| RE: | Form 10-KSB December 31, 2007 and Form 10-Q September 31, 2008 File No. 001-32583 |
| 1. | In future filings, please revise the table to include your long-term debt and
any other long-term liabilities with contractual maturities. Refer to Regulation S-K,
Item 303 (A)(5). |
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RESPONSE: We understand that as an SB issuer, the Company was not required to include in
its prior annual reports information described in Regulation S-K, Item 303 (A)(5). In
the future, the Company will be filing as a smaller reporting company. Item 303 (D)
sets forth that smaller reporting companies are not required to include in its annual
report information described in Regulation S-K, Item 303 (A)(5). |
| 2. | We note the column “Deferred Share-based Compensation” on your Consolidated
Statement of Stockholders’ Equity. Please note that under SFAS 123R, paragraph 74,
deferred compensation accounts were to be eliminated against the appropriate equity
accounts, generally paid-in-capital, upon adoption of the standard. Please revise your
statement of stockholders’ equity in future filings to comply with paragraph 74 of SFAS
No. 123R. |
| 3. | We note the disclosure that the company uses actual forfeitures to adjust
amortization as necessary. Please note that under SFAS No. 123R forfeitures are
required to be estimated rather than accounting for them as they occur. Please refer
to paragraph 80 of SFAS No. 123R and advise us of your basis or rationale for the
treatment used for forfeitures. To the extent your policy differs from the treatment
of forfeitures required in SFAS No. 123R, please advise us of the difference in
compensation expense that would have been recognized during the periods presented in
your financial statements under the method required by SFAS No. 123R. We may have
further comment upon receipt of your response. |
| 4. | We note that goodwill recognized in the amount of $10.3 million represents
approximately 37% of the total purchase price. Please revise future filings to include
a description of the factors that contributed to a purchase price that resulted in
recognition of goodwill. Refer to the disclosure requirements outlined in paragraph
51b of SFAS No. 141. Also, please explain why no other intangible assets such as trade
names, customer or vendor relationships, favorable or unfavorable contracts, or any
other identifiable intangible assets were recognized in connection with this
acquisition. Your response should explain in detail what consideration was given to
the existence and valuation of any other intangible assets as part of the purchase
price allocation and should also explain how the fair values assigned to the various categories of assets and
liabilities acquired were determined. |
| 5. | Please tell us and revise Note 6 to explain the nature and terms of the
transaction which resulted in the $10,000,000 increase in “Michigan project, additional”
contract rights during 2007. Also, please tell us and disclose in the future filings
the period over which these additional contract costs are being amortized to
expense and explain how this period was determined. |
| 6. | In a related matter, please explain why the obligation related to the acquired
contract rights as discussed in Note 9 on page F-16 has been recorded as a long-term liability in the company’s financial statements. Explain in detail the
payment terms associated with the balance due of $9.5 million on the contract rights
acquired from Green Acres and supplementally provide us with a copy of the related
acquisition agreement. Also, please explain why you believe it was appropriate to
recognize this additional $9.5 million of contract rights and the related long-term
obligation in December 2007 when the management agreement between GEM and the Michigan
tribe was approved. In this regard, we note from the disclosures in Note 9 that GEM has
been in discussion with lenders to arrange an add-on financing security as part of the
overall project financing to fund the balance of the Green Acres purchase price but
based on your disclosures, it does not appear that this financing was in place December
31, 2007. We may have further comment upon receipt of your response. |
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RESPONSE: The Green Acres (“Green”) liability was recorded as a long-term liability
since non-current assets were to be used to satisfy the obligation (i.e., long-term
assets related to Tribal casino projects). FASB Current Text, Section B05.108 defines
current liabilities as follows: “...principally obligations whose liquidation is
reasonably expected to require the use of existing resources properly classifiable as
current assets, or the creation of other current liabilities.” The payment terms called
for $500,000 (previously paid upon execution of the purchase agreement with Green) and
the remainder due when funding was obtained for the construction of the Michigan casino
project and the management agreement was approved by the NIGC. The liability was
recorded since the management agreement was approved in December 2007, and the
construction financing was likely to be obtained at the time our 10-KSB was filed.
