deduction of approximately $40,000 in estimated expenses of the
offering payable by the Company.
(2) Assumes the exercise of all 778,534 outstanding Warrants. There can be
no assurance given that any or all of the Warrants will be exercised
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This Prospectus also relates to the issuance by the Company of (a) a Unit
Purchase Option issued to the Representative to purchase up to 22,500 Units (the
"Representative's Unit Options"), (b) 67,500 shares of Common Stock (the
"Representative's Unit Stock") and 22,500 Warrants (the "Representative's Unit
Warrants") comprising the Units issuable upon exercise of the Representative's
Unit Option and (c) 95,155 shares of Common Stock (the "Representative's Warrant
Stock") issuable upon exercise of the Representative's Unit Warrants. The
Company will receive the exercise prices of $13.17 per Unit upon exercise of the
Representative's Unit Option and $4.20 per share upon exercise of the
Representative's Unit Warrants but will not receive any proceeds from the sale
of the Representative's Unit Option, the Representative's Unit Stock, the
Representative's Unit Warrants or the Representative's Warrant Stock. No
assurance can be given as to when, if ever, the Representative's Unit Options
will be exercised
The date of this Prospectus is , 1996
AVAILABLE INFORMATION
The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended, and in accordance therewith, files reports and
other information with the Securities and Exchange Commission (the
"Commission"). Reports and other information filed by the Company with the
Commission can be inspected at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional
offices of the Commission located at Room 1400, 7 World Trade Center, New York,
New York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Such material may also be inspected at the Internet address of the
Commission at http://www.sec.gov. Copies of such material can also be obtained
from the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates.
The Company has filed with the Commission a Registration Statement on Form
SB-2 under the Securities Act of 1933, as amended, with respect to the
securities being offered hereby. This Prospectus does not contain all
information with respect to documents referred to herein which have been filed
as exhibits to the Registration Statement and is qualified by reference to such
exhibits for a complete statement of their respective terms and conditions.
Information omitted from this Prospectus, but contained in the Registration
Statement, may be inspected, without charge, and copies obtained, upon payment
of the fees prescribed by the rules and regulations of the Commission at the
public reference facilities at the addresses indicated above.
2
SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS APPEARING ELSEWHERE IN THIS PROSPECTUS.
THE COMPANY
Full House Resorts, Inc. (together with its subsidiaries, the "Company"),
operates Deadwood Gulch Resort in Deadwood, South Dakota and owns 50% of a joint
venture company involved in the "Mill," a casino in North Bend, Oregon, owned by
the Coquille Indian Tribe. Other joint venture companies in which the Company
owns a 50% interest are developing video lottery terminal games at the Delaware
State Fairgrounds in Harrington, Delaware and have rights to develop gaming
commercial activities with the Nottawaseppi Huron Band of Potawatomi in
Southcentral Michigan and the Torres Martinez Desert Cahuilla Indians in
California. The remaining 50% interest in the joint venture companies is owned
by GTECH Corporation ("GTECH"), a wholly-owned subsidiary of GTECH Holdings
Corporation, a leading supplier of computerized on-line lottery systems and
services for government-authorized lotteries. The Company has determined that
continued ownership of the Deadwood Gulch Resort is not consistent with its
future growth plans. It has therefore listed the Resort for sale. No assurance
can be given that a sale will ultimately be consummated . See "Business." The
Company's executive offices and Deadwood Gulch Resort are located at Highway 85
South, Deadwood, South Dakota 57732, telephone (605) 578-1294.
THE OFFERING
SECURITIES OFFERED ................925,988 SHARES OF COMMON STOCK ISSUABLE UPON THE POSSIBLE FUTURE EXERCISE
OF THE WARRANTS. EACH WARRANT ENTITLES THE HOLDER THEREOF TO PURCHASE 1.1894
SHARES OF COMMON STOCK AT AN EXERCISE PRICE OF $4.20 PER SHARE AT ANY TIME
PRIOR TO FEBRUARY 10, 1997. THE WARRANTS ARE REDEEMABLE AT THE OPTION OF
THE COMPANY AT ANY TIME PRIOR TO THEIR EXPIRATION, UPON 30 DAYS PRIOR WRITTEN
NOTICE, AT A PRICE OF $.05 PER WARRANT, PROVIDED THAT THE AVERAGE CLOSING
BID PRICE FOR THE COMMON STOCK IS $5.04 OR HIGHER FOR TWENTY CONSECUTIVE
TRADING DAYS ENDING WITHIN A PERIOD COMMENCING SIXTY DAYS PRIOR TO THE NOTICE
OF REDEMPTION. SEE "DESCRIPTION OF SECURITIES--WARRANTS".
Common Stock Outstanding Before
Offering(1) ...................... 10,339,549 shares.
Common Stock to be Outstanding
After Offering (1)(2) ........... 11,265,537 shares.
Use of Proceeds ................... The proceeds to be received from the exercise of the Warrants, if any, will
be used for working capital and other general corporate purposes. No assurance
can be given as to the number of Warrants, if any, which will be exercised.
See "Use of Proceeds."
Risk Factors ...................... Investment in the Common Stock offered hereby involves a high degree of
risk. This offering also involves immediate substantial dilution from the
exercise price of the Warrants. See "Risk Factors" and "Dilution".
NASDAQ Symbols .................... Common Stock FHRI
Warrants FHRIW
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(1) Unless otherwise indicated, no effect is given in this Prospectus to the
exercise of (a) 700,000 shares underlying the Company's Series 1992-1
Convertible Preferred Stock, (b) options which have been or may subsequently
be granted under the Company's 1992 Incentive Plan or the Company's 1992
Non-Employee Director Stock Plan, (c) the Representative's Unit Options, (d)
the Representative's Unit Warrants or (e) 600,000 shares underlying the
Company's convertible note payable to GTECH. See "Management--Incentive Plan
and Nonemployee Director Stock Plan" and "Certain Transactions".
(2) Assumes the exercise of all 778,534 Warrants, as to which no assurance
can be given. See "Plan of Distribution."
3
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The summary consolidated financial information, as of December 31, 1995 and
for the years ended December 31, 1994 and 1995 set forth below is derived from
the audited consolidated financial statements and should be read in conjunction
with such financial statements and related notes thereto. The summary
consolidated financial information as of March 31, 1996 and for the three months
ended March 31, 1995 and 1996 is derived from the unaudited financial statements
included in this Prospectus which, in the opinion of the Company, include all
adjustments, consisting of normal recurring adjustments, necessary for a fair
presentation thereof. The results of the three months ended March 31, 1996 are
not necessarily indicative of the results to be expected for the full year. See
"Consolidated Financial Statements" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
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1994 1995 1995 1996
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STATEMENTS OF OPERATIONS DATA:
Net revenues .................. $ 5,692,520 $ 5,633,146 $ 786,932 $1,078,593
Loss from operations .......... (603,763) (7,315,043) (844,468) (661,634)
Net loss ...................... (1,365,914) (5,550,888) (926,113) (885,335)
Net loss applicable to
common shares ................ (1,590,914) (5,760,888) (978,613) (937,835)
Loss per common share ......... (.19 ) (.59) (.11) (.09)
AT DECEMBER 31, 1995 AT MARCH 31, 1996
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BALANCE SHEET DATA:
Working capital ...................... $ 391,116 $ 1,921,564
Total assets ......................... 26,037,749 16,723,182
Long-term debt, less current portion 4,545,194 6,748,409
Stockholders' equity ................. 9,452,047 8,566,712
The following pro forma consolidated balance sheet data gives effect to the
sale on or prior to March 31, 1996 of 925,988 shares of Common Stock upon
exercise of the Warrants and the application of the net proceeds therefrom.
See "Use of Proceeds."
AT MARCH 31,
1996
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(AS ADJUSTED)
Working capital ...................... $ 5,770,714
Total assets ......................... 20,572,332
Long-term debt, less current portion 6,748,409
Stockholders' equity ................. 12,415,862
4
RISK FACTORS
The purchase of the Common Stock offered hereby involves a high degree of
risk. Prospective investors should carefully consider the following factors,
together with the other information contained in this Prospectus, before making
a decision to purchase the Common Stock.
1. CUMULATIVE LOSS. The Company had an accumulated deficit of $7,847,707
as of March 31, 1996. There can be no assurance that the Company will be able
to achieve profitable operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations," "Business," "Use of
Proceeds" and "Consolidated Financial Statements."
2. NEED FOR ADDITIONAL CAPITAL. The Company owns a 50% interest in joint
venture companies which operate or have the right to develop gaming facilities
with the Coquille Indian Tribe, the Nottawaseppi Huron Band of Potawatomi of
Michigan, the Delaware State Fair, Inc. and the Torres Martinez Desert Cahuilla,
Indians in Oregon, Michigan, Delaware, and California, respectively. In addition
to funds currently advanced by the joint venture companies to the projects and
while the amounts necessary to finance the development of these projects is
subject to regulatory approvals, the joint venture companies have agreed to
provide an estimated $70 million during the next three years to finance the
development of these facilities. Although the Company's agreement with GTECH
Corporation, the owner of the balance of the interest in the joint venture
limited liability companies, provides that the parties will attempt to obtain
non-recourse financing for the projects, it may not be possible to obtain needed
funds in this manner. The agreement therefore provides that each of Full House
and GTECH are to provide their proportionate shares of the needed funds. In the
event that Full House is unable to obtain said funds on more favorable terms,
GTECH has agreed to lend to Full House its required portion of the financing at
GTECH's cost of financing plus 22.5% of Full House's share of the "Profits" from
the venture until the later of the repayment of the loan or one year after the
project begins to receive revenues from patrons of the facilities comprising the
project. In the event that GTECH loans funds to a joint venture entity, Full
House has agreed to guarantee one-half of the obligations of the joint venture
company to GTECH. There is no assurance that any financing required to meet
these commitments will be available or, if available, that it will be available
upon terms acceptable to the Company or that it would not materially dilute the
ownership of any existing stockholders, including investors in this offering.
See "Use of Proceeds," "Business " and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Consolidated Financial
Statements."
3. GOVERNMENT REGULATION. Certain of the gaming projects currently operated
and proposed to be undertaken by the joint venture companies in which Full House
has an interest are located on Indian Lands (lands over which Indian tribes
exercise jurisdiction and which meet the definition of Indian Lands under the
Indian Gaming Regulatory Act of 1988 ("IGRA")). Such gaming is extensively
regulated by federal, state and tribal governments. In addition, the ownership
and operation of a gaming business in South Dakota is subject to gaming laws
established by the State of South Dakota (the "South Dakota Laws"), and
regulations (the "South Dakota Regulations") promulgated by the South Dakota
Commission. The Company's gaming operations and each of its officers, directors,
managers and principal stockholders are subject to strict scrutiny and approval
of the South Dakota Commission. The Company, through its wholly-owned
subsidiary, Deadwood Gulch Resort and Gaming Corp. ("DGR"), has appropriate
licenses to operate the Deadwood Gulch Resort. The South Dakota gaming licenses
are subject to renewal annually.
The failure to obtain, loss, suspension or revocation of any required
license, or the failure to obtain any license for properties upon which the
Company plans to conduct gaming activities in the future, would have a
material and adverse affect on the Company's business. See "Business."
4. COMPETITION. Competition in the gaming industry has increased
substantially in recent years. In addition, gaming has spread to numerous
geographic areas in the United States and the Company expects this trend to
continue. Both the gaming operations currently conducted and proposed for
future
5
operation by the joint venture companies and Full House's Deadwood Gulch
Resort gaming operations compete with a significant number of existing and
proposed gaming operations, many of which are, or will be, significantly
better capitalized than the Company, have or may have significantly larger
facilities and may employ personnel who have more experience in the gaming
industry than those currently employed, or proposed to be employed, by the
Company. See "Business--Competition."
5. DEPENDENCE ON MANAGEMENT. The Company's success is largely dependent
upon the efforts of its current executive officers, Robert L. Kelley and
William R. Jackson, and upon the Company's ability to attract and retain
other qualified people. Because of the rapid expansion of the gaming industry
throughout the United States, competition for qualified employees is intense.
There is no assurance that qualified persons can be retained or readily
replaced, or that the Company can add additional qualified people as
required. Loss of the services of any of the Company's executive officers
could materially and adversely affect the business of the Company. See
"Management."
6. CONTROL BY PRINCIPAL STOCKHOLDERS AND MANAGEMENT. Approximately 36.2% of
the shares of the Company's Common Stock prior to this offering are owned or
controlled by the Company's officers, directors and principal stockholders. If
all of the 925,988 shares were issued upon exercise of the 778,534 warrants, the
Company's officers, directors and principal stockholders would own approximately
33.3% of the then outstanding shares of Common Stock of the Company.
Consequently, these officers, directors and principal stockholders may be able
to control substantially all of the affairs of the Company, including the
election of the entire board of directors. See "Management," "Principal
Stockholders" and "Description of Securities."
7. LIMITATION ON SHARE OWNERSHIP. The statutes and regulations governing
gaming in the State of South Dakota and elsewhere may limit the ability of
individuals and entities to acquire and retain Common Stock of the Company. Such
provisions are designed to regulate ownership and control of gaming
establishments within those jurisdictions. Existing statutes in South Dakota
require that each officer, director or stockholder owning in excess of 5% of any
corporation (or others which the Commission in the exercise of its discretion
elects to review) engaged in the retail operation of a gaming establishment or
the placement and operation of gaming devices be approved by the South Dakota
Commission on Gaming and submit to background checks regarding financial
history, criminal record and character. The effect of such provisions may be to
discourage acquisition of large blocks of the Company's Common Stock and depress
the price of the Company's Common Stock. See "Business--Deadwood Gulch
Facility--Government Regulation."
8. NO DIVIDENDS. The Company has not paid any dividends on its Common Stock
since its inception and does not expect to declare or pay any dividends in the
foreseeable future. The Company intends to retain any earnings to repay its
indebtedness and to finance the development and expansion of the Company's
business. The declaration and payment of future dividends, if any, on the
Company's Common Stock will be determined by the Company's Board of Directors in
light of the conditions then existing. In addition, the Company's outstanding
Series 1992-1 Preferred Stock is entitled to a $.30 per share cumulative annual
cash dividend. As of June 30, 1996, the Company had cumulative but unpaid
dividends of $840,000 on its Series 1992-1 Preferred Stock. Under the terms of
the Series 1992-1 Preferred Stock, no dividends may be declared or paid on the
Company's Common Stock if the Company has failed to pay any accumulated
dividends on such Preferred Stock. See "Description of Securities."
9. PREFERRED STOCK. The Company's Amended Certificate of Incorporation
authorizes the issuance of up to 5,000,000 shares of Preferred Stock, $.0001 par
value, in one or more series, with such designations, rights and preferences as
may be determined from time to time by the Board of Directors. Accordingly, the
Board of Directors is empowered, without stockholder approval, to issue
Preferred Stock with dividend, liquidation, conversion, voting or other rights
which could adversely affect the voting power or other rights of the holders of
the Company's Common Stock. The Preferred Stock could be utilized, under certain
circumstances, as a method of discouraging, delaying or preventing a change in
control of the Company. There are currently 700,000 shares of Series 1992-1
Preferred Stock
6
outstanding and, although the Company has no existing plans to issue any
additional Preferred Stock, there is no assurance that the Company will not
issue additional series of Preferred Stock in the future. In addition, in the
event of liquidation, dissolution or a winding-up of the Company, holders of the
Company's Series 1992-1 Preferred Stock are entitled to receive the sum of $3.00
per share, plus all cumulative but unpaid dividends, before any distribution may
be made to holders of Common Stock or any Preferred Stock ranking junior to the
Series 1992-1 Preferred Stock as to liquidation preferences. See "Description of
Securities."
10. DILUTION. Purchasers of Common Stock in this offering will experience
immediate substantial dilution of $3.63, or 86%, in net tangible book value
per share of Common Stock from the exercise price of the Warrants. Additional
substantial dilution may be incurred if currently outstanding options,
warrants and conversion rights are exercised in the future. See "Dilution"
and "Description of Securities."
11. SHARES RESERVED FOR FUTURE ISSUANCE AND POSSIBLE MARKET SALES. In
addition to the Representative's Unit Options and the Representative's Unit
Warrants, as of the date of this Prospectus, the Company had outstanding options
and warrants which upon exercise would require the Company to issue up to
360,000 additional shares of the Common Stock at prices ranging from $3.6875 per
share to $3.875 per share. An additional 1,032,812 shares may be issued under
the Company's employee and director benefit plans pursuant to the exercise of
options or other grants which may be made in the future. Another 700,000 shares
of Common Stock may be issued by the Company upon conversion of its Series
1992-1 Preferred Stock. If all shares of Common Stock subject to the foregoing
warrants, options, conversion rights and stock plans were to be issued, the
Company would have 13,358,349 shares of Common Stock outstanding after this
Offering. The Representative's Unit Options, the Warrants and options and the
Series 1992-1 Preferred Stock all contain certain anti-dilution provisions
requiring adjustments to the terms thereof under certain circumstances.
Approximately 6,000,000 of the outstanding shares of the Company's Common
Stock are "restricted securities" within the meaning of Rule 144 ("Rule 144")
promulgated under the Securities Act of 1933, as amended (the "Securities Act"),
and under certain circumstances may be sold without registration under the
Securities Act pursuant to such rule. Holders of approximately 4,400,000 shares
of the Company's Common Stock and 700,000 shares of Series 1992-1 Preferred
Stock, which may be converted into 700,000 shares of Common Stock, are entitled
to certain demand and piggy-back registration rights. In addition, the
Representative's Warrants have certain demand and piggy-back registration
rights. Sales of the Company's Common Stock in the public market pursuant to
Rule 144 or pursuant to applicable registration rights could have an adverse
affect on prevailing market prices for the Company's Common Stock.
See "Description of Securities."
12. CURRENT PROSPECTUS AND STATE "BLUE SKY" REGISTRATION REQUIRED TO EXERCISE
THE WARRANTS. Holders of the Warrants offered hereby will have the right to
exercise them to purchase shares of the Company's Common Stock only if a current
Prospectus relating to such shares is then in effect and only if the shares are
qualified for sale under the securities laws of the states in which the
purchasers reside. The Company has undertaken to use its best efforts to
maintain a current Prospectus under the Securities Act which will permit the
purchase and sale of the Common Stock underlying such Warrants during the
warrant exercise term, but there can be no assurance that the Company will be
able to do so. Although the Company intends to seek to qualify the shares of
Common Stock underlying the Warrants for sale in the states in which the holders
may reside, no assurance can be given that qualification will occur or will
remain in effect at such time as the Warrants may be exercised. The Warrants may
be deprived of any value if a current Prospectus covering the shares issuable
upon exercise thereof is not kept effective or if such underlying shares are
not, or cannot be, qualified in the applicable states. See "Description of
Securities."
7
DILUTION
The net tangible book value of the Company's 10,339,549 outstanding shares of
Common Stock as of March 31, 1996 was $2,523,390, or approximately $.24 per
share. After giving effect to the issuance of 925,988 shares of Common Stock
upon the assumed exercise of all the Warrants, the net tangible book value of
the Common Stock at March 31, 1996 would have been $6,372,540, or $.57 per
share, representing an increase of $.33 per share to existing stockholders and
an immediate dilution (i.e., the difference between the exercise price of the
Warrants and the net tangible book value after their exercise) of $3.63 per
share to those persons who exercise the Warrants. The following table
illustrates this per share dilution:
WARRANT EXERCISE PRICE PER SHARE(1) ...................................... $4.20
Net tangible book value prior to exercise of Warrants(2) ................. $.24
Increase per share attributable to exercise of Warrants .................. .33
-------
Pro forma net tangible book value per share after exercise of Warrants(3) .57
--------
Dilution per share to persons exercising Warrants(2)(4) .................. $3.63
========
(1) Before deduction of estimated expenses of this offering. See "Use of
Proceeds."
(2) Net tangible book value per share of Common Stock represents the amount of
the Company's tangible assets (total assets excluding gaming agreements and
good will) less the amount of its liabilities, divided by the number of
shares of Common Stock deemed to be outstanding. Dilution represents the
difference between the Warrant exercise price per share and net tangible
book value per share immediately after the assumed exercise of all 778,534
Warrants.
(3) After deduction of estimated expenses of this offering. See "Use of
Proceeds."
(4) In the event fewer than 778,534 Warrants are exercised, the extent of
dilution will increase. No assurance can be given as to the number of
Warrants, if any, which will be exercised. See "Certain Transactions" and
"Description of Securities."
USE OF PROCEEDS
In the event all 778,534 Warrants are exercised, the Company estimates that
the net proceeds therefrom (see "Plan of Distribution") after payment of
estimated expenses of this offering, will approximate $3,849,150. However, the
number of Warrants exercised will depend on several factors beyond the control
of the Company, including the market price of its Common Stock. Therefore, the
Company cannot estimate with reasonable accuracy the number of Warrants which
may be exercised and the amount of proceeds to be received therefrom. Proceeds,
if any, received from exercise of the Warrants will be used for working capital
and other general corporate purposes.
8
PRICE RANGE OF SECURITIES
The Company's Common Stock and Warrants were first quoted and began trading
on the NASDAQ Small Cap Market System on August 10, 1993. Set forth below are
the high and low bid sales price of the Company's Common Stock and Warrants as
reported on the NASDAQ Small Cap Market System for the periods indicated.
HIGH LOW
--------- ---------
COMMON STOCK
YEAR ENDED DECEMBER 31, 1994 ...............
First Quarter .............................. $4 1/8 $1 1/8
Second Quarter ............................. 7 1/8 2 1/2
Third Quarter .............................. 8 3/4 5 7/8
Fourth Quarter ............................. 7 7/8 4 7/8
YEAR ENDED DECEMBER 31, 1995 ...............
First Quarter .............................. $6 1/8 $4 3/8
Second Quarter ............................. 7 7/8 5 1/8
Third Quarter .............................. 6 1/4 2 3/4
Fourth Quarter ............................. 4 7/8 2 1/2
YEAR ENDED DECEMBER 31, 1996 ...............
First Quarter .............................. 5 1/8 2 5/8
Second Quarter (through June 24, 1996) .... 4 3/8 3
WARRANTS
YEAR ENDED DECEMBER 31, 1994 ...............
First Quarter .............................. 1 9/16 1/4
Second Quarter ............................. 3 1/4 1 1/8
Third Quarter .............................. 5 3/8 2 1/4
Fourth Quarter ............................. 4 3/8 1 7/8
YEAR ENDED DECEMBER 31, 1995 ...............
First Quarter .............................. 3 5/8 2
Second Quarter ............................. 4 3/8 2 1/8
Third Quarter .............................. 3 1 3/8
Fourth Quarter ............................. 2 3/16 3/4
YEAR ENDED DECEMBER 31, 1996 ...............
First Quarter .............................. 1 1/4 3/4
Second Quarter (through June 24, 1996) .... 1 1/4 17/32
On June 24, 1996, the closing bid prices for the Common Stock and Warrants
were $3.875 and $.813, respectively. The quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commission, and may not represent actual
transactions.
9
DIVIDEND POLICY
The Company has paid no dividends on its Common Stock or Preferred Stock
since its inception. Holders of the Company's Common Stock are entitled to
receive such dividends as may be declared by the Board of Directors out of funds
legally available therefor.
Holders of the Company's Series 1992-1 Preferred Stock are entitled to
receive dividends, when, as and if declared by the Board of Directors out of
funds legally available therefor, in the annual amount of $.30 per share,
payable in arrears semi-annually on the 15th day of December and June in each
year. Dividends on the Series 1992-1 Preferred Stock commenced accruing on July
1, 1992 and are cumulative. The Company did not pay the cumulative dividends on
its Preferred Stock which were payable on December 15, 1992, June 15 and
December 15, 1993, June 15 and December 15, 1994, June 15 and December 15, 1995,
and June 15, 1996, totaling $840,000 and, accordingly, is in default in regard
thereto.
If the Company is in default in declaring, setting apart for payment or
paying dividends on the Preferred Stock, it is restricted from paying any
dividend or making any other distribution or redeeming any stock ranking junior
to the Preferred Stock.
The Company intends to retain future earnings, if any, to provide funds for
the operation of its business, retirement of its debt and payment of preferred
stock dividends and, accordingly, does not anticipate paying any cash dividends
on its Common Stock in the reasonably foreseeable future.
10
CAPITALIZATION
The following table sets forth the capitalization of the Company as of March
31, 1996, on a historical basis and on an as adjusted basis to give effect to
the issuance and sale by the Company of 925,988 shares of Common Stock upon the
assumed exercise of all Warrants:
MARCH 31, 1996
------------------------------
HISTORICAL ADJUSTED(1)
-------------- --------------
Current maturities of long-term debt ................ $ 652,383 $ 652,383
============== ==============
Long-term debt, less current maturities ............. $ 6,748,409 $ 6,748,409
-------------- --------------
Stockholders' Equity:
Preferred Stock, $.0001 par value; 5,000,000 shares
authorized, 700,000 shares issued and outstanding . 70 70
Common Stock, $.0001 par value; 25,000,000 shares
authorized; 10,339,549 shares issued and
outstanding
historical, 11,265,537 shares as adjusted(2) ...... 1,034 1,127
Additional paid-in capital .......................... 16,413,315 20,262,372
Accumulated deficit ................................. (7,847,707) (7,847,707)
-------------- --------------
Total Stockholders' Equity .......................... 8,566,712 12,415,862
-------------- --------------
Total Capitalization ................................ $15,315,121 $19,164,271
============== ==============
(1) Assumes exercise of all 778,534 Warrants and the issuance of 925,988
shares of Common Stock upon such exercise and the application of the net
proceeds therefrom. See "Use of Proceeds."
(2) Does not include 1,060,000 shares of Common Stock reserved at March 31,
1996, for future issuance by the Company pursuant to outstanding options,
warrants (other than the shares of Common Stock issuable upon exercise of
the Warrants) and conversion of the Company's Preferred Stock.
11
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The summary consolidated financial information, as of December 31, 1995 and
for the years ended December 31, 1994 and 1995 set forth below is derived from
the audited consolidated financial statements and should be read in conjunction
with such financial statements and related notes thereto. The summary
consolidated financial information as of March 31, 1996 and for the three months
ended March 31, 1995 and 1996 is derived from the unaudited financial statements
included in this Prospectus which, in the opinion of the Company, include all
adjustments, consisting of normal recurring adjustments, necessary for a fair
presentation thereof. The results of the three months ended March 31, 1996 are
not necessarily indicative of the results to be expected for the full year. See
"Consolidated Financial Statements" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
YEAR ENDED DECEMBER 31,
------------------------------
THREE MONTHS ENDED
HISTORICAL MARCH 31,
------------------------------ ---------------------------
1994 1995 1995 1996
-------------- -------------- ------------ -------------
STATEMENT OF OPERATIONS DATA:
Net operating revenues ............... $ 5,692,520 $ 5,633,146 $ 786,932 $1,078,593
Loss from operations ................. (603,763) (7,315,043) (844,468) (661,634)
Net loss ............................. (1,365,914) (5,550,888) (926,113) (885,335)
Net loss applicable to common shares (1,590,914) (5,760,888) (978,613) (937,835)
Loss per common share ................ (0.19) (0.59) (.11) (.09)
AT MARCH 31, 1996
------------------------------
HISTORICAL PRO FORMA
DECEMBER 31, 1995 HISTORICAL AS ADJUSTED(1)
------------------ ------------- ---------------
BALANCE SHEET DATA:
Working capital ...................... $ 391,116 $ 1,921,564 $ 5,770,714
Total assets ......................... 26,037,749 16,723,182 20,572,332
Long-term debt, less current portion 4,545,194 6,748,409 6,748,409
Stockholders' equity ................. 9,452,047 8,566,712 12,415,862
(1) Gives effect to the sale on or prior to March 31, 1996 of 925,988 shares
of Common Stock upon exercise of the Warrants and the application of the
net proceeds therefrom. See "Use of Proceeds."
12
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RECENT DEVELOPMENTS
Effective December 29, 1995, Full House entered into a series of agreements
with GTECH Corporation. Pursuant to the agreements, limited liability joint
venture companies were formed which are equally owned by GTECH and Full House.
The rights of Full House to agreements with various Indian tribes and the
Delaware State Fair were contributed to the joint ventures. See "Results of
Operations" and "Liquidity."
On April 9, 1996, the Company signed a non-binding letter of intent for the
purchase of the Deadwood Gulch Resort by RGB Deadwood Gulch L.L.C. Although
negotiations for the sale of the Resort to RGB Deadwood Gulch L.L.C. terminated
on May 15, 1996, the Company is still actively marketing the Resort for sale.
The Company determined that continued ownership of the Resort is not consistent
with its future plans which anticipate focusing on gaming facilities in areas of
higher population density and locations at which applicable regulations permit
high stakes and expanded types of gaming. Any sale will be subject to approval
by the Company's stockholders and a finding by the South Dakota Commission on
Gaming that the purchaser is suitable to obtain a gaming license in South
Dakota. There can be no assurance that a sale will ultimately be consummated.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31,
1995
Revenues for the three months ended March 31, 1996 increased $304,365 to
$1,130,730, as compared with revenues of $826,365 for the three months ended
March 31, 1995. The increase was due to income from joint ventures of $172,168
and Resort revenues of $132,197.
JOINT VENTURES. During 1995, four limited liability joint venture companies
were formed by Full House and GTECH to pursue gaming opportunities and to which
Full House transferred three of its present gaming ventures. Excluded were the
Deadwood Gulch Resort and an additional venture where assignment was not
completed pending further discussions with the tribe and with the holder of a
15% interest in that gaming contract. If assignment is not completed, Full House
will assign its rights to revenues and GTECH will bear an appropriate portion of
the expenses. Full House and GTECH each have a 50% interest in each limited
liability company. Full House's share of the income generated by those companies
was $172,168 for the three months ended March 31, 1996.
CASINO OPERATIONS. Revenues increased $20,015 or 7.2% for the three months
ended March 31, 1996 over the same period in 1995. Departmental expenses
decreased $24,764 or 8.7% for the three months ended March 31, 1996 from 1995.
As a result of the increase in revenues and decrease in expenses, departmental
profit increased by $44,779 as compared to the same period in 1995. Management
attributes the improvements to an aggressive promotion of tour bus business.
HOTEL/RV RESORT. Hotel occupancy increased 30.1% for the three months ended
March 31, 1996, and the average daily rate decreased by 13.0% to $35.77. As a
result, revenues for the period increased $23,286 or 12.7% for the Hotel.
Hotel/RV Resort departmental profit increased $10,248 or 15.7%. Management
attributes the improvements to an aggressive promotion of tour bus business.
RETAIL. Revenues increased by $32,483 or 16.7% for the three months ended
March 31, 1996 from 1995. Departmental profit of $14,529 for the three months
ended March 31, 1996 was only slightly higher than the prior year period based
upon the fact that the increased sales were primarily of low margin goods.
FOOD AND BEVERAGE. Revenues for the three months ended March 31, 1996 were
$178,626 (which includes $48,808 of promotional allowances), an increase of
$59,119 or 49.5% revenues of $119,507
13
(which included $36,548 of promotional allowances for the three months ended
March 31, 1995). The departmental loss after subtracting promotional allowances
decreased $21,641 over 1995. Management attributes the improvement to better
cost of sales management and the development of a new menu, repositioning the
restaurant in the market.
GULCHES OF FUN FAMILY CENTER. Revenues for the three months ended March 31,
1996 decreased $2,706 from 1995 and departmental loss decreased $3,844 from the
comparable period in 1995.
SALES AND MARKETING EXPENSES. Sales and marketing expenses increased $15,493
for the three months ended March 31, 1996 as compared to the prior year period
due to an aggressive tour bus program.
GENERAL AND ADMINISTRATIVE EXPENSES--RESORT. Expenses decreased $32,168 for
the three months ended March 31, 1996 from the comparable period in 1995.
NON-RESORT GENERAL AND ADMINISTRATION EXPENSES. Non-Resort expenses for the
three months ended March 31, 1996 totaled $362,342, a decrease of $131,774 over
the prior year period. In 1996, the Company continued to incur costs related to
the investigation, due diligence and pre-development of various ongoing
opportunities for expansion of its business and the increase in the Company's
corporate structure necessary to administer the Company's expansion.
DEPRECIATION. Depreciation and amortization decreased $32,005 for the three
months ended March 31, 1996 over the comparable period in 1995. This decrease is
due to suspension of depreciation of the Resort offset by the amortization of
goodwill.
IMPAIRMENT OF LONG LIVED ASSETS. In January 1996, the Company announced its
intent to dispose of the Deadwood Gulch Resort. The Company adopted the
provisions of SFAS No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, during the fourth quarter of the
year ended December 31, 1995. Under SFAS No. 121, the Company reviews the
carrying values of its long-lived and identifiable assets for possible
impairment whenever events or changes in circumstances indicate that the
carrying amount of assets may not be recoverable. Based upon available
information which indicates additional loss may be incurred upon disposition,
the Company further reduced the carrying value of the Deadwood Gulch Resort in
1996 by $250,000. Pursuant to SFAS No. 121, the Company has suspended recording
depreciation of the assets of Deadwood Gulch Resort.
INTEREST EXPENSE AND DEBT ISSUE COSTS. Interest expense and debt issue costs
increased by $163,325 during the three months ended March 31, 1996 primarily due
to refinancing the first mortgage on the Deadwood Gulch Resort.
INTEREST AND OTHER INCOME. Interest and other income increased to $27,414
during the three months ended March 31, 1996 as compared to the comparable
period in 1995 due to interest earned on cash deposits as a result of payments
received as a result of the transactions with GTECH.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Revenues for the year ended December 31, 1995 decreased $59,374 to
$5,633,146, as compared with revenues of $5,692,520 for the year ended December
31, 1994. The decrease was offset by income from joint ventures of $160,224.
JOINT VENTURES. During 1995, four limited liability joint venture companies
were formed by Full House and GTECH to pursue gaming opportunities and to which
Full House transferred three of its present gaming ventures. Excluded were the
Deadwood Gulch Resort and an additional venture where assignment was not
completed pending further discussions with the tribe and with the holder of a
15% interest in that gaming contract. If assignment is not completed, Full House
will assign its rights to
14
revenues only and GTECH will bear an appropriate portion of the expenses. Full
House and GTECH each have a 50% interest in each limited liability company. Full
House's share of the income generated by those companies was $160,224.
CASINO OPERATIONS. Revenues decreased $218,951 or 13.1% for the year ended
December 31, 1995 over the same period in 1994. Departmental expenses decreased
$3,292 or .3% for the year ended December 31, 1995 from 1994. As a result of the
decrease in revenues, departmental profit decreased by $215,659 or 34.8% as
compared to the same period in 1994. Management attributes the decrease in
revenues to the decline in gaming activity in the entire Deadwood market as
reported by the South Dakota Commission on Gaming.
HOTEL/RV RESORT. Although hotel occupancy declined 10.7% for the year ended
December 31, 1995, the average daily rate increased 8.6% to $56.85. As a result,
revenues for the period decreased $57,891 or 4.2% for the Hotel. Revenues at the
RV Resort increased $18,211 for the year ended December 31, 1995 from $90,553
for the same period in 1994. The combination of these factors resulted in an
increase in Hotel/RV Resort departmental profit of $25,305 or 3.0%. Management
attributes the decline in revenues of the Hotel to a decline in tourism due to
snowfall levels of approximately 60% of normal in the Black Hills during the
first and second quarters of 1995, compared to snowfall of 175% of normal in
1994.
RETAIL. Revenues declined by $7,697 or .6% for the year ended December 31,
1995 from 1994 due to the poor 1995 winter skiing and snowmobiling conditions.
Departmental profit increased $22,543 for the year ended December 31, 1995 from
1994. Management attributes the increase in departmental profit to more
aggressive pricing, as well as increased productivity.
FOOD AND BEVERAGE. Revenues for 1995 were $727,865 (which includes $176,742
of promotional allowances), a decrease of $16,844 or 2.3% from 1994 revenues of
$744,709 (which included $166,632 of promotional allowances). The departmental
loss after subtracting promotional allowances decreased $21,128 over 1994.
Management attributes the improvement to better cost of sales management and the
development of a new menu, repositioning the restaurant in the market.
GULCHES OF FUN FAMILY CENTER. Although revenues for the year ended December
31, 1995 increased $65,983 from 1994, departmental profit decreased $90,581 from
1994. The summer season of 1995 was one of the three wettest in the recent
history of the Black Hills and management attributes the decrease in
departmental profit to adverse weather conditions during peak operating times
for the outdoor activities.
GENERAL AND ADMINISTRATIVE EXPENSES--RESORT. Expenses increased $33,833 for
the year ended December 31, 1995 from 1994. Resort general and administrative
expenses reflect increased property taxes and insurance as a result of the
completion of the Gulches of Fun family center and the RV Resort. All other
Resort specific general and administrative expenses declined as compared to the
prior periods.
NON-RESORT GENERAL AND ADMINISTRATION EXPENSES. Non-Resort expenses for the
year ended December 31, 1995 totaled $1,820,733, an increase of $756,011 over
the prior year. In 1995, the Company continued to incur costs related to the
investigation, due diligence and pre-development of various ongoing
opportunities for expansion of its business and the increase in the Company's
corporate structure necessary to administer the Company's expansion.
DEPRECIATION. Depreciation and amortization increased $735,235 for the
year ended December 31, 1995 over 1994. This increase is primarily due to the
amortization of goodwill in 1995 which totaled $615,307.
ABANDONED PROJECT COST. On June 28, 1995, the Governor of the State of
Michigan determined to prohibit off-reservation gaming in the State of Michigan.
As a result, the Company recognized a loss of $1,867,730 relating to costs
associated with its proposed gaming project in Detroit, Michigan.
15
IMPAIRMENT OF LONG LIVED ASSETS. In January, 1996, the Company announced its
intent to dispose of the Deadwood Gulch Resort. The Company adopted the
provisions of SFAS No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, during the fourth quarter of the
year ended December 31, 1995. Under SFAS No. 121, the Company reviews the
carrying values of its long-lived and identifiable intangible assets for
possible impairment whenever events or changes in circumstances indicate that
the carrying amount of assets may not be recoverable. Based upon available
information which indicates a loss may be incurred upon disposition, the Company
reduced the carrying value of the Deadwood Gulch Resort in 1995 and recognized
an impairment loss of $3,100,000.
INTEREST EXPENSE AND DEBT ISSUE COSTS. Interest expense and debt issue costs
increased by $187,061 due to refinancing the first mortgage on the Deadwood
Gulch Resort, use of the Company's line of credit and the $4,000,000 loan from
GTECH (which was repaid in 1996). This increase was offset by reduced levels of
debt issue costs in 1995 versus 1994.
INTEREST AND OTHER INCOME. Interest and other income increased to $828,302 in
1995 as compared to $57,645 in 1994, principally as a result of $804,390 of
interest income relating to Full House's advances in connection with certain
gaming agreements.
INCOME TAX BENEFIT. The income tax benefit increased to $1,944,710 in 1995
from $2,000 in 1994. This tax benefit is a result of the Company's 1995 net
loss of $5,550,888.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
Revenues for the year ended December 31, 1994 increased 28.7% to $5,895,268
as compared with revenues of $4,581,781 for the year ended December 31, 1993.
Revenues from Casino Operations increased 4.9% from $1,594,527 in 1993 to
$1,672,559 in 1994; Hotel/RV Resort revenues increased 10.5% from $1,325,087 in
1993 to $1,464,108 in 1994; revenues from Retail increased 32.2% from $950,839
in 1993 to $1,256,982 in 1994; and Food and Beverage revenues increased 4.7%
from $711,328 in 1993 to $744,709 in 1994. The operations for the Gulches of Fun
family fun center contributed $756,910 in 1994.
CASINO OPERATIONS. Revenues increased 4.9% in 1994 over 1993. As a result of
departmental expenses increasing 21% over 1993, department profit decreased
$104,898 as compared to 1993. The terminated Route Operation Agreement with the
Lucky 8 Gaming Hall contributed $84,255 in revenues during 1993.
Management attributes the increase in revenues in 1994 to the opening of two
new casinos at the Gulches of Fun family fun center in 1994. At December 31,
1994, there were 117 slots and four blackjack tables at the fun center.
Competition, however, has increased both within the Deadwood market and
countrywide and the fact that gaming is no longer a new attraction for the
typical visitor to Deadwood. Three new casinos opened in downtown Deadwood in
September, 1993 at the Four Aces facility. They have conducted an aggressive
marketing program of giveaways and deeply discounted food and beverage prices to
establish themselves in the market. Other downtown casinos have responded with
promotional programs to protect their market share as the overall market has not
expanded. The Company has also increased its promotional allowances and has been
able to maintain its market share.
The increase in the departmental expense is a result of adding the two new
casinos at the Gulches of Fun family fun center. These new operations, due to
their distance from the existing casinos, South Dakota regulations, and the
table games played, requires additional staffing.
HOTEL/RV RESORT. Hotel occupancy increased from 70% in 1993 to 71% in 1994
and the average daily rate increased from $50.59 to $52.34, resulting in a
slight increase in revenues. Hotel expenses
16
increased from 36.6% of sales in 1993 to 38.4% of sales in 1994. Hotel profits
net of promotional allowances increased from $813,765 in 1993 to $824,512 in
1994.
Operations commenced for the RV Resort and Campground in the later part of
the second quarter of 1994. The revenues for 1994 were $90,553. The RV Resort
and Campground expenses were $93,639, resulting in a RV Resort and Campground
loss of $3,086. The facility was closed for the season on October 1, 1994.
RV Resort and Campground payroll expenses were higher than normal as part of
the initial start up of the operation in 1994. The Company expects that this
expense will decline as a percentage of revenues and revenues will increase in
1995 with the Campground in operation for the full season.
RETAIL. Revenues increased 32.2% in 1994 as compared to 1993 and departmental
profits increased from $65,099 in 1993 to $135,791 in 1994. This was partially
attributable to the completion of the highway construction at the entrance to
the Resort which restricted access and depressed sales through September 1993.
FOOD AND BEVERAGE. Revenues increased by 4.7% in 1994 as compared to 1993.
Cost of sales and other departmental expenses increased in 1994 resulting in a
reduction in departmental profit (net of promotional allowances) from $28,663 in
1993 to a loss of $48,689 in 1994. Management is focusing its attention in this
area to revise the menu, increase marketing efforts and reduce costs.
GULCHES OF FUN FAMILY FUN CENTER. Partial operations commenced for the
Gulches of Fun family fun center in the later part of the second quarter of
1994. The entire facility opened to the public on July 1, 1994. The Gulches of
Fun family fun center contains two new casinos with state of the art design and
equipment in conjunction with family oriented activities of miniature golf, go
kart track, batting cages, bumper boat pond, kiddie playland, redemption and
arcade games and family oriented food and beverage services.
Revenues for 1994 were $756,910 and the departmental expenses were $476,330,
resulting in a departmental profit of $280,580.
SALES AND MARKETING EXPENSES. Sales and marketing expense remained constant
at 4% of revenues for both 1994 and 1993. Due to the Company's plan for an
extensive marketing program to promote its new facilities of the RV Park and
Campground and Gulches of Fun family center, the Company expects that
expenditures for sales and marketing will remain at approximately the same
percentage of revenues in the coming year.
GENERAL AND ADMINISTRATIVE EXPENSE--RESORT. The Resort general and
administrative expenses were approximately $596,242 for 1994, a decrease of
$15,290, or 2.5%, over 1993 despite the increase in total revenues at the Resort
of 29.4% over 1993.
DEPRECIATION. Depreciation and Amortization increased $139,599 over 1993.
This increase is primarily due to the addition of the Gulches of Fun family
fun center and the RV Resort and Campground.
NON-RESORT GENERAL AND ADMINISTRATIVE EXPENSES. The Non-Resort expenses
were $1,064,722 for 1994, an increase of $955,972 over 1993.
In 1994, the Company incurred costs related to the investigation, due
diligence and pre-development of various ongoing opportunities for corporate
expansion and the expansion of the Company's corporate structure necessary to
administer the Company's expansion. The major categories and approximate expense
levels for 1994 were legal and consulting fees of $472,764, travel of $176,540,
salary and benefits of $204,173, investor relations of $99,802, independent
accounting fees of $59,136 and other of $52,307. Additionally, the Company has
capitalized outside professional fees of approximately $426,664 during 1994,
associated primarily with the Native American and merger opportunities.
17
NON-OPERATING INCOME AND EXPENSE. Non-operating Expense increased by $495,787
over 1993. This increase is due to debt issue costs of $647,349 in the first
quarter of 1994 primarily related to restructuring a major portion of the
Company's mortgage debt and for costs incurred with Allen E. Paulson's providing
an $8 million line of credit to the Company from the Bank of America.
LIQUIDITY AND CAPITAL RESOURCES
For the three-month period ended March 31, 1996, cash flow used in operating
activities was $606,067. Cash flow from investing activities was $11,094,272.
The major item impacting this positive flow of cash from investing activities
was the receipt by the Company from GTECH and the joint venture companies of
approximately $11,174,000. Cash flow used in financing activities was
$8,186,662. The repayment of debt of $11,186,662 was offset by the $3,000,000
proceeds from the issuance of a convertible note to GTECH. As a result of the
above, the Company's net cash and cash equivalents increased by $2,301,543 to
$2,883,072.
For the year ended December 31, 1995, cash flow from operating activities was
negative in the amount of $1,209,016. Included was the net loss of $5,550,888,
more fully explained above, reduced by depreciation and amortization of
$1,240,446, write-off of abandoned project costs of $1,867,730, recognition of
impairment in long-lived assets of $3,100,000 and the net other changes of
approximately $78,406, offset by a decrease in deferred tax liability of
$1,944,710. Cash flow from investing activities was negative in the amount of
$11,130,555 as a result of an increase in investments in gaming and merger
opportunities. Cash flows from financing activities were the result of
borrowings from GTECH Corporation, refinancing of the resort in Deadwood and the
Bank of America line totaling $14,306,285 reduced by repayment of debt and
payment of debt issue costs of $1,787,925. As a result of the above factors,
there was a net increase in cash and cash equivalents of $196,859.
On March 24, 1994, Allen E. Paulson purchased 1,000,000 shares of Full
House's common stock for $800,000. Full House also issued 500,000 shares of its
Common Stock to Mr. Paulson in exchange for his agreement to individually
provide or to take such actions as were required for a financial institution to
provide a commercial line of credit to Full House in the minimum amount of $8
million. Full House valued the shares of stock at $.80 per share based upon the
size of the transaction, the fact that the shares were not registered and are
not subject to registration rights. In addition, a large block of shares was
repurchased by the Company from a then principal stockholder at a price per
share and time sequence reasonably close to the transaction with Mr. Paulson.
The 500,000 shares issued to Mr. Paulson as compensation for securing the $8
million financing were charged as a period cost in Full House's results of
operation for 1994. On June 7, 1994, Bank of America, as a result of the joint
and several guarantees of the full amount of the loan by Mr. Paulson and the
other directors of Full House, provided Full House with a line of credit in the
amount of $8 million at the "reference rate" of Bank of America, N.A. As of
December 31, 1995, a balance of $6,206,286 was outstanding under the line of
credit. The outstanding balance was repaid with funds received as part of the
agreement with GTECH Corporation discussed below. As of June 15, 1996, no
amounts were outstanding under this line of credit. All amounts outstanding
under this line of credit bear interest at the bank's "reference rate" and are
due and payable upon demand or, if no demand is made, on July 1, 1996. Full
House believes that it would have been unable to obtain this line of credit
without the actions of Mr. Paulson, as its financial condition would not have
supported such an extension of credit.
On March 23, 1995, LAI Associates, Inc., a corporation wholly-owned by Lee
Iacocca, merged with a subsidiary of Full House and became a wholly-owned
subsidiary of Full House. The Company issued 1,250,000 shares of Common Stock to
Mr. Iacocca. In exchange, the Company received LAI's interest in its agreements
with the Organized Tribes (55%), Nottawaseppi Huron Band of Potawatomi (55%),
Torres Martinez Desert Cahuilla Indians (50%) and Delaware State Fair (50%)
projects. The remainder of the interests in these projects was acquired through
the Omega merger described below. Subsequently, Full House returned to Mr.
Iacocca a 25% interest in a total of 21 acres of land in Branson, Missouri, and
a 50% interest in certain royalties receivable. In exchange, Mr. Iacocca
returned 193,529 shares of Common Stock to Full House in March, 1996. See "Legal
Proceedings."
18
On November 20, 1995, Full House merged a wholly-owned subsidiary into Omega
Properties Inc. (30% owned by William P. McComas, a director/stockholder of the
Company). In exchange, the shareholders of Omega received an aggregate of
500,000 shares of Full House Common Stock and a promissory note of Full House in
the principal amount of $375,000. The principal amount of this promissory note
accrues interest, payable quarterly, at a rate equal to the "prime" rate and
such principal amount, together with all accrued interest, is due and payable in
full upon demand by the holder(s) of this note, but in no event before August
31, 1996. William P. McComas received the note and Mr. Fugazy, the other
stockholder of Omega, received the shares in exchange for their interests as
shareholders of Omega. As a result of such merger, Full House obtained the
remaining 45% interests in the agreements with the Organized Tribes and the
Nottawaseppi Huron Band of Potawatomi and the remaining 50% interests in the
agreements with the Torres Martinez Desert Cahuilla Indians and the Delaware
State Fair.
Full House entered into a series of agreements with GTECH Corporation, a
wholly-owned subsidiary of GTECH Holdings Corporation, a leading supplier of
computerized on-line lottery systems and services for government-authorized
lotteries, to jointly pursue existing (except the Deadwood Gulch Resort and
certain other specified projects) and future gaming opportunities. Although the
agreements were dated as of December 29, 1995, the parties agreed to share
equally in the equity investment, financing responsibility and in revenues and
expenses of each project commencing April 1, 1995. Pursuant to the agreements,
joint venture corporations equally owned by GTECH and Full House have been
formed. Full House has contributed its rights to the North Bend, Oregon facility
and the rights to develop the Torres Martinez and Delaware State Fair Projects
to the joint venture companies. Full House has agreed, subject to further
discussion with the Nottawaseppi Huron Band of Potawatomi and with the holder of
a 15% interest in that gaming contract, to assign to a joint venture company its
rights to develop a project with such Tribe. If the assignment is not completed,
Full House will assign its rights to revenues and GTECH will bear an appropriate
portion of the expenses related thereto. See "Business."
In payment for its interest in the joint venture companies, GTECH contributed
cash and other intangible assets to the companies and committed to loan the
joint venture entities up to $16.4 million to complete the North Bend, Oregon
and Delaware facilities. Full House has agreed to guarantee one-half of the
obligations of the joint venture companies to GTECH under these loans and at
June 1, 1996 had guaranteed to GTECH one-half of $10.4 million of such loans to
the North Bend, Oregon joint venture company. Upon completion of the Delaware
project, currently anticipated in August 1996, Full House will execute a
guarantee to GTECH of one-half of the amounts loaned to the joint venture
company by GTECH. The amount of the guarantee is currently estimated to be
approximately $4.5 million. The guarantees provide for full subrogation of Full
House to GTECH's rights and prohibit acceleration of the underlying indebtedness
so long as Full House makes the defaulted payments. The terms of the loans vary
by project, but in those instances in which the joint venture companies loan
funds to others involved in the project (e.g., North Bend, Oregon), the loans to
the joint venture companies are intended to be a mirror image of the loans
between the joint ventures and the third parties.
GTECH will also provide project management, technology and other expertise to
analyze and develop/manage the implementation of opportunities developed by the
joint venture entities. GTECH has also loaned Full House $3 million, which loan
is convertible, subject to regulatory approval into 600,000 shares of Full
House's Common Stock. In addition, Full House has been reimbursed by one of the
joint venture companies for certain advances and expenditures made by Full House
relating to the gaming development agreements. As part of this transaction,
certain directors of Full House and Lee Iacocca have granted to GTECH an option
to purchase their shares should they propose to transfer the same.
The agreement between Full House and GTECH provides that the joint venture
partners will provide the funds needed to finance the development of the joint
venture projects. While the amounts necessary to finance the development of the
projects are subject to regulatory approval and adjustment
19
as the projects are more fully developed, the Company estimates that the amount
to be provided by the joint venture companies will be approximately $70 million
during the next three years. Although the agreement between Full House and GTECH
establishes a performance for obtaining non-recourse financing for the projects
undertaken in the joint venture companies, it may not be possible to obtain
needed funds in this manner. In the event that Full House is unable to obtain
the required funds on more favorable terms, GTECH has agreed to lend to Full
House its required portion of the financing at GTECH's cost of financing plus
22.5% of Full House's share of the "Profits" from the venture until the later of
repayment of the loan or one year after the project begins to receive revenues
from patrons of the facilities comprising the project. In the event that GTECH
loans funds to a joint venture entity, Full House has agreed to guarantee
one-half of the obligations of the joint venture company to GTECH.
Full House borrowed $4 million from GTECH during 1995. Such amounts were
repaid on January 26, 1996 with funds received as a part of the agreement with
GTECH. See "Business--GTECH Relationship." Interest expense on this indebtedness
was $270,517.
As a result of its agreements with GTECH, receipt by Full House of revenues
from the operations of projects (other than the Deadwood Gulch Resort) is
governed by the terms of the joint venture agreements applicable to such
projects. These contracts provide that net cash flow (after certain deductions)
is to be distributed monthly to Full House and GTECH. While Full House does not
believe that this arrangement will adversely impact its liquidity, no assurances
of the same can be given based upon the lack of operating experience with this
structure.
On July 19, 1995, an addendum to the agreement with the Coquille Indian Tribe
was executed. Pending regulatory approval, the addendum will reduce the
obligation of the Full House-GTECH joint venture company to provide financing to
$10.4 million, extend the date when repayments begin and modify the method of
computing participating rents (from net revenues to modified gross revenues) and
loan repayments. Lease and debt payments commenced on August 19, 1995, and
September 19, 1995, respectively. As of March 31, 1996, the Full House-GTECH
joint venture company had advanced approximately $10.7 million for the project
of which approximately $.5 million had been repaid.
Pursuant to a September 16, 1994 agreement with the Organized Tribes in the
State of Michigan, Full House obtained the rights to pursue off-reservation
gaming and related non-gaming activities. On June 28, 1995, the Governor of the
State of Michigan determined to prohibit off-reservation gaming in the State of
Michigan. As a result of this action and after reimbursement of certain costs
incurred by Full House from GTECH, Full House has written off project costs of
$1,867,730.
On May 31, 1995, DGR borrowed $5 million, secured by its real property. The
proceeds from the loan were used to repay its obligation to H. Joe Frazier, a
stockholder and a then director of the Company, and to repay a portion of the
revolving note payable to Bank of America. The note bears interest at 10.25%
through May, 1996, and at prime plus 2 1/4 % for the period June 1, 1996 through
May 1, 2002. Payments are due in monthly installments of principal and interest
based on a ten-year amortization with the remaining balance due on May 31, 2002.
A portion of the loan has been guaranteed by Messrs. Frazier, McComas and
Paulson. The agreements executed by DGR in connection with the note limit
payments by DGR to Full House. The agreements include financial covenants which
require maintenance of minimum tangible net worth and debt service coverage
ratios. The Company was not in compliance with these covenants at December 31,
1995. However, the lender has waived these defaults through the year ended
December 31, 1996. The Company prepaid $751,827 of this indebtedness in March,
1996.
The 800,000 Warrants and 80,000 units (the "Representative's Units") issued
to the representative of the underwriters in Full House's 1993 public offering
became exercisable on August 10, 1994. Each Warrant may be exercised for 1.1894
shares of Common Stock at a price of $4.20 per share. As of June 15, 1996,
778,534 Warrants to purchase 925,988 shares were outstanding. Full House may, in
accordance with the Warrant Agreement, call the Warrants. Each Representative's
Unit (each consisting of three shares of Common Stock and the right to buy one
additional share) may be exercised at a price
20
of $13.17 per Unit. The Warrants can be exercised until February 10, 1997. As of
June 15, 1996, a total of 57,500 Representative's Units had been exercised,
leaving a balance of 22,500 which may be exercised. As a result of such
exercises, 57,500 warrants, which were included in the Representative's Units,
are now outstanding.
As of June 30, 1996, Full House had cumulative undeclared and unpaid
dividends in the amount of $840,000 on the 700,000 outstanding shares of its
1992-1 Preferred Stock. Such dividends are cumulative whether or not declared,
and are currently in arrears.
Full House had a working capital of $1,921,564 as of March 31, 1996.
Additional financing will be required for the Company to effect its business
strategy and no assurance can be given that such financing will be available
upon commercially reasonable terms.
21
BUSINESS
RECENT DEVELOPMENTS
The Company has determined that continued ownership of a resort in a mountain
area with limited-stakes gaming is not consistent with maximization of the
business opportunities available to the Company. It has therefore determined to
focus its gaming activities in areas of higher population density and locations
at which applicable regulations permit high-stakes and expanded types of gaming.