Although the financing had not been obtained as of December 31, 2007, management
concluded that it was likely to be obtained and therefore, it was probable that the
Company would have to pay Green the remaining obligation. In fact, the financing was
subsequently obtained in May 2008, and the obligation to Green was paid in full with
proceeds from the collection of long-term notes receivable. |
| 7. | Please reconcile the 2007 consolidated total assets of $56,163,015 with the
total assets on the balance sheet of $63,123,777. To the extent you have reconciling items
between total assets for the segments and total assets on the balance sheet, please
revise future filings to disclose the differences. Refer to the disclosure requirements
outlined in paragraph 32c of SFAS No. 131. |
| 2007 | ||||
| Total assets | ||||
Balance sheet |
$ | 63,123,777 | ||
Discontinued operations — hotel |
(6,960,762 | ) | ||
Segment table |
$ | 56,163,015 | ||
| 8. | We note your presentation of “Net cash provided by operating activities” as a single line item. We refer to prior comments 18 and 15 from SEC letters dated
August 29, 2006 and October 10, 2006 respectively. As it appears as though you
have several significant changes in working capital line items on your balance
sheet, please expand your statement of cash flows in all future filings to disclose
these significant changes. Refer to the guidance outlined in paragraphs 28 and 29 on SFAS No. 95. |
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RESPONSE: Regulation S-X, Rule 10-01(a)(4), states for interim periods, that “the
statement of cash flows may be abbreviated starting with a single figure of net cash
flows from operating activities.” Although Regulation S-X, Rule 8-03(a)(3), does not
contain similarly clear language for smaller reporting companies, there is nothing in
the SEC’s release adopting the smaller reporting company rules to indicate that more is
required or recommended of smaller reporting companies in the statement of cash flows
than that which is required of other reporting companies, nor is there any reason to
believe anything more should be required. |
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We do recognize that Rule 8-03 (a)(4) states that “[a]dditional line items may be
presented to facilitate the usefulness of the interim financial statements,” but we see
no reason to believe the information requested would likely accomplish that objective in
any meaningful way. We do not believe the purpose of the statement of cash flows is to
explain “significant changes in working capital line items,” as suggested by the staff’s
request but rather to show significant cash inflows and outflows. In the future, the
Company will consider whether additional detail is warranted in its MD&A regarding any
significant changes in working capital discussed pursuant to the guidance in Regulation
S-K, Item 303(b). |
| 9. | We note that an additional $2.1 million of financing costs on behalf of the Authority were paid by GEM during the second quarter of 2008. Please tell us why you believe this $2 million is appropriately classified as additional contract
rights rather than a note receivable. Please specifically tell us what contractual
rights GEM received as a condition to advancing the funds. We may have further comment
upon receipt of your response. |
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RESPONSE: The Company agreed to pay a portion of the closing costs related to the
construction financing as part of the negotiation to originally obtain the management
agreement. Therefore, management believes that the additional payment is appropriately
classified as part of the cost of acquiring the management agreement, which will be
amortized over the 7-year term of the management agreement. The Company is not entitled
to be reimbursed for the additional payment of closing costs and accordingly, no
receivable was created or recorded. This will be more clearly disclosed in future
filings. |
| 10. | We note the disclosure on page 22 indicating that other income for the three months ended September 30, 2007, includes non-recurring revenues of $272,138
of income related to a release of a payment guarantee for the Michigan project’s
architects. Please tell us and revise future filing to explain in further detail the
nature of the $272,138 of income related to the release of payment guarantee.
We may have further comment upon receipt of your response. |
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RESPONSE: Future filings will disclose that the non-recurring revenue relates to the
transfer of an obligation to pay an architectural firm related to the Michigan project.
Originally, the Company (via a consolidated subsidiary) had guaranteed the tribe’s
obligation to pay the architectural firm. However, as part of the revised management
agreement negotiated during the third quarter of 2007, the obligation was transferred to
the Michigan tribe without recourse to the Company and, therefore, the liability was
eliminated, as provided in SFAS No. 140. |
| 11. | We note the disclosure on page 22 of MD&A indicating that during the third quarter of 2007, a $380,516 adjustment was made to reduce income tax expense
related to a change in estimate of the annual estimated tax provision for 2007.
Please tell us in further detail the specific nature and timing of the changes in
facts or circumstances that resulted in this change in estimate during the third
quarter of 2007. |
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RESPONSE: In connection with the filing of the 2006 tax returns in September 2007, the
Company adjusted its tax provision resulting in the recognition of $380,516 of
additional income tax receivables and a corresponding reduction of the income tax
provision. The adjustment related to matters that were discovered after the Company
changed tax preparers during the second quarter of 2007 which included the estimated tax
impact of certain income items related to tribal gaming, changes in estimated taxable
income from flow-through entities, and other estimates (generally tax deductible equity
compensation) relating to the income tax return for December 31, 2006. |
| 12. | We note that you expect to receive advances to the Nambe Pueblo in the amount
of $661,600 related to the project that was discontinued in March 2008. We further
note that you expect to receive cash advances, but have yet to negotiate terms. Please
tell us, and revise to disclose, the status of you negotiations to receive such
advances. Furthermore, please tell us why you expect to receive the full amount of the
advances given that the project has been discontinued and you have no negotiated
agreement on repayment terms. We may have further comment upon receipt of your
response. |
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RESPONSE: In future filings, the Company will disclose additional details of the status
of its negotiations with the Nambe tribe regarding repayment of advances. The
development agreement between the Company and the Nambe tribe provides that the Company
is entitled to recoup its advances from future gaming development, even if the Company
does not ultimately develop the project. The Nambe tribe has confirmed in writing that
it is obligated to repay the reimbursable advances. In addition, the Nambe tribe has
informed management that it intends to develop a small gaming facility with another
developer. Accordingly, management believes that the Nambe tribe has the intent and will
likely have the ability to repay the advances, either using a portion of the project
financing or future cash flows of the project once open. |
| cc: | Full House Resorts, Inc. Piercy Bowler Taylor & Kern KKBR&F |