On April 9, 1996, the Company signed a non-binding letter of intent for the
purchase of the Deadwood Gulch Resort by RGB Deadwood Gulch L.L.C. Although
negotiations for the sale of the Resort to RGB Deadwood Gulch L.L.C. terminated
on May 15, 1996, the Company is still actively marketing the Resort for sale.
The Deadwood Gulch Resort was specifically excluded from the projects to be
undertaken jointly with GTECH. From the time of acquisition by the Company
through the end of the first quarter of 1996, the Resort has a cumulative
operating deficit of approximately $3.80 million. In addition, through such
date, the Company has recognized an impairment loss of $3.35 million. Any sale
will be subject to approval by the Company's stockholders and a finding by the
South Dakota Commission on Gaming that the purchaser is suitable to obtain a
gaming license in South Dakota. There can be no assurance that a sale will
ultimately be consummated. The Company intends to continue to operate the Resort
in accordance with past practice while attempting to consummate a sale.
BACKGROUND
Full House was incorporated in the State of Delaware as Hour Corp. on January
5, 1987 and changed its name to D.H.Z. Capital Corp. on June 1, 1987. On July
17, 1992, Full House entered into a Letter of Intent with Deadwood Hotel Joint
Venture, a South Dakota joint venture ("DHJV") and the owner of the Deadwood
Gulch Resort, regarding the recapitalization of Full House and the acquisition
of DHJV. On September 2, 1992, the Company's name was changed to Full House and
the Company completed a 1 for 200 reverse stock split of its then outstanding
99,930,000 shares of common stock, resulting in 499,650 shares outstanding. At
the same time, Full House's authorized capitalization was changed to 25,000,000
shares of $.0001 par value common stock (the "Common Stock") and 5,000,000
shares of $.0001 par value preferred stock (the "Preferred Stock").
On November 20, 1992, Full House, through the issuance of 4,901,850 shares of
Common Stock and 1,000,000 shares of Series 1992-1 Preferred Stock, acquired
Deadwood Gulch Resort and Gaming Corp., which, as a result of a restructuring
among the joint venturers of DHJV, had become the owner of the assets of the
joint venture. On August 17, 1993, Full House completed a registered public
offering of units, each consisting of three shares of its Common Stock and a
warrant (the "Warrant") entitling the holder to purchase, for $5.00, one
additional share of Common Stock during the period between August 10, 1994 and
August 9, 1996 for gross proceeds of $8,000,000. The net proceeds to Full House
after payment of costs and expenses were $6,742,781.
In connection with the public offering, Full House entered into an Agreement
to Provide and Accept Commitment to Restructure First and Second Mortgage Loans
("Mortgage Restructuring Agreement"). In accordance with such Agreement and upon
the closing of the public offering and receipt of the proceeds, two notes were
issued in the amounts of $2,500,000 and $1,250,000. The notes required the
payment of interest only at the rate of 12% for one year from the date of
funding, payable monthly in arrears. Although the majority of the funds needed
were obtained from offering proceeds, an $8,000,000 line of credit provided to
Full House through an agreement with Allen E. Paulson (the Chairman of the Board
of Directors of Full House) enabled Full House to repay the $2,500,000 note on
March 14, 1994. In August, 1994, Full House began monthly payments of principal
and interest on the other note which was held by H. Joe Frazier, a director of
Full House until January, 1996. The entire principal balance was repaid on May
31, 1995.
Full House has been actively engaged in the process of identifying business
opportunities in the gaming industry to expand its base and has determined that
opportunities exist through the establishment of agreements with Indian Tribes.
22
In addition to recognizing the need to expand its gaming operations, Full
House had previously determined to expand into other activities not directly
dependent upon gaming. On May 6, 1995, Full House entered into a letter of
intent with Branson W.R. Productions, Inc. ("Branson W.R.") to merge Branson
W.R. with Full House or a wholly-owned subsidiary of Full House|Ax (the "Branson
Transaction"). However, after commencing its due diligence investigation, Full
House determined not to proceed with the Branson Transaction.
Although the Branson Transaction was not completed, during the course of the
negotiations in May 1994, Lee Iacocca, one of the principals of Branson W.R.,
brought to the attention of Full House management certain opportunities to enter
into gaming agreements. Specifically, Mr. Iacocca|Ax advised Full House of his
negotiations, together with Omega Properties, Inc. ("Omega"), with certain
Indian Tribes(the "Organized Tribes") regarding the development of a gaming
operation in the Detroit, Michigan metropolitan area. Mr. Iacocca also advised
Full House of the ongoing discussions with a second Indian Tribe in Michigan
(the Nottawaseppi Huron Band of Potawatomi|Ax), a tribe in southern California
(the Torres Martinez Desert Cahuilla) and a project at the Delaware State
Fairgrounds. In each case, the other parties had entered into discussions with
Mr. Iacocca based upon their perception of his integrity and ability to
facilitate completion of the proposed transactions. Mr. Iacocca had conducted
these negotiations through LAI Associates, Inc. ("LAI"), a corporation owned by
him.
In addition, LAI owned a 25% interest in a total of 21 acres in Branson,
Missouri, consisting of a 1.75 acre parcel ("Parcel 15"), a 7.76 acre site
("Parcel 16") and an 11.51 acre site ("Parcel BB") (collectively, the "Branson
Real Estate") and a 50% interest in royalties receivable pursuant to an
agreement (the "Royalty Agreement") which provided for receipt by LAI of $100
per apartment unit (2,353 units) and $250 per residential ownership unit (951
units) sold after October 25, 1993 in Branson Hills, a mixed use planned
community located in Taney County, Missouri.
Following extensive discussions with the principals of LAI and Omega, Full
House determined that a merger transaction involving Full House, LAI and Omega
would provide Full House with the advantages of both the real estate development
opportunities in Branson and the opportunity to develop the gaming and
commercial nongaming activities, the rights to which were held by LAI and Omega.
During these negotiations, the parties agreed that the shareholders of LAI would
receive 1,250,000 shares of Full House Common Stock and that the shareholders of
Omega would receive 500,000 shares and a promissory note of Full House in the
principal amount of $375,000. This decision was based upon Full House's
determination that access to these four projects was only available through a
merger with LAI and Omega.
Full House further concluded that a merger would facilitate access to
additional projects into which it desired to expand as a result of an
association with both Mr. Iacocca and John Fugazy, who, together with William P.
McComas, a director and stockholder of Full House, owned the outstanding shares
of Omega. Thus, Full House determined that an arrangement pursuant to which
Messrs. Iacocca and Fugazy would receive shares of Full House Common Stock was
an appropriate means of both acquiring the rights of Omega and LAI to the
subject projects, but also provided the possibility of promoting their
continuing association with Full House by aligning their interests with those of
the other stockholders of Full House. There is, however, no agreement requiring
continuing efforts by Messrs. Iacocca or Fugazy and there can be no assurance
that they will perform any further activities on behalf of Full House. As Omega
and LAI were then engaged in active negotiations of these opportunities, Full
House does not believe that the rights to these projects could have been
obtained by utilizing current employees or other agents available to it.
Accordingly, on August 18, 1994, pursuant to a May 1994 letter of intent,
Full House entered into a Merger Agreement (the "Merger Agreement") with Full
House Subsidiary, Inc. ("FHS"), LAI and Omega Properties, Inc. (30% owned by
William P. McComas, a director and stockholder of Full House) whereby these
entities were to merge with FHS, a newly formed subsidiary of Full House. In
exchange, the entities were to receive 1,750,000 shares of common stock of Full
House and a note from Full House for $375,000. Also on August 18, 1994, Full
House entered into a Purchase Agreement with
23
Mr. McComas, to purchase a portion of the assets originally included in the
May 1994 letter of intent in exchange for a $625,000 note from Full House.
Subsequently, the parties determined that it was in their best interests to
proceed with the merger with LAI prior to consummating the merger with Omega. On
March 23, 1995, the parties amended the Merger Agreement and the Merger between
LAI and FHS was consummated on the same date.
Swan Valuation Group, Inc., an independent organization, valued 100%
interests in Parcel 15 at $270,000, Parcel 16 at $1,090,000 and Parcel BB at
$1,510,000 and a 100% interest in the Royalty Agreement at $210,000. Based upon
these appraisals, Full House valued the 25% interest of LAI in the Branson Real
Estate at $717,500 and the 50% interest of LAI in the Royalty Agreements at
$105,000. Swan Valuation Group was selected by Full House based upon its
experience in real estate appraisals in the Branson, Missouri area and was
utilized to assist the Board of Directors of Full House in determining the total
value of all of the assets of LAI. The appraisal of the real property is based
upon a sales comparison approach and assumes completion of certain roads and
utilities to the Hotel Site which was expected in 1997. The value of the Royalty
Agreement was based upon a sell-out period of 25 to 26 years for the real estate
units, a 15% discount rate and the full performance of the applicable contract
by all parties.
The balance of the value of the Full House Common Stock issued in connection
with the LAI Merger was allocated to LAI's interest in the agreements with the
Organized Tribes (55%), the Nottawaseppi Huron Band of Potawatomi (55%), the
Torres Martinez Desert Cahuilla Indians (50%) and the Delaware State Fair, Inc.
(50%) described below. (The balance of the interests in these agreements was
owned by Omega.) Based on the Company's analyses of estimated fair values of
such agreements, primarily developed through discounted cash flow projections of
the proposed projects, $3,111,571 of the purchase price was allocated to gaming
agreements. Although certain of these agreements were not executed until after
the LAI Merger, negotiations were under way and agreement in principle had been
reached prior to the Merger. Full House management does not believe that it
would have been able to enter into such agreements in the absence of its
relationship with LAI. Other assets consist of the royalty interest discussed
above and the value that the Company perceives to be obtained through the
association of Lee Iacocca with the Company as a major stockholder. The
remainder of the purchase price of $1,534,064 was allocated to these other
assets. Prior to the merger with Full House, Omega owned a 45% interest in the
transactions with the Organized Tribes and the Nottawaseppi Huron Band of
Potawatomi and a 50% interest in the transactions with the Torres Martinez
Desert Cahuilla Indians and the Delaware State Fair, Inc.
On March 23, 1995, the date of the Merger between FHS and LAI, Full House
Common Stock was trading on the NASDAQ Small-Cap Market at $5-3/8. Although Full
House valued the shares at $4.25 each based upon its valuation of the assets
received by Full House in the LAI Merger as described above, the shares are
"restricted securities" as such term is defined in Rule 144 under the Securities
Act of 1933, as amended, and, based upon the fact that "restricted securities,"
as a general rule, must be held for at least two years prior to sale and then
may be sold only in limited quantities, Full House believes that the valuation
bears an appropriate relationship to the market price of freely trading shares.
The parties again amended the Merger Agreement as of June 30, 1995 to provide
that, rather than Omega merging into FHS, the subsidiary of Full House into
which LAI was merged, a new wholly-owned subsidiary of Full House, Full House
Joint Venture Subsidiary, Inc. ("Full House Sub"), would be merged into Omega.
The merger was effected on November 20, 1995. In exchange, the shareholders of
Omega received an aggregate of 500,000 shares of Full House Common Stock and a
promissory note of Full House in the principal amount of $375,000. The principal
amount of this promissory note accrues interest, payable quarterly, at a rate
equal to the "prime" rate and such principal amount, together with all accrued
interest, is due and payable in full upon demand by the holder(s) of this note,
but in no event before August 31, 1996. William P. McComas received the note and
the other stockholder of Omega received the shares in exchange for their
interests as shareholders of Omega. As a result of such
24
merger, Full House obtained the remaining 45% interests in the agreements with
the Organized Tribes and the Nottawaseppi Huron Band of Potawatomi and the
remaining 50% interests in the agreements with the Torres Martinez Desert
Cahuilla Indians and the Delaware State Fair.
In determining the consideration paid as part of the LAI and Omega Mergers,
Full House evaluated all of the potential benefits to be obtained and risks
associated with successful completion of such transaction, including the value
of the association of Lee Iacocca as a major stockholder. Therefore, the Merger
Agreement did not assign a specific value to each gaming project and provide for
a reduction in price if the need for approvals or other obstacles prevent the
completion of the project. Management of Full House believes that the
consideration paid as part of the Merger was fair.
The Omega transactions was accounted for as a purchase valued at $2,561,007.
The purchase price has been allocated to the following assets and liabilities,
based on their estimated relative fair values: cash $3,913; gaming agreements
$2,575,367; other assets $578; and accrued expenses $(18,851). The gaming
agreements were valued, as of March 23, 1995, by discounting to then present
value the estimated future after tax cash flow for the proposed ventures and by
applying a further discount based upon the expected likelihood of successfully
developing the projects. In making this determination, Full House estimated the
cash needs, the income and the cash flow related to its agreements with the
Organized Tribes (the "Organized Tribes Agreement") and the Nottawaseppi Huron
Band of Potawatomi (the "Nottawaseppi Agreement"). Through the use of these
forecasts and an after-tax discount rate, Full House valued the Organized Tribes
Agreement and the Nottawaseppi Agreement at $28 million and $37 million,
respectively. The after-tax discount rate used was 13.8 percent. This rate was
derived through use of the capital asset pricing model and/or the weighted
average cost of capital model. Full House further reduced the above valuations
by applying a "success factor" to account for the possibility that performance
under the Organized Tribes Agreement and the Nottawaseppi Agreement would not
occur on schedule due to the failure to receive or delays in the receipt of
certain approvals. Although the actions of the Governor of Michigan with respect
to off reservation gaming have resulted in Full House writing off the value of
the agreement with the Organized Tribes. Full House believes that the increase
in the value of the agreement, together with the value of the other agreements
discussed above, supports the amount attributed to the gaming agreements.
On June 30, 1995, the date of the last amendment to the Merger Agreement,
Full House Common Stock was trading on the Nasdaq Small-Cap Market at $6 per
share. Full House has valued the shares of Full House Common Stock delivered to
the Omega shareholders at $4.25 each. Although Full House reached this valuation
based upon its valuation of the assets to be received by Full House in the Omega
Merger, Full House believes that the valuation bears an appropriate relationship
to the market value of freely trading shares based upon the fact that the shares
will be "restricted securities" as such term is defined in Rule 144, which
shares, as a general rule, must first be held for at least two years after their
issuance before sales are permitted and then may be sold only in limited
quantities and further based on the number of shares issued in the transaction.
In late 1995, Full House was named as a defendant in a lawsuit in Taney
County, Missouri, as a result of its acquisition (through the merger of its
wholly-owned subsidiary with LAI) of an interest in the Branson Real Estate and
Royalties. After negotiations with Mr. Iacocca, in March 1996 Mr. Iacocca
accepted the reconveyance of the interests in the Branson Real Estate and
Royalties in exchange for 193,529 shares of Common Stock to Full House which the
Company believes had a value equal to the appraised value of the surrendered
interests in the Real Estate and Royalty Agreement. Such action was intended to
minimize the Company's exposure to the litigation.
Full House's executive offices are located at Suite 380, 12555 High Bluff
Drive, San Diego, California 92130, telephone (619) 350-2030.
GTECH RELATIONSHIP.
Full House entered into a series of agreements with GTECH Corporation, a
wholly-owned subsidiary of GTECH Holdings Corporation, a leading supplier of
computerized on-line lottery systems
25
and services for government-authorized lotteries, to jointly pursue all existing
(except the Deadwood Gulch Resort) and future gaming opportunities. Although the
agreements were dated as of December 29, 1995, the parties agreed to share
equally in the equity investment, financing responsibility and in revenues and
expenses of each project commencing April 1, 1995. The shares of GTECH Holdings
Corporation are listed on the New York Stock Exchange and according to its
published financial statements, GTECH Holding Corporation had a net worth of
$297 million as of February 24, 1996. Pursuant to the agreements, joint venture
corporations equally owned by GTECH and Full House have been formed. Full House
has contributed its rights (as described below) to the North Bend, Oregon
facility and the rights to develop the Torres Martinez and Delaware State Fair
Projects to the joint venture companies. Full House has agreed, subject to
further discussions with the Nottawaseppi Huron Band of Potawatomi and with
Green Acres Casino Management, Inc., the holder of a 15% interest in that gaming
contract, to assign to a joint venture company its rights to develop a project
with such Tribe. If the assignment is not completed, Full House will assign its
rights to revenues and GTECH will share equally in the revenues and related
expenses with Full House.
In payment for its interest in the joint venture companies, GTECH has
contributed cash and other intangible assets to the companies and committed to
loan the joint venture entities up to $16.4 million to complete the North Bend,
Oregon and Delaware facilities. Full House has agreed to guarantee one-half of
the obligations of the joint venture companies to GTECH under these loans and at
June 1, 1996 had guaranteed to GTECH one-half of $10.4 million of such loans to
the North Bend, Oregon joint venture company. GTECH has also agreed to make
loans to Full House for its portion of the financing of projects if Full House
is unable to otherwise obtain financing. GTECH will also provide project
management, technology and other expertise to analyze and develop/manage the
implementation of opportunities developed by the joint venture entities. GTECH
has also loaned Full House $3 million, which loan is convertible, subject to
regulatory approval into 600,000 shares of Full House's Common Stock. In
addition, Full House has been reimbursed by one of the joint venture companies
for certain advances and expenditures made by Full House relating to the gaming
development agreements. As part of this transaction, the directors of Full House
and Lee Iacocca have granted to GTECH an option to purchase their shares should
they propose to transfer the same.
Set forth below is a brief description of each of the gaming opportunities
which have been or will be transferred to the limited liability companies which
are equally owned by Full House and GTECH.
NORTH BEND, OREGON FACILITY.
On May 19, 1995, the first phase of the facility known as the "Mill" was
opened with 250 video lottery terminals (366 as of December 31, 1995), six
blackjack tables, three poker tables, a gift shop and a snack bar on Tribal
Trust Lands of the Coquille Indian Tribe in North Bend, Oregon. A Full
House--GTECH joint venture entity leases approximately 12.5 acres of Tribal
Trust Lands from an entity owned by the Coquille Indian Tribe on which the Mill
is located and subleases a portion of the land on which the casino is located
back to the same entity. The master lease expires in 2019 and the sublease
expires in 1999 with options to renew.
On July 19, 1995, an addendum to the agreement with the Coquille Indian Tribe
was signed by Full House and GTECH. The addendum will reduce the obligations of
the joint venture entity to provide financing to $10.4 million, extend the date
when repayments begin and modify the method of computing participating rents and
loan repayments. Lease and debt payments commenced on August 19, 1995 and
September 19, 1995, respectively. As of December 31, 1995, approximately $10.5
million had been advanced for the project. The indebtedness is to be repaid over
a seven-year period and the right of recovery is limited to revenues and
personal property at the facility. As of December 31, 1995, the Tribe had repaid
$330,921 of this indebtedness.
The Mill is located in North Bend, Oregon on the Port of Coos Bay. The Coos
County population in 1994, which includes the Bay area, was 62,800. The Bay
area's economy is primarily based on forestry and fishing. Oregon's Coos Bay
area is located on the Pacific Coast midway between San Francisco,
26
California and Seattle, Washington. The communities of Coos Bay, North Bend and
Charleston are approximately 115 miles from Eugene, Oregon's second largest
city. The North Bend Municipal Airport is Southwestern Oregon's regional air
terminal that provides commercial air service to and from Portland.
The Mill Casino is one of six Indian casinos presently operating in Oregon.
The closest competing casino is located approximately 90 miles from North Bend
and operates 230 devices, a card room, bingo and keno. The other casinos are
located approximately 140, 160, 265 and 435 miles from North Bend. The two
facilities which are 140 and 160 miles from North Bend are located closer to
Portland, Oregon. Full House believes that there are three other Indian Casinos
presently being contemplated in Oregon.
DELAWARE STATE FAIR.
On January 31, 1996, a company 50% owned by each of Full House and GTECH
entered into agreements with the Delaware State Fair, Inc. and Harrington
Raceway, Inc. to develop video lottery terminals at the Delaware State
Fairgrounds in Harrington, Delaware. Legislation enacted by the Delaware State
Legislature permits the installation of video lottery, coin-operated slot
machines at existing pari-mutuel track facilities in Delaware. Owned by the
Delaware State Fair, Inc. and located near Dover, Delaware and Baltimore,
Maryland, the Harrington Raceway has been in continuous existence since 1945 and
is the home of the Delaware State Fair. Under the agreements, the joint venture
company will advance a total of up to $9 million (including $150,000 previously
advanced) to be used for improvements. The gaming facility will contain 500
gaming devices.
ORGANIZED TRIBES.
Pursuant to a September 16, 1994, an agreement with the Organized Tribes in
the State of Michigan, Full House obtained the right to pursue off-reservation
gaming and related non-gaming activities. On June 28, 1995, the Governor of the
State of Michigan determined to prohibit off-reservation gaming in the State of
Michigan. As a result of this action and reimbursement of certain costs to Full
House by GTECH, Full House wrote off project costs of $1,867,730 in 1995.
NOTTAWASEPPI HURON BAND OF POTAWATOMI.
Full House entered into a series of agreements in January, 1995, with the
Nottawaseppi Huron Band of Potawatomi, another Michigan Indian Tribe, to develop
gaming and non-gaming commercial opportunities for that Tribe and to construct
and manage Class II and Class III gaming facilities. The Tribe's state
reservation lands are located in Southcentral Michigan. If developed, the
facility will target the Ft. Wayne, Indiana and Lansing and Detroit, Michigan
metropolitan areas. The Tribe recently received federal recognition as a tribe
from the Bureau of Indian Affairs. The Tribe intends to apply to have its
existing State reservation land as well as additional land in its ancestral
territory taken into trust by the Bureau of Indian Affairs. The agreements give
Green House Management, Inc., an entity 85% owned by Full House, the exclusive
right to provide financing and casino management expertise to the Tribe in
exchange for a defined percentage of net profits and certain other
considerations from any future gaming or related activities of the Tribe. The
agreements and commencement of gaming are subject to all applicable federal and
state approvals. Although there can be no assurance that all approvals will be
obtained, unlike the Detroit project with the Organized Tribes, which required
special approvals, there are existing Indian casinos located on Tribal Trust
Lands already operating in Michigan. Full House believes that the recent
prohibition of off-reservation gaming in Michigan enhances the potential of this
relationship. No recognized tribe has reservation lands located within the
targeted area. As noted above, subject to further discussions, Full House has
agreed to assign the rights to these agreements to a Full House-GTECH joint
venture company. In the absence of assignment, Full House will assign its rights
to revenues and GTECH will share equally in the revenues and related expenses
with Full House.
27
TORRES MARTINEZ.
On April 21, 1995, Full House entered into a Gaming and Development Agreement
with the Torres Martinez Desert Cahuilla Indians. The agreement grants Full
House certain rights to develop, manage and operate gaming activities for the
Tribe and the right to receive 40% of the net revenues from gaming activities
subject to the obligation of Full House to pay the costs of the same. For all
non-gaming activities, Full House is to provide 50% of the financing for
development and will receive 50% of the net revenues from said activities,
subject to the obligation of Full House to lend funds to the Tribe prior to
commencement of gaming operations. On April 23, 1995, Full House and the Tribe
entered into a Gaming Management Agreement further defining Full House's and the
Tribe's rights and obligations under the Gaming and Development Agreement. As
noted above, the rights to these agreements have been assigned to a Full
House-GTECH joint venture company.
DEADWOOD GULCH RESORT.
Full House operates Deadwood Gulch Resort in Deadwood, South Dakota. The
Deadwood Gulch Resort consists of a 56-acre complex which includes a 97-room
hotel with three small casinos, a freestanding restaurant and saloon, a
freestanding conference center, a convenience store/gas mart, a recreational
vehicle park and campground and the Gulches of Fun family center (which was
completed in July 1994). DGR's hotel casinos occupy 1,575 square feet and the
Gulches of Fun occupies 2,400 square feet. Full House currently operates 95 slot
machines, two blackjack tables and three video lottery devices within the resort
complex.
DESCRIPTION OF RESORT. Deadwood is located in western South Dakota,
approximately 50 miles northwest of Rapid City and had a population of 1,800 in
1990. Deadwood originated in the 1870's with the discovery of gold nearby and
was the home of numerous gambling establishments, saloons and brothels, serving
the gold miners and prospectors. Statehood in 1889 brought constitutional
prohibitions against gambling. South Dakota amended its constitution to permit
limited gambling exclusively in Deadwood, commencing on November 1, 1989.
Full House's management estimates that a large proportion of its customers at
Deadwood Gulch Resort are derived from the tourists, primarily families, who
visit Deadwood, South Dakota. Many of these tourists are attracted to the Black
Hills area of South Dakota and the Mount Rushmore National Memorial. Since the
Deadwood Gulch Resort significantly relies on the tourist trade, business at
Deadwood Gulch Resort has tended to be seasonal. Approximately 58% of the
operating revenues (net of promotional allowances) for the year ended December
31, 1995 were received in the four-month period from June through September.
While business probably will remain somewhat seasonal, Deadwood Gulch Resort has
attempted to market itself as a year-round destination resort by attracting
tourists who use the Black Hills for winter recreation such as skiing and
snowmobiling. Deadwood Gulch Resort is principally marketed through printed
brochures and advertising, billboards, radio, television and direct mail
promotions within a 600 mile market radius of Deadwood, South Dakota, including
the States of South Dakota, North Dakota, Wyoming, Colorado, and Iowa, and the
Province of Saskatchewan, Canada. In addition, Deadwood Gulch Resort promotes
group travel, including charter bus tours and gaming junkets, utilizing
independent travel agents, and trade and travel advertising. Deadwood Gulch
Resort also promotes periodic gaming tournaments and features entertainment
during selected periods.
The initial Phase 1 facilities, including the hotel/casino,
restaurant/saloon, convenience store/gas mart, and outdoor pool/recreation area,
opened for business beginning in late July, 1990. An 8,000 square foot
freestanding conference center facility, adjacent to the existing complex, was
completed in September, 1991. The complex has parking available for 267 cars,
and 6 recreational vehicles or buses.
Construction of Phase 2 of the Resort Complex, a Recreational Vehicle
Campground, was completed in July 1994. There are currently 92 RV sites of which
90 are full service and an additional 30 tent sites. Although Phase 3 had
originally been designated to be a convention center hotel, as a result
28
of a 1993 general election repealing legislation which would have permitted an
increase in gaming devices at the new hotel, Full House developed the Gulches of
Fun family center in 1994. The project includes an 18-hole miniature golf
course, a go-kart track, bumper boat pond, batting cages, kiddie playland and
rides and arcade and redemption games.
The following table sets forth the percent of total operating revenues (net
of promotional allowances) generated by the Deadwood Gulch Resort Casino,
Hotel/RV, Retail, Food and Beverage and Gulches of Fun operations for the
indicated periods.
PERCENT OF
TOTAL OPERATING
REVENUES
YEAR ENDED DECEMBER THREE MONTHS
31, ENDED MARCH 31,
-------------------- --------------------
1994 1995 1995 1996
--------- --------- --------- ---------
REVENUE SOURCE
Casino ................ 29% 27% 35% 33%
Hotel/RV .............. 26 26 23 23
Retail ................ 22 22 25 25
Food and beverage .... 10 10 11 14
Gulches of Fun ........ 13 15 6 5
100% 100% 100% 100%
Since the commencement of the Resort's gaming operations, most of its gaming
revenues have been derived from its operation of slot machines. For the years
ended December 31, 1994 and 1995, 92% and 95%, respectively, of Full House's
gaming revenue was from slot machines. The remainder was from blackjack.
The following table sets forth the average hotel occupancy rate for Deadwood
Gulch Resort for the indicated periods.
AVERAGE HOTEL OCCUPANCY RATE
------------------------------------
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
---------------- ------------------
1994 1995 1995 1996
------- ------- ------- ---------
71% 63% 49% 63.67%
The following table sets forth the average daily hotel room rate for Deadwood
Gulch Resort for the indicated periods.
AVERAGE DAILY HOTEL ROOM RATE
------------------------------------------
YEAR ENDED DECEMBER THREE MONTHS ENDED
31, MARCH 31,
-------------------- --------------------
1994 1995 1995 1996
--------- --------- --------- ---------
$52.34 $56.85 $40.56 $35.77
COMPETITION. Gaming operations at the Deadwood Gulch Resort are in
competition with a significant number of existing and proposed gaming operations
in South Dakota and Colorado, many of which are, or will be, owned or operated
by organizations which are significantly better capitalized than Full House,
which have or may have significantly larger facilities, and which may employ
personnel who have more experience in the gaming industry than those currently
employed, or proposed to be employed, by Full House. In addition, the Resort is
in competition with other businesses which provide opportunities for gambling,
such as racetracks and lotteries, or which provide entertainment which may
divert the spending of discretionary income from gaming activities. Furthermore,
the gaming industry is expanding rapidly, with more establishments competing for
a customer base which may not be expanding as rapidly, if at all.
Gaming may be legally conducted in accordance with the South Dakota Gaming
Act by licensed operators in the City of Deadwood, South Dakota, and may also be
conducted by American Indian Tribes located in South Dakota under the Federal
Indian Gaming Regulatory Act of 1988. As of December 31, 1995 there were 89
licensed gaming establishments in Deadwood which operated
29
approximately 2,220 slot machines and 69 table games, including poker and
blackjack. The revenues derived from the Resort's gaming operations accounted
for approximately 3.7% and 3.1% of all gaming revenues in Deadwood, South Dakota
for 1994 and 1995, respectively. Factors which affect gaming competition in
Deadwood are location in relation to Deadwood's historic main street, proximity
to motel rooms and parking, and the ability to serve alcoholic beverages. Six
gaming locations in Deadwood offer a full range of alcoholic beverages,
including Deadwood Gulch Resort. Gaming in Deadwood is conducted primarily in
establishments along a four block long area on historic main street. Deadwood
Gulch Resort is approximately one mile south of this highly concentrated area,
which may limit the pedestrian traffic which passes Deadwood Gulch Resort. Full
House's principal competitors in Deadwood are the Mineral Palace, First Gold
Hotel, the Franklin Hotel, the Bullock Hotel, the Gold Dust Casino, the
Silverado Casino and the Four Aces Casino. In addition, a well known actor and
others have commenced construction of a large, upscale resort near the north
entrance to Deadwood. Additional groups of investors have also proposed other
resorts for the north entrance to Deadwood. No construction has commenced on
these projects. Such resorts, if completed, may have significantly larger
facilities, including hotel and meeting rooms, entertainment facilities, and
more gaming devices than Deadwood Gulch Resort and would likely offer
significant direct competition for Deadwood Gulch Resort.
While Deadwood Gulch Resort may also be in competition with gaming operations
conducted by American Indian Tribes at or near Watertown, Flandreau, Fort
Randall, Pine Ridge and Lower Brule, South Dakota, all of these locations are
250 miles or more from Deadwood, except for Pine Ridge, which is approximately
100 miles from Deadwood. Although all operations in Deadwood, and three of the
four American Indian operations currently are subject to $5.00 bet limits by
law, the Sisseton Wahpeton Sioux Tribe at Watertown, South Dakota, 400 miles
from Deadwood, is permitted to have up to $100 bet limits. In addition, there
are three other Indian tribes with reservations located within 100, 150 and 200
miles, respectively, from Deadwood, that could establish gaming operations in
the future.
Deadwood Gulch Resort is also in competition with establishments throughout
the State of South Dakota holding beer and wine licenses or liquor licenses,
which may operate up to 10 "video lottery" gaming devices per establishment. The
video lottery devices allow customers to play electronic versions of blackjack,
poker, keno and bingo. Full House believes that there are approximately 8,000
such video lottery devices installed in the State of South Dakota. Full House
currently operates three video lottery devices.
ROUTE OPERATION AGREEMENT. Beginning with the opening of the Gulches of Fun
family center in July of 1994 and continuing through June 30, 1995, the Company
had a route operation agreement to place 60 of the Company's gaming devices,
under two retail licenses, in its Gulches of Fun family center. Under the
Agreement, the Company paid the operator a net fee of $5,000 per month and bore
all expenses related to the operation of the gaming devices. For the period from
opening of the family center through December 31, 1994, this route operation
agreement generated $560,365 in gaming revenues. For the period January 1
through June 30, 1995, the route operation agreement generated $212,194 in
gaming revenues. On July 1, 1995, the Company transferred one of its retail
gaming licenses from its convenience store/gas mart to its Gulches of Fun family
center and terminated the route operation agreement with the prior operator.
Also on July 1, 1995 the Company entered into a route operation agreement with a
new operator to place eight of the Company's gaming devices in its convenience
store/gas mart and pay him 5% of the net profit from the machines.
Full House intends to seek additional such route operation agreements in the
future. However, there can be no assurance that Full House will be successful in
obtaining any such additional route operation agreements on terms acceptable to
Full House.
FUEL SUPPLY AGREEMENT. DGR purchases its requirements of various fuels for
use and sale at its gas mart. The current term of the agreement is through June,
1996, and is renewable thereafter from year to year, provided that DGR may
cancel the agreement at the end of any such year by giving at least 30 days
prior written notice. In addition, the supplier may cancel the agreement at any
time on 10
30
days prior written notice. DGR pays $.01 per gallon above the supplier's Rapid
City, South Dakota posted Conoco prices, plus the then current published freight
charges from Rapid City to Deadwood. DGR has agreed to comply with the brand and
image/signage standards established for Conoco-branded retail outlets.
GOVERNMENT REGULATION.
The ownership and operation of a gaming business by Full House, wherever
conducted in the United States, will be subject to extensive and complex
governmental regulation and control under federal, state and/or local laws and
regulations.
INDIAN GAMING. Gaming on Indian Lands (lands over which Indian tribes
exercise jurisdiction and which meet the definition of Indian Lands under the
Indian Gaming Regulatory Act of 1988 ("IGRA")) is extensively regulated by
federal, state and tribal governments. The current regulatory environment
regarding Indian gaming is evolving rapidly. Changes in federal, state or tribal
law or regulations may limit or otherwise affect Indian gaming or may be applied
retroactively and could therefore have a material, adverse effect on the Company
or its operations.
The terms and conditions of management contracts and collateral agreements,
and the operation of casinos on Indian Land, are subject to IGRA, which is
implemented by the National Indian Gaming Commission (the "Gaming Commission"),
and also are subject to the provisions of statutes relating to contracts with
Indian tribes, which are overseen by the Secretary of the U.S. Department of the
Interior (the "Secretary"). IGRA is subject to interpretation by the Secretary
and the Gaming Commission and may be subject to judicial and legislative
clarification or amendment. Under IGRA, the Gaming Commission has the power to
inspect and examine certain Indian gaming facilities, to conduct background
checks on persons associated with Indian gaming, to inspect, copy and audit all
records of Indian gaming facilities, and to hold hearings, issue subpoenas, take
depositions, and adopt regulations in furtherance of its responsibilities. IGRA
authorizes the Gaming Commission to impose civil penalties for violations of the
IGRA or the regulations promulgated thereunder (the "Regulations"), including
fines, and to temporarily or permanently close gaming facilities for violations
of the law or the Regulations. The Department of Justice may also impose federal
criminal sanctions for illegal gaming on Indian Lands and for theft from Indian
gaming facilities.
IGRA also requires that the Gaming Commission review tribal gaming ordinances
and approve such ordinances only if they meet certain requirements relating to
the ownership, security, personnel background, recordkeeping, and auditing of
the tribe's gaming enterprises; the use of the revenues from such gaming; and
the protection of the environment and the public health and safety.
IGRA also regulates Indian gaming management contracts, requiring the Gaming
Commission to approve management contracts and collateral agreements, which
include agreements such as promissory notes, loan agreements and security
agreements. A management contract can be approved only after determination that
the contract provides for: (i) adequate accounting procedures and verifiable
financial reports, which must be furnished to the tribe; (ii) tribal access to
the daily operations of the gaming enterprise, including the right to verify
daily gross revenues and income; (iii) minimum guaranteed payments to the tribe,
which must have priority over the retirement of development and constructions
costs; (iv) a ceiling on the repayment of such development and constructions
costs; and (v) a contract term not exceeding five years and a management fee not
exceeding 30% of profits if the Chairman of the Gaming Commission determines
that the fee is reasonable considering the circumstances; provided that the
Gaming Commission may approve up to a seven year term and a management fee not
to exceed 40% of net revenues if the Gaming Commission is satisfied that the
capital investment required or the income projections for the particular gaming
activity justify the larger profit allocation and longer term.
Under IGRA, the Company must provide the Gaming Commission with background
information on each person with management responsibility for a management
contract, each director of the
31
Company and the ten persons who have the greatest direct or indirect financial
interest in a management contract to which the Company is a party (an
"Interested Party"), including a complete financial statement and a description
of such person's gaming experience. Such a person must also agree to respond to
questions from the Gaming Commission.
The Gaming Commission will not approve a management company and may void an
existing management contract if a director, key employee or an Interested Party
of the management company is (i) an elected member of the Indian tribal
government that owns the facility being managed; (ii) has been or is convicted
of a felony or misdemeanor gaming offense; (iii) has knowingly and wilfully
provided materially false information to the Gaming Commission or a tribe; (iv)
has refused to respond to questions from the Gaming Commission; or (v) is a
person whose prior history, reputation and associations pose a threat to the
public interest or to effective gaming regulation and control, or create or
enhance the chance of unsuitable, unfair or illegal activities in gaming or the
business and financial arrangements incidental thereto. In addition, the Gaming
Commission will not approve a management contract if the management company or
any of its agents has attempted to unduly influence any decision or process of
tribal government relating to gaming, or if the management company has
materially breached the terms of the management contract, or the tribe's gaming
ordinance, or, if a trustee, exercising the skill and diligence to which a
trustee is commonly held, would not approve such management contract.
IGRA divides games that may be played on Indian Land into three categories.
Class I Gaming includes traditional Indian games and private social games and is
not regulated under IGRA. Class II Gaming includes bingo, pull tabs, lotto,
punch boards, tip jars, instant bingo, and other games similar to bingo, if
those games are played at a location where bingo is played. Class III Gaming
includes all other commercial forms of gaming, such as video casino games (e.g.,
video slots, video blackjack); so-called "table games" (e.g., blackjack, craps,
roulette); and other commercial gaming (e.g., sports betting and parimutuel
wagering).
Class II Gaming is permitted on Indian Land if conducted in accordance with a
tribal ordinance which has been approved by the Gaming Commission and the state
in which the Indian Land is located permits such gaming for any purpose. Class
II Gaming also must comply with several other requirements, including a
requirement that key management officials and employees be licensed by the
tribe.
Class III Gaming is permitted on Indian Land if the conditions applicable to
Class II Gaming are met and, in addition, if the gaming is conducted in
compliance with the terms of a written agreement between the tribe and the host
state. IGRA requires states to negotiate in good faith with Indian tribes that
seek to enter into tribal-state compacts, and grants Indian tribes the right to
seek a federal court order to compel such negotiations. The negotiation and
adoption of tribal-state compacts is susceptible to daily legal and political
developments that may impact the Company's future revenues and securities
prices. The Company cannot predict which additional states, if any, will approve
casino gaming on Indian Land, the timing of any such approval, the types of
gaming permitted by each tribal-state compact, any limits on the number of
gaming machines allowed per facility or whether states will attempt to
renegotiate or take other steps that may affect existing compacts.
Under IGRA, Indian tribal governments have primary regulatory authority over
gaming on Indian Land within the tribe's jurisdiction unless a tribal-state
compact has delegated this authority. Therefore, persons engaged in gaming
activities, including the Company, are subject to the provisions of tribal
ordinances and regulations on gaming.
The Gaming Commission has determined that provisions of IGRA relating to
management agreements do not govern the current operations of Full House in
North Bend, Oregon.
Tribal-State Compacts have been the subject of litigation in several states,
including California. Among the issues being litigated is the constitutionality
of the provision of IGRA that entitles tribes to
32
sue in federal court to force states to negotiate Tribal-State Compacts. On
March 27, 1996, the United States Supreme Court ruled that the portion of IGRA
permitting tribes to sue states for failing to negotiate in good faith over
compacts was unconstitutional. In addition, several bills have been introduced
in Congress which would amend IGRA. If IGRA were amended, the amendment could
change the governmental structure and requirements within which Indian tribes
may conduct gaming.
SOUTH DAKOTA. The ownership and operation of a gaming business in South
Dakota is subject to gaming laws established by the State of South Dakota (the
"South Dakota Laws"), and regulations (the "South Dakota Regulations")
promulgated by the South Dakota Commission on Gaming (the "South Dakota
Commission") established by the South Dakota Laws. Except for gaming which may
be conducted on American Indian Lands, and except for any establishment holding
a beer and wine license or liquor license in South Dakota which may operate up
to 10 video lottery machines, gaming in South Dakota can be legally conducted
only in the City of Deadwood.
The South Dakota Laws require that each retailer who maintains gaming at his
place of business, each operator of gaming devices, and each route operator
(including any corporation or other entity) must have a gaming license in order
to conduct gaming operations in Deadwood. The South Dakota Laws also require
that key employees of the licensee, and support persons who are directly engaged
in the gaming operation, such as dealers, be licensed through the South Dakota
Commission. A license will be approved only if the applicant and the location
where gaming is to be conducted, after an in-depth investigation, are found
suitable by the South Dakota Commission. Under the South Dakota Laws, each
licensee, and any officer, director or shareholder owning in excess of 5% of any
corporation (or others which the Commission, in the exercise of its discretion,
elects to review) engaged in the retail operation of the gaming establishment
(i) is required to be of good character, honesty and integrity, (ii) shall not
have been convicted of a felony or found to have violated the South Dakota Law
and Regulations, and (iii) may not be viewed as posing a threat to public
interest or the conduct of gaming by reason of any prior activities, criminal
record, reputation, habits or associations. All such licenses must be renewed
annually.
The South Dakota Laws specify that no one person may hold a financial
interest in more than three retail licenses. However, one person may operate
under an unlimited number of additional gaming licenses pursuant to Route
Operation Agreements, if approved by the South Dakota Commission. Each retail
licensee is limited to 30 gaming devices (for example, 25 slot machines, three
blackjack and two poker tables). Full House has three retail licenses covering
its operations in the two hotel casinos and in the Gulches of Fun family center.
Full House has leased the Casino space in the convenience store to Richard
Cleveland, who has obtained a retail license in his name which permits him to
conduct gaming on these premises. Full House has entered into a Route Operation
Agreement with Mr. Cleveland whereby Full House furnishes the gaming equipment
and employees and conducts the gaming operations. See "--Route Operation
Agreement."
Gaming in Deadwood is limited under the South Dakota Regulations to slot
machines, and with respect to card games, to blackjack and poker. Currently,
each wager on any game is limited (in the case of poker per betting round) to
$5.00. The $5.00 limit will stay in effect until at least December, 1997. The
South Dakota Laws prohibit the extension of credit to another person for
participation in gaming.
The South Dakota Commission is vested with broad enforcement powers, and upon
an opportunity for hearing, may suspend or revoke any gaming license for cause,
including a violation of the South Dakota Laws or South Dakota Regulations, or
conviction of a crime of moral turpitude or a felony. In addition, the South
Dakota Commission can fine any licensee who operates a retail gaming
establishment up to $12,500, any key employee licensee up to $5,000, and any
support licensee up to $2,500, for violations. The South Dakota Commission may
inspect all premises where gaming is conducted or gaming equipment is located,
without notice to the interested parties. The South Dakota Commission may also
seize and remove gaming equipment or supplies without notice for purposes of
inspection, as well as inspect or remove papers, books or records at any time. A
suspension of all gaming activities is within the discretion of the South Dakota
Commission after a disaster, such as a
33
flood, fire or earthquake, or in the event of war or national emergency.
Moreover, a retail operating licensee must report to the South Dakota Commission
at least quarterly the full name and address of every person who has a right to
share in the revenue of licensed games or to whom any interest or share in the
profits of a licensed game has been pledged or deposited as security.
Each retail gaming licensee who operates a gaming establishment must pay an
annual license fee of $100 and an annual license stamp fee of $2,000 upon each
slot machine or card game located on a licensed premise. In addition, each
operator who places slot machines upon his own business premises or engages in
the business of placing and operating slot machines or gaming within Deadwood
must pay an annual license fee of $200. South Dakota also imposes an 8% gaming
tax on adjusted gross gaming receipts (gross receipts less payouts to customers
as winnings) subject to change by the South Dakota Commission. However, if the
South Dakota Commission proposes to change the tax, the rate may not be
decreased to less than 5% or increased to more than 15%. The gaming taxes are in
lieu of any sales, use or amusement tax which might otherwise be imposed on
gaming activity.
EMPLOYEES
As of June 9, 1996, the Company and its subsidiaries had approximately 60
full-time employees, three of which are executive officers of the Company, and
109 part-time employees. The Company's management believes that its relationship
with its employees is good. None of the Company's employees are currently
represented by a labor union, although such representation could occur in the
future.
FACILITIES
A Full House--GTECH joint venture company leases approximately 12.5 acres of
Tribal Trust Lands from an entity owned by the Coquille Indian Tribe on which
the Mill is located. The joint venture company subleases the land on which the
casino is located back to the same entity. The master lease expires in 2019 and
the sublease expires in 1999 with options to renew. Pursuant to a July 19, 1995
addendum, the joint venture company receives 13% of "Gross Gaming Revenues" (as
defined) of the casino. Payments commenced August 19, 1995.
Full House currently owns approximately 56 acres of property and the
improvements thereon, consisting primarily of Deadwood Gulch Resort.
Litigation has been filed against Full House relating to ownership and access
pertaining to a portion (approximately 1,200 square feet) of the Deadwood Gulch
Resort hotel and parking lot property. Neighboring landowners (the "Katons")
allege trespass among other claims, as a result of the construction of the
Resort parking lot. Other adjoining landowners to the rear of the Resort have
also filed a lawsuit, alleging that the Resort has blocked their right of way
across the creek to their property, insofar as their current access is across an
alleged portion of the Katons' property. Although Full House is unable to
predict the outcome of this matter, it does not believe that any reasonably
foreseeable adverse decision by a court regarding such potential claim would
materially affect the present and proposed operations of Deadwood Gulch Resort.
Management is unable to determine the outcome of this litigation, but does not
believe the outcome will have a material adverse effect on Full House's
financial condition.
In addition, Full House was made aware, in November 1993, of claimed
easements over a portion of its RV Resort and Campground property with respect
to access to property at higher elevations. Management is in the process of
negotiating the scope of the easement and does not believe that there will be
any material financial expense or other material adverse impact on Full House as
a result of these claims.
Full House acquired a 25% interest in commercial acreage located in Branson,
Missouri as part of the LAI merger. Full House has conveyed this property
interest back to LAI's former shareholder who has returned 193,529 of the Full
House Common Shares delivered to him as part of the merger consideration.
34
LEGAL PROCEEDINGS
In October 1995, litigation was filed against Full House relating to
ownership and access pertaining to a portion (approximately 1,200 square feet)
of the Deadwood Gulch Resort hotel and parking lot property. The Katons, who are
neighboring landowners, allege trespass as a result of the construction of the
Resort parking lot. Other adjoining landowners to the rear of the Resort also
filed a lawsuit, alleging that the Resort has blocked their right of way across
the creek to their property, insofar as their current access is across an
alleged portion of the Katons' property and seeking removal of the structures
(sidewalk and trash dumpster) blocking the alleged easement as well as damages
for any harm suffered by the plaintiffs as a result of blocking the easement.
Katon, et al v. Deadwood Gulch Resort and Gaming Corp., Eighth Judicial Circuit,
Lawrence County, South Dakota and Sowers, et al v. Deadwood Gulch Resort and
Gaming Corp., Eighth Judicial Circuit, Lawrence County, South Dakota. Management
is unable to determine the outcome of this litigation, but does not believe the
outcome will have a material adverse effect on Full House's financial condition.
In October 1994, Full House filed an action for declaratory relief in
Mississippi, seeking a determination by the court that no relationship exists
between it and Lone Star Casino Corporation regarding the potential acquisition
of a riverboat casino on the Mississippi gulf coast ( Full House Resorts, Inc.
v. Lone Star Casino Corporation v. Allen E. Paulson, Second Judicial District of
the Chancery Court of Harrison County, Mississippi). Lone Star has filed a
counterclaim alleging breaches of fiduciary duty, breach of contract, conspiracy
to breach contract and to breach fiduciary duty and common law fraud. Both Full
House and Mr. Paulson have been granted summary judgment on Lone Star's breach
of contract claim and all claims arising therefrom. The Company's motion for
summary judgment on Lone Star's remaining claims against it has also been
granted. Lone Star recently appealed those judgments. An action filed by Lone
Star in Texas in December 1994 raising similar issues has been dismissed.
Management is unable to determine the outcome of this litigation, but does not
believe the outcome will have a material adverse effect on Full House's
financial condition.
In late 1995, Branson Hills Associates, L.P. (the "Plaintiff") filed a
lawsuit in the Circuit Court of Taney County, Missouri, naming Lee Iacocca,
William P. McComas, Ron Richey, and the Company and certain of its subsidiaries
as defendants (collectively, the "Defendants") although no defendants were
served until March 1996. The suit involves a claim that Messrs. Iacocca and
McComas failed to use their best efforts to find a developer and financing for
the Plaintiff in connection with the development of properties owned by the
Plaintiff. The Plaintiff seeks rescission of the contract granting certain
property rights to Iacocca and McComas in consideration of said best efforts,
and further seeks damages for fraud and breach of contract arising out of Mr.
McComas's loaning of funds to Plaintiff when alternative financing could not be
arranged. Mr. Richey and the Company are further named in a count of conspiracy.
A portion of the property rights involved in the lawsuit were briefly held by
the Company subsequent to the merger involving LAI as described above, and have
since been returned to Mr. Iacocca. The Company no longer holds any interest in
such property. See"Business--Background." All Defendants have responded to the
claims and vigorously dispute liability. Management is unable to determine the
outcome of this litigation, but does not believe the outcome will have a
material adverse effect on Full House's financial condition or results of
operations.
35
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Names, ages and positions of all directors and executive officers of the
Company as of May 31, 1996 are listed below, followed by a brief account of
their business experience during the past five years.
NAME AGE POSITION
- -----------------------------------------------------------------------
Allen E. Paulson .. 73 Chairman and Chief Executive Officer
William P. McComas 69 Director
Ronald K. Richey .. 69 Director
Robert L. Kelley .. 63 President and Chief Operating Officer
William R. Jackson 46 Executive Vice President--Corporate Finance
Megan G. McIntosh . 40 Secretary
ALLEN E. PAULSON has been the Chairman and Chief Executive Officer and
Chairman of the Board of Directors of the Company since August 20, 1994. Mr.
Paulson was the Chairman and Chief Executive Officer of Gulfstream Aerospace
Corporation until his retirement in 1992 and he is currently the Chairman
Emeritus on the Board of Directors. Mr. Paulson owns five automobile dealerships
in Beverly Hills, California. He is also a thoroughbred breeder and is the owner
of the Del Mar Country Club in Rancho Santa Fe, California which includes both a
golf course and club house and lots for residential development surrounding the
country club. Mr. Paulson also serves on the Boards of Directors of DIAL
Corporation and CardioDynamics International Corporation.
WILLIAM P. MCCOMAS has been a Director of Full House since November, 1992. He
has been President of McComas Properties, Inc., a California real estate
development company since January 1984. Mr. McComas and companies controlled by
him have developed several hotels and resorts, including Marina Bay Resort, Fort
Lauderdale, Florida; Ocean Colony Hotel and Resort, Half Moon Bay, California;
Residence Inn by Marriott, Somers Point, New Jersey; and five Holiday Inns
located in Des Moines, Iowa; San Angelo, Texas; Suffern, New York; Niagara
Falls, New York; and Fort Myers, Florida.
RONALD K. RICHEY has been a director of the Company since April 9, 1996.
He has been Chairman of Torchmark Corporation, an insurance holding company
since August 1986 and has been the Chief Executive Officer of that company
since December 1984. From December 1984 through August 1986, Mr. Richey was
President of Torchmark Corporation. Mr. Richey is an attorney and a member of
the Oklahoma Bar Association.
ROBERT L. KELLEY has been the President and Chief Operating Officer of the
Company since August 10, 1994. Mr. Kelley was the Executive Vice President in
charge of casino operations for Lone Star Casino Corporation from May, 1993
until beginning employment with Full House. Mr. Kelley was a partner in a
consulting partnership that evaluated hotel casinos from April, 1990 until May,
1991. Prior to that, Mr. Kelley had over 20 years experience as a senior
executive of Las Vegas hotel casinos including the Las Vegas Hilton, Flamingo
Hilton and Tropicana Hotel and Casino.
WILLIAM R. JACKSON has been Executive Vice President--Corporate Finance of
Full House since June, 1994. Mr. Jackson was the Chief Financial Officer of
Westinghouse Communities, Inc. for over 6 years. Mr. Jackson received a
Bachelor of Business Administration Degree in Accounting from Stetson
University in Deland, Florida. He is a member of the American Institute of
Certified Public Accountants and the Florida Institute of Certified Public
Accountants.
MEGAN G. MCINTOSH has been employed by Full House since December 1, 1994 and
has been the Secretary of Full House since November 20, 1995. From April 1991
until she joined Full House, Ms. McIntosh was an administrative assistant for a
civil engineering firm located in California. Prior to that time, Ms. McIntosh
was an administrative assistant for a real estate development firm located in
Southern California.
36
EXECUTIVE COMPENSATION
The following table sets forth the aggregate compensation paid to the Chief
Executive Officer of Full House for services in all capacities to Full House and
its subsidiaries during the fiscal year ended December 31, 1995 (no executive
officer received over $100,000 in annual salary and bonus in 1995):
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------- ------------------
OTHER ANNUAL NAME OF SECURITIES
NAME AND PRINCIPAL POSITION YEAR SALARY COMPENSATION UNDERLYING OPTIONS
- ---------------------------- ------ ---------- ------------ ------------------
ROBERT L. KELLEY, 1995 $150,000 -0- 150,000
President and Chief
Operating Officer
EMPLOYMENT AGREEMENTS
The Company and Robert L. Kelley entered into a letter agreement on July 29,
1994, providing for Mr. Kelley's employment as President and Chief Operating
Officer at a base salary of $150,000 per year, commencing on August 10, 1994.
Mr. Kelley was further granted options to purchase a total of 150,000 shares of
the Company's common stock, of which 100,000 shares vested in 50,000 share
increments on August 10, 1995 and April 9, 1996. The balance of the options will
vest on August 10, 1996. On November 20, 1995, the exercise price of the options
was reduced to $3.875 per share.
STOCK OPTIONS
No options were granted to the Named Executive Officer in 1995.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
The following table sets forth certain information concerning exercises of
stock options by the Named Executive Officer during the 1995 fiscal year and the
fiscal year-end value of the unexercised stock options held by the Named
Executive Officers.
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES ACQUIRED VALUE OPTIONS AT 1995 OPTIONS AT 1995
NAME ON EXERCISE REALIZED(1) FISCAL YEAR END FISCAL YEAR-END(2)
- ----------------- ---------------- ------------ -------------------------------- --------------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
ROBERT L. KELLEY -0- $ -0- 50,000 100,000 -0- -0-
(1) REPRESENTS DIFFERENCE BETWEEN EXERCISE PRICE AND MARKET PRICE OF FULL
HOUSE COMMON STOCK ON DATE OF EXERCISE.
(2) THE MARKET VALUE OF THE SHARES OF COMMON STOCK UNDERLYING THE OPTIONS
HELD BY MR. KELLEY WAS LESS THAN THE EXERCISE PRICE OF THE OPTIONS AT
DECEMBER 31, 1995.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
THE BOARD OF DIRECTORS DID NOT HAVE A STANDING COMPENSATION COMMITTEE
DURING 1995. THEREFORE, THE ENTIRE BOARD OF DIRECTORS PARTICIPATED IN
DELIBERATIONS CONCERNING EXECUTIVE COMPENSATION.
37
PRINCIPAL STOCKHOLDERS
THE FOLLOWING TABLE SETS FORTH, AS OF JUNE 15, 1996, INFORMATION WITH RESPECT
TO THE BENEFICIAL OWNERSHIP OF THE COMMON STOCK BY (I) EACH PERSON KNOWN BY FULL
HOUSE TO BENEFICIALLY OWN MORE THAN 5% OF THE OUTSTANDING SHARES OF COMMON
STOCK, (II) EACH DIRECTOR OF FULL HOUSE, (III) THE EXECUTIVE OFFICER NAMED IN
THE SUMMARY COMPENSATION TABLE, AND (IV) ALL DIRECTORS AND EXECUTIVE OFFICERS OF
FULL HOUSE AS A GROUP.
SHARES OF PERCENTAGE OF
COMMON STOCK COMMON STOCK
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED(1) OUTSTANDING(2)
- ------------------------------------- ---------------- ----------------
Lee Iacocca
1440 South Sepulveda Boulevard
Los Angeles, California 90025 1,056,471(3) 10.0%
William P. McComas
1 Marina Bay Drive
Ft. Lauderdale, Florida 33312 1,615,037(3)(4) 14.8%
Allen E. Paulson
515 South Mapleton Drive
Los Angeles, California 90024 2,210,000(3)(5) 21.0%
Ronald K. Richey
2001 Third Avenue South
Birmingham, Alabama 35233 17,200 0.2%
Robert L. Kelley
109 Quail Run Road
Henderson, Nevada 89014 150,000(6) 1.4%
GTECH Corporation
50 Technology Way
West Greenwich, Rhode Island 02817 600,000(7) 5.7%
All Officers and Directors
as a Group (6 Persons) 4,034,371(8) 36.4%
- --------
(1) Shares are considered beneficially owned, for purposes of this table only,
if held by the person indicated as beneficial owner, or if such person,
directly or indirectly, through any contract, arrangement, understanding,
relationship, or otherwise, has or shares the power to vote, to direct the
voting of and/or dispose of or to direct the disposition of, such security,
or if the person has a right to acquire beneficial ownership within 60 days,
unless otherwise indicated in these footnotes.
(2) Based on 10,533,078 shares of Common Stock outstanding. Any securities
outstanding which are subject to presently exercisable options or warrants
are deemed to be outstanding for the purpose of computing the percentage of
outstanding securities of the class owned by such person, but are not deemed
to be outstanding for the purpose of computing the percentage of the class
owned by any other person.
(3) Pursuant to an Option Agreement dated December 29, 1995, Messrs. Iacocca,
McComas and Paulson have granted an option to GTECH Corporation to purchase
their shares of Common Stock should they propose to transfer the same.
(4) Includes 350,000 shares of Common Stock into which 350,000 shares of Series
1992-1 Preferred Stock (50% of such class) presently may be converted.
(5) Includes 1,200,000 shares held by the Allen E. Paulson Living Trust of
which Mr. Paulson is the trustee.
(6) Includes options to purchase 150,000 shares of Common Stock 100,000 of which
became exercisable in 50,000 share increments on August 10, 1995 and April
9, 1996 and an additional 50,000 shares which will become exercisable on
August 10, 1996.
(7) Represents 600,000 shares of Common Stock issuable upon conversion of a
$3,000,000 convertible note. The right to convert exists, from time to time,
prior to January 25, 1998 and is subject to applicable regulatory approval.
(8) Includes (i) 350,000 shares of Common Stock into which 350,000 shares of
Series 1992-1 Preferred Stock (50% of such class) presently may be converted
and (ii) 190,000 shares of Common Stock which may be purchased upon exercise
of currently exercisable options.
38
CERTAIN TRANSACTIONS
During the fiscal years ended December 31, 1994 and 1995, the Company paid
$149,921 and $61,655, respectively, in interest costs to H. Joe Frazier in
connection with loans to the Company provided by Mr. Frazier in March 1993. The
loan was repaid in full in May 1995 as discussed in the next paragraph. Mr.
Frazier resigned as a director of the Company in January, 1996.
On May 31, 1995, DGR borrowed $5 million from Miller & Schroeder Investment
Corporation, secured by a mortgage on its real property. The proceeds of the
loan were used to repay its obligation to H. Joe Frazier, a stockholder and a
then director of the Company ($1,237,789.43), to repay a portion of the
revolving note payable to Bank of America ($3,525,676.57) which was also
guaranteed by the directors of the Company and the balance was used to pay costs
associated with the loan. Allen E. Paulson, William P. McComas and H. Joe
Frazier, severally, guaranteed 8.33% of the loan from Miller & Schroeder under
an arrangement which provides that the amount guaranteed by them is
proportionately reduced as the loan is repaid. In March, 1996, as partial
consideration for the lender waiving certain covenant violations by DGR, the
Company issued a guaranty of $1,420,000 of DGR's indebtedness under this loan.
On March 24, 1994, Allen E. Paulson purchased 1,000,000 shares of Full
House's common stock for $800,000. Full House also issued 500,000 shares of its
Common Stock to Mr. Paulson in exchange for his agreement to individually
provide or to take such actions as were required for a financial institution to
provide a commercial line of credit to Full House in the minimum amount of $8
million. Full House valued the shares of stock at $.80 per share based upon the
size of the transaction, the fact that the shares were not registered and are
not subject to registration rights. On March 14, 1994, 1,025,635 shares of
Common Stock and 300,000 shares of Preferred Stock were repurchased by the
Company from Eugene Gatti, for $1,903,000. The 500,000 shares issued to Mr.
Paulson as compensation for securing the $8 million financing were charged as a
period cost in Full House's results of operation for 1994. On June 7, 1994, Bank
of America, as a result of the joint and several guarantees of the full amount
of the loan by Messrs. Paulson, Frazier and McComas, provided Full House with a
line of credit in the amount of $8 million at the "reference rate" of Bank of
America, N.A. As of December 31, 1995, a balance of $6,206,286 was outstanding
under the line of credit. As of March 15, 1996, no amounts were outstanding
under this line of credit. All amounts outstanding under this line of credit
bear interest at the bank's "reference rate" and are due and payable upon demand
or, if no demand is made, on July 1, 1996. Full House believes that it would
have been unable to obtain this line of credit without the actions of Mr.
Paulson, as its financial condition would not have supported such an extension
of credit.
As part of the merger of a subsidiary of Full House into Omega Properties
Inc., the shareholders of Omega received an aggregate of 500,000 shares of Full
House Common Stock and a promissory note of Full House in the principal amount
of $375,000. The principal amount of this promissory note accrues interest at a
rate equal to the "prime" rate and such principal amount, together with all
accrued interest, is due and payable in full upon demand by the holder(s) of
this note, but in no event before August 31, 1996. William P. McComas received
the note and the other stockholder of Omega received the shares in exchange for
their interests as shareholders of Omega. See "Business--Background."
As part of its transactions with GTECH Corporation, Full House issued to
GTECH a convertible promissory note in the principal amount of $3,000,000. The
note is convertible, subject to regulatory approval, at any time prior to
January 25, 1998, into 600,000 shares of Common Stock. The note is non-interest
bearing until January 25, 1998, at which point the unpaid principal balance of
the note will bear interest at the "prime rate." The note matures on January 25,
2001. See "Business--GTECH Relationship."
With respect to the foregoing transactions, Full House believes that such
transactions were on terms as favorable to Full House as would have been
available from unrelated parties.
39
DESCRIPTION OF SECURITIES
COMMON STOCK
The Company is authorized to issue 25,000,000 shares of Common Stock, par
value $.0001 per share. Subject to the rights of holders of Preferred Stock,
holders of shares of Common Stock are entitled to dividends as and when declared
by the Board of Directors from funds legally available therefor (see "Dividend
Policy") and upon liquidation, dissolution or winding up of the Company, to
share ratably in all assets remaining after payment of liabilities including
amounts to which holders of Preferred Stock may be entitled. The declaration and
payment of dividends in respect of Common Stock is subject to the prior payment
of all accrued dividends due in respect of the Series 1992-1 Preferred Stock.
Accordingly, the declaration and payment of dividends in respect of Common Stock
is currently prohibited due to the failure to pay the $735,000 in accrued
dividends on the Series 1992-1 Preferred Stock as of December 31, 1995. The
holders of shares of Common Stock do not have preemptive rights, are entitled to
one vote for each share of Common Stock held of record by them and do not have
the right to cumulate their votes for the election of Directors. Shares of
Common Stock are not redeemable and do not have any conversion rights. All of
the outstanding shares of Common Stock to be issued upon exercise of the
Warrants will be fully paid and nonassessable. The 10,533,078 shares of Common
Stock and 778,534 Warrants outstanding on April 26, 1996 were held of record by
approximately 200 and 10 persons, respectively. The Company believes that there
are over 700 beneficial owners of its Common Stock and Warrants.
PREFERRED STOCK
The Company is authorized to issue 5,000,000 shares of Preferred Stock. In
1992, the Board of Directors authorized the issuance of 1,000,000 shares of
Preferred Stock designated "Series 1992-1 Preferred Stock" ("Series 1992-1
Preferred Stock"), in connection with the Stock Acquisition Agreement by which
the Company acquired DGR. There are currently 700,000 shares outstanding.
Holders of Series 1992-1 Preferred Stock are entitled to receive, when and as
declared by the Board of Directors, out of funds legally available therefor,
cumulative cash dividends at the annual rate of $.30 per share. Dividends are
payable semi-annually on the 15th day of December and June. Dividends in respect
for Series 1992-1 Preferred Stock are cumulative whether or not declared.
Dividends on the Series 1992-1 Preferred Stock commenced accruing on July 1,
1992. While any cumulative dividend in respect of Series 1992-1 Preferred Stock
remains unpaid, no dividends may be declared or paid in respect of Common Stock,
and all cumulative dividends in respect of Series 1992-1 Preferred Stock are
required to be paid ratably. As of June 30, 1996, dividends of $840,000 had
accumulated, but were undeclared and unpaid and were in arrears with respect to
the Series 1992-1 Preferred Stock.
In the event of liquidation, dissolution or winding-up of the Company,
holders of the Series 1992-1 Preferred Stock are entitled to receive the sum of
$3.00 per share, plus all cumulative but unpaid dividends, before any
distribution may be made to holders of Common Stock or any Preferred Stock
ranking junior to Series 1992-1 Preferred Stock as to liquidation preferences.
Each share of Series 1992-1 Preferred Stock may be converted into one share
of the Company's Common Stock at any time at the option of the holder thereof,
subject to adjustment upon certain events.
Each share of Series 1992-1 Preferred Stock is entitled to one vote on all
matters submitted to a vote of the Company's stockholders, with holders of
Series 1992-1 Preferred Stock generally voting together as one class.
Pursuant to the Stock Acquisition Agreement, the Company has provided to
holders of the Series 1992-1 Preferred Stock certain demand registration rights
exercisable at any time after July 1, 1994, but before July 1, 1997, and
"piggy-back" registration rights exercisable at any time.
The issuance of Preferred Stock, under certain circumstances, may have the
effect of discouraging, delaying or preventing a change in control of the
Company.
40
WARRANTS
In August, 1993, the Company issued an aggregate of 800,000 Warrants
comprising a portion of the Units sold in its initial public offering. As of the
date hereof, 21,466 of such Warrants have been exercised. Each Warrant entitles
the holder thereof to purchase 1.1894 shares of Common Stock at a price of $4.20
per share at any time for a period commencing August 10, 1994 through February
10, 1997. The number of securities issuable upon exercise of the Warrants and
the exercise price of the Warrants are subject to further adjustment upon the
occurrence of specified events including stock dividends, stock splits,
reorganizations or certain other occurrences, all as set forth in a Warrant
Agreement between the Company and American Stock Transfer & Trust Company, the
Company's Transfer Agent and Warrant Agent. There is no adjustment for the
payment of cash dividends by the Company on its Common Stock.
The Warrants can be redeemed at the option of the Company on not less than 30
days written notice at a redemption price of $.05 per Warrant, provided that the
average closing bid price of the Common Stock for a period of twenty consecutive
trading days ending within the sixty day period prior to the giving of notice of
redemption is $5.04 or higher, as reported by NASDAQ and if there is a current
registration statement under the Securities Act of 1933, as amended, covering
the exercise of the Warrants. If the Warrants are called for redemption, they
must be exercised prior to the close of business on the last business day
immediately before the redemption date or the right to purchase the applicable
shares of Common Stock is forfeited. Warrants do not entitle holders to any
rights of a stockholder of the Company.
For the life of the Warrants, the holders are given, at nominal cost, the
opportunity to profit from a rise in the market price of the Common Stock of the
Company with a resulting dilution in the voting interest of security holders.
While the Warrants are outstanding, the terms on which the Company can obtain
additional capital may be adversely affected as the warrantholders may be
expected to exercise the Warrants at a time when the Company could obtain needed
capital by an offering of securities on terms more favorable than those provided
by the Warrants.
The Warrants may be exercised by surrendering to American Stock Transfer &
Trust Company a Warrant certificate signed by the holder thereof or his duly
authorized agent indicating such holder's election to exercise all, or a portion
of, the Warrants evidenced by such certificate. Surrendered Warrant certificates
must be accompanied by payment of the aggregate exercise price of the Warrants
to be exercised, which payment may be in the form of cash or official bank or
certified check, payable to the Company, equal to such exercise price. All cash
or checks so received shall be delivered by American Stock Transfer & Trust
Company to the Company. The Company has authorized and reserved for sale the
shares of Common Stock purchasable upon exercise of the Warrants. When
delivered, such shares of Common Stock shall be fully paid and nonassessable. No
fractional shares will be issued and exercising warrantholders otherwise
entitled to a fractional share shall be paid an amount equal to the same
fraction of a share of the market price of the Common Stock on the business day
preceding the day of exercise.
The outline above is subject to the provisions of the Warrants and the
Warrant Agreement. Copies of the Warrants and the Warrant Agreement have been
filed as exhibits to the Registration Statement of which this Prospectus is a
part and reference is made to such exhibits for a detailed description of the
provisions thereof summarized above.
SHARES ELIGIBLE FOR FUTURE SALE
As of the date of this prospectus, the Company had outstanding 10,533,078
shares of its Common Stock. The Company has granted certain demand and piggyback
registration rights with respect to 3,127,129 shares of its Common Stock and the
700,000 shares of its Common Stock which might be acquired upon the conversion
of the 700,000 outstanding shares of its Series 1992-1 Preferred Stock. Of the
shares of the Company's Common Stock currently outstanding, approximately 6
million are
41
"restricted securities" as that term is defined in Rule 144 promulgated under
the Securities Act. Of these approximately 6 million shares, 1,056,471 will be
eligible for sale under Rule 144 commencing in March 1997 and 1,250,000 will be
eligible for sale under said rule commencing in January 1998. The balance of
such shares are currently eligible for sale under Rule 144. Sales of a
substantial number of these restricted shares of the Common Stock pursuant to
Rule 144 or other exemptions from the registration requirements of the Act may
adversely affect the market price of the Common Stock. In general, under Rule
144, a person (or persons whose shares are aggregated) who has satisfied a
two-year holding period may, under certain circumstances, sell within any
three-month period a number of shares which does not exceed the greater of 1% of
the then outstanding shares of Common Stock, or the average weekly volume during
the four calendar weeks prior to such sale. Rule 144 also permits, under certain
circumstances, the sale of shares without any volume limitation by a person who
is not an affiliate of the Company and who has satisfied a three-year holding
period.
TRANSFER AGENT AND WARRANT AGENT
The Transfer Agent for the Company's Common Stock and the Warrant Agent
for the Warrants is American Stock Transfer & Trust Company, 99 Wall Street,
New York, New York 10005.
PLAN OF DISTRIBUTION
The shares of Common Stock offered hereby will be issued by the Company upon
the exercise of the Warrants. See "Description for Securities--Warrants" for a
description for the terms and manner of exercise of the Warrants.
The Warrants were issued in August, 1993, as part of the Units sold by the
Company in its initial public offering. The Warrants became separable and
detachable from the Common Stock on October 9, 1993. The Units were sold by
certain underwriters for whom the Representative acted as representative.
Prior to completion of the Company's initial public offering, there was no
established market for the Common Stock, Warrants or Units. The exercise prices
and other terms of the Warrants were arbitrarily determined by negotiation
between the Company and the Representative. In determining the offering and
exercise prices, consideration was given to the Company's then proposed
operations, financial condition, estimates of its business potential and the
general condition of the securities market. The exercise price and other terms
of the Warrants, however, should not be considered as any indication of the
actual value of the Company and bear no relationship to the assets or book value
of the Company of any generally accepted criteria of economic valuation.
LEGAL MATTERS
Matters relating to the validity of the securities being offered by this
Prospectus are being passed upon for the Company by Greenberg, Traurig, Hoffman,
Lipoff, Rosen & Quentel, P.A., Miami, Florida.
EXPERTS
The consolidated financial statements of the Company as of December 31, 1995
and for the years ended December 31, 1994 and 1995, and the financial statements
of Gaming Entertainment L.L.C. as of December 31, 1995 and for the period from
April 1, 1995 (inception) through December 31, 1995, appearing in this
Prospectus and the Registration Statement have been audited by Deloitte & Touche
LLP, independent auditors, as stated in their reports appearing herein, and are
included in reliance upon the reports of such firm given upon their authority as
experts in accounting and auditing. The
42
financial statements of LAI Associates, Inc. at December 31, 1994 and for the
year ended December 31, 1994 and the period from April 2, 1993 (date of
inception) to December 31, 1993 appearing in this Prospectus and the
Registration Statement have been audited by Perrin Fordree & Company, P.C., as
set forth in their report thereon appearing herein and are included in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing. The financial statements of Omega Properties, Inc. at December 31,
1994 and for the period from August 12, 1994 (date of inception) to December 31,
1994 appearing in this Prospectus and the Registration Statement have been
audited by Fiech & Resnick, CPA's, P.C., as set forth in their report thereon
appearing herein and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
CHANGE IN AUDITORS
In November, 1994, McGladrey & Pullen, LLP notified the Company that it would
decline to stand for re-election as independent accountants of the Company.
During the prior two fiscal years of the Company, the reports of McGladrey &
Pullen, LLP on the Company's financial statements neither contained any adverse
opinions or disclaimers of opinions nor were qualified or modified as to any
uncertainty, audit scope or accounting principles. During such years, and all
later interim periods, there were no disagreements with McGladrey & Pullen, LLP
on any matter of accounting principles or practices, financial statement
disclosure or auditing scope or procedure, which disagreements, if not resolved
to the satisfaction of McGladrey & Pullen, LLP, would have caused it to make
reference to the subject matter of the disagreements in connection with its
reports. On February 7, 1995, the Company retained Deloitte & Touche LLP as its
principal accountant to audit the Company's financial statements.
43
INDEX TO FINANCIAL STATEMENTS
PAGE
---------
THE COMPANY:
Independent Auditors' Report ................................................................. F-2
Consolidated Balance Sheets as of December 31, 1995 and March 31, 1996 (Unaudited) .......... F-3
Consolidated Statements of Operations for the Years Ended December 31, 1994 and 1995 and for
the Three Months Ended March 31, 1995 and 1996 (Unaudited) ................................. F-4
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1994 and
1995 and for the Three Months Ended March 31, 1996 (Unaudited) ............................. F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1994 and 1995 and for
the Three Months Ended March 31, 1995 and 1996 (Unaudited) ................................. F-6
Notes to Consolidated Financial Statements ................................................... F-7
LAI ASSOCIATES, INC.:
Independent Auditors' Report ................................................................. F-20
Balance Sheets as of December 31, 1994 and March 31, 1995 (Unaudited) ........................ F-21
Statements of Income for the Period from April 2, 1993 (date of inception) to
December 31, 1993, for the Year Ended December 31, 1994 and
for the Three Months Ended March 31, 1994 and 1995 (Unaudited) ............................. F-22
Statement of Stockholder's Equity for the Period from April 2, 1993 (date of inception) to
December 31, 1993, for the Year Ended December 31, 1994 and
for the Three Months Ended March 31, 1995 (Unaudited) ...................................... F-23
Statements of Cash Flows for the Period from April 2, 1993 (date of inception) to
December 31, 1993, for the Year Ended December 31, 1994 and
for the Three Months Ended March 31, 1994 and 1995 (Unaudited) ............................. F-24
Notes to Financial Statements ................................................................ F-25
OMEGA PROPERTIES, INC.:
Independent Auditors' Report ................................................................. F-27
Balance Sheets as of December 31, 1994 and September 30, 1995 (Unaudited) .................... F-28
Statements of Income for the Period from Inception (August 12, 1994) to
December 31, 1994 and for the Nine Months Ended September 30, 1995 (Unaudited) ............. F-29
Statements of Stockholders' equity for the Period from Inception (August 12, 1994) to
December 31, 1994 and for the Nine Months Ended September 30, 1995 (Unaudited) ............. F-30
Statements of cash Flows for the Period from Inception (August 12, 1994) to
December 31, 1994 and for the Nine Months Ended September 30, 1995 (Unaudited) ............. F-31
Notes to Financial Statements ................................................................ F-32
GAMING ENTERTAINMENT L.L.C.:
Independent Auditor's Report ................................................................. F-35
Balance Sheet as of December 31, 1995 ........................................................ F-36
Statement of Income for the Period from April 1, 1995 (Inception)
through December 31, 1995 .................................................................. F-37
Statement of Members' Capital for the Period from April 1, 1995 (Inception)
through December 31, 1995 .................................................................. F-38
Statement of Cash Flows for the Period from April 1, 1995 (Inception)
through December 31, 1995 .................................................................. F-39
Notes to Financial Statements ................................................................ F-40
F-1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of Full House Resorts, Inc.:
We have audited the accompanying consolidated balance sheet of Full House
Resorts, Inc. and Subsidiaries (the "Company") as of December 31, 1995, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the years ended December 31, 1995 and 1994. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Full House Resorts, Inc. and
Subsidiaries as of December 31, 1995, and the results of their operations and
their cash flows for the years ended December 31, 1995 and 1994 in conformity
with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Reno, Nevada
March 13, 1996
F-2
FULL HOUSE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, MARCH 31,
1995 1996
--------------- --------------
(UNAUDITED)
--------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .......................................... $ 581,529 $ 2,883,072
Accounts receivable, net of allowance of $16,300 ................... 24,959 17,865
Receivable from GTECH .............................................. 1,149,486 89,456
Receivables from joint ventures .................................... 10,211,703 --
Inventories ........................................................ 90,730 96,922
Prepaid expenses ................................................... 373,217 242,310
--------------- --------------
Total current assets .............................................. 12,431,624 3,329,625
GAMING RIGHTS ....................................................... 3,258,836 3,258,836
ASSETS HELD FOR SALE--net ........................................... 6,560,333 6,308,785
INVESTMENTS IN JOINT VENTURES ....................................... 862,508 1,029,812
GOODWILL--net ....................................................... 2,912,698 2,784,486
OTHER ASSETS ........................................................ 11,750 11,638
--------------- --------------
TOTAL ............................................................... $26,037,749 $16,723,182
=============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES: ................................................
Current portion of long-term debt .................................. $11,042,260 $ 652,383
Accounts payable ................................................... 386,914 315,877
Accrued expenses ................................................... 611,334 439,801
--------------- --------------
Total current liabilities ......................................... 12,040,508 1,408,061
--------------- --------------
LONG-TERM DEBT, net of current portion .............................. 4,545,194 6,748,409
--------------- --------------
COMMITMENTS AND CONTINGENCIES (Notes 5 and 13) ......................
STOCKHOLDERS' EQUITY: ...............................................
Cumulative, convertible preferred stock, par value $.0001, 5,000,000 shares
authorized, 700,000 shares issued and outstanding; aggregate liquidation
preference of $2,835,000 and
$2,887,500 ....................................................... 70 70
Common stock, par value $.0001, 25,000,000 shares authorized;
10,339,549 shares issued and outstanding ......................... 1,034 1,034
Additional paid in capital ......................................... 16,413,315 16,413,315
Accumulated deficit ................................................ (6,962,372) (7,847,707)
--------------- --------------
Total stockholders' equity ........................................ 9,452,047 8,566,712
--------------- --------------
TOTAL ............................................................... $26,037,749 $16,723,182
=============== ==============
See notes to consolidated financial statements.
F-3
FULL HOUSE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
-------------------------------- -----------------------------
1994 1995 1995 1996
--------------- --------------- ------------- --------------
(UNAUDITED)
-----------------------------
OPERATING REVENUES:
Casino ................................... $ 1,672,559 $ 1,453,608 $ 278,879 $ 298,894
Hote/RV park ............................. 1,464,108 1,424,428 182,968 206,254
Retail ................................... 1,256,982 1,249,285 194,979 227,462
Food and beverage ........................ 744,709 727,865 119,507 178,626
Fun park ................................. 756,910 822,893 50,032 47,326
Joint ventures ........................... -- 160,224 -- 172,168
--------------- --------------- ------------- --------------
5,895,268 5,838,303 826,365 1,130,730
Less: promotional allowances ............. (202,748) (205,157) (39,433) (52,137)
--------------- --------------- ------------- --------------
Net operating revenues ................. 5,692,520 5,633,146 786,932 1,078,593
--------------- --------------- ------------- --------------
OPERATING COSTS AND EXPENSES:
Casino .................................. 1,052,655 1,049,363 283,723 258,959
Hotel/ RV park ........................... 606,567 637,062 117,500 130,538
Retail ................................... 1,121,191 1,090,951 180,594 212,933
Food and beverage ........................ 626,766 578,684 106,582 131,800
Fun park ................................. 476,330 632,894 77,157 70,607
Sales and marketing ...................... 246,579 224,334 37,690 53,183
General and administrative ............... 1,660,964 2,450,808 665,432 501,490
Depreciation and amortization ............ 505,231 1,240,446 162,722 130,717
Abandoned project cost ................... -- 1,867,730 -- --
Impairment of long-lived assets .......... -- 3,100,000 -- 250,000
Other .................................... -- 75,917 -- --
--------------- --------------- ------------- --------------
Total operating costs and expenses .... 6,296,283 12,948,189 1,631,400 1,740,227
--------------- --------------- ------------- --------------
LOSS FROM OPERATIONS ...................... (603,763) (7,315,043) (844,468) (661,634)
OTHER INCOME (EXPENSE):
Interest expense and debt issue costs
(including $626,868 and $81,015 to
related parties in 1994 and 1995) ...... (821,796) (1,008,857) (87,790) (251,115)
Interest and other income ................ 57,645 828,302 6,145 27,414
--------------- --------------- ------------- --------------
LOSS BEFORE INCOME TAXES .................. (1,367,914) (7,495,598) (926,113) (885,335)
INCOME TAX BENEFIT ........................ 2,000 1,944,710 -- --
--------------- --------------- ------------- --------------
NET LOSS .................................. (1,365,914) (5,550,888) (926,113) (885,335)
Less, undeclared dividends on cumulative
preferred stock ......................... (225,000) (210,000) (52,500) (52,500)
--------------- --------------- ------------- --------------
NET LOSS APPLICABLE TO
COMMON SHARES ........................... $(1,590,914) $(5,760,888) $ (978,613) $ (937,835)
=============== =============== ============= ==============
LOSS PER COMMON SHARE ..................... $ (0.19) $ (0.59) $ (0.11) $ (0.09)
=============== =============== ============= ==============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING ............................. 8,417,176 9,806,723 8,893,017 10,339,549
=============== =============== ============= ==============
See notes to consolidated financial statements.
F-4
FULL HOUSE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
AND THE THREE MONTHS ENDED MARCH 31, 1996 (UNAUDITED)
PREFERRED STOCK COMMON STOCK
SHARES AMOUNT SHARES AMOUNT
------------ --------- -------------- ---------
BALANCE, JANUARY 1, 1994 ....................... 1,000,000 $100 7,953,500 $ 795
Net loss ....................................... -- -- -- --
Purchase and retirement of stock ............... (300,000) (30) (1,025,635) (103)
Purchase of shares by an officer,
director and stockholder ..................... -- -- 1,000,000 100
Issuance of common stock to an officer,
director and stockholder related to debt issue
costs ........................................ -- -- 500,000 50
Issuance of common stock as compensation ...... -- -- 50,000 5
Exercise of options ............................ -- -- 50,000 5
Exercise of options under incentive plan ...... -- -- 57,188 6
Exercise of warrants, net of
$38,450 in registration costs ................ -- -- 182,964 19
Write off and amortization of debt issue costs -- -- -- --
------------ --------- -------------- ---------
BALANCE, DECEMBER 31, 1994 ..................... 700,000 70 8,768,017 877
Net loss ....................................... -- -- -- --
Shares issued for acquisition of LAI
Associates, Inc. ("LAI") ..................... -- -- 1,250,000 125
Receivable for shares issued for acquisition of
LAI to be returned ........................... -- -- (193,529) (19)
Shares issued for acquisition of Omega
Properties, Inc. ............................. -- -- 500,000 50
Exercise of warrants, net of $45,189 in
registration costs ........................... -- -- 15,061 1
------------ --------- -------------- ---------
BALANCE, DECEMBER 31, 1995 ..................... 700,000 70 10,339,549 1,034
THREE MONTHS ENDED MARCH 31, 1996 (UNAUDITED)
Net loss ..................................... -- -- -- --
------------ --------- -------------- ---------
BALANCE MARCH 31, 1996 (UNAUDITED) ............. 700,000 $ 70 10,339,549 $1,034
============ ========= ============== =========
(RESTUBBED TABLE CONTINUED FROM ABOVE)
DEFERRED
ADDITIONAL DEBT
PAID-IN ISSUE ACCUMULATED
CAPITAL COSTS DEFICIT TOTAL
-------------- ------------- --------------- --------------
BALANCE, JANUARY 1, 1994 ....................... $ 9,296,456 $(200,000) $ (45,570) $ 9,051,781
Net loss ....................................... -- -- (1,365,914) (1,365,914)
Purchase and retirement of stock ............... (1,902,867) -- -- (1,903,000)
Purchase of shares by an officer,
director and stockholder ..................... 799,900 -- -- 800,000
Issuance of common stock to an officer,
director and stockholder related to debt issue
costs ........................................ 399,950 -- -- 400,000
Issuance of common stock as compensation ...... 117,495 -- -- 117,500
Exercise of options ............................ 149,995 -- -- 150,000
Exercise of options under incentive plan ...... 151,542 -- -- 151,548
Exercise of warrants, net of
$38,450 in registration costs ................ 767,931 -- -- 767,950
Write off and amortization of debt issue costs -- 200,000 -- 200,000
-------------- ------------- --------------- --------------
BALANCE, DECEMBER 31, 1994 ..................... 9,780,402 -- (1,411,484) 8,369,865
Net loss ....................................... -- -- (5,550,888) (5,550,888)
Shares issued for acquisition of LAI
Associates, Inc. ("LAI") ..................... 5,312,375 -- -- 5,312,500
Receivable for shares issued for acquisition of
LAI to be returned ........................... (822,481) -- -- (822,500)
Shares issued for acquisition of Omega
Properties, Inc. ............................. 2,124,950 -- -- 2,125,000
Exercise of warrants, net of $45,189 in
registration costs ........................... 18,069 -- -- 18,070
-------------- ------------- --------------- --------------
BALANCE, DECEMBER 31, 1995 ..................... 16,413,315 -- (6,962,372) 9,452,047
THREE MONTHS ENDED MARCH 31, 1996 (UNAUDITED)
Net loss ..................................... -- -- (885,335) (885,335)
-------------- ------------- --------------- --------------
BALANCE MARCH 31, 1996 (UNAUDITED) ............. $16,413,315 $ -- $(7,847,707) $ 8,566,712
============== ============= =============== ==============
See notes to consolidated financial statements.
F-5
FULL HOUSE RESORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
-------------------------------- ------------------------------
1994 1995 1995 1996
--------------- --------------- -------------- ---------------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss .................................................... $(1,365,914) $ (5,550,888) $ (926,113) $ 885,335)
Adjustments to reconcile net loss to net cash used in
operating activities: .......................................
Depreciation and amortization ............................. 505,231 1,240,446 162,722 130,717
Stock issued as compensation ................................. 117,500 -- -- --
Debt issue costs ............................................. 647,349 41,170 2,904 9,312
Abandoned project costs ...................................... -- 1,867,730 -- --
Impairment of long-lived assets .............................. -- 3,100,000 -- 250,000
Loss on disposition of assets ................................ 5,787 -- -- --
Bad debt expense ............................................. -- 16,300 -- --
Equity in earnings of joint ventures ......................... -- (160,224) -- --
Changes in assets and liabilities:
(Increase) decrease in accounts receivable .................. (4,295) (223,805) 5,588 7,094
(Increase) decrease in inventories .......................... (3,449) (588) 351 (6,192)
(Increase) decrease in prepaid expenses ..................... (23,227) (177,380) 79,489 130,907
Increase (decrease) in accounts payable
and accrued expenses ...................................... 116,142 582,933 166,904 (242,570)
Decrease in deferred tax liability .......................... (2,000) (1,944,710) -- --
--------------- --------------- -------------- -------------
Net cash used in operating activities ...................... (6,876) (1,209,016) (508,155) (606,067)
--------------- --------------- -------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment .......................... (3,650,424) (431,495) (38,126) (10,157)
Increase in investments in joint venture ...................... -- -- -- (69,890)
Proceeds from disposition of property and equipment .......... 5,350 -- -- --
(Increase) decrease in note receivable ........................ (400,000) (9,919,079) -- 11,174,319
Gaming development costs ...................................... (426,665) (607,245) (1,518,079) --
Acquisition of businesses, net of cash acquired ............... -- (172,736) -- --
Other ......................................................... -- -- 9,122 --
--------------- --------------- -------------- -------------
Net cash provided by (used in) investing activities ....... (4,471,739) (11,130,555) (1,547,083) 11,094,272
--------------- --------------- -------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt .............................. 2,150,000 14,306,285 2,176,583 3,000,000
Repayment of debt ............................................. (3,817,934) (1,527,107) (36,883) (11,186,662)
Payment of debt issue costs ................................... -- (260,818) -- --
Purchase and retirement of stock .............................. (1,903,000) -- -- --
Proceeds from sale of common stock and exercise of warrants,
net of offering costs ....................................... 1,869,498 18,070 -- --
--------------- --------------- -------------- -------------
Net cash provided by (used in) financing activities ....... (1,701,436) 12,536,430 2,139,700 (8,186,662)
--------------- --------------- -------------- -------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS ......................................... (6,180,051) 196,859 84,462 2,301,543
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD .......................................... 6,564,721 384,670 384,670 581,529
--------------- --------------- -------------- -------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD ................................................ $ 384,670 $ 581,529 $ 469,132 $ 2,883,072
=============== =============== ============== ==============
See notes to consolidated financial statements.
F-6
FULL HOUSE RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Full House Resorts, Inc. ("FHRI") was incorporated in the State of
Delaware as Hour Corp. on January 5, 1987 and changed its name to D.H.Z.
Capital Corp. on June 1, 1987 and to Full House Resorts, Inc. on September 2,
1992. FHRI from inception to November 20, 1992, conducted no significant
operations other than the investigation of potential business opportunities.
On November 20, 1992, FHRI acquired 100% of the outstanding common stock of
Deadwood Gulch Resort and Gaming Corp. ("DGR"). DGR currently operates in
Deadwood, South Dakota a 97-room hotel, a recreational vehicle park and
campground, conference center, convenience store/gas mart, restaurant, lounge,
family entertainment facility and two small casinos. During January of 1996, the
Company announced its intent to dispose of DGR and is actively seeking a buyer.
The Company has classified the assets of DGR as assets held for sale. (See Note
4).
On July 12, 1994, Full House Subsidiary of Nevada, Inc. ("FHSN"), a wholly
owned subsidiary of FHRI, was incorporated to conduct development activities
in Nevada.
On August 19, 1994, Full House Subsidiary, Inc. ("FHS"), a wholly owned
subsidiary of FHRI, was incorporated to effect the business combination with LAI
Associates, Inc.("LAI") described in Note 3.
On March 3, 1995, Full House Subsidiary of Oregon, Inc. ("FHSO"), a wholly
owned subsidiary of FHRI, was incorporated to conduct gaming development
activities in Oregon.
On April 10, 1995, Green House Management, Inc. ("GHM"), an 85% owned
subsidiary of FHRI, was incorporated to conduct gaming development activities
with the Nottawaseppi Huron Band of Potawatomi.
On June 22, 1995, Full House Joint Venture Subsidiary Inc. ("FHJVS"), a
wholly owned subsidiary of FHRI, was incorporated to effect the business
combination with Omega Properties, Inc. ("Omega") described in Note 3.
Effective December 29, 1995, FHRI entered into a series of agreements with
GTECH Corporation ("GTECH") to jointly pursue gaming opportunities. Pursuant to
the agreements, four limited liability companies were formed. FHRI has a 50%
interest in the joint ventures.
FHRI is currently pursuing various gaming opportunities throughout North
America and the U.S. Virgin Islands.
The consolidated financial statements include the accounts and operations of
FHRI and its wholly owned and majority owned subsidiaries (the "Company"). All
significant intercompany accounts and transactions have been eliminated in
consolidation.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies of the Company conform to generally accepted
accounting principles. The following is a summary of the more significant of
such policies.
CASH AND CASH EQUIVALENTS -Cash and cash equivalents include cash required
for gaming operations. At December 31, 1995, the Company had bank deposits
exceeding federally insured limits
F-7
by approximately $202,665. Cash in excess of daily requirements is invested in
short-term investments with maturities of three months or less when purchased.
Such investments are stated at cost, which approximates market, and are deemed
to be cash equivalents for purposes of the consolidated statements of cash
flows.
RECEIVABLES -Receivables consist principally of amounts receivable from joint
ventures and GTECH as a result of agreements entered into between the Company
and GTECH effective December 29, 1995. Receivables of $10,026,304 were collected
in January of 1996.
INVENTORIES -Inventories consisting principally of fuel, groceries, food and
beverage items are recorded at the lower of first-in, first-out cost or market.
INVESTMENTS IN JOINT VENTURES -Investments in joint ventures are accounted
for using the equity method of accounting.
GOODWILL -Goodwill represents the excess cost over the net assets of
businesses acquired during 1995 (See Note 3). Goodwill is being amortized on the
straight-line basis over 6 years. The Company reviews the carrying value of
goodwill quarterly to determine whether any impairment has occurred.
Amortization expense for 1995 totaled $615,307.
GAMING RIGHTS AND DEVELOPMENT COSTS -Costs associated with gaming rights and
gaming development activities for which the Company has signed agreements are
capitalized until the project begins operations and amortized over the term of
the respective agreements. If a project is unsuccessful, and its value is
determined to be impaired, the related deferred costs are charged to expense at
the time of impairment. The Company reviews each project in process and the
costs capitalized on a quarterly basis for accounting purposes to determine
whether any impairment of the assets has occurred.
CASINO REVENUES -Casino revenue is the net win from gaming activities, which
is the difference between gaming wins and losses.
PROMOTIONAL ALLOWANCES -Food and beverage furnished without charge to
customers is included in gross revenues at a value which approximates retail and
then deducted as complimentary services to arrive at net revenues. The estimated
cost of such complimentary services is charged to the casino department and was
$51,696 and $57,912 for the years ended December 31, 1994 and 1995.
IMPAIRMENT OF LONG-LIVED ASSETS -Statement of Financial Accounting Standards
("SFAS") No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR
LONG-LIVED ASSETS TO BE DISPOSED OF, was issued by the Financial Accounting
Standards Board ("FASB") in March 1995, and established accounting standards for
the impairment of long-lived assets, certain identifiable intangibles, and
goodwill related to those assets to be held and used and for long-lived assets
and certain identifiable intangibles to be disposed of. The Company adopted the
provisions of SFAS No. 121 during the fourth quarter of the year ended December
31, 1995. The Company reviews the carrying values of its long-lived and
identifiable intangible assets for possible impairment whenever events or
changes in circumstances indicate that the carrying amount of assets may not be
recoverable.
FAIR VALUE OF FINANCIAL INSTRUMENTS -The carrying value of the Company's cash
and cash equivalents, accounts receivable, accounts payable and accrued expenses
approximates fair value
F-8
because of the short maturity of those instruments. The Company estimates the
fair value of its long-term debt based on the current rates offered to the
Company for debt of the same remaining maturities. The estimated fair value of
the Company's long-term debt approximates its recorded value at December 31,
1995.
INCOME TAXES -The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 109 Accounting for
Income Taxes, which requires recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been reflected in
the financial statements or tax returns. Deferred income taxes reflect the net
effect of (a) temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax
purposes, and (b) operating loss and tax credit carryforwards.
LOSS PER COMMON SHARE -Loss per common share is computed based upon the
weighted average number of common and common equivalent shares outstanding
during the year. The common equivalent shares resulting from stock options and
warrants have not been included in the computations since their inclusion would
have an anti-dilutive effect.
RECENTLY ISSUED ACCOUNTING STANDARDS (UNAUDITED) -SFAS No. 123, ACCOUNTING
FOR AWARDS OF STOCK-BASED COMPENSATION, was issued by the FASB in October 1995,
and established financial accounting and reporting standards for stock-based
employee compensation plans and for transactions where equity securities are
issued for goods and services. The Company adopted the provisions of SFAS No.
123 during the first quarter of the year ending December 31, 1996. This
statement requires expanded disclosures of stock-based compensation arrangements
with employees and encourages (but does not require) compensation cost to be
measured based on the fair value of the equity instrument awarded. Companies are
permitted, however, to continue to apply APB Opinion No. 25, ACCOUNTING FOR
STOCK ISSUED TO EMPLOYEES, which recognizes compensation cost based on the
intrinsic value of the equity instrument awarded. The Company will continue to
apply APB Opinion No. 25 to its stock-based compensation awards to employees and
will disclose the required pro forma effect on net income and earnings per
share.
USE OF ESTIMATES -The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
RECLASSIFICATIONS -Certain 1994 amounts have been reclassified to conform to
the current year presentation.
INTERIM FINANCIAL INFORMATION (UNAUDITED) -The accompanying unaudited
financial statements as of March 31, 1996 and for the three months ended March
31, 1996 and 1995 have been prepared in accordance with generally accepted
accounting principles for interim financial information. In the opinion of
management, all adjustments (consisting of normal, recurring adjustments)
necessary for a fair presentation have been included. Results for the interim
periods are not necessarily indicative of the results to be expected for a full
year.
NOTE 3. ACQUISITIONS
On March 23, 1995, LAI (a company owned 100% by Lee A. Iacocca) merged into
the Company's wholly-owned subsidiary, FHS. Pursuant to the merger, Mr. Iacocca
received 1,250,000 shares of the
F-9
Company's restricted common stock. During March 1996, the Company returned
certain of the assets acquired in the LAI merger to Mr. Iacocca, and he returned
193,529 shares of common stock to the Company. The purchase price allocated to
the net assets of LAI was reduced by the $822,500 value assigned to the assets
returned and the shares of stock returned. As of December 31, 1995,
stockholders' equity has been reduced by $822,500 for the receivable due from
Mr. Iacocca for the shares of stock returned, and the number of common shares
outstanding has been reduced by 193,529 shares.
On November 20, 1995, FHJVS merged into Omega (a company owned 30% by a
director and stockholder of the Company). Pursuant to this agreement the
stockholders of Omega received 500,000 shares of the Company's restricted common
stock and a note from the Company in the amount of $375,000.
The transactions have been recorded using the purchase method.
The purchase price of the acquisitions and related allocation (as adjusted
for the return of assets and stock discussed above) consist of the following:
PURCHASE PRICE
Issuance of 1,556,471 unregistered shares of common stock of the
Company valued at $4.25 per share:
Common stock ....................................................... $ 156
Additional paid-in capital ............................................ 6,614,844
Issuance of note payable ............................................... 375,000
Transaction costs ...................................................... 181,858
--------------
Total purchase price ................................................... $ 7,171,858
==============
Allocation of purchase price
Current assets ......................................................... 9,122
Goodwill ............................................................... 3,555,634
Gaming rights .......................................................... 5,556,313
Current liabilities .................................................... (4,501)
Deferred tax liability ................................................. (1,944,710)
--------------
Total .................................................................. $ 7,171,858
==============
The operating results of the acquired businesses are included in the
Company's consolidated results of operations from the respective dates of
acquisition.
F-10
The following pro forma financial information assumes the acquisitions
occurred at the beginning of each year presented. These results have been
prepared for comparative purposes only and do not purport to be indicative of
what would have occurred had the acquisitions been made at the beginning of
these years, or of the results which may occur in the future.
DECEMBER 31,
------------------------------
1994 1995
-------------- --------------
Net revenues ............. $ 5,692,520 $ 5,633,146
Net loss ................. (2,884,572) (7,069,546)
Net loss per common share (0.31) (0.70)
NOTE 4. ASSETS HELD FOR SALE/IMPAIRMENT OF LONG-LIVED ASSETS
Because of the Company's intent to dispose of DGR, the Company has
reclassified certain assets of DGR to other assets -assets held for sale.
The Company has determined that the carrying amount of the assets held for
sale may not be recoverable. The calculated impairment of long-lived assets as
of December 31, 1995, was $3.1 million based upon available information which
indicates the estimated loss which could be incurred upon disposition, based on
estimated fair value of the assets, less costs of disposition.
During the year ended December 31, 1994 and 1995, DGR incurred a net loss
before taxes of $288,440 and $3,586,446, including the impairment loss of $3.1
million, respectively.
NOTE 5. INVESTMENTS IN JOINT VENTURES
The Company entered into a series of agreements with GTECH to jointly
pursue gaming opportunities. Pursuant to the agreements, the following
limited liability companies, equally owned by GTECH and the Company were
formed: Gaming Entertainment L.L.C. ("GELLC"), Gaming Entertainment
(Delaware) L.L.C. ("GEDLLC"), Gaming Entertainment (Michigan) L.L.C.
("GEMLLC"), and Gaming Entertainment (California) L.L.C. ("GECLLC").
Although the agreements were dated December 29, 1995, the joint venture
participants agreed to share equally in the equity investment, financing
responsibility, and revenues and expenses commencing April 1, 1995. Therefore,
revenues received or expenses paid by participants on behalf of the joint
ventures from April 1, 1995 were to be collected from or repaid to the
participants by the joint ventures. In addition, the participants agreed to
reimburse each other directly, such that certain costs and expenses were shared
equally. As a result of these arrangements, as of December 31, 1995, the Company
had a receivable from GTECH of $1,149,486, $896,377 for reimbursement of costs
incurred by the Company for gaming rights and a net $253,109 for reimbursement
of other expenses incurred by the Company. Principally all of the receivable
from GTECH was collected in January 1996.
The following is a summary of items transferred by the Company at book value
to the joint ventures in exchange for its 50% interest, or for which the Company
was reimbursed by the joint ventures.
During 1994, the Company entered into a series of agreements with the
Coquille Indian Tribe to develop a gaming and entertainment facility in North
Bend, Oregon. The Company agreed to provide
F-11
up to $10.5 million in financing for the facility in exchange for a percentage
of "Gross Profit" as defined, and certain other payments. The advances to the
tribe were converted to a promissory note, bearing interest at prime plus 2% and
receivable in installments through August 2002. During 1995, the facility began
operations. Effective December 29, 1995, the financing obligation and the gaming
agreement (which had no recorded book value), gaming development costs of
$226,312, notes receivable of $10,169,079, participation fees revenues of
$527,557, and general and administrative costs of $82,450 were transferred to
GELLC.
As a result of the acquisitions discussed in Note 3, the Company acquired the
development rights to current and future gaming projects with the Nottawaseppi
Huron Band of Potawatomi. The Company has agreed, subject to the approval of the
tribe, to assign to GEMLLC, the development rights. If the tribe does not
consent, the Company will assign its rights to revenues and GTECH will bear an
appropriate portion of the related expenses. Effective December 29, 1995, the
financing obligation, gaming development costs of $449,254, and general and
administrative costs of $65,897 were transferred to GEMLLC. GEMLLC is a
development stage company as of December 31, 1995.
On April 21, 1995, the Company entered into a Gaming and Development
Agreement with the Torres Martinez Desert Cahuilla Indians (the "Tribe"). The
agreement grants the Company certain rights to develop, manage and operate
gaming activities for the Tribe and the right to receive 40% of the net revenues
from gaming activities subject to the obligation of the Company to pay the costs
of the same. For all non-gaming activities, the Company is to provide 50% of the
financing for development and will receive 50% of the net revenues from said
activities, subject to the obligation of the Company to lend funds to the Tribe
prior to commencement of gaming operations. Effective December 29, 1995, the
financing obligation, gaming development costs of $117,418, and the gaming
agreement (which had no recorded book value) were transferred to GECLLC. GECLLC
is a development stage company as of December 31, 1995.
On April 12, 1995, the Company entered into an agreement with the Delaware
State Fair, Inc. to provide management services and funding for the development
of a gaming entertainment center at Harrington Raceway in Harrington, Delaware.
The Company agreed to provide $6.3 million in financing. Effective December 29,
1995, advances of $150,000, gaming development costs of $181,134, the financing
obligation and the gaming agreement (which had no recorded book value) were
transferred to GEDLLC. GEDLLC is a development stage company as of December 31,
1995.
GTECH has contributed cash and other intangible assets and has agreed to loan
the joint ventures up to $16.4 million to complete the North Bend, Oregon and
Delaware facilities and make loans to the Company for its portion of the
financing of projects if the Company is unable to otherwise obtain financing.
GTECH will also provide project management, technology and other expertise to
analyze and develop/manage the implementation of opportunities developed by the
joint ventures.
As part of this transaction, the directors of the Company and Mr. Iacocca
have granted to GTECH an option to purchase their shares should they propose to
transfer the same.
The Company has agreed to guarantee 50% of the up to $16.4 million which
GTECH has agreed to loan the joint ventures.
As of December 31, 1995, the Company had guaranteed 50% of $10.5 million in
loans to the joint ventures.
F-12
The following is a summary of condensed financial information for the joint
ventures as of December 31, 1995 and for the year then ended:
CONDENSED BALANCE SHEETS
GELLC GEMLLC GEDLLC GECLLC TOTAL
-------------- ------------ ----------- ----------- --------------
Current assets ................ $ 1,666,850 $ 25,000 $ 25,000 $ 25,000 $ 1,741,850
Noncurrent assets ............. 9,347,147 504,427 368,706 126,794 10,347,074
-------------- ------------ ----------- ----------- --------------
Total ......................... $11,013,997 $529,427 $393,706 $151,794 $12,088,924
============== ============ =========== =========== ==============
Current liabilities ........... $10,289,178 $ 71,923 $ 2,806 $ -- $10,363,907
Members' capital .............. 724,819 457,504 390,900 151,794 1,725,017
-------------- ------------ ----------- ----------- -------------
Total ......................... $11,013,997 $529,427 $393,706 $151,794 $12,088,924
============== ============ =========== =========== ==============
Company's equity in net assets $ 362,409 $228,752 $195,450 $ 75,897 $ 862,508
============== ============ =========== =========== ==============
CONDENSED STATEMENTS
OF OPERATIONS
Revenues .................... $ 527,557 $ -- $ -- $ -- $ 527,557
-------------- ------------ ----------- --------- -----------
Net income (loss) ............. $ 395,176 $(71,923) $ (2,806) $ -- $ 320,447
============== ============ =========== =========== =============
Company's equity in net income
(loss) ...................... $ 197,588 $(35,962) $ (1,402) $ -- $ 160,224
============== ============ =========== =========== =============
NOTE 6. DEBT
Debt consists of the following at December 31, 1995:
Revolving $8,000,000 note payable to a bank; interest payable monthly
(8.25% at december 31, 1995); principal is due on demand or if no demand is
made, july 1996; secured by the personal guarantee of certain stockholders
and the company's chief executive officer. repaid during january 1996 ..... $ 6,206,282
Note payable, secured by a first mortgage on all real property of DGR
(included in assets held for sale) and partially secured by the personal
guarantee of certain stockholders and the Company's Chief Executive
Officer; interest at 10.25% through May 1996 and at prime plus 2 1/4 % for
the period of June 1, 1996 through May, 2002; due in monthly installments
of principal and interest; $67,165 through June 1996 and $69,794 thereafter
through May 31, 2002, at which time all unpaid principal and interest
are due .................................................................... 4,853,671
Note payable to GTECH; repaid during January 1996 .......................... 4,000,000
Note payable to stockholder; interest at prime (8.75% at December 31, 1995)
payable quarterly commencing on January 31, 1996; principal payable on
demand, but in no event prior to August 31, 1996 ........................... 375,000
Note payable; secured by gaming equipment, repaid during February 1996 .... 152,497
---------------
Total ...................................................................... 15,587,454
Less current portion ....................................................... (11,042,260)
---------------
Long-term portion .......................................................... $ 4,545,194
===============
F-13
The first mortgage note payable includes certain financial covenants which
restrict the uses of DGR's cash to the operations and debt service of DGR and
which require DGR to maintain a certain tangible net worth and debt service
coverage ratio. DGR was not in compliance with the tangible net worth
requirement and the debt service coverage ratio at December 31, 1995. However,
DGR has obtained a waiver of these covenants for 1996.
The scheduled maturities of debt are as follows:
YEAR ENDING DECEMBER 31,
- -------------------------
1996 .................. $11,042,260
1997 .................. 336,330
1998 .................. 376,762
1999 .................. 422,055
2000 .................. 472,793
Thereafter ............ 2,937,254
--------------
Total ................. $15,587,454
==============
Of the total interest expense and debt issue costs of $821,796 and $1,008,857
in 1994 and 1995, $88,186 and none has been capitalized into property and
equipment.
NOTE 7. STOCKHOLDERS' EQUITY
As part of a public offering in August 1993, warrants to purchase shares of
the Company's common stock were issued. The exercise price of the warrants and
the number of shares issuable per warrant are based on a dilution agreement and,
as of December 31, 1995, 778,534 warrants to purchase 925,988 shares of common
stock at $4.20 per share were exercisable through August 10, 1996. The Company
may redeem the warrants on not less than 30 days notice at $.05 per warrant
provided the Company's stock trades at $5.04 per share for at least twenty
consecutive days and there is an effective registration statement under the
Securities Act of 1933, as amended, covering the warrants.
The Company also sold to the underwriters of the Company's public offering
warrants at $.01 per warrant to acquire 80,000 units, each unit consisting of
three shares of the Company's common stock and a warrant to purchase additional
shares of the Company's common stock. The exercise price of warrants to purchase
the units and the exercise price and number of shares issuable per warrant for
the warrants issuable upon purchase of the unit are based upon a dilution
agreement. As of December 31, 1995, warrants to purchase 22,500 units were
exercisable at $13.17 per unit through August 9, 1998 and 57,500 warrants to
purchase 68,393 shares of common stock at $4.20 per share were exercisable
through August 9, 1996.
On March 24, 1994, the Company purchased and retired 1,025,635 shares of its
common stock at $.87 per share and 300,000 shares of its preferred stock at
$3.38 per share for a total consideration of $1,903,000, representing all of the
stock owned by one of its principal stockholders.
On March 24, 1994, the Company sold for cash 1,000,000 shares of its
restricted common stock at $.80 per share to an officer, director and
stockholder. Additionally, this individual was issued 500,000 shares of the
Company's restricted common stock in exchange for causing a bank to provide and
his guarantee of an $8,000,000 revolving note payable. The Company valued these
shares at $400,000 or $.80 per share and expensed such costs as debt issue
costs.
F-14
On June 15, 1994, the Company issued 50,000 shares of its restricted common
stock valued at $2.35 per share (market value on date of issuance) or $117,500
to the Company's General Counsel as a signing bonus. Additionally, through
December 31, 1995 options to purchase 150,000 shares of common stock at $3.69
per share (market value on date of grant) were issued to the Company's General
Counsel, and as of December 31, 1995 options to purchase 112,500 shares of
common stock were exercisable.
On August 16, 1994, the Company issued an option to purchase 50,000 shares of
its restricted common stock at $3.00 per share (market value on date of grant)
to an individual who owns a company with which the Company has a public
relations agreement. This option was exercised during the year ended December
31, 1994 for a total consideration of $150,000.
During the year ended December 31, 1994, the Company issued 182,964 shares of
its common stock at a price of $4.40 per share upon exercise of warrants for a
total consideration of $806,400.
During the year ended December 31, 1995, the Company issued 15,061 shares of
its common stock at a price of $4.20 per share upon exercise of warrants for a
total consideration of $63,259.
The Company has reserved 300,000 shares of its common stock for issuance
under the Nonemployee Director Stock Plan. The Plan allows for options to be
granted at prices not less than fair market value on the date of grant and are
generally exercisable over a term of five years. No options have been issued
under the Nonemployee Director Stock Plan.
The Company has reserved 1,000,000 shares of its common stock for issuance
under an Incentive Plan. The Plan allows for the issuance of options and other
forms of incentive awards, including qualified and non-qualified incentive stock
options. Incentive stock options may be granted at prices not less than fair
market value on the date of grant, while non-qualified incentive stock options
may be granted at a price less than fair market value on the date of grant.
Options issued under the Incentive Plan are generally exercisable over a term of
ten years. As of December 31, 1994 options to purchase 235,000 shares of common
stock were outstanding and no options were exercisable. Options to purchase
57,188 shares at $2.65 per share were exercised during 1994 with net proceeds to
the Company of $151,548. As of December 31, 1995 options to purchase 210,000
shares of common stock at $3.88 per share were outstanding and 70,000 options
were exercisable. Options to purchase 25,000 shares at $5.34 per share were
forfeited during 1995 and no options were exercised.
The Company's preferred stock may be converted, at the option of the holder,
to common stock on a one-for-one basis, has a $.30 per share cumulative dividend
rate and has a liquidation preference equal to $3.00 per share plus all unpaid
dividends. If the Company is in default in declaring, setting apart for payment
of dividends on the preferred stock, it is restricted from paying any dividend
or making any other distribution or redeeming any stock ranking junior to the
preferred stock. The stockholders' right to the $.30 per share cumulative
dividends on the preferred stock commenced as of June 30, 1992 and totaled
$735,000 at December 31, 1995. Through December 31, 1995, no dividends have been
declared or paid.
During the year ended December 31, 1995, the Company issued 1,556,471 shares
of restricted common stock to acquire businesses. See Note 3.
F-15
NOTE 8. INCOME TAXES
The income tax benefit recognized in the consolidated financial statements
consists of the following:
1994 1995
--------- ------------
Deferred benefit $2,000 $1,944,710
========= ============
A reconciliation of the income tax benefit with amounts determined by
applying the statutory U.S. Federal income tax rate to consolidated loss before
income taxes is as follows:
1994 1995
------------ -------------
Tax benefit at U.S. statutory rate ....... $ 462,846 $2,623,459
Loss for which no tax benefit is available (465,308) (457,237)
Non-taxable/deductible items .............. 4,462 (221,512)
------------ -------------
Total ..................................... $ 2,000 $1,944,710
============ =============
The Company's deferred tax items as of December 31, 1995 are as follows:
CURRENT NON-CURRENT TOTAL
----------- -------------- -------------
Deferred tax assets:
Net operating loss carryforward .................... $ -- $1,313,475 $1,313,475
Difference between book and tax basis of assets
held for sale .................................... -- 967,982 967,982
Accured expenses ................................... 29,374 -- 29,374
Other .............................................. -- 66,039 66,039
----------- -------------- -------------
Total deferred tax assets ......................... 29,374 2,347,496 2,376,870
Deferred tax liabilities -
Difference between book and tax basis of gaming
rights ........................................... -- 1,454,325 1,454,325
Valuation allowance ................................ (29,374) (893,171) (922,545)
----------- -------------- -------------
Net deferred tax liability ......................... $ -- $ -- $ --
=========== ============== ============
At December 31, 1995, the Company had net operating loss carryforwards for
income tax purposes of approximately $3,753,000, which may be carried forward to
offset future taxable income. The carryforwards expire in 2007 through 2010. The
availability of the loss carryfowards may be limited in the event of a
significant change in ownership of the Company.
NOTE 9. RELATED PARTY TRANSACTIONS
During 1995, the Company repaid a note payable to a stockholder in the amount
of $1,244,981.
Total interest expense and debt issue costs charged to operations in 1994 and
1995 related to the note payable to a stockholder were $626,868 and $81,015.
See Note 7 for other issuances of the Company's common stock to and the
purchase of common and preferred stock from related parties.
See Note 3 for a discussion of a business combination with a company owned
30% by a director and stockholder of the Company.
See Note 12 for a discussion of transactions with joint ventures.
F-16
NOTE 10. BENEFIT PLAN
On January 1, 1994, the Company adopted a 401(k) plan that covers all
eligible employees. Participants may contribute a percentage of eligible wages
up to 15% of their annual salaries, with the Company matching up to a maximum of
50% of the first 4% of participant wages contributed. The Company's matching
contributions were $14,001 and $19,415 for the years ended December 31, 1994 and
1995.
NOTE 11. ABANDONED PROJECT COST
On June 28, 1995, the Governor of the State of Michigan determined to
prohibit off-reservation gaming in the State of Michigan. As a result, the
Company recognized a loss of $1,867,730 relating to the write-off of costs of
the gaming agreement acquired in the acquisitions of LAI and Omega discussed in
Note 3, and other costs.
NOTE 12. SUPPLEMENTAL STATEMENT OF CASH FLOWS INFORMATION
Cash payments for interest for the years ended December 31, 1994 and 1995
were $174,447 and $814,002, respectively.
The following noncash investing and financing activities are not reflected in
the consolidated statements of cash flows:
During the year ended December 31, 1995, the Company increased its
investments in joint ventures by $702,284 by contributing gaming development
costs of $103,596 and recording capital contributions payable of $598,688.
During the year ended December 31, 1995, the Company recorded a receivable
from joint ventures of $10,211,703. The receivable is net of capital
contributions payable of $598,688 and resulted from transfers of the following
items to the joint ventures: notes receivable of $10,169,079, gaming development
costs of $870,522, revenues of $527,557, general and administrative costs of
$148,347 and advances receivable of $150,000.
During the year ended December 31, 1995, the Company recorded a receivable
from GTECH of $896,377, and a reduction in gaming rights of $896,377. The
receivable is a result of the joint venture agreement between the Company and
GTECH.
During the year ended December 31, 1994, the Company issued stock for debt
issue costs of $400,000 and purchased equipment through the issuance of notes
payable of $351,209.
The Company transferred the following assets of DGR to assets held for sale
during the year ended December 31, 1995:
Property and equipment-net $6,203,062
Other assets .............. 357,271
-------------
Total ..................... $6,560,333
=============
F-17
The Company's business acquisitions in 1995 involved the following:
Fair value of assets acquired, other than cash and cash
equivalents ....................................................... $ 9,112,045
Liabilities assumed ............................................... (1,949,210)
Issuance of common stock .......................................... (6,615,099)
Issuance of note payable .......................................... (375,000)
--------------
Net cash paid .................................................... $ 172,736
==============
NOTE 13. LEGAL MATTERS
The Company is party to legal proceedings arising in the normal conduct of
business. Management believes that the final outcome of these matters, including
the items described below, will not have a material adverse effect upon the
Company's consolidated financial position, results of operations or cash flows.
The Company has filed an action for declaratory relief in Mississippi,
seeking a determination by the court that no relationship exists between it and
Lone Star Casino Corporation regarding the potential acquisition of a riverboat
casino on the Mississippi gulf coast, (FULL HOUSE RESORTS, INC. V. LONE STAR
CASINO CORPORATION V. ALLEN E. PAULSON, Second Judicial District of the Chancery
Court of Harrison County, Mississippi). Lone Star has filed a counterclaim
alleging breaches of fiduciary duty, breach of contract and other claims. Both
the Company and Mr. Paulson have been granted summary judgment on Lone Star's
breach of contract claim and all claims arising therefrom. The Company's motion
for summary judgment on Lone Star's remaining claims against it has been
granted. The period during which Lone Star may file an appeal has not yet
expired. An action filed by Lone Star in Texas in December 1994 raising similar
issues has been dismissed.
Litigation has been filed against the Company relating to ownership and
access pertaining to a portion (approximately 1,200 square feet) of the Deadwood
Gulch Resort hotel and parking lot property. The Katons, who are neighboring
landowners, allege trespass among other claims, as a result of the construction
of the Resort parking lot. Other adjoining landowners to the rear of the Resort
have also filed a lawsuit, alleging that the Resort has blocked their right of
way across the creek to their property, insofar as their current access is
across an alleged portion of the Katons' property. KATON, ET AL V. DEADWOOD
GULCH RESORT AND GAMING CORP., and SOWERS, ET AL V. DEADWOOD GULCH RESORT AND
GAMING CORP., Eighth Judicial Circuit, Lawrence County, South Dakota.
NOTE 14. SUBSEQUENT EVENTS (UNAUDITED)
On January 26, 1996, GTECH loaned the Company $3 million, which loan is
convertible, subject to regulatory approval, into 600,000 shares of the
Company's common stock. The loan is non-interest bearing through January 25,
1998, at which time the note begins to accrue interest at the prime rate.
Monthly interest only payments commence on February 1, 1998, with the total
principal and any unpaid interest due on January 25, 2001.
During March 1996, the Company repaid $752,000 in principal on the first
mortgage note payable, discussed in Note 6.
NOTE 15. LETTER OF INTENT (UNAUDITED)
On April 9, 1996, the Company signed a non-binding letter of intent for the
sale of DGR (see Note 4). Subsequently, during May 1996, negotiations with the
purchaser under the letter of intent terminated. The Company will continue its
efforts to sell DGR.
F-18
Because of the Company's intent to dispose of DGR, the Company has
reclassified certain assets of DGR to other assets -assets held for sale.
Further analysis of the estimated realizable value of the assets held for sale
resulted in an additional impairment loss recorded in the three months ended
March 31, 1996.
F-19
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
LAI Associates, Inc.
Southfield, Michigan
We have audited the accompanying balance sheet of LAI ASSOCIATES, INC. as
of December 31, 1994, and the statements of income, changes in stockholder
equity, and cash flows for the year ended December 31, 1994 and the period
from April 2, 1993 (date of inception) to December 31, 1993. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of LAI ASSOCIATES, INC. at
December 31, 1994, and the results of its operations and its cash flows for
the periods ended December 31, 1994 and 1993, in conformity with generally
accepted accounting principles.
PERRIN, FORDREE & COMPANY, P.C.
Troy, Michigan
February 3, 1995
F-20
LAI ASSOCIATES, INC.
BALANCE SHEET
DECEMBER 31, MARCH 31,
1994 1995
--------------- ------------
(UNAUDITED)
ASSETS
Current Assets:
Cash and cash equivalents (Note 1) ... $ 16,908 $ 9,122
Other Assets:
Land (Note 2) ......................... 500,000 500,000
Royalty agreement (Note 2) ............ 105,000 105,000
--------------- ------------
Total other assets .................. 605,000 605,000
--------------- ------------
$621,908 $614,122
=============== ============
LIABILITIES AND STOCKHOLDER EQUITY
Current Liabilities: ....................
Accrued expenses ...................... $ 5,412 $ 4,500
Stockholder equity:
Common stock--No par value:
Authorized--60,000 shares
Issued and outstanding--1,000 shares 1,000 1,000
Paid-in capital ....................... 620,622 620,622
Retained earnings ..................... (5,126) (12,000)
--------------- ------------
616,496 609,622
--------------- ------------
$621,908 $614,122
=============== ============
The accompanying notes are an integral part of the financial statements.
F-21
LAI ASSOCIATES, INC.
STATEMENTS OF INCOME
PERIOD FROM
APRIL 2, 1993
(DATE OF THREE MONTHS ENDED
YEAR ENDED INCEPTION) MARCH 31,
DECEMBER 31, TO DECEMBER 31, ------------------
1994 1993 1995 1994
--------------- ------------------ ----------- ------------
(UNAUDITED)
Consulting revenue ....... $294,657 $298,525 $ -- $186,044
Expenses:
Payroll ................ 25,000 -- -- --
Professional fees ..... 69,124 17,250 7,500 --
Speech writing ......... 20,032 25,426 -- 5,333
Travel ................. 7,129 5,494 -- --
Payroll taxes .......... 5,882 -- -- --
Single business tax ... 5,100 -- -- --
Meals and entertainment 2,313 5,982 -- --
Security ............... 2,866 -- -- --
Miscellaneous .......... 2,626 5,737 (637) 407
Office ................. 1,201 -- 84 --
--------------- ------------------ ----------- ------------
241,273 59,889 6,947 5,740
--------------- ------------------ ----------- ------------
Operating income (loss)... 53,384 238,636 (6,947) 180,304
Interest income .......... 8,221 4,633 73 3,229
--------------- ------------------ ----------- ------------
Net income (loss) ........ $ 61,605 $243,269 $(6,874) $183,533
=============== ================== =========== =========
The accompanying notes are an integral part of the financial statements
F-22
LAI ASSOCIATES, INC.
STATEMENT OF STOCKHOLDER'S EQUITY
FROM APRIL 2, 1993 (DATE OF INCEPTION) TO MARCH 31, 1995
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
--------- ----------- ------------ ------------
April 2, 1993 ...................... $1,000 $ -- $ -- $ 1,000
Expenses paid on behalf of
Corporaiton by Stockholder ....... -- 15,622 -- 15,622
Net income--1993 ................... -- -- 243,269 243,269
--------- ----------- ------------ ------------
Balance--December 31, 1993 ......... 1,000 15,622 243,269 259,891
Assets contributed by Stockholder . -- 605,000 -- 605,000
Dividends paid ..................... -- -- (310,000) (310,000)
Net income--1994 ................... -- -- 61,605 61,605
--------- ----------- ------------ -------------
Balance--December 31, 1994 ......... 1,000 620,622 (5,126) 616,496
Net loss for the three months ended
March 31, 1995 (unaudited) ....... -- -- (6,874) (6,874)
--------- ----------- ------------ -------------
Balance--March 31, 1995 ............ $1,000 $620,622 $ (12,000) $ 609,622
========= =========== ============ ==========
The accompanying notes are an integral part of the financial statements
F-23
LAI ASSOCIATES, INC.
STATEMENTS OF CASH FLOWS
PERIOD FROM
APRIL 2, 1993
(DATE OF THREE MONTHS ENDED
YEAR ENDED INCEPTION) MARCH 31,
DECEMBER 31, TO DECEMBER 31, ------------------------
1994 1993 1995 1994
--------------- ------------------ ----------- -------------
(UNAUDITED)
Cash flows from operating activities:
Cash received from customers .............. $ 294,657 $298,525 $ -- $186,044
Cash paid suppliers and employee .......... (235,861) (59,889) (8,496) (5,740)
Interest received ......................... 8,221 4,633 73 3,229
Other ..................................... -- -- 637 --
--------------- ------------------ ----------- ------------
Net cash from operating activities ..... 67,017 243,269 (7,786) 183,533
Cash flows from investing activities:
Repayment (increase) of officer receivable 1,000 (1,000) -- --
Cash flows from financing activities:
Repayment (increase) of loans
from stockholder ........................ (304,148) 304,148 -- 179,591
Dividends paid ............................ (310,000) -- -- --
Capital contributions by stockholder ..... -- 15,622 -- --
Proceeds from sale of stock ............... -- 1,000 -- --
Decrease in paid-in capital ............... -- -- -- (4,250)
--------------- ------------------ ----------- ------------
Net cash from (to) financing activities (614,148) 320,770 -- 175,341
Net increase (decrease) in cash and cash
equivalents ............................... (546,131) 563,039 (7,786) 358,874
Cash and cash equivalents:
Balance--beginning of period .............. 563,039 -- 16,908 563,039
--------------- ------------------ ----------- ------------
Balance--end of period .................... $ 16,908 $563,039 $ 9,122 $921,913
=============== ================== =========== =========
Reconciliation of net income (loss) to
net cash from operating activities:
Net income (loss) ......................... $ 61,605 $243,269 $(6,874) $183,533
Adjustments--increase (decrease)
in accrued expenses ..................... 5,412 -- (912) --
--------------- ------------------ ----------- ------------
Net cash from operating activities .......... $ 67,017 $243,269 $(7,786) $183,533
=============== ================== =========== =========
Schedule of noncash investing
and financing activities:
Assets Equity
Assets contributed by stockholder ........... $ 605,000 $605,000
=============== ==================
The accompanying notes are an integral part of the financial statements
F-24
LAI ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENT
DECEMBER 31, 1994
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
This summary of significant accounting policies of LAI Associates, Inc. is
presented to assist in understanding the Company's financial statements. The
financial statements and notes are representations of the Company's
management which is responsible for their integrity and objectivity. These
accounting policies conform to generally accepted accounting principles and
have been consistently applied in the preparation of the financial
statements.
CORPORATE ENTITY
The Company is a Small Business Corporation formed under Section 1362 of
the Internal Revenue Code. This election was made upon incorporation at April
2, 1993. Under this election the Company incurs no federal income tax
liabilities, but its stockholder is required to report the Company's taxable
income on his individual income tax return.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, cash equivalents include cash
in banks, cash bonds, certificates of deposit and repurchase agreements with
original maturities of three months or less.
NOTE 2--OTHER ASSETS:
On August 31, 1994, land and a royalty agreement were contributed to the
Company by its sole stockholder.
Land is stated at its original cost to the sole stockholder. An
independent appraisal valued the land at $717,500 as of December 31, 1994.
The royalty agreement was valued by an independent appraiser at December
31, 1994. Royalties are to be paid to the sole stockholder and another party
based on units sold on the land listed above. The parties will receive $200
per apartment unit sold and $500 per residential unit sold.
NOTE 3--LOAN FROM STOCKHOLDER:
The loan is due on demand with no specific repayment terms.
NOTE 4--AGREEMENTS:
On August 18, 1994, the Company entered into a merger agreement with Full
House Resorts, Inc., whereby they will merge with a newly formed subsidiary
of Full House Resorts, Inc. In exchange, the Company's stockholder will
receive 1,250,000 shares of common stock of Full House Reports, Inc.
On September 16, 1994, the Company and certain other parties entered into
an agreement with certain Indian tribes (the "Organized Tribes") in the State
of Michigan for the purpose of pursuing off-reservation gaming and related
non-gaming activities. This agreement gives the Company and certain other
parties the exclusive right to pursue such activities on behalf of the
Organized Tribes in exchange for a defined percentage of net profits and
certain other consideration from any future gaming activities of the
Organized Tribes. Pursuant to the agreement, the Organized Tribes will form
an Inter-Tribal Development Company to place a proposed casino site into
trust. The Inter-Tribal Development Company will be required to obtain all
necessary federal and state approvals before any development activity
commences.
F-25
LAI ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENT--(CONTINUED)
DECEMBER 31, 1994
NOTE 4--AGREEMENTS:--(CONTINUED)
On January 4, 1995, the Company and certain other parties entered into an
agreement with an Indian tribe and the tribe's appointed gaming manager (the
"Manager"). This agreement gives the Company and certain other parties the
exclusive right to provide financing and casino management expertise to the
tribe's Manager in exchange for a defined percentage of net profits and
certain other consideration from any future gaming and related activities of
the tribe. The tribe has applied to be recognized under federal laws.
The Company has been actively engaged in the process of identifying
business opportunities in the gaming industry and those opportunities
contracted by it or on its behalf are included among its assets.
NOTE 5--AGREEMENTS (UNAUDITED):
Subsequent to the date of the Independent Auditors' Report (February 3,
1995) the Merger Agreement dated August 18, 1994, as described in Note 4
above, was amended and consummated as of March 23, 1995, subject to the
approval of the South Dakota Commission on Gaming.
F-26
INDEPENDENT AUDITORS' REPORT
To: The Board of Directors
Omega Properties, Inc.
Harrison, New York
We have audited the accompanying balance sheet of Omega Properties, Inc.
as of December 31, 1994, and the related statements of income, stockholders'
equity, and cash flows for the period from inception (August 12, 1994) to
December 31, 1994. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Omega Properties, Inc. as
of December 31, 1994 and the results of its operations and its cash flows for
the initial period then ended in conformity with generally accepted
accounting principles.
FIECH & RESNICK, CPAs, P.C.
May 10, 1995
F-27
OMEGA PROPERTIES, INC.
BALANCE SHEETS
DECEMBER 31, SEPTEMBER 30,
1994 1995
--------------- ----------------
(UNAUDITED)
ASSETS
Current Assets
Cash ............................................................... $ 20 $ 47
Fixed and Other Assets
Organization costs (net of accumulated amortization of $52 and
$157, respectively ............................................... 648 543
--------------- ----------------
Total Assets ..................................................... $ 668 $ 590
=============== ================
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities ..................................................
Accrued expenses ................................................... $ 12,536 $ 850
Accrued New York State Franchise tax ............................... 518 262
Miscellaneous payable .............................................. 700 0
Due to stockholders ................................................ 0 15,300
--------------- ----------------
Total Liabilities ................................................ 13,754 16,412
--------------- ----------------
Stockholders' Deficit
Common stock, no par value, 200 shares authorized, 100 shares
issued and outstanding ........................................... 100 100
Accumulated deficit ................................................ (13,186) (15,922)
--------------- ----------------
Total Stockholders' Deficit ...................................... (13,086) (15,822)
--------------- ----------------
Total Liabilities and Stockholders' Deficit ..................... $ 668 $ 590
=============== ================
The accompanying notes are an integral part of the financial statements
F-28
OMEGA PROPERTIES, INC.
STATEMENTS OF INCOME
FOR THE PERIOD
FROM INCEPTION
(AUGUST 12, 1994) FOR THE
TO NINE MONTHS ENDED
DECEMBER 31, 1994 SEPTEMBER 30, 1995
------------------- -------------------
(UNAUDITED)
Income ........................ $ 0 $ 0
Operating Expenses
Professional fees ........... 12,350 2,249
Miscellaneous ............... 255 120
New York State Franchise tax 518 262
Amortization ................ 52 105
Interest expense ............ 11 0
------------------- -------------------
Total Operating Expenses . 13,186 2,736
------------------- -------------------
Net Loss ...................... $(13,186) $(2,736)
=================== ===================
The accompanying notes are an integral part of the financial statements
F-29
OMEGA PROPERTIES, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
COMMON STOCK
------------------- ACCUMULATED
SHARES AMOUNT DEFICIT TOTAL
--------- --------- -------------- ------------
Balance at inception, August 12, 1994 0 $ 0 $ 0 $ 0
Net loss ............................. (13,186) (13,186)
Issuance of common stock ............. 100 100 100
--------- --------- -------------- ------------
Balance at December 31, 1994 ......... 100 100 (13,186) (13,086)
Net Loss ............................. (2,736) (2,736)
--------- --------- -------------- ------------
Balance at September 30, 1995 ....... 100 $100 $(15,922) $(15,822)
========= ========= ============== =========
The accompanying notes are an integral part of the financial statements
F-30
OMEGA PROPERTIES, INC.
STATEMENTS OF CASH FLOWS
FOR THE PERIOD
FROM INCEPTION
(AUGUST 12, 1994) FOR THE
TO NINE MONTHS ENDED
DECEMBER 31, 1994 SEPTEMBER 30, 1995
------------------- -------------------
(UNAUDITED)
Cash Flows from Operating Activities
Net loss ......................................... $(13,186) $ (2,736)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Amortization .................................. 52 105
Changes in operating assets and liabilities:
Increase (Decrease) in accrued expenses ......... 12,536 (11,686)
Increase (Decrease) in accrued New York State
Franchise tax .................................. 518 (256)
Increase (Decrease) in miscellaneous payable .... 700 (700)
------------------- -------------------
13,806 (12,537)
------------------- -------------------
Net Cash Provided (Used) by Operating
Activities ......................................... 620 (15,273)
------------------- -------------------
Cash Flows From Investing Activities
Organization costs ................................ (700) 0
------------------- -------------------
Cash Flows from Financing Activities
Issuance of common stock .......................... 100 0
Advances from stockholders ........................ 0 15,300
------------------- -------------------
Net Cash Provided by Financing Activities ..... 100 15,300
------------------- -------------------
Net Increase in Cash ............................... 20 27
------------------- -------------------
Cash--beginning of period .......................... 0 20
------------------- -------------------
Cash--End of Period ................................ $ 20 $ 47
=================== ===================
Supplemental Cash Flow Data
Cash paid during the year for: .....................
Income taxes ...................................... $ 0 $ 0
Interest .......................................... 0 11
The accompanying notes are an integral part of the financial statements
F-31
OMEGA PROPERTIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
NOTE 1--ORGANIZATION AND NATURE OF BUSINESS OPERATIONS
This Company was formed and incorporated under the laws of New York State
on August 12, 1994. This Company was formed for the purpose of pursuing
off-reservation gaming and non-gaming activities with certain Indian tribes.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies of the Company conform to generally accepted
accounting principles. The most significant of these policies are:
(a) BASIS OF PRESENTATION
The Company uses the accrual method of accounting for both financial
statement purposes and income tax purposes.
Interim Financial Information--The accompanying unaudited financial
statements as of September 30, 1995, and for the nine months ended September
30, 1995 have been prepared in accordance with generally accepted accounting
principles for interim financial information. In the opinion of management,
all adjustments (consisting of normal, recurring adjustments) necessary for a
fair presentation have been included. Results for the interim periods are not
necessarily indicative of the results to be expected for a full year.
(b) CASH AND CASH EQUIVALENTS
For purpose of the statements of cash flows, the Company considers all
investment instruments purchased with a maturity of three months or less to
be cash equivalents.
(c) INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, Accounting for Income Taxes,
which requires recognition of deferred tax assets and liabilities for
expected future tax consequences of events reflected in the financial
statements and tax returns of the Company.
(d) AMORTIZATION
The Company amortizes its organization costs on a straight line basis over
60 months.
NOTE 3--MERGER AGREEMENT
On August 18, 1994 the Company entered into a merger agreement with Full
House Resorts, Inc. (Full House) whereby they will merge with a newly formed
subsidiary of Full House. In exchange, the Company's shareholders will
receive an aggregate of 500,000 shares of common stock of Full House and a
promissory note from Full House in the amount of $375,000.
The principal amount of this promissory note will accrue interest at a
rate equal to one percent above the "prime" rate and such principal amount,
together with all accrued interest, will be due and
F-32
OMEGA PROPERTIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994
NOTE 3--MERGER AGREEMENT--(CONTINUED)
payable in full upon demand by the holder of this note, but in no event
before August 31, 1996. William P. McComas and John C. Fugazy, the sole
shareholders of Omega, have agreed that Mr. McComas will receive the note and
Mr. Fugazy the shares in exchange for their interests as shareholders of
Omega.
In addition, on September 16, 1994, the Company and other parties entered
into an agreement with certain Indian tribes (the "Organized Tribes") in the
State of Michigan for the purpose of pursuing off-reservation gaming and
related non-gaming activities. This agreement gives the Company and the other
parties the exclusive right to pursue such activities on behalf of the
Organized Tribes in exchange for a defined percentage of net profits and
certain other consideration from any future gaming activities of the
Organized Tribes. Pursuant to the agreement, the Organized Tribes will form
an Inter-Tribal Development Company to place a proposed casino site into
trust. The Inter-Tribal Development Company will be required to obtain all
necessary federal and state approvals before any development activity
commences.
On January 4, 1995, the Company and another party entered into an
agreement with an Indian Tribe and the tribe's appointed gaming manager (the
"manager"). This agreement gives the Company and another party the exclusive
right to provide financing and casino management expertise to the tribe's
Manager in exchange for a defined percentage of net profits and certain other
consideration from any future gaming and related activities of the tribe. The
tribe has applied to be recognized under federal laws.
NOTE 4--RELATED PARTY TRANSACTIONS
One of the Company's stockholders is also a director and stockholder of
Full House Resorts, Inc. (Full House). As discussed in Note 3, this
stockholder will receive a promissory note in the amount of $375,000, plus
accrued interest at a rate equal to one-percent above the "prime" rate, upon
the merger of the Company with Full House.
This note and accrued interest is due upon demand but in no event be
payable before August 31, 1996.
NOTE 5--INCOME TAXES
At December 31, 1994 the Company had a net operating loss carryforward of
approximately $13,000, which will expire in 2009.
Because of future uncertainty, a 100% valuation allowance has been
established in accordance with SFAS No. 109.
There are no material differences between book and tax income.
NOTE 6--EVENTS SUBSEQUENT TO DECEMBER 31, 1994 (UNAUDITED)
On June 30, 1995, the merger agreement disclosed in Note 3, was further
amended and restated to provide that, rather than Omega Properties, Inc.
("Omega") merging with and into a wholly-owned
F-33
OMEGA PROPERTIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994
NOTE 6--EVENTS SUBSEQUENT TO DECEMBER 31, 1994 (UNAUDITED)--(CONTINUED)
subsidiary of Full House Resorts, Inc., a new subsidiary company of Full
House Resorts, Inc. will merge with and into Omega with Omega to survive this
merger. This transaction was subject to the approval of the shareholders of
Full House Resorts, Inc. On November 20, 1995, the shareholders of Full House
Resorts, Inc. approved the acquisition and the transaction was completed on
that date.
In addition, the Company and the other parties to the September 16, 1994
agreements relating to off-reservation gaming activities in the State of
Michigan, as disclosed in Note 3, have deferred development of this project
based on the June 28, 1995 announcement from the Governor of the State of
Michigan prohibiting off-reservation gaming in the State of Michigan.
F-34
INDEPENDENT AUDITORS' REPORT
To the Management Committee and Members
of Gaming Entertainment L.L.C.:
We have audited the accompanying balance sheet of Gaming Entertainment L.L.C.
(a Joint Venture) (the "Company") as of December 31, 1995, and the related
statements of income, members' capital and cash flows for the period from April
1, 1995 (inception) to December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1995, and the
results of its operations and its cash flows for the period then ended in
conformity with generally accepted accounting principles.
March 13, 1996
F-35
GAMING ENTERTAINMENT L.L.C. (A JOINT VENTURE)
BALANCE SHEET
DECEMBER 31, 1995
ASSETS
CURRENT ASSETS -
Current portion of note receivable .... $ 1,114,293
Receivable from members ................ 552,557
GAMING DEVELOPMENT COSTS -net ........... 292,361
NOTE RECEIVABLE -net of current portion 9,054,786
--------------
TOTAL ................................... $11,013,997
==============
LIABILITIES AND MEMBERS' CAPITAL
CURRENT LIABILITIES -
Payable to members ..................... $10,289,178
COMMITMENTS AND CONTINGENCIES (Note 1)
MEMBERS' CAPITAL ........................ 724,819
--------------
TOTAL ................................... $11,013,997
==============
See notes to financial statements.
F-36
GAMING ENTERTAINMENT L.L.C. (A JOINT VENTURE)
STATEMENT OF INCOME
FOR THE PERIOD FROM APRIL 1, 1995 (INCEPTION) THROUGH DECEMBER 31, 1995
OPERATING REVENUES -
Participation fees ................. $527,557
-----------
OPERATING COSTS AND EXPENSES:
General and administrative ......... 120,099
Amortization ....................... 12,282
-----------
Total operating costs and expenses 132,381
-----------
NET INCOME .......................... $395,176
===========
See notes to financial statements.
F-37
GAMING ENTERTAINMENT L.L.C. (A JOINT VENTURE)
STATEMENT OF MEMBERS' CAPITAL
FOR THE PERIOD FROM APRIL 1, 1995 (INCEPTION) THROUGH DECEMBER 31, 1995
FHS FHSJV GGS1 GGS2 TOTAL
----------- ----------- ----------- ----------- -----------
Capital contributions by members $ 82,410 $ 82,411 $ 82,411 $ 82,411 $329,643
Net income ...................... 98,794 98,794 98,794 98,794 395,176
----------- ----------- ----------- ----------- ----------
Balance at December 31, 1995 ... $181,204 $181,205 $181,205 $181,205 $724,819
=========== =========== =========== =========== ===========
See notes to financial statements.
F-38
GAMING ENTERTAINMENT L.L.C. (A JOINT VENTURE)
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM APRIL 1, 1995 (INCEPTION) THROUGH DECEMBER 31, 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ...................................................................... $ 395,176
Adjustments to reconcile net income to net cash provided by operating
activities:
Amortization ................................................................ 12,282
Changes in assets and liabilities:
Increase in receivable from members ........................................... (527,557)
Increase in payable to members ................................................ 120,099
----------------
Net cash provided by operating activities .................................... $ --
================
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES
Transfer of note receivable from member ....................................... $ 10,169,079
================
Payable to member for note receivable transferred ............................... $(10,169,079)
================
Capital contribution due from members ........................................... $ 25,000
================
Capital contribution of gaming development costs ................................ $ 304,643
================
See notes to financial statements.
F-39
F-
GAMING ENTERTAINMENT L.L.C. (A JOINT VENTURE)
NOTES TO FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION
Full House Resorts, Inc. ("FHRI") and GTECH Corporation ("GTECH") entered
into a series of agreements to jointly pursue certain existing and future gaming
opportunities. Although the agreements were dated December 29, 1995, the parties
agreed to share equally in the equity investment, financing responsibility, and
in revenues and expenses of certain projects commencing April 1, 1995. Pursuant
to the agreements, four joint venture corporations equally owned by subsidiaries
of FHRI and GTECH have been formed.
Gaming Entertainment L.L.C. (the "Company"), one of these joint ventures, was
incorporated as a Delaware limited liability company to conduct gaming
activities with the Coquille Indian Tribe in North Bend, Oregon (the "Tribe").
The members of the Company, each having a 25% interest are as follows:
Full House Subsidiary, Inc. (a wholly-owned subsidiary of FHRI) ("FHS")
Full House Joint Venture Subsidiary, Inc. (a wholly-owned subsidiary of
FHRI) ("FHSJV")
GTECH Gaming Subsidiary 1 Corporation (a wholly-owned subsidiary of GTECH)
("GGSI")
GTECH Gaming Subsidiary 2 Corporation (a wholly-owned subsidiary of GTECH)
("GGS2")
During 1994, FHRI entered into a series of agreements with the Tribe to
develop a gaming and entertainment facility in North Bend, Oregon. The Company
agreed to provide up to $10.4 million in financing in exchange for a
participation fee equal to a percentage of "Gross Profit" as defined, and
certain other payments. During 1995, the facility began operations. The
financing obligation and the gaming agreement (which had no recorded book value)
were transferred from FHRI to the Company. The Company has recorded the gaming
agreement at zero, the predecessor cost basis to FHRI. FHRI had funds
outstanding of $10,169,079 toward its funding obligation, which amount was to be
reimbursed to FHRI by the Company.
GTECH has agreed to contribute cash and other intangible assets and has
agreed to loan the Company up to $10.4 million to complete the North Bend,
Oregon facilities and make loans to the Company for its portion of the financing
of the project. GTECH will also provide project management, technology and other
expertise to analyze and develop/manage the implementation of opportunities
developed by the Company.
FHRI has agreed to guarantee 50% of the up to $10.4 million which GTECH has
agreed to loan the Company.
Effective December 29, 1995, FHRI and GTECH determined the amounts payable to
or receivable from the members resulting from contributions to capital, expenses
paid or revenues received by the members on behalf of the Company. A portion of
the amounts receivable from members was collected and a portion of the amounts
payable to members was paid in January 1996.
F-40
The members contributed to capital the following (each recorded at the
predecessor cost to the members):
Gaming development costs ............................................... $304,643
Capital contribution receivable from members (collected in January
1996) .................................................................. 25,000
-----------
Total capital contributions ............................................ $329,643
===========
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies of the Company conform to generally accepted
accounting principles. The following is a summary of the more significant of
such policies.
ALLOCATION OF PROFITS, LOSSES, AND DISTRIBUTIONS -Profits, losses, and
distributions are allocated among the members based upon their proportionate
interests in the Company.
GAMING DEVELOPMENT COSTS -Costs associated with gaming development activities
for which the Company has signed agreements are capitalized until the project
begins operations and amortized over the term of the respective agreements. If a
project is unsuccessful, and its value is determined to be impaired, the related
deferred costs are charged to expense at the time of impairment. The Company
reviews each project in process and the costs capitalized on a quarterly basis
for accounting purposes to determine whether any impairment of the assets had
occurred. Amortization expense related to gaming development costs was $12,282
during 1995.
INCOME TAXES -The Company is not directly subject to income taxes. Taxable
income or loss from the Company's operations is recognized in the tax returns of
the members. Accordingly, income taxes have not been provided for in the
accompanying financial statements.
PARTICIPATION FEES -Represent the revenues from the North Bend, Oregon
project based upon a percentage of defined gross profit.
USE OF ESTIMATES -The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
NOTE 3. NOTE RECEIVABLE
Note receivable consists of advances made by FHRI to the Coquille Indian
Tribe to develop a gaming and entertainment facility in North Bend, Oregon. The
note, which was transferred to the Company on December 29, 1996, bears interest
at prime plus 2% (10.25% at December 31, 1995) not to exceed 11%, is receivable
in monthly installments of principal and interest of $176,709, and the final
payment is due August 2002.
F-41
Scheduled repayments of the note receivable are as follows:
YEAR ENDING DECEMBER 31
- ------------------------
1996 ................. $ 1,114,293
1997 ................. 1,205,820
1998 ................. 1,338,705
1999 ................. 1,486,234
2000 ................. 1,648,477
Thereafter ........... 3,375,550
-------------
Total ................ $10,169,079
=============
NOTE 4. SUBSEQUENT EVENT
During January 1996, the Company received proceeds from the issuance of a
note payable to a member in the amount of $9,683,724 and repaid a portion of the
payable to members. The note is secured by the note receivable from the Coquille
Indian Tribe, and bears interest at prime plus 2% (not to exceed 11%). The note
payable will be extinguished as repayments are received from the Coquille Indian
Tribe on the note receivable (see Note 3).
F-42
=============================================================================
NO DEALER, SALESMAN OR ANY OTHER PERSONS HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER MADE HEREBY. IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
BUY OR A SOLICITATION OF AN OFFER TO SELL ANY SECURITIES OTHER THAN THE
SECURITIES TO WHICH IT RELATES OR AN OFFER TO ANY PERSON IN ANY JURISDICTION
WHERE SUCH AN OFFER WOULD BE UNLAWFUL. NEITHER DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN
IMPLICATION THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
- -----------------------------------------------------------------------------
TABLE OF CONTENTS
PAGE
-------
SUMMARY ................................
THE COMPANY ............................
THE OFFERING ...........................
SUMMARY CONSOLIDATED FINANCIAL
INFORMATION ............................
RISK FACTORS ...........................
DILUTION ...............................
USE OF PROCEEDS ........................
PRICE RANGE OF SECURITIES ..............
DIVIDEND POLICY ........................
CAPITALIZATION .........................
SUMMARY CONSOLIDATED FINANCIAL
INFORMATION ............................
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS .............................
BUSINESS ...............................
MANAGEMENT .............................
PRINCIPAL STOCKHOLDERS .................
CERTAIN TRANSACTIONS ...................
DESCRIPTION OF SECURITIES ..............
PLAN OF DISTRIBUTION ...................
LEGAL MATTERS ..........................
EXPERTS ................................
CHANGE IN AUDITORS .....................
INDEX TO FINANCIAL STATEMENTS .......... F-1
=============================================================================
=============================================================================
FULL HOUSE RESORTS, INC.
925,988 SHARES
COMMON STOCK
ISSUABLE UPON EXERCISE
OF
778,534 OUTSTANDING REDEEMABLE
COMMON STOCK PURCHASE WARRANTS
- -----------------------------------------------------------------------------
PROSPECTUS
- -----------------------------------------------------------------------------
, 1996
=============================================================================
1
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Delaware General Corporation Law provides that to the extent a director,
officer, employee or agent of a corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding or in defense of any
claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith. In other circumstances, a director, officer, employee or
agent of a corporation may be indemnified against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in and not opposed to
the best interests of the corporation, and, with respect to a criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful;
however, in an action or suit by or in the right of the corporation to procure a
judgment in its favor, such person shall not be indemnified if he has been
adjudged to be liable to the corporation unless and only to the extent that the
Delaware Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of Chancery
or such other court shall deem proper. A determination that indemnification of a
director, officer, employee or agent is proper shall be made by a disinterested
majority of the Corporation's Board of Directors, by independent legal counsel,
or by the stockholders of the corporation. The Delaware General Corporation Law
also allows corporations to adopt provisions in the Certificate of Incorporation
eliminating or limiting the personal liability of a director to the corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director under certain circumstances. Such a provision is contained in Article
Tenth of the Company's Certificate of Incorporation.
Article Tenth of the Company's Certificate of Incorporation provides as
follows: "No director shall be personally liable to the Corporation or its
stockholders for monetary damages for any breach of fiduciary duty by such
director as a director. Notwithstanding the foregoing sentence, a director shall
be liable to the extent provided by applicable law (i) for breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) pursuant to Section 174 of the Delaware General
Corporation Law; or (iv) for any transaction from which the director derived an
improper personal benefit. No amendment to or repeal of this Article shall apply
to or have any affect on the liability or alleged liability of any director of
the Corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment."
Article V of the Company's Bylaws provides as follows: "At the discretion of
the Board, the Corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(including any action by or in the right of the Corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the Corporation
or is or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys fees), judgments, fines
and amounts paid in settlement actually incurred by him in connection with such
action, suit or proceeding, but only to the extent permitted under the laws of
Delaware. Except as otherwise provided by the laws of Delaware (and then only to
the extent so provided) the Corporation shall not be required to indemnify any
person."
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ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table itemizes the estimated expenses to be incurred by the
Company in connection with the issuance and distribution of the securities being
registered hereby, other than underwriting discounts and commissions.
LEGAL FEES AND EXPENSES ..... $30,000
Accounting Fees and Expenses 15,000
Miscellaneous ................ 5,000
----------
Total ........................ $50,000
==========
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
In connection with a General Release and Covenant Not to Sue, dated June 7,
1993, the Company issued 100,000 shares of its restricted Common Stock to Park
Inns International, Inc. ("Park Inns"), in consideration of the mutual
termination of a Management and Operating Agreement between the Company and
Trimark Hotel Corporation and a Franchise Agreement between the Company and Park
Inns, and the mutual release of any and all claims, liabilities and damages in
connection with or arising out of such agreements.
On August 24, 1993, the Company issued 225,000 shares of Common Stock to
Eugene V. Gatti as additional compensation for providing the major portion of
the permanent mortgage financing.
On March 24, 1994, the Company sold 1,000,000 shares of Common Stock to Allen
E. Paulson for $800,000. The Company also issued 500,000 shares of Common Stock
to Mr. Paulson in exchange for his agreement to individually provide or cause a
financial institution to provide a commercial line of credit to the Company in
the minimum amount of $8 million.
On June 8, 1994, the Company issued 50,000 shares of Common Stock to Mary V.
Brennan as part of her compensation under a Consulting Agreement with the
Company.
On March 23, 1995, the Company consummated a merger between LAI Associates,
Inc. and a wholly-owned subsidiary of the Company pursuant to which 1,250,000
(of which 193,529 were subsequently returned to the Company) shares of Common
Stock were issued to Lee Iacocca, the sole shareholder of LAI Associates, Inc.
On November 20, 1995, the Company consummated a merger between Omega
Properties, Inc. and a wholly-owned subsidiary of the Company, pursuant to which
500,000 shares of Common Stock were issued to John Fugazy.
No Underwriters were involved in connection with the issuance of shares of
the Company's Common Stock in the transactions set forth above.
The shares of the Company's common stock and Series 1992-1 Preferred Stock,
which were issued pursuant to the transactions set forth above, were issued in
reliance upon the exemption provided by Section 4(2) of the Securities Act of
1933, as amended. Each of the persons to whom such securities were issued made
informed investment decisions based upon negotiation and access to material
information regarding the Company. The Company believes that such persons had
knowledge and experience in financial and business matters such that they were
capable of evaluating the merits and risks of the acquisition of the Company's
Common and Preferred Stock in connection with these transactions. All
certificates representing such common and preferred shares bear an appropriate
legend restricting the transfer of such securities, except in accordance with
the Securities Act of 1933, as amended, and stop transfer instructions have been
provided to the Company's transfer agent in accordance therewith.
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ITEM 27. EXHIBITS.
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------------------------------------------------------------------------------------------------------------
1.1 Revised form of Underwriting Agreement**
1.2 Revised form of Agreement Among Underwriters**
1.3 Revised form of Selected Dealers Agreement**
2.1 Letter of Intent (incorporated by reference to Exhibit 2.1 to the Company's Amended Registration
Statement on Form 10)
2.2 Stock Acquisition Agreement Among Full House Resorts, Inc., Deadwood Gulch Resort and Gaming Corp.
and the Stockholders thereof, dated November 6, 1992 (incorporated by reference to Exhibit 2.2 to
the Company's Amended Registration Statement on Form 10)
2.3 Agreement Among Joint Venturers of Deadwood Hotel Joint Venture, dated June 30, 1992 (incorporated
by reference to Exhibit 2.3 to the Company's Amended Registration Statement on Form 10)
2.4 Agreement for Transfer of Property to Corporation Pursuant to
Section 351 of the Internal Revenue Code, dated June 30, 1992
(incorporated by reference to Exhibit 2.4 to the Company's Amended
Registration Statement on Form 10)
3.1 Certificate of Incorporation of Full House Resorts, Inc. (incorporated by reference to Exhibit 3.1
to the Company's Amended Registration Statement on Form 10)
3.2 Bylaws of Full House Resorts, Inc. (incorporated by reference to Exhibit 3.2 to the Company's Amended
Registration Statement on Form 10)
4.1 Certificate of Designation of Series 1992-1 Preferred Stock of Full
House Resorts, Inc., dated November 6, 1992 (incorporated by
reference to Exhibit 4.1 to the Company's Amended Registration
Statement on Form 10)
4.2 Form of Underwriter's Warrant (incorporated by reference to Exhibit (4)(c) to the Registration Statement
on Form S-18 (No. 33-15292-NY) of Full House Resorts, Inc. (incorporated by reference to Exhibit
4.2 to the Company's Amended Registration Statement on Form 10)
4.3 Revised form of Representative's Warrant to be issued to Stuart, Coleman & Co., Inc. by the Company**
4.4 Revised form of Warrant Agency Agreement**
4.5 Revised form of Warrant to be issued in Unit Offering**
5.1 Opinion of Krys Boyle Golz Reich Freedman Bean & Scott, P.C. regarding legality**
5.2 Opinion of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A. regarding legality of shares
to be issued upon exercise of Warrants**
10.1 1992 Non-Employee Director Stock Plan of Full House Resorts, Inc. (incorporated by reference to Exhibit
10.1 to the Company's Amended Registration Statement on Form 10)
10.2 1992 Incentive Plan of Full House Resorts, Inc. (incorporated by reference to Exhibit 10.2 to the
Company's Amended Registration Statement on Form 10)
10.3 Mortgage-180 Day Redemption, dated August 30, 1991, Between Deadwood Hotel Joint Venture and Eugene
V. Gatti (incorporated by reference to Exhibit 10.3 to the Company's Amended Registration Statement
on Form 10)
10.4 Mortgage-180 Day Redemption, dated January 27, 1992, Among Deadwood Hotel Joint Venture, Eugene V.
Gatti, William P. McComas, Hotel Properties, Inc. and Kober Corporation (incorporated by reference
to Exhibit 10.4 to the Company's Amended Registration Statement on Form 10)
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EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------------------------------------------------------------------------------------------------------------
10.5 Debt Reduction Agreement, dated July 27, 1991, among Westdak Limited Partnership, Gatti & McComas,
Inc., Eugene V. Gatti, William P. McComas, James E. Hosch, William J. Durst, and James E. Hosch as
Trustee of the Interest of William J. Durst in Westdak Limited Partnership (incorporated by reference
to Exhibit 10.5 to the Company's Amended Registration Statement on Form 10)
10.6 Deadwood Hotel Joint Venture Standard Route Operation Agreement,
dated June 30, 1992, Between Deadwood Hotel Joint Venture and Lucky
8 Gaming Hall (incorporated by reference to Exhibit 10.6 to the
Company's Amended Registration Statement on Form 10)
10.7 Management and Operating Agreement between Trimark Hotel Corporation and Deadwood Hotel Joint Venture,
dated February 23, 1990 (incorporated by reference to Exhibit 10.7 to the Company's Amended Registration
Statement on Form 10)
10.8 Franchise Agreement Between Park Inns International, Inc. and Deadwood Hotel Joint Venture, dated
February 28, 1990 (incorporated by reference to Exhibit 10.8 to the Company's Amended Registration
Statement on Form 10)
10.9 Dealer Gasoline and Franchise Agreement, dated June 8, 1992, between M.G. Oil Company and Deadwood
Gulch Resort (incorporated by reference to Exhibit 10.9 to the Company's Amended Registration Statement
on Form 10)
10.10 Common Stock Purchase Warrant of Full House Resorts, Inc. issued to Generation Capital Associates,
dated November 20, 1992 (incorporated by reference to Exhibit 10.10 to the Company's Amended Registration
Statement on Form 10)
10.11 Promissory Note of Full House Resorts, Inc. in the amount of $90,000, dated November 10, 1992, payable
to Bearer (incorporated by reference to Exhibit 10.11 to the Company's Amended Registration Statement
on Form 10)
10.12 Employment Agreement between Full House Resorts, Inc. and David K. Cantley, dated December 1, 1992
(incorporated by reference to Exhibit 10.12 to the Company's Amended Registration Statement on Form
10)
10.13 Letter of Intent between Full House Resorts, Inc. and Stuart, Coleman & Co., Inc., dated February
23, 1993 (incorporated by reference to Exhibit 10.13 to the Company's Amended Registration Statement
on Form 10)
10.14 Agreement to Provide and Accept Commitment to Restructure First and
Second Mortgage Loans Among Full House Resorts, Inc., Deadwood
Gulch Resort and Gaming Corp., Eugene V. Gatti, William P. McComas,
H. Joe Frazier and Rober Corporation, dated March 15, 1993
(incorporated by reference to Exhibit 10.14 to the Company's
Amended Registration Statement on Form 10)
10.15 $1,000,000 Term Life Insurance Policy, dated March 19, 1993, on the
life of David K. Cantley, issued by Federal Kemper Life Assurance
Company (incorporated by reference to the Company's Annual Report
on Form 10-KSB for the year ended December 31, 1992)
10.16 Agreement dated February 11, 1994 and Amendment to Agreement dated March 13, 1994 among the Company,
H. Joe Frazier, William P. McComas and Allen E. Paulson (incorporated by reference to the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1993)
10.17 Debt Reduction Agreement, dated April 16, 1993, among the Company, Deadwood Gulch Resort and Gaming
Corp., Eugene V. Gatti, William P. McComas and H. Joe Frazier**
10.18 Letter Agreement, dated May 17, 1993, between the Company and H. Joe Frazier, extending mortgage
commitment expiration date to July 7, 1993**
10.19 Letter Agreement, dated May 17, 1993, between the Company and Eugene V. Gatti, extending mortgage
commitment expiration date to July 7, 1993**
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EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------------------------------------------------------------------------------------------------------------
10.20 General Release and Covenant Not to Sue, dated June 7, 1993, among the Company, Deadwood Gulch Resort
and Gaming Corp., Trimark Hotel Corporation and Park Inns International, Inc.**
10.21 Letter Agreement, dated July 23, 1993, between the Company and H. Joe Frazier, extending mortgage
commitment expiration date to August 7, 1993**
10.22 Letter Agreement, dated July 2, 1993, between the Company and Eugene V. Gatti, extending mortgage
commitment expiration date to August 7, 1993**
10.23 Lock-Up Agreement, dated June 16, 1993, among the Company, David K. Cantley, Thomas M. Blair, James
E. Hosch, H. Joe Frazier, Eugene V. Gatti, Kober Corporation, William P. McComas, Richard M. Gawlik,
George M. Bashara and the Director of the South Dakota Division of Securities**
10.24 Stock Purchase Agreement, dated July 20, 1993, among Kober Corporation, H. Joe Frazier, William P.
McComas, James E. Hosch and Peter N. Bowinski**
10.25 Master Lease between Coquille Economic Development Corporation ("CEDCO") and the Company**
10.26 Participating lease between CEDCO and the Company**
10.27 Loan Agreement between CEDCO and the Company**
10.28 Promissory Note from The Coquille Indian Tribe and CEDCO to the Company**
10.29 Security Agreement between The Coquille Indian Tribe, CEDCO and the Company**
10.30 Absolute Assignment of Rents and Leases from The Coquille Indian Tribe to the Company**
10.31 Escrow Agreement by and among the Company, CEDCO, The Coquille Indian Tribe, Sun Plywood, Inc. and
Ticor Title Insurance Company of California**
10.32 Purchase Agreement between the Company and William P. McComas dated
August 18, 1994 (incorporated by reference to the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1994)
10.33 Agreement among the Company, Hannahville Indian Community, Lac
Vieux Desert Band of Lake Superior Chippewa Indians, Grand Traverse
Band of Ohawa and Chippewa Indians and Keween and Bay Indian
Community dated September 10, 1994 (incorporated by reference to
the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1994)
10.34 Agreement between Green Acres Casino Management Company, Inc. and the Company dated January 4, 1995
(incorporated by reference to the Company's Annual Report on Form 10-KSB for the year ended December
31, 1994)
10.35 Agreement for Commercial Development between the Nottawaseppi Huron
Band of Potawatomi, Green Acres Casino Management Company, Inc. and
the Company dated January 11, 1995 (incorporated by reference to
the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1994)
10.36 Addendum to Class II and III Management Agreements among the
Nottawaseppi Huron Band of Potawatomi, Green Acres Casino
Management Company, Inc. and the Company dated January 12, 1995
(incorporated by reference to the Company's Annual Report on Form
10-KSB for the year ended December 31, 1994)
10.37 Gaming and Development Agreement between the Company and the Torres
Martinez Desert, Cahuilla, Indiana dated March 21, 1993
(incorporated by reference to the Company's Quarterly Report on
Form 10-QSB for the quarter ended March 31, 1995)
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EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------------------------------------------------------------------------------------------------------------
10.38 Gaming Management Agreement between the Company and the Torres
Martinez Desert, Cahuilla, Indiana dated April 23, 1993
(incorporated by reference to the Company's Quarterly Report on
Form 10-QSB for the quarter ended March 31, 1995)
10.39 Agreement between the Company and GTECH Corporation dated May 20, 1995**
10.40 Promissory Note dated November 20, 1995 in the original principal
amount of $375,000 from the Company to William P. McComas
(incorporated by reference to the Company's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1995)
10.41 Master Agreement dated as of December 29, 1995 by and between GTECH
Corporation and the Company (incorporated by reference to the
Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1995)
10.42 Option Agreement dated as of December 29, 1995 by and among GTECH
Corporation, the Company, Lee Iacocca, William P. McComas and Allen
E. Paulson (incorporated by reference to the Company's Annual
Report on Form 10-KSB for the fiscal year ended December 31, 1995)
10.43 Convertible Note dated July 26, 1996 in the original principal
amount of $3,000,000 payable by the Company to GTECH Corporation
(incorporated by reference to the Company's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1995)
10.44 Guaranty Agreement dated as of December 29, 1995 from the Company
to GTECH Corporation pursuant to which the Company guarantees 50%
of the obligations of Gaming Entertainment, L.L.C. to GTECH under a
Promissory Note of even date therewith in the amount of $10,400,000
(incorporated by reference to the Company's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1995)
10.45 Guaranty Agreement dated as of December 29, 1995 from the Company
to GTECH Corporation pursuant to which the Company guarantees 50%
of the obligations of Gaming Entertainment (Delaware), L.L.C. to
GTECH in an amount not to exceed $6,000,000 (incorporated by
reference to the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1995)
10.46 Loan Agreement dated as of May 31, 1995 between Deadwood Gulch
Resort and Gaming Corp. and Miller & Schroeder Investment
Corporation; Guaranty dated as of May 31, 1995 by Allen E. Paulson,
H. Joe Frazier and William P. McComas; Subordination Agreement
dated as of May 31, 1995 among Miller & Schroeder Investment
Corporation, Deadwood Gulch Resort and Gaming Corp. and the
Corporation; Waiver of Breach of Covenants and Amendment Number 1
to Loan Agreement dated March 28, 1996; and Guaranty dated March
28, 1996 by the Company. (Incorporated by reference to the
Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1995)
21 List of Subsidiaries of Full House Resorts, Inc. (incorporated by reference to the Company's Annual
Report on Form 10-KSB for the fiscal year ended December 31, 1995)
21.1 List of Subsidiaries of Full House Resorts, Inc. (incorporated by reference to the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1994)
23.1 Consent of Deloitte & Touche LLP, Certified Public Accountants*
23.2 Consent of Krys Boyle Golz Reich Freedman Bean & Scott, P.C. (contained in Exhibit 5.1)**
23.3 Consent of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A. (contained in Exhibit 5.2)**
23.4 Consent of Perrin, Fordree & Company, P.C.*
23.5 Consent of Fiech & Resnick, CPA's, P.C.*
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EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------------------------------------------------------------------------------------------------------------
24.1 Power of Attorney (contained in the Signature section of this Registration Statement as originally
filed on April 26, 1993)
- --------
* Filed herewith.
** Previously filed as part of this Registration Statement.
ITEM 28. UNDERTAKINGS.
The undersigned Company hereby undertakes:
(1) to file, during any period in which offers or sales are being made, a
post-effective amendment to the registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That for purposes of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person of the Company in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned Company hereby undertakes:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in the form of
prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act of 1933 shall be deemed to be part of the registration
statement as of the time it was declared effective; and
(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
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SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Company certifies that it has reasonable grounds to believe that it meets all of
the requirements for filing on Form SB-2 and has duly caused this Post-Effective
Amendment No. 4 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Deadwood and State of
South Dakota on the 1st day of July, 1996.
FULL HOUSE RESORTS, INC.
By: /s/ ROBERT L. KELLEY
Robert L. Kelley
President
In accordance with the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 4 to the Registration Statement has been signed
below by the following persons in the capacities and on the date indicated.
SIGNATURES TITLE DATE
- ------------------------------------------------------------------------------
/s/ ALLEN E. PAULSON Chairman of the Board, July 1, 1996
Allen E. Paulson Chief Executive Officer
and Director
(Principal Executive Officer)
/s/ WILLIAM R. JACKSON Executive Vice President-- July 1, 1996
William R. Jackson Corporate Finance
(Principal Financial and
Accounting Officer)
/s/ WILLIAM P. McCOMAS Director July 1, 1996
William P. McComas
Ronald K. Richey Director , 1996
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